Have a one person DB plan with no loan provision in the plan document. Apparently the owner / sole participant took money out of the plan because his CPA said he could do that and he had 5 years to pay it back. What is the proper way to correct the problem? Thanks.

Several articles have been published to the effect that Cannabis businesses can sponsor 401(k) and other qualified retirement plans. The basic theme of these articles seems to be that IRC sec. 280E would only restrict the employer's deduction for contributions to the plan, possibly affecting only a portion of the contributions, and that the Section 280E does not jeopardize the employees' tax treatment or the trust's tax exemption. Those points seem generally sound to me, but what about the 10% excise tax on nondeductible contributions under IRC sec. 4972? Are folks taking the the position that 4972(c) only describes contributions not allowable under IRC sec. 404, and the amounts would, generally, be allowable under 404, but it is only 280E that knocks them out, so IRC sec. 4972 does not apply? That seems like a possible argument, but somewhat aggressive, and I'm surprised that the articles I've found advocating 401(k)'s for cannabis businesses don't seem to mention the IRC sec. 4972 problem. Anyone else run into this?

A small profit sharing plan under audit was brought to us as their plan document was not amended timely.  It was amended for EGTRRA around 2009 and that was about it.  The auditor recommended updating their document, which was done and they now have current document.  However, while the auditor accepts that, since the document was not timely amended, they auditor is moving forward with audit cap to avoid DQ.

The plan appears to have been operated properly in all other areas.

Just checking on what an estimate amount of penalty the IRS would likely impose in this situation.  Any ideas?

Also, while hiring an ERISA attorney is never a bad option with audit cap, will it really make much difference in this case?  Is the ERISA attorney mainly there to negotiate a lower penalty?

Thank you for any replies

I understand it's likely permissible for a 401(k) plan participant to make elective deferrals on compensation in excess of the 401(a)(17) limit (assuming all other limits are not exceeded). Most plans I've looked at permit this with fairly obvious and simple language. Fidelity's document reads: 

In lieu of requiring an Active Participant to cease making Deferral Contributions for a Plan Year after his
Compensation has reached the annual Compensation limit under Code Section 401(a)(17), the annual
Compensation limit shall be applied with respect to Deferral Contributions by limiting the total Deferral
Contributions an Active Participant may make for a Plan Year to the product of (i) such Active Participant's
Compensation for the Plan Year up to the annual Compensation limit multiplied by (ii) the deferral limit
specified in Subsection 1.07(a)(1)(A) of the Adoption Agreement or Subsection 5.03(a), as applicable.

This is a strange way to say it to me. The AA has an elective deferral max of 100%, so pursuant to the formula in the above, the max a person's elective deferrals could be is $290,000 in 2021 (for a person whose comp exceeds 401(a)(17) in that year), and 402(g) would bring it back down to $19,500. Why does Fidelity's document make it this complicated? 

I have a group that was a MEWA for seven years. They never filed as a Multiple Employer although on their 5500 (they marked multiemployer by mistake). We will be amending. However, as a MEWA they were also to have filed the Form M1. They are petrified of dealing with penalties. We thought to attach a letter to explain. Has anyone witnessed a group paying hefty fines for not filing the Form M1? Did they go through an audit for amending the 5500 to be a Multiple Employer? Many thanks in advance for your help.  

A participant in RMD pay status passed away this year, and her plan beneficiary is her estate.  However, the estate is not responding to the plan paperwork to have the RMD processed.  What can be done?  I know there's generally a 50% penalty to the participant if the RMD isn't paid by 12/31/21, but I don't think the participant herself cares at this point - would the penalty pass through to the estate?  Thanks.

Plan terminated.

MOST of the assets paid out.

One recalcitrant participant keeping brokerage account open, and not heeding calls to distribute the account.  About $50k in there.

Participant is NOT lost.  She still works for the company.  In fact, she answers the phone!

Can the plan administrator still force her out?  What is the cite?

I have a participant in a plan that had a signed TEFRA election to delay RMD processing.  This is the only one I've ever seen.  The participant is now fully retired as of 12/31/2020 so I believe he now has no choice but to take an RMD for 2021.  Per the election signed in 1983 it states

Specifically, I request that funds held for my benefit shall not be subject to distribution prior to my retirement, death or other separation from service with the corporation, or any successor employer

Thus since he is now retired from the employer it appears he has to start taking his RMD - is there anything I could be missing?  

A plan’s sponsor wants to provide an automatic-contribution arrangement for some specified classes of non-highly-compensated employees, but not others.  (All highly-compensated employees would be excluded.)

May a plan provide this without tripping on a tax-qualification condition?

Is it feasible to provide this using an IRS-preapproved document without losing reliance on its IRS letter?

Looking for billing software that works well with quarterly billing, flat fee+ per participant formulas.  Anyone had great success with a particular package?  Not quickbooks.

We have a client that is currently utilizing a 2 month eligibility requirement. They are changing the eligibility requirement to 12 months effective 1/1/2022. My question is an employee hired September 1, 2021 would be eligible as of November 1, 2021. The employee begins deferrals on Nov 1, 2021. on 1/1/2022 when the eligibility requirements change would the employee then be required to wait until September 1, 2022 to begin contributions? Or would they be somewhat grandfathered in under the 2 month requirement?

Pardon my igmorance, I have not had this issue come up in quite awhile.

One of our clients maintains a profit sharing plan, one individual has a life insurance policy owned by the plan and he has terminated employment.

As far as I can remember, the choices are either to surrender the policy for its cash value and the deposit the cash value into the participants' individual account - just a change in investments  OR

participant buys the policy for the cash value from personal funds

Questions - when he purchases the policy, where does that money go?  Part of the general assets of the plan, or into the individual participant's account?

If the money stays in the plan, is it allocable to the remaining participants?

I plan sponsor started a new 401k plan in 2020 and gave instructions to the payroll company that a 1 year/1000 hours eligibility requirement to enter the plan was desired.  No auto-enroll.  Someone at the payroll company dropped the ball and did a 3 month elapsed time eligibility condition and included auto-enroll with it.  The payroll company has kind of fessed up to it being their mistake.  We now have several participants with employee and employer dollars in the plan due to the early eligibility and auto-enroll who were never intended to be in the plan.

is this something that can be fixed via an IRS correction program?  The employer would like to treat these individuals as ineligible and refund their 401k amounts if possible all due to mistake of fact.  Other options would included amending the plan to do away with auto-enroll and the 3 month eligibility, but that would help for new employees and would not fix the existing employee problem.  He could also bite the bullet and keep everyone in the plan, but terminate the plan and pay them out.  But that would mean he could not start up a new plan until at least 2023 and he would like to have a plan in place without disruption.

Thank you for any replies.

A new solo medical practice established this year.  A 401k plan was created this initial year as well.  The doctor has no employees at this time.  The doctor's spouse is working during this initial year to help establish the practice.  The doctor would like to pay the spouse for services and the spouse would then like to deposit a portion of that compensation into the plan.

With no other employees, the doctor does not currently have a payroll service and would like to not have to use one until employees are hired, likely next year.

Without using a payroll service, Is there a way for the doctor to pay her spouse for (legit) services to the new practice so that he can be considered an employee?  If he is paid as a 1099 employee, can a plan document be written to include him as an eligible employee for the 401k plan, which would allow him to contribute 401k/Roth/after-tax?

Thank you for any comments

I, the client's TPA, did not file the 5500 that was due Jan 15, 2021 for the 2019 plan year.  The deadline was extended b/c of Hurricane Sally, therefore it was due on Jan 15, 2021.

I am willing to pay the $750 DFVC fee myself, but am coming here in hopes that someone knows of a way I can plead my case.  The client has NOT received notification from IRS or DOL; I discovered my error when I was filing his 2020 5500.  I don't know why I didn't file his 2019, it looks like I began the process.  Who knows what happened back in Jan 2021.

Any ideas?  Thanks so much!

I was asked this question a week or so ago and have been putting it off hoping this person would go away.  He hasn't.  I have read that there are companies who promote real estate in plans.  I see it as a big pain in the .... butt.   Here is what he wants to do and also what I want to tell him -

He wants to purchase an apartment building.  He informs me that he is in escrow to purchase and intends to get a loan AND wants to use some of his pension money to complete the deal.  Doesn't sound ok to me. Maybe a great investment, but IDK if he can legally do it.  Am I correct in thinking this is a prohibited transaction at it's simplest?  He will benefit personally outside the plan with the help from his pension.  IDK, maybe there is a way to pull this off but I clearly don't know the way.  He is concerned about prohibited transaction rules which impresses me, he is concerned and wants to do it the right way.  He is asking me if I know anyone who could advise him how to complete the transaction.  I was going to tell him to find an ERISA attorney in his area ( I am east coast he is west).  

Am I right... steer him towards an ERISA attorney and let him/her educate him on the legalities of this type of investment?  and if it can be done how it needs to be structured.

Thanks

I know this has been discussed in the past, but I'd like to see what, if any, experience you've had. And if so, has it been different for 401(k) and 403(b).

We just had a 403(b) client receive a letter from the DOL, inviting them to use the VFC program. First one we've seen. This was generated from the 2019 5500 form, which showed late deposit of deferrals. Total interest correction was something like 30 dollars, it was corrected promptly, and excise tax was paid. The DOL calculator was used to determine the lost interest, but VFC program was NOT utilized. I know that the Philadelphia region was saying that the DOL could consider it not "fully corrected" if the DOL calculator was used but not VFC filing was done.

This letter was out of the Boston region, not Philadelphia.

So, first, is everyone getting these letters, and in other regions? Or maybe this was just random.

Second, has anyone yet contacted the DOL person listed on the letter in such a situation with extremely minor amounts involved, and if so, with what result?

Third, has anyone heard of/experienced an audit that was initiated because, after receiving this letter, they did not utilize the VFC program?

It just goes against the grain to have to do a whole VFC filing on some of these plans where the lost interest is $1.18. But if an audit is triggered absent a VFC filing...

Thank you for any thoughts or actual experience on this.

If a 401(k) plan owns a term life insurance on the life of a participant, and the participant dies, the death benefit goes to his children as beneficiaries. The children are requesting that the death benefit, which is income tax free, be directly rolled over into a Roth IRA. I see no problem with this but their accountant is saying that an income tax free death benefit can't be rolled over to a Roth IRA.  Does anyone agree with the accountant?.