Leaderboard

Here you go: http://web.archive.org/web/20110906031000/https://www.irs.gov/retirement/article/0,,id=122823,00.html which leads to: http://web.archive.org/web/20110906031000/https://www.irs.gov/retirement/article/0,,id=244236,00.html or download the entire Retirement News as a PDF: http://web.archive.org/web/20111007182907/http://www.irs.gov/pub/irs-tege/rne_sum11.pdf

see the attached. I'm very happy with this. Every time rule of parity would come up I would research for an hour. I finally wrote this down. Let me know what you think! I would incorporate suggestions and reshare. [Edited to add revised pdf, 1/24/2021 in the early am][Edited to reattach the revised PDF per suggestions/corrections]. Rehires And Rule of Parity.pdf

I have always interpreted this reg as meaning that the plan must satisfy 401(a)(4) and 410(b) both with and without the QNEC. In your situation, the QNEC is at least equal to the gateway minimum and all rate group pass, so the plan passes with the QNEC. You didn't mention if coverage is an issue treating the participants who only receive a QNEC as not benefiting, so I will assume coverage passes, and all rate groups still pass, so the plan passes without the QNEC. Therefore I think the test passes overall and you are good.

There have been informal comments by the IRS at industry conferences essentially saying, in the context of discussing BRFs of the available rates of elective deferrals, that there is no test on the definition of compensation used for elective deferrals. Just make sure the ADP test uses a 414(s) definition of compensation and that highly compensated employees are determined using a 414(q) definition of compensation.

I am not aware of any "reasonableness" requirement on the definition of compensation for deferral election (not testing) purposes. The plan can generally place a maximum limit on the amount of compensation that can be deferred so I don't see any issue with carving out certain pieces of compensation for deferral election purposes. However, see 1.401(k)-1(a)(4)(iv)(B) for rules regarding nondiscriminatory availability of benefits, rights and features that can be an issue when using an alternative definition of compensation.

I think the fact that Example 1 talks about a defined benefit plan makes it irrelevant in this situation. As you pointed out @shERPA the 415(c) limit means any former employees would not be eligible to receive an allocation under a new DC plan. In profit sharing plans (including 401(k) plans) benefits are always determined on a year-to-year basis. I can't see any rationale for taking former employees into account. If we were talking about a defined benefit plan, then maybe there is an argument to be made but I think it's still a stretch. Especially if it's a cash balance plan where benefits are not typically based on past service. All in all, I think this reg exists to give the IRS a way to go after people who engage in abusive transactions; as long as there is a legitimate business reason for the changes in employee population and plan benefits, I doubt you would have much to worry about.

I assume we're talking about COVID distributions under the CARES Act? Notice 2020-50 addresses both the reporting on the 1099-R and how the participant treats it on their 2020 tax return.

I'd say so even before the SECURE Act, but with no doubt now since you can create a new plan up to the due date of the tax return.

Wow, that's never been on my radar in the circumstances described. Example 1 is where there was an ongoing plan, and then is amended after everyone else is gone. I don't know how you can discriminate against someone who is not an employee (and was never covered by the plan). I get that the example has some similarities but in my mind it is loosely akin to the question of vesting for employees term'd prior to plan termination, where you have to look at whether their terms were part of that event or not. Kind of looking at the overall history of the plan.

Not sure if you are asking as the reporting entity (plan) or receiver (participant) claiming exemption. As far as reporting goes, I believe we have to play it straight - that is, if someone is under 59 1/2 then it gets code 1, unless one of the other (non-Covid) exemptions is met. As far as claiming relief on the 1040, that is in fact done on the 1040 or one of the schedules/forms...8915-E maybe. I'm not sure if that ties in with Form 5329 or you don't file 5329 at all.

But they were not allowed to defer until 02/01/2020, correct? They can generally do this, unless the timing of the amendment is discriminatory under 1.401(a)(4)-5. For example, lots of NHCEs vs HCEs terminated employment in 2020 and now they want to add a PS with last day of the year requirement for a PS allocation, retroactive to 01/01/2020

Some of my client plans with Empower Retirement use an identity-proofing service to facilitate online enrollment—for elective contributions—of a participant on whom the recordkeeper lacks both an email address and a telephone number. Many recordkeepers, and some third-party administrators, use identity-control procedures (or the plan administrator’s instruction) for an address change. Many plans restrict a distribution, and even a loan, for some interval after an address change. Some plans require a Medallion Signature Guarantee for a distribution of, for example, $100,000 or more. About identity-control and knowledge-based-authentication services, several suppliers, including Experian, offer services. Here’s my question for BenefitsLink neighbors: Imagine a plan for which the employer pays no plan-administration expense; all expenses must be borne by participants’ (and beneficiaries’) accounts. The plan’s administrator uses identity-proofing services. Assume those services are not embedded in a third-party administrator’s or recordkeeper’s fee. How should the administrator allocate among individuals’ accounts the plan’s expenses for the identity-proofing services? 1. to only those individuals on whom the administrator needed to test identity? 2. to all individual accounts “per capita”? 3. to all individual accounts in proportion to account balances? 4. something else?

No, if you look at §§1.401(k)-2(a)(6)(ii) and 1.401(m)-2(a)(6)(iii), making the QNEC expands the group of employees that are deemed to be benefiting under the plan for 401(a)(4) and triggers the gateway contribution.

@Christine ZinterThe standard HIPAA special enrollment right to enroll as of the first of the month following the special enrollment request would apply if the 30-day window did not run before the start of the Outbreak Period on 3/1/20. The retroactive enrollment would apply only for birth, adoption, or placement for adoption. Summary here: https://www.theabdteam.com/blog/hipaa-special-enrollment-events-2/ Here's the relevant cite: 29 CFR §2590.701-6(a)(4): (4) Applying for special enrollment and effective date of coverage. (i) A plan or issuer must allow an employee a period of at least 30 days after an event described in paragraph (a)(3) of this section to request enrollment (for the employee or the employee's dependent). (ii) Coverage must begin no later than the first day of the first calendar month beginning after the date the plan or issuer receives the request for special enrollment.

I think what PensionPro is asking, if I may, is that while excluding bonuses may not pass 414(s), the Plan could still exclude bonuses from the compensation in which a deferral can be made, as long as the bonuses were added back to compensation for ADP testing. Testing compensation has to satisfy 414(s), but the compensation from which a deferral can be made in a non-safe harbor plan has to be "reasonable". So the question is, I think, what is considered reasonable? Or, maybe to put it better, what would be "unreasonable"?

SOL without a w-2 for this company. Any chance there is some sole proprietor comp out there?

Agreed.

I would love to see an actual opinion of someone that says "s corp employee contributions do not need to be withheld from payroll."

And under many States' corporation laws, even a dissolved corporation might have some powers as needed to wind up the corporation's duties and obligations.

In a stock sale, the plan sponsor entity still exists and continues to have all the legal obligations it had before the sale. It's the same as an ongoing business terminating their plan, just under new ownership. If the individual sellers are trustees, they can remain as such or can be updated by the buyer. But either way, the entity still exists.

I assume the PA is being sold in an asset sale? I don't think it would be a problem for the person who served as Plan Administrator to continue signing off on distributions and the final 5500 even after the business is no longer technically running. If they are really worried about it though, keep $1 in the company's bank account until everything is wrapped up. Why is there a star next to this thread's title?

Did the employee's 30-day HIPAA special enrollment period based on the spouse's loss of eligibility (caused by termination of employment) finish running prior to the start of the Outbreak Period on 3/1/20? If not, that window is still open to enroll based on the initial event. As you noted, loss of subsidized COBRA coverage is not a HIPAA special enrollment event, but the initial loss of eligibility for active coverage upon termination of employment was. I can't think of any reason why the HIPAA special enrollment right would be voided by enrollment in COBRA.

Did you repay the loan to the plan or had you rolled money to an IRA and repaid it there?

Your expectation of the deadline for payment was incorrect. In addition to the maximum time allowed by law (not your tax day, in any case), the plan generally can set a shorter deadline for default and deemed distribution. Note that I am oblivious to any effect of the CARES Act. You now have basis in the amount of the balance you paid. That is some consolation.