Where do you indicate a deemed distribution due to loan default on 2020 Form 5500- Schedule H? Would it appear on line 2e(2) or line 2e(1)?

Scheduled to be published 9/15.

Includes audit waiver eligibility based on account balances rather than eligible participants.

https://www.federalregister.gov/public-inspection/2021-19714/annual-information-returnreports

Company A is 100% owned by Husband and has a 401k plan. His spouse works there but has no direct ownership, just the required family attribution. The spouse started her own business in 2020 and is doing so well that she would like to do a SEP for 2021. Husband has no interest in her company and does not work there.

Under section 1563 rules = attribution does not apply if all four of the following conditions are satisfied

1. Spouse does not hold direct ownership in the business

2. Spouse is not an employee and does not participate in the management of the business

3. Business income form passive investment does not exceed 50% of the gross income for the year; and

4 Owner's interest is not subject to disposition restrictions in favor of his/her spouse and the couple's minor children

Based on item 2 if she works and is paid by his company they don't meet all the conditions and thus would be considered a controlled group - correct?

Years ago we used to send a letter to the IRS when the name of a plan associated to a Trust ID number changes.  Is this still required?  To what address?

So hey, what if there's a first, vested, accrual (in my case, a cash balance credit) as of 12/31/2020 for the owner and no money's been put in the plan by his RBD of 4-1-2021?

And does the answer change if the plan was adopted before the RBD, such that "we knew this would be due...."

(I expect the RMD to be paid via an in-service distribution of his entire benefit so that he can use the DC method, too, and roll the rest to his IRA.  That's got me thinking about an interest adjustment for the late payment, too.)

Any thoughts appreciated.  thanks.

Oh wait, am I okay since the 4-1 date would have been the 2020 RMD which was based on $0 accrued benefits, and then at some point in 2021  we adjust for the new 2020 accrual?  Getting my DB/DC RMDs swirling in my brain.

-bri

I've always filed the Form 5500 on an accrual basis, but we've been taking over quite a few Plans that have been filing the Form 5500 on a cash basis.  Now I'm curious if there's a benefit to utilizing either method, or does it not really matter?

In these cases, would it be best to keep moving forward on a cash basis for consistency or would moving to an accrual basis be alright?

Thanks in advance (and as always, sorry for all the questions!)

Two situations: (i) the 401(k) plan provides for a segregation of the A/P's entitlement into a separate account; and, (ii) the 401(k) plan does not mention segregation into a separate account but seems to contemplate a direct rollover or distribution to the A/P.  

Question:  Is there any time period within which the A/P musttake a distribution or rollover?  I am looking at 1.409(a)(9)-8 Q/A-6(b)(2) and don't have a clue if it says what I think it says - that the A/P can leave the funds in a segregated account until the Participant reaches age 70-1/2.   

The language is: 

"(2) Distribution of the separate account allocated to an alternate payee pursuant to a QDRO will satisfy the requirements of section 401(a)(9)(A)(ii) if such account is to be distributed, beginning not later than the employee's required beginning date, over the life of the alternate payee (or over a period not extending beyond the life expectancy of the alternate payee). Also, if the plan permits the employee to elect whether distribution upon the death of the employee will be made in accordance with the 5-year rule in section 401(a)(9)(B)(ii) or the life expectancy rule in section 401(a)(9)(B)(iii) and (iv) pursuant to A-4(c) of § 1.401(a)(9)-3, such election is to be made only by the alternate payee for purposes of distributing the separate account allocated to the alternate payee pursuant to the QDRO. If the alternate payee dies after distribution of the separate account allocated to the alternate payee pursuant to a QDRO has begun (determined under A-6 of § 1.401(a)(9)-2) but before the employee dies, distribution of the remaining portion of that portion of the benefit allocated to the alternate payee must be made in accordance with the rules in § 1.401(a)(9)-5 or 1.401(a)(9)-6 for distributions during the life of the employee. Only after the death of the employee is the amount of the required minimum distribution determined in accordance with the rules of section 401(a)(9)(B)."

Thanks for any help.  

David

Can an employer use health FSA forfeitures to defray administrative expenses of other ERISA benefits (for example among many, pay heath plan TPA fees) without violating ERISA's "exclusive benefit" rule if the heath FSA and the other ERISA benefits are part of one ERISA "wrap plan"?  Assume that the plan document so provides and that the employer keeps all FSA and other employee contributions in its general assets in accordance with DOL guidance.  Also assume that there are different participants in each of the employer's ERISA benefits.

Thanks!

I have a client who wants to open a Solo 401(k) for his S corporation; He is a real estate agent and the S corporation is the entity that gets the agents portion of the real estate commission. However, he owns 33% interest in the brokerage firm that he sells out of (the brokerage firm is a partnership) and he owns this interest individually. The brokerage firm pays his S corporation the real estate sales commission when a property is sold. The brokerage firm has 3 employees. It is very common in real estate for real estate agents to be independent contractors and have their own entities separate from the brokerage firm that they represent. In this case though he has an ownership in both his real estate entity that he uses for houses he sells and he has ownership in the brokerage firm.

I have determined that there isn't an A-organization relationship because the S corporation doesn't have an ownership interest in the brokerage firm and vice versa. I also don't think there is a management group because the S Corporation doesn't get paid to provide management services to the brokerage firm or vice versa. 

I originally thought that this would have been a B organization with the S corporation being the B-org and the brokerage firm being the FSO until I read the following from the ERISA Outline Book:

• 1.a. Significant portion test. The B-Organization must derive a significant portion of its business from the performance of services for the FSO, or for the A-Organization(s) related to that FSO, or any combination of such organizations. Notice that the indirect service test under the A-Organization definition (i.e., regular association in providing service for third persons) is not applicable here. The services performed by the B-Organization must be for the FSO and/or A-Organization(s).

The underlined portion above makes me think that in order to be a B-organization the B-Org has to provide services exclusively to the FSO and not to third persons (like people who go to a real estate agent to help them buy/sell a property). I think the argument could be made that both the S corporation and the brokerage firm are providing services to third parties and are not providing services exclusively for/to each other. Based on the wording in the ERISA Outline Book this wouldn't be an affiliated service group and the owner would be okay to open a 401(k) plan that just covers the S corporation; he wouldn't have to consider the 3 employees that work for the brokerage firm in coverage testing. 

Does anyone else have any other thoughts? Would love to see anyone else's opinion on this. 

New user.  Appreciate the forum.  

EPCRS 2021-30 provides that for a 401(k) plan that does not satisfy § 401(k)(3) by applying the safe harbor contribution requirements of § 401(k)(12) or 401(k)(13), "...missed deferrals are determined by multiplying the actual deferral percentage for the year of exclusion..."  

The plan did not do a nondiscrim. test, and I am wondering: can we use a different calculation to correct this issue?  

Grammar edit

Company sends out an email to all employees before the entry dates to notify them that it is time to enroll or change their elections.   Eligibility is one year (1,000 hours) and then enter on 1/1 or 7/1 following.    A key employee's wife who is part time, was eligible for the plan as of 7/1/2020.    She did not enroll in the plan, and administrator missed her in the 2020 safe harbor calculation because of her part time status and didn't realize she worked more than 1,000 hours in 2019, she worked 936 hours in 2020.   Her date of hire was 1/7/2019 and she worked 1, 039 hours in 2019.

Is the email that was sent enough proof that she was notified? or is a corrective contribution needed.   They don't individually notify anyone  and never have had an issue. 

Getting questioned on the setup, so I wanted to make sure there wasn't an issue.  Client wants to set it up as 500 for a Year ofAccrual Service (so they are eligible to receive a contribution) but 1,000 hours for a Year of Vesting Service.

Cash Balance Plan.  Entry is going to be 21 with 3 months of service.

Thanks in advance everyone!

Is it typical for participants in one 401(k) plan with pre-tax and Roth to have the same investment elections or is it typical for a participant to choose an investment election for pre-tax and a separate election for Roth?

Thanks!

Hi

A hypothetical (might be reality soon) situation - never had to deal with it, believe it or not:

2020 required contribution is 150k and sch c income is 0.

Client has the money to make the deposit and will do so by 9/15.

A few questions:

• Will this amount be part of 2021 deduction?
• For 2021, say another 150k required contribution and another loss on the schedule c. What happens, carries over 300k as non deductible for future years and can deduct in future years?
• 2021 has a good schedule c income and the 404o limit is over 300k. Can he deduct for 2020 and 2021 contributions as the total will be less than 404o limit?
• Anything else i am not asking?

Thanks

Currently our plan has no age/service requirement for deferrals and the non-safe harbor match.  The non-safe harbor match is a payroll period match with no other allocation conditions.  The owner is trying to save some money and would like to amend the plan now to change the eligibility requirements for participation in the non-safe harbor match plan component and require an employee to be at least age 21 and have a year of service.  I understand from the TPA that this would be allowable, just as long as we pass coverage testing and ACP testing.  For the ACP component plan, the TPA is saying that we need to include in the testing group anyone who is eligible to defer, which would mean a lot of these employees who don't meet the new eligibility requirements for the match would be counted as receiving 0% match.  I was thinking we would be able to exclude the employees who don't meet the new age 21 and year of service requirements.  Can someone explain how these tests would work with the dual eligibility requirements? Thanks.

I have a plan that only has 3 participants and only the owner salary defers.  During 2020 and part of 2021 there was a mess up at the payroll company and the salary deferrals were not deposited into the 401(k) account at all.  The deferrals were withheld from each payroll just not deposited.  If this only effects the owner is it necessary for him to pay lost earnings to himself and then is it further necessary to file a 5330 for him to pay penalties for himself?

I'm sure most of us are familiar with Rev. Rul. 2019-19, which essentially says that an uncashed distribution check is still taxable and subject to reporting and withholding for the year of issuance.  If the individual actually cashes the check in a later year, it is not subject to tax, reporting, or withholding in that later year.  Has anyone seen guidance on how to handle reporting where the initial distribution was a direct rollover, but the participant never provided the check to the new institution?  What if the participant requests a new rollover in a later year?  Obviously, there are no tax or withholding implications of a direct rollover, but should another 1099-R be issued?  I would think so...  

Who is responsible for filing the 5500--plan administrator or trustee?

We have a client whose business closed.  Unbeknownst to us, they terminated the plan and paid all the assets in 2021.

Obviously, they have to file 2020 and 2021 5500s.

Client says "who will know"  if they don't file any more 5500s?  I know that answer. Plus, he says, there's no more money to pay us for the 5500.

But if they don't file, who does the IRS/DOL go after?  The plan administrator or trustee?

Can IRS/DOL go after his personal finances?  I know for fiduciary breaches they can do that.  Is filing the 5500 a fiduciary act?

I want to impress upon him the gravity of the situation, but I want to properly put the fear of God in him.

Suppose you have a former 25% partner in a firm that has sponsored a 401(k) plan for many years. The partner has been winding down and will have less than a 5% capital and profits interest in the firm before his required beginning date in 2022. He eventually just plans on being an employee indefinitely with great work hour flexibility. 

Since his interest went below 5% in the year before the year he would normally begin taking RMDs (and will stay below 5%), I would think he would qualify for the RMD exception. Anyone agree or disagree?

Suppose a small non-covered DB plan terminates with excess assets.

The plan document contains a maximum benefit of $3,500 payable at normal retirement age. No participant is close to their 415 limit. However, one participant has accrued a $3,500 benefit prior to the plan termination date.

The plan has excess assets of $21k. Normally, we would simply allocate the excess to all participants (3 in this case) in a non-discriminatory manner.

I would think (but am not sure) that the one participant at the $3,500 maximum could not be allocated any of the excess. Does anyone agree / disagree?

Thanks.