Hey, everyone - First time caller!

I have a client with a Standard Health FSA. It operates on a calendar year basis. However, the employer's payroll processes two weeks in arrears. 

Tax question as to whether the employer can deduct the final payroll from 2020 when the final payroll for 2020 is actually not paid out until the first payroll period in 2021. In other words, the work performed between December 15 and December 31 is paid on the January 15 payroll. That first payroll for 2021 is included as income for the 2021 W-2s - not 2020.

Has anyone dealt with this? The plan language is vague as to "compensation". Trying to determine whether there are different deductibility rules for cash basis versus accrual basis accounting.

Thanks!

Schedule H to the Form 14568 requires an explanation as to why the IRS should waive penalties under 4974 in the case of an employee-owner who failed to take RMDs on schedule. What are the circumstances that would qualify here? I am not sure why you need an explanation specifically for an employee owner and not anyone who doesn't take an RMD. Thanks. 

I'm hoping to get others' input on the correct standard for the future performance of substantial services under 457(f) for non-elective employer payments. Under section 1.457-12(e)(1)(ii) of the proposed regulations, "the determination of whether an amount of compensation is conditioned on the future performance of substantial services is based on the relevant facts and circumstances, such as whether the hours required to be performed during the relevant period are substantial in relation to the amount of compensation." There is no minimum vesting period in the proposed regulations or preamble.

When adding to current compensation or extending a substantial risk of forfeiture, proposed regulation 1.457-12(e)(2)(iii) requires performance of at least two years of future substantial services.

Under example 1 in proposed regulation 1.457-12(e)(3), a one-year (January to January) vesting period is implemented, which goes unmentioned as the example is aimed at an insubstantial amount of post-termination consulting services. One would think that if a two-year minimum deferral were required to begin with, the example would not need to resort to measuring the amount of work performed during the one-year period (or would use a longer duration). But the general substantial risk of forfeiture rule only looks at the amount of work performed, not the duration of the future services.

I know there has been a general rule of thumb stemming from section 83 that a minimum two-year deferral period is required to validly delay a substantial risk of forfeiture.

While it may be a matter of degree, I'm interested to hear others' takes on the following, all non-elective employer payments, all outside the short-term deferral date if the substantial risk of forfeiture is deemed not to take hold because it's less than two years:

• On July 1, 2021, employer awards employee a bonus payable on June 30, 2022, provided they remain employed full-time until the date of payment. 
• On December 1, 2021, employer awards employee a bonus payable on June 30, 2022, provided they remain employed full-time until the date of payment.
• On December 1, 2021, employer awards employee a bonus payable on June 30, 2023, provided they remain employed full-time until the date of payment.
• On December 1, 2021, employer awards employee two separate bonuses, one payable on June 30, 2022, and one payable on June 30, 2023, provided they remain employed until each separate payment date.
• On December 1, 2021, employer awards employee five separate bonuses, one payable on each succeeding June 30, provided they remain employed until each separate payment date.

Would anyone argue that some or all of these would immediately vest and be taxed on July 1, 2021, or December 1, 2021, as the case may be?

Participant dies and has no designation of beneficiary form.  The participant's spouse died 15 years ago.  The plan document provides for default beneficiaries as first spouse, if no spouse, then children equally.  There are 2 children.  I believe the 2 adult children are to both receive 50% of the participant's account.  The plan sponsors asked if this should go through probate.  It never entered my mind that this would go through probate since there are living children.  I'm not a lawyer.  I started to doubt myself.  I did a little research and it does appear that this would not go through probate.  It's not a large amount but still - need to be sure.  The plan administrator (doctor) would make the decision on this - but of course looks to us as TPA to tell them what to do.  Comments?  Thank you in advance.

I've been reading up on all of the rules regarding loan offsets and the ability to recontribute those amounts through the extended due date of their tax return following loan offset.  But what has not been made very clear anywhere is how these rules interplay with the ability to rollover the note itself following offset.  So in my example, loan offset was processed by the Plan as of April 30th based on their loan policy.  This employee was included in a group of employees that are "Spinning off" into a new entity. They want the employee to be able to roll the balance over to the new plan.  

Can I still rollover the note even after the loan offset?  That's the big question.  The final regs that came out 1.402(c)(3) seem to make no mention of this whatever.  1.401(a)(31)-16 definitely talks about rolling over notes following offset, but its not clear to me if the new regs extend the date on which that is allowable.  And even if it did, it raises other questions about the 5 year term as follows:

-What if the note is not rolled over for a year?  Presumably the loan would be reamortized as on an approved leave, but I figure someone must have written this down somewhere by now.

-What if the 5 year term is already over?  Presumably the new sponsor should not accept it (or maybe if the loan payments would exceed their paycheck).

Again it just seems like this should be addressed one way or another.  Can anyone point in the direction of what I am missing?

As many probably remember, initially it was indicated that a participant could take up to a $100,000 participant loan through the Cares Act. It was also described that the repayment could be deferred for up to a year. Then after reviewing closer, the year was to be no later than January 1, 2021. In any event, there was confusion on this. I thought I read something about how a repayment will be considered timely if it was made on or prior to February 28, 2021. Did anyone else remember this? I cannot seem to find anything on it. 

Thanks!

The plan document provides that the plan year end is the last Friday of the December. 

The plan runs from 12/28/2019 - 12/24/2020 so form 5500 and 8955 were filed on the 2019 Forms.  For 12/25/2020 - 12/31/2021 the Form 5500 and 8955 will be filed on the 2020 Forms.

My biggest concern is that 2021 form 5500 and 8955 would then be skipped because there is no plan year that starts in 2021. The next plan year is 1/1/2022-12/30/2022.  Due to the fact that the plan year starts in 2022 then the form 5500 and 8955 should be filed on the 2022 forms not the 2021 year.

 Another issue is that the year after would also be reported on the 2022 form 5500 and 8955 because the plan year is from 12/31/2022 – 12/29/2023. 

Any suggestions on how to handle this situation?

So, here's the question - plan Trustee liquidates funds to pay a terminated participant. Doesn't open a trust checking account - deposits the funds to corporate account, and SAME day sends check to participant, or directly to the participant.

Now, I know this is a no-no, but it happened. Question is if this in any way invalidates a rollover, since it technically didn't come from a "trust" account?

Plan provides that normal retirement age is 65.  However, early retirees and vested terminated participants can elect to receive unreduced benefits as early as age 60.  Is there any requirement that benefits be actuarially increased if a terminated vested participant does not apply for benefits until, for example, age 65?

The only authority I can find on this is Code section 411(b)(1)(G) and Treas. Reg. section 1.411(b)-1(d)(3), which say that an accrued benefit cannot be decreased on account of increasing age or service.  From an intuitive standpoint, it would seem obvious that if you can get a particular monthly benefit at age 60, providing only that same monthly benefit at age 65 constitutes a reduction in the benefit (because the same amount will be received for fewer years).  However, Code section 411(a)(7) defines the accrued benefit as "in the case of a defined benefit plan, the employee’s accrued benefit determined under the plan and, except as provided in subsection (c)(3), expressed in the form of an annual benefit commencing at normal retirement age."  (Subsection (c)(3) deals with the portion of the accrued benefit attributable to employee contributions, and is not relevant here.)  So since the plan is not decreasing the amount payable at normal retirement age (age 65), is it free simply to tell the participant who applies late, "Sorry, we know you could have started receiving full benefits at age 60 if you had applied on time, but because you didn't, you won't receive either a make-up for the missed payments or an actuarial increase"?

Need some guidance please.  Had a client consult with an attorney who you know informed them of retirement plan options.  I'm sure they were all knowledgeable.  Yes I'm being sarcastic.  At any rate, they have approached me with adding a Roth IRA as a plan option so they can offer more to long term employees.  They have Roth in their B plan.  It's not a Safe Harbor B plan just as an FYI.  I know everything I can do with the B plan but I suspect they don't want everyone to benefit.  It's also an ERISA B plan.  Apparently they can put together an Employer sponsored Roth IRA and just contribute for who they choose, of course the contribution they make is taxable to the participant.  But how does this coordinate with the ERISA B plan?  Are there combined testing requirements since both Employer sponsored.  Can they do this free and clear???  I've never in 30 years had a client do something like this so insight on whys and such or other options, pros and cons of this, would be great?  Thank you.

Participant submitted the paperwork for a Coronavirus Related Distribution on December 24, 2020. The assets were transferred out of the participant account and plan trust account on December 26^th. They were transferred to a paying agent. The paying agent didn’t send out the distribution until January 4, 2021. 

The paying agent is refusing to treat this as a coronavirus related distribution because the check wasn’t sent until January 4, 2021. (Past the 12/31 CRD deadline.) They will be issuing a 2021 1099 distribution for the full $100,000. Thus the participant will have to incur immediate tax consequences and penalty for taking this money out.  

Has anyone else had any issues like this? We are trying to build a case that because the money left the participant account and the plan’s trust account on December 26^th that this should be credited as a 2020 Coronavirus Related Distribution and the paying agent should treat it as such.  

I have a situation with simple facts, but no apparent good solution.  A retirement plan sponsor accidentally filed a final 5500 (showing no assets), under the mistaken belief that all assets had been distributed.  In reality there were (and are) some assets in the plan.  This is all very recent, so they are still within the acceptable window following plan termination to distribute the assets, but I'm not sure what to do about the incorrect filing.

Is there some way to retract or unfile a final 5500?  They could presumably file an amended final return, but not until all of the assets are actually distributed.  (As some may have guessed, the remaining assets are nontraditional assets that may take some time to dispose of.)

Has anyone else seen this situation?

First time I have seen the following in my many many years in this business.

I am looking at a 5500 forms prepared by another TPA. It is first filing and for 2020 (calendar plan). 401k/safe harbor/profit sharing plan.

401k feature started late in 2020 - adoption date of the new plan. Not a short plan/sponsor year. Plan effective 1/1/2020.

Safe harbor and/or profit sharing deposited after plan year end.

All participants have been employed more than few years so eligible under 21/1 rule as of 1/1/2020 i.e. entered the plan on 1/1/2020.

On the 5500 forms, participant count on 1/1/2020 is 0 and 12/31/2020 10. All 10 were eligible as of 1/1/2020 - no one entered the plan after that date.

The way I know/done is the participant count on 1/1/2020 is 10 and not 0.

What am I missing here?

Thank you

Good afternoon, 

If a private non-profit entity sponsors an ERISA 403(b) plan with an employer match, and then discontinues the match, can the plan be reclassified as a Non-ERISA 403(b) plan and stop filing Form 5500-SF?  Would the plan need to be amended and restated into a Non-ERISA document?  Would the mere presence of old account balances derived from employer matching in previous years make the plan continue to be covered by ERISA?

Thanks as always for your help.

In reviewing an IRS-preapproved document, I saw this: “To the extent such laws are not preempted by federal law, the terms and conditions of this Plan will be governed by the laws of the state in which the Pre-approved Document Provider is located[.]”

This choice sometimes might matter because the document can be used to state a non-ERISA plan.

The document defines “Pre-approved Document Provider” not as the documents’ publisher but rather a retirement-services provider (a licensee of the documents).

Is this choice-of-law provision now common?

Client established a safe harbor matching plan in 2020.  however no body, owners nor employees made any contributions in 2020.  There are eligible employees but beginning and ending balances are $0.  Client doesn't believe a 5500 should be filed; i'm of the opinion of course it has to be filed; people were eligible.  Just looking for a 2nd opinion here.

Small non-PBGC cash balance plan used a 12/31 valuation date.

Froze 3/31/20, terminated 5/31/20, assets all out on 8/12/20.  So I'm prepping final report and SB for actuary to sign ahead of 6/15 extended deadline.

Is 8/12 an okay valuation date to use?  Assets and liabilities both zero at that point since everyone was paid (final assets were just a residual dividend liquidated to pay fees).  Don't want to switch to 1/1/20 because we'd have to assume folks would be hitting 1000 hours and getting a new contribution.  5/31 valuation date would obviously require more review of the numbers the software spits out.

Thanks.

-Bri

Hi,

Client's Sched. C reflected a loss. Unfortunately he maxed out his 401k so it will have to be refunded. The accountant came back asking if the non-taxable PPP income that the client received last year could be included.

I'm pretty sure I know the answer but wanted something in writing.

When someone over age 55 switches from Family to Single coverage May 1st, does the annual limit you use to calculate the prorata annual contribution limit include the Catchup $1000? So $8200 for 4 months, then $4600 for 8 months. Or do you use the annual limit of $7200 or $3600 for the prorata calculations, and then add the $1000 to that?

Thanks

Client has a discretionary match formula, first half of the year they've done 100% up to 2% but starting July 1 will increase to 3%.  They however want to leave the participating sponsor employees at the 2%.  My thought is that is acceptable as long as they pass ACP and as long as there isn't a disproportional amount of NHCEs in the participating sponsor. Would you agree?