Group:

In researching ESOP Loans and potential prohibited transaction violations of ERISA under 406(a) I'm curious more than anything whether Sam Zell was assessed for violating 406 as that transaction seems to be a direct transaction with a potential for conflict of interest? 

Did his bankruptcy discharge any potential prohibited transaction violations? 

Did the esop loan meet erisa 408 exemption? 

Is erisa prohibited transaction rule 406(a) intended for esop loans? 

Thoughts and comments appreciated. 

Resources and court cases would be helpful as well as I'm beginning research on this topic. 

Thank you 

For a spouse’s consent to an election against a survivor annuity or naming a beneficiary other than the participant’s spouse, the IRS has relaxed the physical-presence condition and allows—from January 1, 2020 through June 30, 2022—a remote witnessing that uses live audio-video technology and meets all requirements and conditions under the State law that applies to the notary or, for a plan representative, meets controls specified in the IRS’s notice.  IRS Notice 2021-40; 2021-28 I.R.B. 15 (July 12, 2021); Notice 2021-3, 2021-2 I.R.B 316 (Jan. 11, 2021); Notice 2020-42, 2020-26 I.R.B. 986 (June 3, 2020).

Do we guess the IRS will let this relief expire with June 30?

Or does anyone predict another extension?

Hello. I need help with 2 Solo(k) issues:

First scenario: Client had a Solo(k) at Oppenheimer and utilized their prototype plan document. Advisor moved the plan to Pershing and completed Pershing's retail account paperwork in the name of the Solo(k) (i.e. John Doe Solo(k) plan).  Pershing never questioned the registration and opened the account as a retail account. Since the account was opened as a retail account, the paperwork to utilize Pershing's prototype plan document was never completed. Per Pershing, they are acting only in a custodial capacity. That was in 2011.  Client has received 1099's from the account for the last 11 years and has never said a word about them. Not sure if he has reported them on his income taxes. Would I be correct to say that the plan really does not exist at this point? No plan document was ever issued by Pershing. I don't think we can consider the Oppenheimer document as a valid plan document any longer, since the plan was moved from Oppenheimer. No restatements have been done in 11 years. To make matters even worse, the plan is over $250k in assets and has never filed a Form 5500.  Several issues going on. I specifically need help on 1) Plan document failure - can this be correct? If so, how? 2) Should we request that Pershing re-register this account as a Solo(k)? 3) What do we do about the 1099's? Do we even try to correct those at this point? 4) Failure to file Form 5500 - how should we correct this issue? 

Second scenario: Client completed paperwork to open Pershing Solo(k).  Plan was to use the Ascensus prototype document service. Paperwork was sent to B/D.  B/D sent paperwork to Pershing, who opened the account. Pershing is acting in a custodial capacity only for this plan. B/D failed to transmit paperwork to Ascensus. Ascensus never issued a plan document for this plan. They have no record of the client. Client has been funding the Solo(k) for several years without a plan document.  Is there really even a plan in place? Can this be corrected? 

I appreciate any guidance that you can give to help me get these clients back on track. 

I am not heavily involved in the PEO, MEP, PEP, etc. field, so would appreciate any input here.

I've come across a few large PEO plans that treat their 401(k) plans as multiple-employer plans on their 5500s. They generally report as a multiple-employer plan and file the schedule of contribution allocations for participating employers.

I recently came across one that, on its 5500, says it is a "single employer plan which is operated consistently with the requirements for a multiple employer plan...". The 5500 is marked as a single-employer plan and there is no list of contribution allocations for participating client organizations. Plan design elections and compliance testing is done on a client organization/participating employer basis. 

Am I missing a nuance between a multiple-employer PEO plan and a single-employer PEO plan that is treated as a multiple-employer plan?

Appreciate any clarification.

A large employer (closely held by father and 3 kids) has 7 leased employees (no coverage issues, this is purely an allocation eligibility issue); the Plan excludes leased employees.  But as it turns out, the leasing employer is in a controlled group with the recipient employer, as the father, and a family trust comprised of the spouse and three kids, are also the owners of the leasing employer.  As such, are these 7 employees still able to be excluded due to the leased employee classification; or should they be benefitting participants because the controlled group means they are just treated as employees of the sponsoring employer?

Marriage was bifurcated, (due to age and health of both parties both in their 80s and respondent has Alzheimer’s)   court hearing set to address community property but was continually postponed by petitioner’s and respondent’s lawyers.  18months after DOS, petitioner never received any retirement benefits due to the fact that her attorney never filed a DRO.  Petitioner’s health declines and has a guardian ad litem appointed to her.  Petitioner subsequently dies but the retirement benefits had not been addressed by the courts.  2/12 years later a court date is set to address retirement benefits and petitioner’s estate is now filing a DRO.  Will petitioner’s alternate payee status flow to her estate in a defined benefit plan?  Will there be any ramifications if petitioner’s council didn’t file the DRO while his client was alive?  

Al, the owner of the company which sponsors the PS-only plan, was taking RMDs and then passed away in 2017.  His two sons, who were his 50/50 beneficiaries and who were participants and now became the 50/50 company owners chose to not take Dad's money out of the plan.  An RMD is being calculated on Al's balance each year and paid to each of the sons (split evenly between the two of them).  The plan does have the 5-year-rule selected (though I thought that was only applicable if the participant died before RBD).

Is there any limit as to how long the sons can keep this going inside the plan?  Is there something that will require them to take Al's money out at some point?  The sons are just over 60 themselves, so they have a few years before they hit RMD status on their own accounts.

Thanks.

Here is a new one for me.

PBGC covered DB plan, owner plus 1 rank&file employee.

Client pushed to have the only non-owner participant to be paid out in 2021 after employee's termination. Client provided the final salary paid for 2021 based on the final payroll (even had them confirm). The final salary for was lower than prior years and did not affect the average compensation

Provided the lump sum and they paid out. So, now the plan was just covering just the owner for the rest of 2021. Went to PBGC and got exemption from further coverage effective 2021 year. All good, well....

Just got the actual 2021 w-2's and the actual salary is much higher that I was provided and affected the 3 year average compensation i.e. the employee was under paid, a lump sum of somewhere between $100 to $200 - did not do the actual math. No 415 issues whatsoever so no MASDs etc.

The question now, what happens with the PBGC exemption? Technically I still do have a rank & file as of 12/31/2021 with a $1.50 accrued benefit and very small lump sum due.

Also, can they pay this participant out based on the prior distribution election form (IRA rollover)?

Anyone had this issue before?

Thanks

Marriage was bifurcated, (due to age and health of both parties both in their 80s and respondent has Alzheimer’s)   court hearing set to address community property but continually postponed by petitioners and respondent’s lawyers.  After 18months -  Petitioner’s attorney never filed a DRO.  Petitioner’s health declines and has a guardian ad litem.  Petitioner subsequently dies but the retirement benefits had not been addressed by the courts.  2/12 years later a court date is set to address retirement benefits and petitioner’s estate is now filing a DRO.  Will petitioner’s alternate payee status flow to her estate in a defined benefit plan?  Will there be any ramifications if petitioner’s council didn’t file the DRO while his client was alive?  

This client sold his business, it was absorbed by a larger company.  Almost all of the employees went to work for the new owner.  

Many employees are rolling their pension accounts into the new employer's plan, some into IRAs.  One employee has a loan and would like to "cancel it out" and only roll over her tangible assets to the new employer's plan.  Am I missing anything... any reason she can't do this?  Split her distribution into 2 parts, rollover to new plan and cash distribute her loan as a taxable distribution?

Thanks

Some governmental employers allocate a matching contribution under a § 401(a) plan on a participant’s deferral under a § 457(b) plan.

Does any provider’s IRS-preapproved document allow a user to specify this within the adoption agreement’s check-the-boxes (or allowed fill-in) choices?

If not, how the IRS would respond to a Form 5307 application in which this point is the only variation from the preapproved document?

Welfare Plan has reached 100 participants so it's time to file the very first 5500.

Apparently their existing plan document shows a 6/30 plan year end, but their policies are calendar year.

They'd like to change the plan year and create a short plan year for the last year (ie today is 4/20/22 and they would like a short plan year 7/1/21-12/31/21).

I think it's too late to retroactively (and easily) amend for that short plan year.

But curious of other's opinions in the following two scenarios, if it can be done:

1. 7/1/21 count < 100 so no 5500 required for a short 6-month plan year
2. 7/1/21 count > 100 so a 5500 would be required at 12/31/21 (not yet due)

Can a money purchase plan be merged with a profit sharing plan

before 7/31/22, so only one plan must be amended for cycle 3 restatement?

I have a client who doesn't want to provide statements for terminated participants who are 0% vested, but have not yet been out 5 years therefore the money in the account has not yet forfeited (it's all Profit Sharing money).

Is there something in the regs that requires statements be sent to these participants?  Can someone point me to it, if there is, so I can provide it to the client?

Thanks in advance!

I've heard that we are supposed to go by the check date to determine if a refund is "late" or not.  For example, if a refund is processed March 15, but the check date is March 16, then it's considered late and the penalties apply.

Do the IRS folks really look at the check register?  Wouldn't they use a transaction report that shows the distribution was done on 3/15?  has anyone ever been dinged on that?

What if it's an ACH that doesn't happen for two or three days?  There is no check register to, pardon the pun, check.

Single-member LLC that has elected to file as S-Corp has a cash balance plan that covers the owner and a handful of employees.  The contribution for the 2021 plan year was deposited on March 10, 2022.  The deposit was for the recommended contribution calculated by the actuary.  The CPA who is preparing the tax returns for the business is telling the owner that the contribution applicable to the owner's benefit cannot be deducted for 2021 and must instead be reported on the 2022 tax returns.  The returns are otherwise being completed on an accrual basis.

I am neither a CPA nor an actuary, but I've been a TPA for a long time and I've never heard of this.  I didn't even bother asking how the CPA determined the portion applicable to the owner.  Is there a rule preventing the business from taking a tax deduction for the portion of the accrued cash balance contribution that is applicable to the owner's benefit?

Just want to make sure I've thought this through properly:

Company has 3 employees.  2 owners employed since 2015 or so, and staff person hired May 2020.  Staff person is a decade older than the owners, so cross-testing is not a consideration.  [Edit:  Dang, I wish I hadn't posted this in the cross-tested section then, I suppose.]

Generous CB plan has 2 year eligibility, so it has been owners-only so far.  401(k) plan has 2 year eligibility for company contributions, 1 year for 401(k).

For 2021, prior TPA was allocating only 3% to the staff person, as a nonelective top heavy minimum (listed as profit sharing on their report).   But 6% each PS to the owners.

The nonelective test has me thinking.  Even though the staff person is nominally only eligible for the 401(k), the TH requirement is forcing her to get a nonelective contribution, one that is not going to pass when compared to the owners' amounts.  (As in, it doesn't matter if staff person hasn't met the normal eligibility for a nonelective contribution, the top heavy requirement made her eligible anyway, and now she's subject to her rate against theirs.)

If they give her 6%, I suppose they could be done.  She's not eligible for the CB plan at all.  And the DC plan would have a uniform allocation rate, so each plan passes coverage/nondiscrimination separately.

Or are they indeed okay with just the 3?  The allocation to the staff person is the greater of the plan's "normal" formula, or the top heavy formula.  (Since her share would legitimately have been zero.) And the plan would pass coverage if she were not considered benefiting, because she's not "normally" part of the coverage test anyway, having not gotten the 2 years of service yet.  (Thinking 1.401(a)(4)-2(b)(4)(vi)(D)(3) here)

Thanks.  (Never mind that they didn't get any deferrals out of the staff person, so I've got other reasons to think about the 3% and how it's not enough of a QNEC if they allocated it that way.)

--bri

We have a Cash Balance Plan and a Profit Sharing Plan that we are combining for testing. The Profit Sharing Plan defines Compensation as Compensation from date of Participation. We have several employees who became eligible 7/1/2021 so we would use their Compensation from 7/1/2021 to 12/31/2021 for allocation. The Cash Balance Plan defines Compensation as full year compensation. Can we use the two different definitions of Compensation for the 401(a)(4) testing? Is this allowed or do we have to use full year Compensation for testing?

we have a participant requesting for a distribution of their excess deferral today 4/18/2022 which is the tax deadline. We can distribute the excess deferral however the check will be dated after today of course. Is the excess deferral deadline the day of distribution or the check date?

For Welfare Benefit plans normally have a form 5500 filing exception (if not a MEWA or Certain Entities Claiming Exception (ECEs), on page 3 of the instructions, bottom right 1. A welfare benefit plan that covered fewer than 100 participants as of the beginning of the plan year and is unfunded, fully insured, or a combination of insured and unfunded. Some interpret the lines 5 & 6 instructions (page 18 bottom right, bottom link) to include active eligible employees (most full-time employees are eligible at the beginning of the plan year, during Open Enrollment, while new hires can also be elgible as of the beginning of the plan year) to those participating.  See the bolded below and let me know if you also believe all active eligible employees are to be counted?