Good afternoon. Just when I think I understand the CARES Act . . .

I cannot find a thread that discusses a loan offset under the following situation, though I was sure I had read one. Please advise me of the thread if one already exists.

• The participant had an outstanding loan and was up-to-date with his loan repayments at March 27, 2020.
• The Plan implemented the CRD and CARES Act loan provisions.   Loan repayments were suspended until January 1, 2021, at which time they are re-amortized and resumed.
• The participant is a qualified individual and stopped making loan payments when the Plan offered the loan suspension. 
• The Plan permits participants to continue making loan repayments after termination of employment.
• The Plan provides that a loan is in default if payment is not made the end of the maximum cure period
• On June 1, 2020, the participant, while still a qualified individual, terminated employment and took a CRD of all his vested account, except for the outstanding loan.  

When does his outstanding loan become a loan offset:

• June 1, 2020, when he took the CRD distribution?

             No--because the Plan permits him to continue making loan repayments after termination of employment. And, the IRS has suspended loan repayments until July 15, 2020.  OR

             Yes--because he took distribution.  He can treat the entire amount, including the loan offset, as a CRD distribution. (The sum of the CRD and loan offset are less than $100,000.)

• July 15, 2020, when he failed to resume loan repayments?

              No, because he is a qualified individual and has until January 1, 2021 to resume loan repayments.   OR

             Yes, because he had 30 days after termination of employment to repay the loan and he did not.  He can treat the entire amount, including the loan offset, as a CRD distribution.       

• January 1, 2021 if he fails to resume loan repayments?

            If so, this cannot be treated as a CRD because it occurs after December 31, 2020.           

Thanks for your help.

Haven't been able to find an answer to this question anywhere:

A 50 year old client has a ROTH IRA that only has the funds that were converted from a traditional IRA (including earnings) a year ago.  The owner wants to take a distribution (no earnings) and he would owe 10% early withdrawal penalty for breaking the 5 year rule on conversion funds. 

No problem here, however, he meets the qualifications for a covid-19 distribution which are not subject to the 10% early withdrawal penalty.  Would this exemption for a CRD override the 10% early withdrawal penalty for breaking the 5 year rule?  I've been unable to find any clarification on this.  Anyone have any thoughts or cites on this?  Thanks

The 409A default rule for determining specified employee compensation uses 1.415(c)-(2)(a) compensation, items in 1.415(c)-(2)(b) and excluding those in 1.415(c)-(2)(c).

The default definition says the special timing rules of 1.415(c)-(2)(e) are not to be used. The special timing rules of 1.415(c)-(2)(e) are of two types: one type is elective, i.e. post termination regular compensation can be included if paid within 2 &1/2 months. That's clearly excluded for the default. The other type is mandatory (exclusion of severance and post-term NQ payouts triggered by termination). 

Issue: do severance and NQ payouts triggered by termination count as compensation under the default rule of 1.415(c)-(2)(a) for measuring specified employee compensation.

Example: Administrative officer terminates in January of a calendar testing year with small compensation that would not put him in the top 50. If large severance is included , he would be in the top 50 (and the result is that an administrative officer ranked #51 by compensation does not get on the list).

I have a client who began a business this year. It is an S corporation and he is the only employee. He does not plan to have other employees.

This year his salary will be $2 million. His profit after his salary will be $5 million.

He is age 55 and he plans to work for this business for 10 more years.

He does not have a retirement plan for this business or from any other employment or business. He would like to set up a defined benefit plan this year. 

He would like to know what the maximum amount is that he can fund and deduct this year. 

He feels certain that he will participate in the plan for 10 years and that his salary from this business will exceed $300,000 for 3 consecutive years.

Could anyone tell me what provision in the Code or regulations would limit him from funding his entire life-time benefit in the first year?

I am aware that under Code section 404(o), the deduction is limited to his “target normal cost”.

To my reading, Code section 430(b) and Regulation section 1.430(b)(1) define target normal cost based on the benefits provided in the plan.

Is my reading correct? If a plan provides that the entire life-time benefit is earned in the first year of participation, can the present value of that amount be deducted in the first year?

Owner owns 100% of Companies A and B; A has employees but B does not.  Company A sponsors a 401k plan in which only the owner and her spouse have account balances (yeah, I know...), comprised entirely of pre-tax elective deferrals and safe harbor matching contributions.  She wants to sell A and have B become the new Employer/Sponsor.  The FT William document that the plan has permits a participant to receive their benefit following their 'Termination of Employment', which is defined as 'any absence from service that ends the employment of the Employee with the Employer'.  

The owner would like to take advantage of her upcoming 'employment termination' by taking a distribution from the plan and rolling it into her IRA.  Company B does a different type of work than company A did, but they are in the same general industry.  I mention this because I recall something about a  'same desk rule' and am not sure if it still applies here.  Can she receive a distribution like a terminated participant based on the above information?

Good afternoon!  A client just asked for something I have not heard about before (not that this is unusual)!

They don't like failing the ADP test and making refunds to the owner of the business.  They won't adopt a Safe Harbor contribution formula.  Instead, they want to know if an ADP test refund can automatically become a non-deductible contribution and remain in the plan instead of being refunded to the owner.

I have never heard of such an arrangement but that doesn't mean it doesn't exist.  Does anyone have some insight on this?  Thanks in advance.

A Terminated Participant would like to request a CRD in lieu of the Terminated Participant Distribution, I suppose to waive tax withholding.  The Plan permits CRDs.

Are Terminated Participants who terminated prior to 2020 permitted to request a CRD? Thank you

Hi

Sponsor is an S-corp.

2019 MRC is 150k and they deducted 200k, all fine, however (

As far I know, S-corp extended filing deadline is 9/15/2020 (not extended by any Acts/laws) but they made the deposit today. They lose the deduction for 2019, correct? Deposit was done by wire transfer so 9/18 date is firm.

As for the extended deadline to meet the MRC.

For 2019 plan year, assuming that they missed the deduction deadline, what should I use for 2019 sch SB+5000? All 200k or 150k plus a few days of interest adjustment, say 1k for total of 151k?

I must be missing something here.

Thank your thoughts/comments

A plan terminated in 2019 with last distribution say 10/31/19. One year wait is 10/31/20.  I know a new plan could start 1/1/21 for sure. What about anything in 2020? Could they do a short plan year say 11/1/20-12/31/20 and have everything prorated? Safe harbor would be a no go.

I found out two years ago that the pension administration of ex spouse did not approve the QDRO submitted by court. It was unacceptable, my attorney withdrew at the end of settlement and appointed another attorney to have me sign the papers! My ex has been receiving the full pension.

I have a stipulated Resolution in which I'm entitled to half; his lawyer has since pass away! I'm on a limited income and the state is Delaware which I no longer live in so legal aid can't help me! My ex is aware of this; he called the administration and they sent him forms to resolve this but its been two years and he has not! The administration actually told him he would be better to just remarry me; we were married 25 yrs and he worked for General Motors!

Please advise if this is a control group.  Your assistance would be greatly appreciated. 

Company A- has 1 owner                    (has employees other than owners)

John Doe   owes 100%       

Company B -has 2 owners                              (has employee)s other than owners)

Owner 1  John Doe owes 50%

Owner 2    Bob Jones owes 50% (friends only)

Two beneficiaries are 50/50.  Participant dies recently (i.e., within a month or so).  Beneficiary A is well off and does not want the money, they want it all to go to Beneficiary B who is not as well off.  Can Beneficiary A disclaim the benefit?

I have the IRS said yes, but one federal court said no, and another one said yes, etc.  And I have heard state law is an issue.  Our volume submitter document (Corbel/Relius) appears to be silent on the issue...

Anybody have a good - or lousy, as long as they have an address ? - participant search service for one-offs?  I had saved a post from long ago that recommended PBI but they are expecting $1000 in fees. 

Good afternoon to all,

The Form 5500 filing for a client has been made under an erroneous EIN for years and was discovered in 2018.  The administrator in our office after trying for days to get through to someone at the IRS finally got an employee on the phone.  He was told to amend the 2018 return showing zero participants, zero assets and mark it final.  Then file an amended 2018 return showing the correct EIN and all the original data that was filed on the first return.

Has anyone else ever done this?  It seems very convoluted and we don't want to create even more problems with the "fix" than we already have with the original problem.  Do you agree with the agent?

Thank you.

With regard to the whole issue due to PLR 201833012, and a 401(k) plan with a new comparability formula with everyone in their own group:

During discussion, an idea was floated about not formally amending a plan, but (if limited to ONLY NHCE's) if an employer could simply make a contribution to the accounts of anyone who made student loan repayments.

This is an interesting question. It doesn't pass the "smell" test, but based upon the PLR's analysis of the contingent benefit rule, what rule(s) might this violate? Certainly won't hurt coverage/nondiscrimination testing, if limited to NHCE's. No requirement for a participant to defer to receive this benefit.

It's hard to imagine that the IRS would allow this willy-nilly for all situations. Car loans. Mortgages. Whatever. Since it is a PLR, they could simply say "no dice." I'm just curious about general thoughts. (I wouldn't even have raised this question in the old days of definitely determinable benefits, but with documents that allow for employer discretion to each participant, subject to coverage/nondiscrimination testing, it raises some interesting discussion.) 

Thanks.

Company sponsors a safe harbor 401(k) plan.  Plan uses the basic safe harbor formula.  Plan also allows for profit sharing, each participant being there their own allocation class (with last day requirement).

The Plan Sponsor would like to encourage more participation from lower paid participants.  They are thinking of making an additional profit sharing contribution to non-HCEs only that hit certain deferral limits during the year.  For example, if they defer half of the 402g limit they would receive $500.  If they defer the full 402g limit they would receive $1000.  

Has anyone had a plan that had such a program?  If yes, how did you communicate the program to the participants?  I'm thinking at the very least you would have to be crystal clear about who is eligible each plan year and exactly how much they would have to defer to reach a profit sharing contribution level?  

Any thoughts would be appreciated.  Thanks!  

Ees with under 20 hours per week were excluded from participation, butt he document did not indicate that they were excluded.  Have people tried to do VCPs for this to amend retroactively to exclude?  

This relates to health FSAs.  Notice 2020-29 allows employers to treat the dollar amount of year-to-date reimbursed claims as a floor, below which participants may not reduce deferrals.  However does the uniform coverage rule still apply to claims incurred before the change in coverage?  This would seem to result in rewarding participants who delay submitting requests for reimbursements?

Example 1 - Late Reimbursement Request

• For the 2020 plan year, Lucy elected to contribute $1,200 to a health FSA, or $100 per month. She has

contributed $600 for Jan-June 2020.

• On May 1, Lucy incurs a claim for $1,200.

• On July 1st, Lucy reduces her 2020 election to $10 per month for the remainder of the plan year. She expects

to contribute $60 for July-Dec 2020 ($660 in total).

• The employer can limit Lucy’s ability to reduce her annual election if she had received more than $660 in

total reimbursements before July 1, under Notice 2020-29.

• But the uniform coverage rule in the section 125 regulations arguably still allows Lucy to submit her May-incurred claim for

$1,200 for reimbursement.

Example 2 - Prompt Reimbursement Request.

Same facts as above, but Lucy submits her claim for reimbursement in June 2020.  On July 1, Notice 2020-29 allows the employer to prevent Lucy from reducing her deferrals because her May claim was $1,200, her full deferral budget.

This discussion suggests scenario 1 can be avoided "by carefully defining the period of coverage for 2020."  I am not sure how that would work but would welcome comments.

We're seeing more stale dated checks being re-deposited by recordkeepers into plans--typically to an unallocated cash account or the forfeiture account. How are others reporting these on the 5500 filings? Obviously the checks have been shown as distributions in prior years.

Participant in April, 2020 takes a $50,000 loan

Participant, because of COVID, wants to pay off the first loan to take the $100,000 COVID loan. Participant pays off the loan, requests $100,000. Asset Custodian rejects the loan, saying the maximum loan amount is $50,000; $100,000 reduced by highest outstanding loan balance in the last 12 months ($50,000). I agree with this calculation.

Question is: Is the loan limit calculation a safe-harbor calculation? Could the plan sponsor decide to ignore the limitations and give the person the whole $100,000 loan? I think not, but wouldn't mind seeing if anybody has run into this before.

Thanks for any replies!