So my questions concerns Restorative payments and tax deductibility for defined benefit plans -

I'm currently dealing with a situation where the DB plan trustee (employer) invested in an investment in which the investment became bankrupt and is now worth $0. The trustee later found out that the investment was a ponzi scheme and sued for recovery. As a result of the lawsuit, the trustee was able to recover a $100k settlement check, which the trustee had made payable to the plan.

My question is the following:

Can the employer contribute a restorative payment to make the plan and the participants whole?

Does a restorative payment by the plan sponsor qualify as a deductible contribution?

I found language that if a fiduciary commits a breach of his or her responsibility in picking good investments, then the fiduciary is PERSONALLY liable to make restorative payments. Everything talks about if a fiduciary has done some due diligence in selecting investments – and given that most plan sponsors are not investment professionals, it’s not like they would know everything or all the questions to ask – then it would generally NOT be the case that the fiduciary would be personally liable to make any restorative payments. I would think if the sponsor relied on the advice of someone who IS presenting him or herself as a professional, the fiduciary could not be personally blamed for the losses.

Thus, based on the above, I believe the amount could not be deposited into the DB plan but, rather, could be used to fund future contributions which, one would assume, would be greater due to the loss in the value of the plan’s assets.

The PBGC finally made a determination that the plan sponsor (Investment Advisor) is considered a professional service employer under 4021(c)(2)(A).  Further, the sole-owner is a professional individual under 4021(c)(2)(B).  It only took the PBGC three years to make the determination since our request.

We are designing a new DB plan.  Company been in business for quite awhile.

Effective 2019, document signed prior to 12/31.

There is one employee that terminated in 2019 and had 692 hours.

If service for vesting was defined as service from effective date, obviously not vested, but would she get an accrual for 2019 as she worked >500 hours??

Is there any possibility that SIMPLE IRA deductions can be reversed in January so that it can be replaced by 401(k) for 2020?

I know the rule that both can't be maintained the same year. However, does the employer really need to wait another year to put in a plan with higher contribution benefits? Is there a fix or way to correct? Seems like it could still be done this early in the year.

I am having a debate with some other actuaries about what would be considered a reasonable discount rate for accounting purposes. If we use a strict yield curve matching approach based on FTSE above median curve, we are getting an effective rate of roughly 3.25%. Client wants to use 4.00%. They used 4.50% last year and rates have dropped about 100 bps. My understanding is that for accounting purposes, the assumptions belong to the client. I know the rate is subject to auditor approval, client approval, etc. but I am interested in the actuary's requirement to assess the rate. ASOP 27 requires that for assumptions set by another party, the actuary must state whether or not the prescribed assumption significantly conflicts with what, in the actuary's professional judgement, would be reasonable for the purpose of the measurement. 

Reasonable for one actuary may be very different from another. So what leeway do we have in determining what is reasonable? What items can/should be considered (for example, historical market bond rates relative to current? Impact on plan results? Impact on overall company results? Whether the company is publicly traded or not? Discount rate relative to other plans? etc.)

A  participant was deferring prior to a leave of absence without pay.  Participant  was on leave from April 1 to June 30th.  Employer forgot to resume participant's deferrals after participant returned to the company.  Is the corrective deferral from July 1 through December 31 based on the participant's original deferral election or  50% of the participant's deferral election.

I have been reading summaries of SECURE published by various sources, but one I came across recently said something I had not seen before regarding the elimination of the safe harbor notice requirement for nonelective safe harbor plans:

 nonelective contribution safe harbor plans that have matching contributions intended to fall within the ACP safe harbor must still give notice.

This would mean that even if a plan is utilizing a safe harbor nonelective contribution for the year, if you are providing a discretionary matching contribution as well, the notice is still required each year?

The reasoning is that Code Section 401(m)(11) was not amended by SECURE Act. Code Section 401(m)(11) defines the ACP test safe harbor and says the plan must meet the contribution requirements of 401(k)(12)(B) (match) or (C) and meet the notice requirements of 401(k)(12)(D). 

Again, this is the first time I saw someone point this out so I am curious if this is everyone's understanding as well. Thanks!

If a participant that is required to take an RMD and wants to roller over a large portion of their account balance to an IRA, can they do this and take the plans required RMD out of that IRA account to cover the amount of the RMD due from the plan?  They want to make the whole RMD as a charitable donation, would this be allowed as the donations they want to make will be larger than the allowable amount to process from the plan as the donation?  Or is there any other ways around it so they can make the donations they want to make?

A QDRO alternate payee has left their transferred balance in a qualified group 401k plan, essentially becoming a non-contributing participant.  assets were transferred during 2018, and the alternate payee was already over 70 1/2.  does the alternate payee take a 1st RMD from the plan for 2019, by 12/31/19 or by 4/1/20?  thanks for any guidance!

Hi

My apologies if this subject was discussed before.

Taking over 2 plans for the same sponsor and requested the past 3 years of information as well as documents etc, the standard information which are all available in PDF format. Sponsor cannot locate them all.

Sponsor contacted the prior TPA and asked for the information. In return they asked for a payment to provide the information that already belongs to the sponsor and was paid for in the past.

Sponsor is very unhappy about the amounts and wants to complain to an institution about this.

Is this a common practice i.e. ask for money to provide the information already belonging to the sponsor? I have dealt with this many times and unless it was some very specific calculation etc, it is usually customary to provide the information without any money.

Is there a customary amount?

Your comments are appreciated.

Regards,

I have it in my mind that a Schedule A is not required to be attached to a 5500 for a service provider of a welfare benefit plan where the service provider did not pay any fees or commissions to an insurance agent.  Am I thinking correctly?  Thank you.

Hello!

I have two queries, hope you guys can help me out.

1. If a participant has only deferral in plan, does he/she eligible for gateway minimum (No SHNE or TH minimum) ?
2. Which contribution will satisfy or cover gateway minimum (plan has no SHNE) Employer match/ SH Match?

Thanks!

I have a bit of a reverse spin on the usual "severance from employment" issue.  Holding Company owns Company A and Company B.  Company A sponsors a plan that covers everyone in the group.  If Company A is sold in a stock deal and takes the whole plan with it, clearly Company A employees have not had a severance from employment.  There is plenty of guidance on that.  But what about the employees of Company B?  I would think they have had a severance from employment because the plan sponsor is no longer part of the controlled group, but I haven't found anything to confirm that.  I can see how it would be difficult to explain to Company B employees that they have experienced a severance from employment, even though their company wasn't the one sold.

If this is indeed a severance, I assume it could be avoided by spinning off the portion of the plan that covers Company B prior to the transaction.

I have been surprised that I have not found any guidance on this yet.  I know this is not the typical M&A situation, but I have to imagine that it still happens fairly regularly.  Thoughts?  Thanks!

(APOLOGIES FOR LONG POST)

In discussions with several practitioners a question comes up as to whether an offer of an “affordable” ICHRA to an employee is a permanent barrier to the employee receiving a premium tax credit (PTC)?

Most material indicates that the mere offer, even if rejected, dictates that the employee is ineligible for a PTC.

Some practitioners have held a broader interpretation of this prohibition, that when an affordable offer has been made) using one of the three safe harbors. These experts hold that protection from the A and B ACA penalties is one thing using the safe harbors and that whether an employee can receive a PTC is another matter depending on their household income.

In other words, offering affordable plan first rule is that employee is "initially  ineligible"  for a PTC. This initial eligibility is overruled when employee goes to a marketplace and based on their family income is eligible to receive a PTC.  The 3 safe harbors only apply to A/B penalty is a separate issue.

Comments???

Internal Revenue Bulletin: 2019-42

October 15, 2019

HIGHLIGHTS OF THIS ISSUE

https://www.irs.gov/irb/2019-42_IRB#REG-136401-18

For clarity, the notice confirmed that an individual coverage HRA is an eligible employer-sponsored plan, and, therefore, an offer of an individual coverage HRA constitutes an offer of an eligible employer-sponsored plan for purposes of section 4980H(a). Consequently, if an ALE offers an individual coverage HRA to at least 95 percent of its full-time employees (and their dependents), the ALE will not be liable for an employer shared responsibility payment under section 4980H(a) for the month, regardless of whether any full-time employee is allowed the PTC.

The HHI safe harbors are optional and apply only for purposes of section 4980H(b). An ALE may choose to use one or more of the HHI safe harbors for all of its employees or for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category. In addition, an ALE may use an HHI safe harbor only if the ALE offers its full-time employees and their dependents eligible employer-sponsored coverage that provides MV with respect to the self-only coverage offered to the employee. If, in applying one of the HHI safe harbors the offer of coverage is considered affordable, then the employer will not be subject to an employer shared responsibility payment under section 4980H(b) with respect to that employee, even if the employee is allowed the PTC.

2. Section 4980H Affordability Safe Harbors Regarding Household Income

Whether an employee may claim the PTC depends on the rules under section 36B, including the rules for whether an offer of coverage by the employer is affordable and provides MV.²⁵ However, the regulations under section 4980H provide certain safe harbors for determining whether an ALE is treated as making an offer of coverage that is affordable for purposes of section 4980H. More specifically, as noted earlier in this preamble, whether an offer of an eligible employer-sponsored plan is affordable, both for purposes of section 36B and section 4980H, depends in part on the employee’s household income. Because an employer generally does not know an employee’s household income, §54.4980H-5(e) provides that, for purposes of section 4980H(b), an employer may substitute for an employee’s household income an amount based on the employee’s wages from the Form W-2, “Wage and Tax Statement,” the employee’s rate of pay, or the federal poverty line, using the household income safe harbors (the HHI safe harbors).²⁶

Footnote 26"  ²⁶ Whether or not an employee has been offered affordable coverage for purposes of eligibility for the PTC is determined under section 36B(c)(2)(C)(i) and the regulations thereunder (as opposed to the section 4980H safe harbors).

We have a new client that has a life policy in the plan.  it does not appear that the PS58 cost have ever been report.

I read on a prior thread that the PS58 cost were optional, but I also read they are required to be reported.

Is it required?  If so, would i just start now.  I wouldn't want to go back and have him redo taxes... yikes!

Thanks!

An executive left 501(c)(3) Org#1 and now works for 501(c)(3) Org#2.  Both organizations have 457(b) plans and both allow rollovers - into and out of the plans.  Org#1 uses a recordkeeper to maintain assets set-aside for their 457(b) plan.  This executive requested a rollover from the Org#1 plan to the Org#2 plan.  The recordkeeper cut a check to Org#1 so now Org#1 must send a check to the Org#2 plan.

Is there any reporting to the IRS that Org#1 needs to do in regards to the rollover?  I know we would normally tell Org#1 to prepare a W-2 but since this is being rolled-over there is no taxable event.  I haven't had experience with non-governmental 457(b) rollovers and I haven't found guidance anywhere else.

anybody out there have any AXA plans that they import?  AXA uses the same platform as AF Recordkeeper, so I was hoping to import the *.dat file but am having issues where Relius isn't reading the import file.

Thanks in advance!

Is there ANY correction for this or does the IRA simply cease to be tax-exempt?

Does the unrelated business income tax (taxable income?) affect shares owned by an accredited investor/participant in a limited partnership inside his qualified plan?  Does the result automatically make the gains in the investment taxable even though held in a qualified plan?  Would welcome any advice/direction for those who have knowledge/experience in this......thanks.

What is the effective date for the new post-death payout rules for 403(b) and 457 plans? 

The Secure Act reference's gov't plans have a delayed effective date of 1/1/22 - but I've seen this (delay) date applies to Section 414(d) plans and 403b/457 plans

Which is correct?

Also, assume the delay applies to 403(b) plans - I would venture it only applies to gov't sponsored 403(b) plans (i.e. school districts?)

Thank you