Am hoping those with more DB plan experience may be able to help.  Details are below but the basic questions are:  (1) how easy is it to get waiver of excise taxes for a late 204(h) notice if you provide participants the additional benefits as if notice was timely sent and (2) if that's not easily done, can you rescind or revoke prior plan amendment (freeze) and just provide additional benefits due through present,  amend / terminate with proper notice now, and avoid excise taxes where that ends up a cheaper fix than paying the excise taxes?

We have a new client with large cash balance plan.  They adopted an amendment to do a hard freeze last year.  The 204(h) notice was sent to participants 23 days before the freeze took effect.  It appears the actuary thought the 204(h) rules only required 15 days' notice and was unaware large plans had to provide 45 days' notice.  This is not a situation where any exception to the general 45 days' notice appears to apply.  Employer relied on actuary for advice and guidance on the freeze but is not necessarily looking to recover against the actuary.  Just trying to address and move on.  This has come up because the company is about to be sold and the plan will be terminated in connection with the sale, etc.

If I read the 204(h) rules and regulations applicable on or after June 7, 2001 (and Sal's interpretation), it appears the freeze amendment can stand but significant excise taxes will be assessed at the rate of $100 per day per missed individual for each day of noncompliance.  Where the notice was sent to all applicable individuals on the same day but was sent 22 days late, that would result in an excise tax of $2,200 x the number of individuals receiving the notice.   Assuming round numbers of 250 people, that would add up to $550,000.

Perhaps an argument could be made to waive the excise tax if the Treasury Department determined that the employer did not know the failure existed and had exercised "reasonable diligence" to meet the notice requirements?  I've not researched but a complete miss on the basic timing rule would seem tough to argue reasonable diligence although the employer had no clue of the issue until now.  At the very least, hopefully the annual $500,000 cap on "unintentional failures" could apply?  Welcome any thoughts or suggestions on arguments on a waiver or possible reduction of excise taxes and how that normally plays out.  For example, does one have to submit a PLR requesting waiver due to reasonable cause and not willful neglect to get clear IRS response / waiver or is it possible to get relief for an "unknown failure" (See ERISA Outline 3B.644--5.b.1) without having to actually submit a PLR reasonable cause request?  Part of our issue here is needing to reach clear result and clear up for the buyer in the sale without leaving open issue and future audit risk.

In addition to the excise tax issues above, what if the employer is willing to concede the late notice was an "egregious" failure such that the freeze cannot take effect until everybody has at least 45 days notice?  For example, what if the employer gives everyone an extra month of benefits beyond the original freeze date to make up for the 22 days the notice was late?  It seems like that is possible under the current rules as an alternative to any argument the attempted freeze is completely ineffective?  And if the failure was truly "egregious" it seems like that extra benefit accrual is arguably required?   As  I understand the rules, however, giving folks the extra month of benefits would not eliminate the excise taxes as those  apply in addition to the potential for accrual of additional benefits?  See ERISA Outline 3B.666.   Seems that means you cannot simply "buy your way out" of the excise taxes (at least without some waiver by the IRS) in these situations by making up benefits over the missed notice period?

In this case, the extra month of benefits would only be ~$50,000 but the excise taxes may be $500,000.  Perhaps there is an argument the plan could stick with the original freeze date and avoid not having to give the extra month of benefits (i.e., they could argue the failure was not "egregious" under these facts) but the excise taxes still apply.  If they have to pay the excise taxes, the additional month of benefits is not that huge of a deal though.  Which brings me to our other question--can the plan just revoke, rescind, or otherwise completely ignore the prior 204(h) notice and attempted plan amendment / freeze as ineffective, give everybody the additional benefits that would have accrued through the rest of 2020, and thus avoid paying any excise taxes?  Is that possible or are they clearly stuck with the excise tax issue in all cases because of the attempted freeze?  If they went ahead and honored the additional benefits accruing during the last part of 2020 as if no freeze had been implemented, that should be significantly cheaper than the excise taxes due given the number of plan participants.  They could then go ahead and proceed with a termination of the plan quickly now before anybody accrues anything in 2021 and come out cheaper than paying the excise taxes.  That doesn't seem exactly right but they would much prefer to give extra amounts to participants than in excise taxes.  Thanks.

Internal Revenue Code § 45E provides a tax credit for a portion of a small employer’s (up to 100 employees) qualifying expenses to establish or administer a new retirement plan.

About what’s new:  An employer cannot qualify for this credit if, during the three-taxable-year period that immediately precedes the first taxable year for which the credit otherwise could be allowed, the employer or any member of any controlled group that includes the employer (or any predecessor of either) established or maintained a qualified employer plan for which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan for which the credit otherwise could be allowed.

How does this work with a multiple-employer plan—whether an association retirement plan, some other “closed” MEP, an “open” MEP, or a pooled-employer plan?

For this credit, does it matter that the plan is not a startup?

Or is it enough that the employer’s participation under the plan is the first time the employer provided any retirement plan for its employees?

Hey Dave - sorry if this has been dicussed before but I'm just noticing...what is the "member reputation" figure that appears by our names with a plus sign and a blue number?  Not that I'm vain mind you, but mine is rather low and I wasn't sure what is driving it 🙂

Hello -- A client with a profit-sharing plan adopted a restatement of its pre-approved plan document by the April 30, 2016 deadline but implemented a retroactive effective date (2015). I submitted a VCP application seeking approval of a retroactive effective date.  In addition to the limits on retroactive amendments under Internal Revenue Code Section 401(b) and applicable regulations, the pre-approved document itself states that the effective day must not be earlier than the first day of the Plan Year (here, a calendar year) that the restatement is adopted. I know that the remedial amendment cycle allows retroactive amendments for "disqualifying provisions" but my understanding is that those provisions have their own effective dates, but the plan as whole should still have an effective date as of the year of adoption.

 The VCP agent said that there was no issue because the restatement was adopted by the April 30, 2016 deadline and within the two-year window provided in Announcement 2014-16, but he also could not provide an authority as to the overall retroactive effective date. So I'm not sure I agree, but I don't want to belabor the issue either. I mostly just want some assurance that if there is a subsequent audit of the plan, that agent won't disagree with this agent. 

Does anyone fall on one side or the other as to this analysis? Thanks so much!

As part of some due diligence work, I am reviewing the invoices for a qualified pension plan that is severely underfunded for the past several years. I am seeing billing for PBGC filings and actuarial valuation work that are normal parts of plan administration and can be paid from pension assets. However, I also see some payments for annual pension meetings to discuss valuation work. Hiring an actuarial firm is one thing, but would anyone consider paying travel expenses for the actuarial firm to attend a meeting a part of plan administration? My thought is that a travel expense should be paid from the company account and not plan assets. Looking for other opinions. Thanks!

Participant works over one year and 1000 hours in that year, but terminates prior to reaching age 21 so never becomes eligible to enter the plan.  That former employee is then rehired after age 21. would that employee enter plan immediately?

Plainly read, it would appear the secure act amended 401(b) to allow a sponsor to adopt a profit sharing plan after the end of the sponsor's tax year. But what if a sponsor adopted a 401(k) plan in 2021 to be effective in 2021, but decided to amend the plan to be effective in 2020 (prior to the tax return deadline) so that they could make a profit sharing allocation for 2020.

Kosher or not Kosher?

Employee participated in 2 different company plans and ultimately exceeded 402(g) limit for the prior year.

Excess deferral was distributed prior to 4/15 of the next year.

Are there one or two 1099-R's reported?

If there is one, I believe it is in year of distribution with Code P (referring to prior year).

If there are two, in addition to the one above, one for the prior year with Code 8? Alternatively, is the W-2 corrected?

Or as I believe, there is just one 1099-R issued for current year and in this case, employee provides tax preparer with letter describing the excess deferral distribution.

Development company with around 50 employees in California. All of the employees would be considered NHCEs as none of them have any company equity and do not make more than $120k (Besides the CEO). All other employees would be NHCE because of this. Would like to set up a new comparability profit sharing program where the employees who did well on their projects (All NHCE) can be set to one "group" on the new comparability profit sharing plan and have the highest % rate. The HCE (CEO) would be set to the lowest % rate (1%) and thus, the remaining other employees would meet the gateway test if they were set as 0.35% (1/3 of HCE). Would this setup satisfy the cross-testing requirements along with any other requirements? Basically looking for a method to utilize profit-sharing but provide as much % possible to the employees excelling at their projects and providing as close to 0 as possible for other remaining employees (Which would include the CEO). Any advice would be appreciated!

If a client wishes to start a new plan that has deferrals and safe harbor match only (does not have an Employer Match or Profit Sharing provision), must the plan have a short plan year  for the first year to accommodate the notice requirement? Or can the plan year begin on 01/01/21 with a special effective date of 04/01/2021 for deferrals and safe harbor, even when the there's no match or profit sharing? I'm trying to avoid having a short plan year for the limitation year and include comp for the entire 12 months of the year. 

We had an issue with some ADP refunds.  Correct amount came out of participant accounts on 3/9 and initial check was issued on 3/11.  But there was an issue with the check request and the initial check was issued for less than the total amount.  Error was realized and 2nd check requests were made that will have a check date of 3/17.

Is the amount issued in the 2nd check considered late?  

We have a 401k plan that was merged into another plan towards the end of the plan year (calendar year).  The merger date was 12/15.  The last 401k contributions were deposited into the new plan as was the full employer contribution for the plan year.

Preparing the final 5500 for the old plan, would you report either that final 401k contribution as part of the overall contributions in the old plan?  Same with the employer PS?

Thanks

Hi

Not a 401k expert. I know of only 7 biz days as a safe harbor deposit dates for any deferrals.

Looking at a plan where I am told that they only can make one deposit per month i.e. their explanation for "administratively feasible" deposit. The owner travels a lot.

The payroll is every 2 weeks.

Is this reasonable? I do not think so but wanted to check.

It is a small plan with 3 participants. 2 HCE's (owner and spouse) and one non-HCE

Thanks

Hi

A 401k plan covering owner/spouse and their children. All HCE/key. All receive one paycheck end of year.

They received the 2020 salaries end of December 2020 with the deferrals reflected on them.

Just found out that, they are depositing the deferrals now.

Do they need the VFCP adjustment? I think they do as I see no exception but not a 401k expert.

Thank you

might be a silly question but the participant dies  with a trust as beneficiary  the check is payable to   jack smith as trustee of the john doe trust  fbo jane doe IRA does the trustee take the check and deposit in the trust or can an IRA be opened and that check be deposited directly?

While work a plan I have notice that Deferral & Match eligibility requirements are follows:

-21 Age, 1 Years of service & Semi Annual

whereas, PS eligibility requirement is immediate (no age or service required) as per plan document. Profit sharing eligibility is more generous compared to deferral requirements.

Usually, I've found relax eligibly for 401k Deferral contribution and little bit tough eligibility to get profit sharing contribution such as - 21 of Age+ 1 Years of service+ 1000 hours, sometimes last day and 1000 hours.

Above scenario is new to me and never dealt with before, I'm totally confused and It supposed to me discrimination not to give deferral opportunity but giving more earlier opportunity to get PS.

Is it allowable to give priority of getting profit sharing contribution rather delay/ hard rules for deferral contribution?

Please share your thoughts on this and provide related laws/regulations/reference (if any) to be sure about this dual eligibility.  

Thanks in advance. 

My client is being asked by its TPA to enter into a new trust agreement with a directed institutional trustee (a trust company) that makes the TPA a party to the trust agreement. Under the proposed trust agreement the TPA, called the "Designated Representative," is responsible for ensuring the timelines and amount of contributions, and the TPA is given authority to authorize distributions and payments on its own, with the trustee being indemnified by the plan sponsor for any losses resulting from following the TPA's directions. These provisions are part of a new standard package designed by the TPA to simplify the plan sponsor's tasks with respect to the plan and lower costs, and it is being urged on all of this TPA's clients, as I understand it.

I am used to trust agreements that allow the trustee to rely on plan sponsor instructions it believes in good faith to be authentic, and to provisions in which the plan sponsor indemnifies the trustee for everything short of willful malfeasance or some other low standard. We push back on those with mixed success, depending on size of the client. But this is the first time I've seen a trust arrangement in which the TPA is a party to the trust and the plan sponsor delegates extensive authority to the TPA. I guess at a minimum this makes the TPA a fiduciary, which they usually don't want to be.

My question is, is this common and I have just not run across it before, or do others think it is unusual and perhaps not well thought out?

Participant X left his job at Company M during 2020. He received a distribution of his remaining 401(k) account balance of $6,000. If X claims the distribution as a Coronavirus-Related Distribution taxable over 3 consecutive years, $2,000 would be taxable during 2020. However, if X contributes $2,000 to an IRA, he has repaid the distribution, resulting in $0 tax for that year. Assuming that X is over 50 years old. How much  may X contribute to a traditional IRA during 2020:  $7,000 or $5,000 ($7,000 - $2,000 recontribution)?

Hi,

Sole proprietor (with employees in plan) elected at age 70.5 to take his RMD based on 100% J&S with 15 years certain annuity. After a few year of taking his annual RMD, he passed away in 2018 and since then his wife (the survivor) has been taking the RMD based on the annuity that her husband elected. She now wants to take a Lump sum, and and after taking the 2021 RMD, will transfer the  lump sum to an IRA. Is a lump sum permissible, or must she continue to take the yearly annuity? Thank you.

Last year we took over TPA work on a medical practice's SH 401(k) with all assets held in pooled Schwab account.

Doctor took out plan loan at the end of 2019, and during 2020 made regular loan payments as deductions from his pay check.

When allocating earnings for 2020, do you allocate the loan interest only to the doctor?  Or is that interest combined with other plan earnings/losses and allocated across the board to all eligible participants the same as other plan investment income or losses?

Thanks!