I'm dealing with an issue that has occurred over the past nine years. The TPA of our NQDC plan, a bank, issued 1099-Rs to report distributions made to our ex company President (not an owner). Last year it was realized that the company should have been issuing W2s to the ex employee once his distributions began back in 2011. We worked with our tax accountant to rectify the situation for the previous three years. We submitted W2s and paid FICA taxes on the distributions but did not report federal income withholding taxes. The problem is that the ex employee has received a letter from the IRS stating that he underreported income. The reason is because his total distribution was reported twice - a W2 from the employer and a 1099-R from the bank (TPA). I'm trying to convince the bank to void the 1099-R. Their argument is that they withheld income taxes and it needs to be reported. Has anyone dealt with this issue? Can anyone provide a good argument to provide to the bank?

Sponsor had excess DB assets and moved to a QRP in a suspense account.  We have been transferring roughly $50k a year (whatever the 415 max is per year).  2019 was the 7th year.

There is still about $180,000 left in the account.  What happens to those funds?

Hi, 

The 401k plan that is terminating, there are few participants who have balance from prior ESOP deferral, Match. Will I need to follow the normal plan termination ( 401k plan)  or since they is balance from the prior ESOP plan I need to consider anything else? 

Thanks

A client of mine just received a letter from the IRS about their 2018 Form 5500.

Apparently the trigger for the letter was a "significant reduction in plan participants" and also showing more than zero participants who terminated with unvested benefits on the 5500. For the year in question, the total number of participants at the beginning of the year was 15, and the total at the end of the year was 10, which is a 33% reduction. However the reduction was all terminated participants who took their distributions. The 20% number for a presumed partial termination is in regards to turnover, which means active employees, right? You can't have turnover of people who left in prior years.

The number of active participants at the beginning of the year was 7 and at the end of the year it was 6. Only one person actually terminated during the year and that person was less than 100% vested under the plan's vesting schedule.

What is the IRS doing sending letters and scaring sponsors over non-issues like this? Has anyone else seen a letter like this recently?

Hi

Company A had a DB plan which terminated 12 years ago and paid out all during that time - it was PBGC termination.

They started a new CB plan effective 7/1/2019 with plan year ending 6/30/2020.

Vesting service started with the inception date i.e. 7/1/2019. It is 3 year cliff.

Owner's spouse was in the old plan and had been working however without any salary for the past 10+ years.

Suddenly, they decided to include the spouse effective with 7/1/2020 plan year. Did the amendments and even added a special eligibility clause to add him effective 7/1/2020, just in case.

The DOB is 7/15/1950.

When is his first RMD due?

Thank you for your comments.

I am working with someone who was named as the primary (non-spouse) beneficiary of a 457 Plan.  Two (2) days after the plan owner's death, the mother phoned Human Resources of the deceased employee's business and had them (Human Resources) submit a beneficiary change to her - the mother....and they did !   Is there a scenario where this is actually legal ?   

 DB Plan adopted for lawyer back in 2010 and used prior service to establish high3 EI comp, which is $175,000. 

Current yr is 2020, EI  after "salary"of $80,000 and before pension=$200,000. 

2020 DB MRC is $225,000.  The company contributes 200,000 by due date for 2020 tax year  ( 4-14-21) and $25,000 after 4-15-2021.

Company will deduct $200,000 for 2020 and $25,000 for 2021 under 404(a)(8), with the total $225,000 contribution reported on 2020 SB. ( covered at '16 EA meeting.)

This will reduce the 2020 taxable Earned Income ( after pension deduction) for 2020 to zero.

Nevertheless CPA recommended client to also make a 25% profit sharing contribution for 2020 based on the estimated EI of $200,000 and pay and deduct it for 2021.

Questions:

The MRC is based on the original high 3 EI per the plan doc and unrelated to 2020 EI, at least as far as pension contribution is concerned.  But how does this impact the current EI for DC benefit computations? Wouldn't the EI be zero and therefore no DC contribution possible?

Appreciate any feedback. TY

Can someone point me towards any applicable rules prohibiting cafeteria plan contributions without a reasonable expectation of use?  I feel sure this can't be allowed, but I'm struggling to find specifics.

Obviously, the goal is to increase compensation on paper to allow for a larger profit sharing distribution annually.  The non-ERISA plan funds would typically all be forfeited back to the business each year.  

You could argue that anyone could 'acquire' a dependent any given year, but I wouldn't try to argue that's a reasonable expectation.  It doesn't seem to pass the sniff test, but I can't even find what sniff tests might apply.  Any help would be much appreciated.

Companies A and B are a controlled group.  Both had their own plans... both exactly the same design (hey, they wanted 2 separate plans).   I was handling the 2 plans up to the point where ADP stepped in with a bigger better way to handle everything.  My services were terminated.  This all occurred December 2020.  I pressed to let me finish 2020 and let ADP take over first of the year nice and fresh.  I was told that was not necessary that ADP would handle the 2020 Form 5500 (in writing).  

Come to find out they terminated Company A's plan and rolled it into company B's plan.  All assets liquidated and transferred.  Thing is.... Company A's plan was not whole.   They moved the money even though the SH Match wasn't deposited.   Is that ok?  Since A's plan merged with B's, can B's plan accept the receivable SH Match?  It is a control group situation.  

Thanks

In a profit-sharing only plan, is anyone aware of a problem with paying a terminated participant an amount equal to any account forfeitures upon termination? For example, a company hires a "turnaround" CEO with all parties planning on, say, a three-year employment period with immediate eligibility in a PS-only plan with a six-year graded vesting schedule. As an incentive, the company offers to pay the employee a bonus upon termination of an amount equal to the unvested portion of the employee's PS account that is forfeited upon termination. 

The payment would be taxable and entirely outside the plan. The forfeitures would stay in the plan and be used according to its terms. There are no deferrals (or elections not to defer) so the contingent benefit rule would not come into play. I don't think the BRF rules would apply as the payment would take place entirely outside the plan. All contributions, vesting schedules, etc. are applied according to the plan's nondiscriminatory terms. 

The bonus payment itself would become nonqualified deferred compensation subject to 409A, but one payment upon termination is straightforward. On a quick pass, the linked plan rules seem manageable.  

Am I missing anything that would make this problematic?

Hello,

Made a Roth IRA contribution in April 2021 for Tax Year 2020. 

Got an extension to file taxes.

Found that I have made 1K contribution more than allowed. 

I thought Fidelity could just reduce the amount for 2020 by 1K and put 1K as contribution for 2021 as this is Roth IRA and contribution was made in 2021.

But it seems that they cannot do it past filing deadline of May 31 this year.

What is the best/easiest way to handle this? There seem to be a few ways here.

Age less than 57

Thanks

I would like to understand implications of extending the expiry date of vested ISOPs beyond the plan expiry date for optionee and employer -

Optionee had vested options provided by the employer. Employer is a privately held company. Before the options expired, optionee, over email expressed to the CEO, Founder-Chairman, intentions to exercise all the vested options and requested for paperwork and guidance on the next steps. CEO emailed back to optionee explicitly stating that optionee's options stand extended for another 5 years and during this period they will continue to remain vested exercisable. 

Fast forwarding 2 year later, optionee continues to be the employee of the company. Founder-Chairman has brought new CEO who is rolling out a new ISOP plan with different terms and conditions than the previous plan. 

Questions seeking answers for -

1. What choices company has to make true to the promise previous CEO made to the optionee? 

2. In each of the choices what are the tax implications to the optionee? 

3. Optionee's preference is to exercise the options and would like company to issue the stock instead of any cash options. How does company fulfill this? 

The client thought they had filed the 5500 for their welfare plan when it was signed on 7/21; however it was not realized until 8/4 that it was never actually filed, so they filed on 8/4.  The deadline of July 31st which fell on a Saturday so the next business day was August 2nd.  So it was technically filed 2 days late.  I know the DOL can assess penalties per day for being late.  What’s the likelihood the DOL will penalize them?

Hi

Looking over for possible takeover dc plans.

They have been filed on a cash basis in the past.

I neither like nor believe in cash basis filings as my reports must match my filings, old habits.

As far as I know, consistentcy is crucial when it comes to the filings.

Is there anyway to switch from cash to accrual method and if possible, how can it be accomplished?

If anyone has any experience, would appreciate any comments/suggestions.

Thank you 

Does anyone know whether Governor Andrew Cuomo is at risk of forfeiting his New York State pension?

From today's Employee Plans Newsletter

Quote

Plans Retroactively Adopted After the End of the Plan Year Have No 2020 Form 5500 Filing Requirement

Section 201 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) permits an employer to adopt a retirement plan after the close of the employer’s taxable year (by the due date, including extensions, for filing its tax return for the taxable year) and elect to treat the plan as having been adopted as of the last day of the taxable year. This provision applies to plans adopted for taxable years beginning after December 31, 2019.

If an employer adopts a plan during the employer’s 2021 taxable year (but not later than the due date, including extensions, for filing the employer’s 2020 tax return)

• and elects to treat the plan as having been adopted as of the last day of the employer’s 2020 taxable year,
• then the plan sponsor will not be required to file a Form 5500 with respect to the plan for the plan year that begins during the employer’s 2020 taxable year (references to Form 5500 include the Form 5500-SF and Form 5500-EZ unless otherwise noted).

Instead, the first Form 5500 required to be filed with respect to the plan will be the 2021 Form 5500. However, the plan sponsor will be required to check a box on the 2021 Form 5500 indicating that the employer elects to treat the plan as retroactively adopted as of the last day of the employer’s 2020 taxable year.

Additionally, if the plan is a defined benefit plan, the employer will be required to attach a 2020 Schedule SB to the 2021 Form 5500 or Form 5500-SF, in addition to a 2021 Schedule SB. The instructions for the 2021 Form 5500 will further explain the filing requirements for plans adopted retroactively.

We anticipate that similar rules will apply to the retroactive adoption of a plan pursuant to section 201 of the SECURE Act after an employer’s 2021 taxable year.

Unbelievable, but accountant asking for our opinion here.

Sole proprietor sponsors a DB plan, compensation obviously Schedule C. Plan is valued beginning of year, ie 1/1/2020 with Schedule C based on prior year.

The client has an auto withdrawal from his personal account deposited to the plan during the year.

He had $0 Schedule C for 2020, but since valuation is beginning of year and using prior year Schedule C, we backed into the contribution and showed on Schedule SB as well as form 5500-EZ.

He filed his 1040 in March, no Schedule C; but did receive compensation, included in income for 2020, which the accountant showed on the 1040 and claimed a deduction for the contribution

He gets a tax bill from the IRS for $29,000; they claim since he had no Schedule C, he is not entitled to a deduction.

Since he made the contribution, and is shown on the brokerage statements for each month, in order to reconcile included the contribution, since shown on the statements, and was included on Schedule SB and the 5500s.

Since minimum funding and deduction are separate matters, we are thinking of withdrawing  just the amount of taxes owed, show as an in-service distribution (client over age 62), give a 1099-R, deposit into his business account; pay the fine; but more importantly, stop the auto withdrawals and make absolutely sure the client that is paying him gives him a Schedule C in the future.

Thoughts. besides advising to find a new accountant?

Hi

This is first for me and want to check if test is needed.

DB plan covering 1 owner HCE and one non-owner HCE.

2021 AFTAP is certified at 165% so no issues there.

The non-owner HCE is terminated a  month ago  and accrued a benefit for 2021.

Do I need to check for 110% liability test? I do not think so?

If yes, I will add FT to TNC and possibly use 430 rates. Is it ok to use ARPA-21 rates to test, if necessary? Owner is ok with whatever rate that would allow the non-owner HCE to be paid out.

Thanks

i've been getting a lot of inquiries about after-tax contributions from clients.  

The question I have is this:

Do after-tax contributions have to treated as comp to comp as part of the ACP test or can you use new comp for the calculation?

For example, owner is 60, makes $200k and puts $20k after tax.  This is a 10% contribution.

Employee is 30, makes $50,000 and puts in zero.  The profit sharing contribution to employee is 10%(ish) or 3.5% (ish)?

Thoughts?

In the divorce that was finalized on April 20, 2021, I was awarded 60% of his 401(k) plus additional money. I have filed with my QDRO attorney and all is ready. All he has to give the attorney if the amount of the 401(k) the day we got married and the amount the day our divorce was final. He refuses! My attorney that I had for divorce is a JOKE … she is doing NOTHING. Except sending emails to OC and then charging me $250, but with no results. I have asked to file contempt of court but she won’t. I don’t know what to do!!! This was a domestic violence situation and I just want to get on with my life. I would file it myself but I can not find a form to fill out to file. PLEASE HELP!