Leaderboard

I think you have a short plan year 12/25/2020-12/31/2020, and then a plan year 1/1/2021-12/31/2021. Check your plan document's definition of plan year, it probably says it is the 12 consecutive month period ending on the last day of the plan year (and if it doesn't, does it have a determination letter?). You can't have a plan year that is longer than 12 months, so you have to add a short plan year to make up the difference. My suggestion would be to amend the plan out of this insane definition of plan year and onto a normal 12/31 plan year ASAP.

A paying agent is just that, an "agent", and significantly, an agent of the plan, not the participant. As such funds held by the paying agent still belong to the plan until properly disbursed to a participant. So the paying agent is likely correct. But paying agents typically have a time-lag, they need to insure they've received good funds before disbursement, plus you throw in the holidays and the normal year-end crush to get plans distributed and paying agents are very busy in December. They will usually communicate a cut-off date for distributions to be made by 12/31. I would imagine their cut-off date was well before 12/26. And given that 12/26 was a Saturday, wire transfers normally don't occur on weekends and bank holidays, so that would make it 12/28. So it really comes down to communication. Did the paying agent represent that it could be paid out by 12/31? Did the paying agent advise its cut-off date for year end distributions? Did the plan or TPA communicate to the paying agent the need to rush this one thru by 12/31? Did the plan communicate any sort of timing deadline for requesting a CRD? Seems to me the paying agent turned this around really quickly given that 1/4 was only the 4th banking day after 12/28. It really comes down to what was communicated such that all parties would have proper expectations and be able to plan accordingly.

I recall years ago the IRS stating that if there is a trail and timing you as you have presented it is a non-issue.

While I agree with the analysis provided by shERPA, I've also seen in practice that the "distribution" occurs at the point in time that the money is removed from the trust and paid into a common distribution account. I work for a bundled service provider that uses a single distribution account for processing of distributions from our group annuity book of business (we are the annuity provider as well), and book the distribution as occurring at the time the money leaves the group annuity. We also have an NAV book of business trusteed by an independent institutional trust company (Matrix, if you care), and they issue a 1099 based on the date the check is cut - which may be several days after liquidation of the assets from the trust. This was an issue we raised through various trade associations to get IRS "leeway" in those cases where a proper request was submitted prior to 12/30, but due to r/k issues or errors, the check wasn't cut until after the first of the year. The IRS did not provide guidance one way or the other - but we are aware of some participants (in the NAV book of business) that have claimed the distribution as a COVID distribution on their 1040 form, with documentation that the request was made timely and "not the fault of the participant." We'll see if that flies or not....

Before I go on a socio-political economic tear, does the emplyee have the option to receive the "contribution" in cash rther than deposit to IRA?

Yes.

If I recall correctly we made the case they did not need an audit. They were never audited by the DOL so our case was never tested by them. We convinced the client they had dodged a bullet and worked with them to pay a lot of terms that year to get them well below the audit level Between the opinions we got here and whatever we saw in Sal's book convinced us they were not participants for 5500 purposes as of 1/1.

If it was a 2021 filing, I wouldn't worry about it.

You mention it was "very recent." Was the incorrect filing for the 2020 full plan year or 2021 final/short plan year? If the former, amend 2020 and then file a final for 2021. If the latter, which I assume is probably the situation, I personally would wait until you can file the correct amended 2021 once all assets are distributed (assuming all assets will be out by 12/31/21). If it rolls over into 2022, amend 2021 as non-final and file the final for 2022.

Just file an amended return.

The old account balances would cause the plan to be an ERISA plan. The only exception dealt with certain pre-2009 403(b) plans that ceased to have employer contributions after that. Field Assistance Bulletin No. 2009-02.