Leaderboard

We are (finally!) going to e-signatures using DocuSign. Ftwilliam has a white paper citing specific Rev Procs that all e-signature for prototype and volume submitter. I'm attempting an attachment...E-signatureWhitePaper.pdf

Today is the first day of the rest of your life. It's also the first day after my retirement. After 43 years of being an actuary, I'm moving on to other things. It has been a wonderful profession. Thanks to Dave Baker and BenefitsLink, and all the contributors here, for helping. My brain will not atrophy, at least not immediately; I'll be glad to help anyone who needs anything. A brief reflection on the most important rules of consulting: 1. Never lie to your clients, or your colleagues. 2. Never be late for a meeting. 3. Date everything, and never back-date anything. 3a. Date and initial all worksheets, drafts, etc. Don't toss any of them until you have completed the final version. 4. Remember that you are selling expertise and creative thinking, not trying to fit your client into a pre-determined solution. 5. Professionalism and integrity matter. Good luck. Rigby out.

A participant submitted a CARES distribution request in November 2020. The request was valid and in good order, however the recordkeeper did not process it. The recordkeeper is a large national bundled provider. The plan sponsor was upset and has been in an argument with the recordkeeper since it was not processed timely. The solution from the recordkeeper is to process the CRD today and issue a 2020 1099R and call it a CRD. The recordkeeper will file a VCP submission asking the IRS to approve a 2021 distribution based a procedure error since the paperwork was received in good order and the recordkeeper failed to process it. Apparently, this happened with multiple plan sponsors because the recordkeeper is filing a VCP submission of behalf of multiple plan sponsors. (note - the participant does not qualify for any other type of in-service distribution). Does the IRS have authority to approve a VCP submission to treat a 2021 distribution as a CRD due to the recordkeepers error? Thank you

I vote A as well.

VCP can give the plan relief from operational issues. In other words, if the VCP is granted, the plan can't be disqualified for allowing the distribution to be treated as a CRD even though it was paid in 2021. I don't believe that any IRS departments outside TEGE are obliged to honor the VCP though. Meaning that there is no guarantee that the participant would be allowed to treat the distribution as a CRD on their taxes.

(screaming) who was handling this in the past - the client, a CPA, or I hope not a TPA?!

A

That's a good question. I'm not sure even the IRS knows the answer. I guess you could be correcting a failure to provide benefit when due. That is the participant had a valid election to receive a distribution under the plan that was not processed due to clerical error and is no longer available due to CARES Act expiration at 12/31/20. I would think this is something that could be fixed by VCP but I'm not sure it fits into an easy check box example in the rev proc.

I think it is against the law also. I would think this would violate the substantial determent rule in 1.411(a)11(c)(2)(i) https://www.law.cornell.edu/cfr/text/26/1.411(a)-11 I would think this would violate some kind of fiduciary obligation to act in the best interest of all participants. I don't think the fiduciary rules would allow for you to discriminate in favor of the current employee over the terminated participants.

Yeah, I don't see anything there that would allow terminated participant accounts to be kept from receiving earnings.

Agree with Bill. I would cite DOL reg 2510.3-3(c)(1) which says "An individual and his or her spouse shall not be deemed to be employees" - it says nothing about their children.

Yes. Limiting compensation is a qualification requirement under 401(a)(17). Close, but yes. It is not technically a forfeiture. The correction under EPCRS is to move the excess amounts (plus earnings) to a suspense account. The suspense account must be used to fund future employer contributions (as opposed to a forfeiture account, which can be used to pay plan expenses). No further employer contributions may be made to the plan until the suspense account is exhausted. If the failure is insignificant, you can self-correct. If it is a significant failure, it would have to be corrected under VCP since it is past the 2-year window.

Not sure if I entirely agree with Bill on this. The right to receive your distribution at a particular date (e.g. upon attainment of age 59-1/2) is a protected right. There is an exception written into the regs that says hardship distributions are not a protected right, so I agree you can limit those to >$500 or eliminate them entirely. But for other in-service distributions you may have an issue. There might be a de minimis clause somewhere that says you can eliminate the right to distributions of less than a certain amount, I don't know.