Leaderboard

Nothing in Internal Revenue Code of 1986 § 403(b) requires a trustee. Many § 403(b) plans have no role labeled trustee. Many § 403(b) plans have annuity insurers and § 403(b)(7) custodians. ERISA § 403(b) [29 U.S.C. § 1103(b)] excuses from § 403(a)’s general command to hold an employee-benefit plan’s assets in trust the annuity contracts and custodial accounts recognized in Internal Revenue Code § 403(b). ERISA § 403(b)(1)(2)-(5) http://uscode.house.gov/view.xhtml?req=(title:29%20section:1103%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1103)&f=treesort&edition=prelim&num=0&jumpTo=true To the extent a § 403(b) annuity contract or custodial account requires or permits an instruction from a plan’s fiduciary (rather than a participant, beneficiary, or alternate payee), a typical contract refers to the plan’s administrator. Some refer to the employer.

Great question because different sources will take different positions on this one. My position would be that because both employee groups are eligible for the cafeteria plan (i.e., the ability to contribute the employee-share of the premium on a pre-tax basis) immediately upon becoming eligible for the underlying health plan, there is no violation of the Section 125 NDT requirements under §125(g)(3)(B)(i). In other words, they are both immediately eligible to contribute pre-tax upon becoming eligible for the health plan, and therefore they actually have the same condition of enrollment for cafeteria plan purposes. I don't view the 125 eligibility test as intended to look-through to the underlying health benefit components for which the POP is used to make employee pre-tax contributions. Otherwise, a huge percentage of employers would technically be violating the Section 125 eligibility test component of the NDT rules because it's so common to have different employee groups with different health plan eligibility conditions. My take is that there are other provisions designed to address the appropriate timing of offering coverage underlying the health plan, including the ACA employer mandate, the ACA 90-day waiting period rule, §105(h) for self-insured plans, the ACA nondiscrim rules for fully insured plans if they ever take effect, etc.

If the provisions are required rather than optional then do the amendment - it matters not if someone actually have taken advantage of it.

Have you filed tax returns? Might it be easier to just write a new plan?

Even if no one could have used any CARES provision, perhaps checking the boxes of your IRS-preapproved documents provider’s form for a CARES amendment (showing the user adopted nothing) is less expensive than writing a memo to explain why no amendment is needed.

I don't see what it accomplishes. You can't change the fact that it was deposited to a properly titled plan account in the first place. You might even be drawing attention to a (possible) problem if someone ever looked at the paper trail. I'm not sure it is in fact a problem but in no way does this actually fix it.

I would disagree here. In a DC plan the forfeitures are going to be used for one of two things: 1) Reallocated as a contribution. Even a reduce plan it could effect the other participants. A lot of companies decide what they want their cost to be. Less forfeitures to reduce means their cost goes up. In a reduce plan it is possible for the forfeitures simply reduce the cost to the employer but it isn't 100%. 2) Pay expenses. Once again less forfeitures and the expenses are going to be paid by the other participants. In short in a DC plan for a source that is subject to vesting, which is always an ER source, less forfeitures can often times harm the other participants.

Oh, absolutely. The plan shouldn't get in the middle of it. But if someone (anyone) proffers payment on the loan, the plan should take it.

Isn't the Sec. 72 parameters only effective when the loan is taken? Like taking 50% of the vested balance, and some short time later due to market losses the loan is now more than 50% of the vested balance... but I thought this situation is OK since Sec. 72 parameters were not exceeded when the loan was taken. So I think I vote "you're fine" too.

So Jakyasar, you're talking here about a non-401(k) plan (no employee deferrals), and presumably the employer was on extension for its return, so they/you are using the ability under SECURE Act change to adopt a plan retroactively, right? I assume a noninstitutional trustee (e.g., the company owners), because most likely a bank or other institution would not have allowed opening the account in name of trust without document. I would say: (1) To some extent the issues posed are novel, since the SECURE Act change is new. (2) Once they signed the plan documents, you certainly have a trust and I think you'd potentially run into more trouble if the trustee tried to take the money out now, and then put it back in. (3) I guess the IRS could argue that the trustee owes taxes for the period from 5/23/2022 to 6/3/2022 (a little over a week), since the money was not in a qualified trust. But as long as the total allocations for 2021 don't exceed the 415 limit, don't see how you would have a qualification issue. (4) In the small corporation setting, when issues like this have been dealt with on audit or determination letter process, sometimes lawyers will argue successfully to the IRS that since the individual who made the deposit was a 100% shareholder, or if all the directors were aware of and had approved the deposit in some way, the plan had been adopted. In theory the success of this approach depends on what the plan documents say. If you're lucky, (a) the plan document won't say that it is not adopted until signed, but rather will just say it needs to be "adopted," and (b) the corporate resolution that was provided will authorize the officers to "sign such documents as are deemed appropriate to carry out the purposes of these resolutions, etc." (5) You could always put a memo in the file saying that you had talked to the employer and the appropriate body (board, sole proprietor/boss, partners) had considered the plan's adoption and decided to do it before the deposit was made, assuming those are the facts. Not saying that would be bullet-proof if this was $1 million and someone had it in for this employer (e.g., the business is about to go bankrupt and the employer is trying to put money our of a creditor's reach), but it could help, e.g. in an exam. The issue could certainly be spotted in an exam, because the IRS always checks dates of documents. But absent unusual circumstances this does not seem like the sort of thing an agent should be upset about, especially given that the SECURE Act provision is so new. Sure, would have been better to sign the documents first.

I believe it's the lending of the money outside the Sec. 72 parameters which specifically gives rise to a prohibited transaction - which is why the 50k limit would be there in the first place. But your guy didn't do that either time. (I vote for "you're fine.")

Still calendar-based, so one could do all 19,500 in the second half of 2021 and all 20,500 in the first half of 2022 to hit a total of 40,000 in non-catchup deferrals all within the same plan year.

Also (let me just mention because I didn't realize for a long time) the matching contribution is not based on any compensation limit. So if someone makes $500,000 per year and defers $14,000, the match is also $14,000.

Salary deferrals only. Match would be on top of the 14,000.

Uh, in a discriminatory manner not in accordance with the plan document?

I think this is the workaround: The IRC clearly requires the withholding of 10% for child support QDROs, but some Plan Administrators are not aware of that and send 100% to the Alternate Payee (who should be the child or the "mother and next friend" of the child) and runs a risk (thought to be minimal) that the IRS will pay them a visit. 1st, send 100% to the IRS and send a 1099-R to the Participant with ZERO in Box 4 (Federal withholding), 14 (State withholding) and 17 (Local withholding). The language of the instructions for Box 4 says: "Box 4. Shows federal income tax withheld. Include this amount on your income tax return as tax withheld, and if box 4 shows an amount (other than zero), attach Copy B to your return. Generally, if you receive payments that aren’t eligible rollover distributions, you can change your withholding or elect not to have income tax withheld by giving the payer Form W-4P." This clearly suggests that there is a possibility that Box 4 of the 1099-R could be ZERO. 2nd - the QDRO must contain a provision that affirmatively requires the Participant (or a trustee appointed by the Court to act on behalf of the Participant) to fill out Form W-4P and follow the instructions for that form that say: "Choosing not to have income tax withheld. You can choose not to have federal income tax withheld from your payments by writing “No Withholding” on Form W-4P in the space below Step 4(c). Then, complete Steps 1a, 1b, and 5. Generally, if you are a U.S. citizen or a resident alien, you are not permitted to elect not to have federal income tax withheld on payments to be delivered outside the United States and its possessions." 3rd - add all of the forgoing to the plan documents. At the end of the day the attorney for the payee parent must be instructed to add the language above to the QDRO. Plan Administrators will have a QDRO, a 1099-R, a W-4P, and amended Plan language to protect them. David