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Bill Presson asked me to weigh in on this, Derrin and I are being cited quite a bit. Nice to hear you all thinks so well of us. We appreciate it. So, the starting point is the language of the law (imagine that! Ain't that just like a lawyer?): This is a new paragraph under Section 401(b): 2) Adoption of plan.--If an employer adopts a stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year but before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof), the employer may elect to treat the plan as having been adopted as of the last day of the taxable year.''. So, when I read that, I thought, "Well, all it talks about is the employer adopting a plan. Whether it is a multiple employer plan or a single employer plan, all the company is doing is adopting a plan. So, I think adoption by the tax return due date is fine." Derrin, however, put on his "Controlled Group" hat and pointed out that, if the Husband company and the Wife company are part of a controlled group, then the Husband company (on behalf of the "employer," which is both companies combined) already adopted the plan. The problem here is that the Wife company failed to adopt a participating employer agreement under the plan. This potentially falls out of the language above and becomes a different situation - not a nonadoption at all, but a failure of the plan to be drafted to include the employees of the Wife's company. That arguably is a required AMENDMENT of an existing plan, not an adoption of a new plan, and is required to be adopted by the end of the year. And, as the amendment will not benefit all employees, it is likely ineligible for self-correction and must go through VCP. Remember that the Husband's company and the Wife's company are not necessarily part of a controlled group. The "noninvolvement exception" can break a controlled group if the spouses each own their own companies and (a) neither spouse has ownership in the entity owned by the other spouse; (b) neither spouse is a director or employee or participates in the management of the other spouse's company; (c) the spouses have no involvement in the other's company; (c) no more than 50% of the company's gross income is from passive investments, such as royalties, rents, interest, dividends, and annuities; and (d there are no restrictions limiting the spouse's ability to dispose of his/her ownership in favor of the other spouse or their minor children. The noninvolvement exception does not help break the controlled group if you are in a community property state and the business is community property (so that each spouse under state law actually owns 50% of the other's company, thus overriding the noninvolvement exception) or if the couple has any minor children (in which case each spouse's ownership attributes to the minor child and the bambino is deemed to own 100% of both companies). So, when all is said and done, if you are dealing with spouses, you might be better off doing the "separate adoption and later merge" method, distasteful as such a "form over substance" approach is. If we know anything after our collective years practicing in this area, the IRS tends to be very detailed in the way it applies statutory and regulatory language, thereby commonly promoting form over substance. Thanks again for letting me weigh in on Derrin's and my behalf. Best to all -- Ilene

I believe your Stack 1 should be limited to 4%.

Well, this is no fun. Have already assisted 2 upset/frustrated clients who received these much delayed letters and believed we had dropped the ball, because you know, they don't tend to read the letters and its not necessarily easy for them to always understand the letters. I hope there aren't many, many more of these on the way.

If you are concerned about it you can file IRS Form 8822-B but like others have said this has never really crossed my mind.

Of course not! But that wasn't the point I was addressing.

But that was prior to the SECURE Act. I'm not sure that would be accurate anymore.

This one you do need to contact the IRS on. This happens from time to time and you can usually solve it quickly by providing proof that you mailed it timely. If you have a lot of them, you can ask the IRS to send a list of all clients in the batch on electronic media instead of responding to each one individually.

The letters we received indicated that they are denying our request for an extension of time. It goes on to say that "We can't approve your request because you didn't file your request on or before the due date of the return." We mailed out all of our extensions on 07/29/2020 certified mail. Not sure if people are receiving these letters?

Read literally, the relief would apply to the 2021 plan year, assuming the seller meets the March 31, 2021, 80% threshold. I have questioned previously whether the relief would ultimately cover a situation like this one (e.g., the seller here meeting the March 31 threshold but laying off a significant portion of its employees in December 2021). That clearly wasn't the intent of the statute, so perhaps the IRS will limit its reach somehow. But if you count the 2021-2022 layoffs together, I'm not sure it would give you any cover beyond December 31, 2021. The partial termination relief only applies to "plan years" that include March 13, 2020, through March 31, 2021. It doesn't change any other calculations or exclude 2021 terminations for any other purpose. So if you're looking at any time after December 31, 2021, it's not clear to me that the relief would change the calculation if the 2021-2022 layoffs are combined to form one non-plan year "applicable period" for partial termination purposes.

Yeah. And I'm not sure I agree that it can't be done. Did Dennis and Ilene have a cite(s) or were they just being cautious?

Thanks. With a little (unscientific) web-surfing, I found these: BlackRock Disclaimer for Community and Marital Property States: The Participant’s spouse may have a property interest in the account and the right to dispose of the interest by will. Therefore, any sponsors, issuers, depositories and other persons or entities associated with the investments and the Custodian specifically disclaim any warranty as to the effectiveness of the Participant’s beneficiary designation or as to the ownership of the account after the death of the Participant’s spouse. For additional information, please consult your legal advisor. I consent to the Beneficiary Designation. {block on the form for a spouse’s consent} https://www.blackrock.com/us/individual/literature/forms/ira-application-fillable-version.pdf Capital Group (American Funds) We encourage you to consult an advisor regarding the tax-law and estate planning implications of your beneficiary designation. . . . . Your spouse may need to sign in Section 9. If you wish to customize your designation or need more space, attach a separate page. Spousal consent to beneficiary designation — if required If you are married to the IRA owner and he or she designated a Primary Beneficiary(ies) other than you, please consult your financial advisor about the state-law and tax-law implications of this beneficiary designation, including the need for your consent. I am the spouse of the IRA owner named in Section 2, and I expressly consent to the beneficiary(ies) designated in Section 6 or attached. {signature block} Fidelity Advisor If your IRA contains community property and you do not designate your spouse as primary beneficiary for at least 50% of your IRA, you may want to contact an attorney for further information on the designation. https://institutional.fidelity.com/app/literature/view?itemCode=B-IRAFORMS&renditionType=pdf&pos=contentItem&selectedActivities[0].selectedActivityCode=TBNM&selectedActivities[0].selectedActivityTx=formsandapplications&selectedActivities[1].selectedActivityCode=DEPT&selectedActivities[1].selectedActivityTx=FAPP Franklin Templeton If you are married and designate someone other than your spouse as your primary beneficiary, you may need to obtain your spouse’s consent. You should consult with a legal advisor regarding your beneficiary designation and whether your spouse’s consent is necessary. The Custodian is not responsible for determining whether your spouse’s consent is necessary. https://www.franklintempleton.com/forms-literature/download/RIRA-APP {No block on the form for a spouse’s signature} Invesco {warning, and block on the form for a spouse’s consent} https://www.invesco.com/us-rest/contentdetail?contentId=3868e01e98630410VgnVCM10000046f1bf0aRCRD Schwab If I live in a state with community property statutes and do not designate my spouse as the sole Primary Beneficiary, I represent and warrant that my spouse has consented to such designation. https://www.schwab.com/public/file/P-1770982 TD Ameritrade {IRA applicant “represents and warrants” to the custodian that the spouse consents.} https://www.tdameritrade.com/retail-en_us/resources/pdf/TDA586.pdf Wells Fargo warning, and permits opportunity for a spouse’s signature https://www.wellsfargofunds.com/assets/edocs/form/ira-application-ip.pdf Any BenefitsLink neighbors with a different experience or observation?

What is there to call about? It's just a form letter acknowledging receipt of the 5558 and asking the client to make sure they file on time. Of course it's a little silly the date being so late and all but hey that's the profession we're in!

Yes.

Ugh. So start a plan for 2020 and merge it into the current plan and become a participating employer. What one can do this way, one should be able to do the other way and save the client money.

I ran into the same issue with another large Recordkeeper, where the PS assets were in a commingled brokerage account. However, participants could only borrow from their Deferral source. This was explained to the Recordkeeper. They turned off the online loan portal and we process the loans with our TPA software. When we fax the Loan Request form to the Recordkeeper, we are required to include a notation that the participant's total account balance is sufficient to support the requested loan proceeds.

I would feel confident in correcting the match as described in the OP via SCP. I would add earnings from the time each of the original matches for the other EEs were processed.

Where does it say insignificant failures are in the 2-year window. I see where that is the case for significant failures under SCP, but not insignificant.

I lean in a slightly different direction: give 100% vesting upon layoff. At the very least, someone should crunch the numbers to determine how much $$ is involved.

If you qualify under self correction (SCP) as having procedures in place, its deemed an insignificant failure, and you are still in the 2 year window for corrections you can make the missing matching contribution along with lost earnings. If the failure was for the 2019 year you'd have until the end of the 2021 year to correct I believe.

I agree with your client. The SECURE Act RMD rules were intended to eliminate "stretch" RMDs based on the life expectancy of a beneficiary who is far younger than the participant. If an individual who is older than the participant (and therefore not more than 10 years younger) is the beneficiary, they wouldn't be able to stretch the RMDs over a longer life expectancy either way.

Interesting, and I don't think you'll find any clear guidance. Partial termination is ultimately a facts-and-circumstances determination, so I think be reasonable, consistent, and probably err on the side of caution. I would lean toward vesting based on the layoff counts across 2021-2022 if doing so would clearly cause a partial termination in the seller's plan if left separate from the buyer's plan. To take an extreme example, seller's plan covers 100 employees and buyer's plan covers 1,000 employees. In December 2021, 15 seller employees are laid off. Turnover rate of seller's plan is 15% for 2021, so no presumption of partial termination. The plans merge 1/1/2022. In January 2022, 50 more seller employees are laid off. On the basis of the merged plan, your 2022 turnover rate is <5% (50 out of 1,085). However, when looking at the layoffs across 2021-2022 as the "applicable period" you have laid off 65% of seller's employees. My gut says vest them.

Good questions. I think you look at the merged plan for 2022. Bigger picture - consult with buyer to do the right thing and fully vest people losing their job as result of the transaction regardless.

Even if the plan’s administrator’s reading is a correct or permissible interpretation of the plan’s governing documents, consider that the recordkeeper’s contract might not obligate it to process a transaction or instruction that is outside the way the recordkeeper described the service.

Y'know, this must be making the rounds in accounting circles. I've had a couple of clients inquire about it. Doing this just to get the credit is so...accountant. I've told these clients that it would cost...pause...$500 per year. All have decided against it.

The following is from an 8th circuit decision and a link to the full case is below. While the underlined sentence isn't directly on point to your issue because it wasn't addressing whether there was a breach of fiduciary duty, it does point out the "receipt vs. acceptance" distinction. The plan only required "receipt" and thus a beneficiary designation might be given effect even though it wasn't completed in its entirety. Here they did review it upon receipt and asked for more information, but they didn't state that the designation was invalid without the additional information. No telling what would have happened if the plan required "acceptance." Presumably it would mean that a review of the designation must be performed once it has been received (rather than waiting until death) and I could see an argument that there's a fiduciary duty to do let a participant know if the designation has any defects. Next, Alliant's interpretation is consistent with the Plan's clear language. The Plan provides that beneficiary designations are effective when executed by the participant and received by the Plan, so long as the Plan receives the designation within the participant's lifetime. The Administrator's determination to give effect to James's 2002 designation is consistent with these requirements. Similarly, the Summary Plan Description instructs participants that they can change their beneficiaries "by completing a new Beneficiary Designation Form and sending it to" Fidelity. The only requirement that the Summary Plan Description notes is that "for a Beneficiary Designation Form to be effective, [Fidelity] must receive it while you are still living." Giving effect to the form does not contradict the Plan's plain language, which requires only that the form be "received," not accepted. Consistent with these terms, when Fidelity returned the form to James with instructions to provide the missing relationship information, its letter did not indicate that his beneficiary designation was invalid; the "NIGO" (not in good order) notation is in a small box marked "Internal Use Only." See Harpole v. Entergy Ark., Inc., 197 F.Supp.2d 1152, 1158 (E.D.Ark.2002) (finding the administrator's decision to enforce a beneficiary designation with the beneficiary's social security number missing was "perfectly prudent and reasonable" and not contrary to plan's clear language where notification to participant did not indicate that the form was "completely ineffective until the data was received" and plan documents did not require the beneficiary's social security number). https://casetext.com/case/alliant-techsystems-inc-v-marks#4c2882df-7449-4515-a2b2-8d6740556102-fn2

Generally, fiduciary duty runs to the plan and its participants, and on the facts as presented, the kids seem neither. And ERISA preempts any attempted non-ERISA claims. Treating the description as a hypothetical, of course.

The plaintiff's claim seems weak, but you never know how a court will rule. Assuming the account hasn't been paid yet, the plan administrator should consider filing an interpleader action with the court. An interpleader is used when somebody who has property to which two or more people have competing claims. The person with the property turns the property over to the court for the court to decide who should receive it.

You have bad facts here. When the participant signs his own name for the spouse, I can see a court accepting a breach of ERISA fiduciary duty argument under the exclusive purpose or prudence rule: A prudent fiduciary in the same situation as this plan administrator would have investigated (or rejected outright) a beneficiary designation when a participant signs for the spouse and there is no POA on file. Also, as a matter of equity, a court could easily shift the legal risk to the plan administrator (they were the ones in the best position to prevent this harm) and should be held accountable.

I don't think the Plan Administrator has any liability in this case, unless the plan's procedures include review of submitted forms for validity along with formally notifying the participant that the form has been reviewed and found to be valid. Of course, I am assuming that the beneficiary designation itself, or the accompanying instructions, if any, specifically state(s) that in the absence of a valid spousal waiver the death benefit is paid pursuant to the plan's terms. I just checked my beneficiary designations and I think it does an adequate job by: 1) Including language something like the following - Your spouse will be paid the spousal death benefit as specified in the plan, unless you waive the spousal death benefit by completing this Form, and, your spouse voluntarily consents to both your waiver and to your designated beneficiary(ies) by completing the spousal consent section of this form. Without such waiver and consent, the spousal death benefit must be paid directly to your spouse. 2) Including in the relevant section a requirement for spousal signature and the signature line being clearly marked as asking for the signature of the spouse. I don't believe it is standard of care in the industry to perform a detailed review of beneficiary designation forms until a death benefit is payable.