With all the new hardship distribution rules, is anyone still advising the Plan Administrator to get proof of hardship in case of plan audit?   Participant wants to take 100% of his funds ($360,000 plus).  He provided the wording below from the IRS to show he did not have to submit proof:    Also, he claims the IRS told him via phone call he did not have to submit proof. Thank you! 

3. How does a participant show that he or she is experiencing a hardship?

Generally, if a 401(k) plan provides for hardship distributions, the plan will specify what information must be provided to the employer to demonstrate a hardship. Most 401(k) plans use the "deemed necessary" rules described in Q&A-2 above, so that inquiry into the employee's financial status is not required. In other cases, an employer may generally rely on the employee's representation that he or she is experiencing an immediate and heavy financial need that cannot be relieved from other resources. However, an employer cannot rely on an employee's representation if the employer has actual knowledge that the employee's need can be relieved: (1) through reimbursement or compensation by insurance; (2) by liquidation of the employee's assets; (3) by stopping elective contributions or employee contributions under the plan; (4) by other currently available distributions (such as plan loans) under plans maintained by the employer or by any other employer; or (5) by borrowing from commercial sources. (Reg. Section 1.401(k)-1(d)(3)(iv)(C))

I have a very unique plan situation, one the plan that is terminating due to acquisition some of the participants are 72 1/2 and are eligible for RMD now they Advisor has stated since the participants are not terminated  from their employment in terminating plan and are just acquired by the acquiring company these participants will not be subjected to RMD  since they are not terminated employees is that true? 

Does Employment status play a key role in RMD? I thought once the participants attain 72 1/2 they are required to take the RMD also since the plan has terminated and they will be a distribution event so the participants will require to take the RMD correct?  

A participant in a 401k plan deferred more than the 402g limit in 2020. An appropriate refund check was issued timely. But the participant never cashed the check. Now it's past the deadline. If he cashes the check now, is everything ok? If the check goes stale dated and a new one has to be re-issued, can it be done under the original check date? If not, I assume the funds just have to stay in the plan, leading to double taxation on the excess.

An owner of a sole proprietorship made deferrals from compensation. However, the owner also had losses and the net compensation for the year was $0. How would you distribute the excess? Would it be using code "8" (assuming the deferrals were pre-tax)?

Thanks,

This should be simple but I am struggling for an answer..

I have a participant that requested the maximum loan available. 

Did the loan paperwork.     He returned paperwork and the market has gone down. 

Can i process for the amount on paperwork or do can he only have the maximum on the date it is processed?

If the later, do I have to redo the paperwork for the new amount?

Thank you!

Pretax eligibility is 3 MOS     SH Match eligibility is 1 YOS   Plan is now top heavy

It is my understanding the plan cannot use the top heavy exemption.  Based on this, it is my understanding that the top heavy minimum contribution needs to pass coverage testing.  Well, it does not.  The coverage ratio is 48.75%.  The plan passes ABT, but since the coverage ratio is below the 50%, it does not pass coverage.  I believe the only solution is to add people back into as "benefiting".  Does this seem reasonable? 

The plan design is not ideal for top heavy plans.  I would have the plan change the eligibility requirements going forward, but they are in the process of terminating the plan.    

I had a case recently where an ERISA qualified union plan provided a pro forma set of QDRO procedures and a Model Order for a shared interest in it's defined benefit plan.  There was no mention of survivorship, that is, no mention of the availability of a QJSA or QPSA options.  I used their Model Form as a rough guide, but added language providing the Alternate Payee with a 100% QJSA and a 50% QPSA as agreed to by the parties in their Marital Settlement Agreement incorporated in the Judgment of Absolute Divorce. 

The Plan's attorney responded that the Plan did not permit QJSA or QPSA options.  I responded quoting IRC 414(p)(5), IRC 401(a)(11), 26 CFR § 1.401(a)-20 - Requirements of qualified joint and survivor annuity and qualified preretirement survivor annuity, Q. 3-5 and Appendix C of the attached DOL, EPSA pamphlet, and referring them to https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-qualified-joint-and-survivor-annuity.  

The attorney responded that they would permit the QJSA or QPSA options, but that I could not specify the percentages.  (The Plan provided that the QJSA had 50%, 75% and 100% options available; and the QPSA had 50% available.) I responded by reminding them of their obligations as Plan Administrators to provide informations about plan benefits to Alternate Payees (Questions 2-1 and 2-5 of the attached DOL,EPSA pamphlet), and sent them a copy of the PBGC Model Order Booklet,PBGC booklet,  Page 12, Section 10  reflecting the option of inserting any available QJSA or QPSA percentage agreed to or ordered by the trial court.  I also suggested that legal fees were awardable to the Alternate Payee for their failure to fulfil their obligations, citing 29 USC Section 1132(g), 28 USC Section 1927, and Chambers v. Nasco, Inc., 501 U.S. 32, 44–46 (1991) outlining the court's inherent power to assess attorney fees especially when a party is litigating in bad faith.  https://scholar.google.com/scholar_case?case=12894484016394117131&q=chambers+v.+nasco,+inc.&hl=en&as_sdt=20000003  

The QDRO was finally approved as I have drafted it.  

It was unmistakably clear that the attorney for the Plan was intent on protecting their Participants to the detriment of their former spouses, and hoped that persons less knowledgeable than I would not know the difference.  Perhaps this happens all the time and I am just naive.  But it never happened to me in the 33 years I have been preparing QDROs.     

What do you think I should do, if anything?  Any ideas?  

Thanks, 

David        

DOL re QDROs.pdf

Partner in plan had ordinary business loss on K-1 of -470,100 but had guaranteed payments of 302,576.  Line 14 ED loss of -168,060.  Partner made $17k in deferrals during year and received match of $7500. 

Question 1 - Is it correct that due to the negative SE earnings he should not have been able to do deferrals or recieve a match?

Question 2 - Plan terminated and all participants including partner have been paid out.  Partner rolled his assets to IRA.  If he could not do deferrals for year - I believe we have to get the IRA custodian to liquidate and pay him out the excess deferrals - correct - most likely with some sort of earnings.

Question 3 - if he can't have the match - that too has to come out of the IRA with earnings - but since the plan participants have all been paid out and the CPA doing the plan audit and TPA who did the compliance work have both been paid in full in advance - what if any options exist for the excess match?  Does it have to be allocated to all the participants in the plan and supplemental distributions be complete?

Do the successor plan rules apply to a one participant plan?

My client is self employed, sponsors a DB plan, no employees.

For 2020, he is not showing any Schedule C income; he has arranged to deposit $6000 per month into the plan brokerage account.

The accountant at least knew he could not deduct as a pension expense and "buried" the amount.

Would this amount be shown as contribution on SB?

Plan fails 2019 ADP test, but refunds never done.  Correcting now under EPCRS using the one-to-one method.

Are the refunds still considered "late" and therefore subject to the 10% penalty tax?

Are they late in filing the 2019 5330 and thus subject to more penalties?

I have a scenario where a one participant plan recently terminated their plan and is hoping to start a new 401k plan. Do the successor plan rules apply here and must the client wait 12 months before establishing the new 401k plan?

Here is the situation.  We are filing Form 5330 for a prohibited transaction between a plan and the employer.  The plan is on a 12/31 calendar year, and the employer is on a 6/30 fiscal year.  Do we have the option to file the Form 5330 with either a 12/31 or 6/30 fiscal year end?  The instructions seem to indicate that is the case.  Thank you.

Specific Instructions for Form 5330

Filer Tax year.  Enter the tax year of the employer, entity, or individual on whom the tax is imposed by using the plan year beginning and ending dates entered in Part I of Form 5500 or by using the tax year of the business return filed.

Group:

I'm a new user to ftwilliam software.  Even though I've drafted and worked

with a number of S ESOP plan documents over the years.

Ftwilliam seems to be one of a few firms in 2021 with an IRS Pre approval letter they received

for their ESOP Plan document which was

dated June 2020 from IRS. (ftwilliam didn't release the letter to users until Mar 2021)

Even with the pre approval letter are you (as ESOP practitioners) still filing an application for determination of initial qualification (form 5300? 5307?)?

Thoughts and comments appreciated.

In my daily perusing of employee benefits and executive compensation news, I came across an article discussing Trevor Bauer's contract with the Dodgers.  The article stated:

Quote

 

Bauer received a $10MM signing bonus, $5MM of which was paid in March.  The other $5MM will be paid next month.  Beyond that, his 2021 salary is $28MM, but with the quirk that it’s all payable on November 1st of this year.  Here’s what happens if he opts out after the 2021 season, according to Cot’s:

Bauer may opt out of the contract after the 2021 season, receiving a $2M buyout, with Dodgers deferring $20M of 2021 salary without interest, paid in $2M installments each Dec. 1, 2031-40

 

Doesn't Section 409A prohibit such an arrangement?

One owner has two entities, currently no employees.

Can he have different plans for each one and contribute the maximum to each?

One currently has a SEP the other is starting up a new 401k PS plan.

Organization A is a tax-exempt organization under Section 501(c)(3) and maintains a 401(k) Plan.  CEO of Organization A is a highly compensated employee for Plan Year 2020, which causes the Plan to fail minimum coverage testing.  CEO wishes to lower his compensation so that he is no longer a HCE for future years, and instead receive the same amount of compensation from Organization B, which is also a tax-exempt organization.  The two tax-exempt organizations are not under common control under the rules of 1.414(c)-5(b), and thus do not appear to be related employers. (80% of directors of one organizations are not representatives of, or controlled by, the other organization).

If CEO of Organization A wishes to lower his compensation from Organization A, and receive that same amount from Organization B to make up for that (in an attempt to keep his compensation the same, but avoid violation of minimum coverage rules for Plan maintained by Organization A), does this violate the anti-abuse rule of Section 1.414(c)-5(f)?  That rule states as follows:

"Anti-abuse rule.—

In any case in which the Commissioner determines that the structure of one or more exempt organizations (which may include an exempt organization and an entity that is not exempt from income tax) or the positions taken by those organizations has the effect of avoiding or evading any requirements imposed under section 401(a), 403(b), or 457(b), or any applicable section (as defined in section 414(t)), or any other provision for which section 414(c) applies, the Commissioner may treat an entity as under common control with the exempt organization."

Not finding any guidance on the subject.  Does not appear I can get around the Anti-Abuse rule, but thought I would see if anyone had seen anything like this before.

A 401(k) plan with a Relius document allows "partial withdrawals in excess of the required minimum distribution."  A retired participant took her RMD in February, plus an additional partial withdrawal of $2k.  Now she wants another partial withdrawal.  Can the document language be interpreted as allowing multiple partial withdrawals in the same year that are not distributed at the same time as the RMD payment?

The client has an existing 401(k) Safe Harbor Match plan where Key Employees participant. This plan has immediate entry.  A Cash Balance plan and a Profit Sharing plan are added, where Key Employees also participate.  The Cash Balance and Profit Sharing plans have a one-year wait for eligibility.  

Question #1......Since Key EEs participate in all three plans, I believe all three plans are part of the 416 required aggregation group.  The 416 required aggregation group is Top Heavy.  Does the 401(K) Safe Harbor plan lose the Safe Harbor Top Heavy exemption, and now have to provide 3% of Compensation to those that are in the 401(k) Safe Harbor plan but not yet in the CB or PS plans?  I believe the answer is no.

Question #2..... The CB and PS plans only benefit employees of specific job classifications (i.e. dentists, hygienists and technicians), and would satisfy the subjective reasonable classification test.  If each plan individually passes the 70% coverage ratio, then I think I'm good and no need to do ABT.  However, it's not looking like that's possible and I'm going to need to do ABT.   If I need to do ABT, I believe I'm required to pull in the 401(k) deferrals and Safe Harbor Matching contributions.  Is this correct?

Question #3..... If the 401(k) Safe Harbor plan is pulled in for ABT, have I blown the Safe Harbor TH exemption and now have to provide a 3% of Compensation TH Minimum to everyone who is in the 401(k) Safe Harbor plan but not yet in the CB or PS plans?  I think the answer is yes because now I'm using the deferrals and match for coverage.  Side note.... If I include the deferrals and SH match I easily pass ABT, then also easily pass 401(a)(4).

Multiemployer Partial Termination occurred in 2020.  Facts & circumstances - Plan is  > 100% funded (no With Liab or "to the extent funded" issues).  Single large employer who was the only one in the region of the country, shutdown.  Plan's permanent break is 5-years.  Must plan vest back to 2015?  Hyperbole - participant earned 501 hours (1/2 credit) in 2015 and quit.  Must plan protect and vest his accrued benefit for the 1/2 year of service ?