I am trying to reconcile the rule under 424(h)(3)(C) with the accounting rules for share-based compensation. 424(h)(1) provides that if an ISO is modified, then it is a new grant. 424(h)(3)(C) provides that "the term “modification” means any change in the terms of the option which gives the employee additional benefits under the option, but such term shall not include a change in the terms of the option in the case of an option not immediately exercisable in full, to accelerate the time at which the option may be exercised." So far so good.

But the accounting rules say that acceleration of vesting is a modification that leads to a new grant. Are both things true in that one refers to status as an ISO and the other refers to accounting treatment? 

Any thoughts appreciated. TIA. 

Hello! I happen to be familiar with IRS Notice 2020-61, which came out today, covering the deferral of 2020 contributions to 1/1/2021 under the CARES Act. I found the Notice to be very confusing, so I thought I would start this thread as a PSA, to give pension actuaries a leg up on understanding this. This post will explain how & what interest rates are to be used in connection with DB contributions originally due during calendar 2020 under Notice 2020-61.

Under 2020-61, the CARES Act EIR rule (i.e., contributions are adjusted at the EIR of the plan year containing payment date) applies for payments actually made from January 1, 2020 through midnight on January 1, 2021 (or January 4, 2021 if the provision in the current Senate stimulus bill passes). For contributions that were originally due during calendar 2020 not yet paid by midnight, January 1, 2021, the CARES Act EIR rule expires. What replaces the CARES Act EIR rule (for unpaid amounts from 2020) is a modified version of 430(j); the modifications are that the quarterly & catch-up due dates are moved from calendar 2020 to 1/1/2021, and the quarterly contribution amounts are increased (with the EIR from the plan year they pertain to) to 1/1/2021.

So, for example (which is unfortunately not included as a Notice 2020-61 example), say you have a calendar year plan, with a 1/1 valuation date, not subject to quarterly contributions in 2019. Say the 2019 contribution is made on 1/1/2021. To determine whether the 2019 MRC has been met, you must discount the contribution back to 1/1/2019 at the 2021 EIR. If instead, the contribution was made on 12/31/2020, you must discount the contribution back to 1/1/2019 at the 2020 EIR.

The following chart is intended to help you walk through examples provided in Q&A 2 through 6:

Small plan (less than 100 participants) client filed the 2018 5500-SF this year when filing the 2019 5500-SF when it was discovered that 2018 had not been filed.   All previous filings since plan inception (1992) have been timely.  Client received a letter from the IRS with regard to the 2018 late filing and a penalty assessment of $87,000!  The IRS letter references the new penalty amount of $250 per day "effective for forms required to be filed after December 31, 2019".

The size of the assessed penalty aside (!) any idea why they would use the new penalty amount for the 2018 filing? 

As referenced in other posts, the client has filed under DFVC with the DOL and paid the $750.  Copies of same will be forwarded to the IRS and hopefully penalty will be abated.  Needelss to say $87,000 would be a great financial hardship for this small client. 

I hope that you can help me with this question. I have spent part of today trying to figure this out, and am getting nowhere.

I seem to recall that there is an issue to address when a plan wants to change the timing a forfeiture occurs.

Currently, the profit sharing plan provides that forfeitures occur after 5 consecutive breaks-in-service. The client wants to change that provision to the earlier of distribution of the vested interest or 5 consecutive breaks -in-service. Forfeitures have always been used to reduce the profit sharing contribution. There will be a large amount of forfeiture to be used this year as a result of the change because most of the unvested amounts are attributable to terminated participants who have already taken distribution of their entire vested interests.

Is there is something I should be looking at before telling the client that it can be done?  Thanks!

Hi Folks,

I'm looking for some input from folks smarter than me.

How will auditors look at plans with post-10/15 contributions for the 2019 plan year? Specifically, I'm assuming that these contributions are not reported on the 2019 SB (since they haven't been made yet) as of the time of filing. Will they be left off of the audit report? Included as a footnote? If the plan sponsor amends the filing post-10/15 to include the contributions on the SB, will the H/audit also require amendment?

Thanks for your thoughts on this!

Bug

Good morning, this falls under the "please don't shoot the messenger" heading.

A prospect for a non-ERISA 403(b) Plan, which is a church, is asking whether they can take advantage of the "tax credit under the Secure Act".  We don't see how this could benefit an entity that does not pay any taxes in the first place, but we were still asked to research the question.  Maybe we are missing something.

Thoughts?

Thank you.

I was just looking at an engagement agreement, and I saw something that I don't recall seeing (or perhaps never noticed, because I don't necessarily review a prior TPA's engagement agreement) before. It states that the TPA will bill the Plan Sponsor for services, then goes on to state that the TPA may deduct the service fees for the services directly from the participants' accounts upon non-payment of fees by the plan sponsor after 60 days.

Is there any problem with this from a legal standpoint? It feels funny, but maybe it is fine as long as the plan sponsor/fiduciary has authorized it. Is this a common provision? 

An employee expects to be laid off in the next couple of months, the employer is closing a local office and the employee does not intend to move to the new location.   Can she change her health plan election when electing COBRA?  
 

She is still employed and they are currently in their open enrollment period.  She is currently in Plan A and would normally continue in this plan.   However Plan B Is less expensive. If she cannot change she may choose Plan B now. If she can change she will stay on A For now and then decide between A and B when the COBRA decision must be made later. 

The info I’ve found seems contradictory, it say generally you cannot make such a change, but then it says there are exceptions that allow the change for HIPAA qualifying events. And losing group coverage eligibility is a qualifying event.  I’m a pension guy, just trying to help out a friend and want to make sure I’m getting it right.  Thanks.  

I have a potential client with the following facts:

Person A owns 73.33% 

Person B owns 16.66%

The remaining 10% is owned by a trust. The Trust is an irrevocable trust where Person A is the grantor and Person A's children (ages 25 & 27)  are the beneficiaries. Person A's brother is the trustee of the trust. The children are set to receive 1/3 of the benefit at age 30, 1/2 at age 35 and the rest at age 40.

I am trying to figure out if the children's benefit in the trust should be attributed to Person A, creating a controlled group with a separate company person A owns 100%.

Any help would be greatly appreciated.

Are individual states required to comply with the relief enacted under the Cares Act with regards to waived 2020 RMDs, Aug 31st due date for rollovers, & one IRA rollover per year exemption?

I was told NYS is not following the Cares Act & was asked how to handle RMDs that were taken during 2020 & then rolled over into IRAs after 60-days for state tax purposes.

Wouldn't it be based on how the states define eligible rollovers & if they cite the federal code & regulations?

How is a Family Limited Partnership (FLP) considered for controlled group rules? Specifically, when multiple companies are involved and individuals own portions of some of the companies (perhaps constituting a brother-sister controlled group or combined via ASG rules) and then the same individuals own other companies but only through an FLP. 

I'm new to this and I heard that when people leave a company, they tend to leave their 401k behind. Is it a big problem for the employer to keep all those orphaned 401k's? If so, how should we encourage people to rollover their 401k when they leave? Thanks!

Is it clear that a plan loan "deemed distribution" (as opposed to a "loan offset") cannot be treated as a CRD by a CARES Act qualified individual? 

Employee participates in Plan A for part of 2020 and contributes the maximum of $19,500 employee Roth Contributions. Employee terminates service and moves to a different company where he/she is immediately eligible to participant in Plan B (there is NO controlled group between the two entities). Plan B permits after-tax voluntary employee contributions. No employer contributions are allocated in Plan B. Can the employee deposit a maximum of $57,000 as an after-tax voluntary contribution?

I believe the employee contribution is a calendar year limit (maximum of 19,500), but is the after-tax voluntary contributions subject to the 415 limit which is a Plan limit?

Is it clear that a plan loan "deemed distribution" (as opposed to a "loan offset") cannot be treated as a CRD by a CARES Act qualified individual? 

So I'm just curious, not being even remotely tech-savvy by today's standards. Let's say you (plan sponsor, and/or recordkeeper/TPA in conjunction with plan sponsor) decide to avail yourself of these new regs. Does it open up big potential holes for a breach of security, when a gazillion participants are receiving e-mails stating that their statements are available, and providing a hyperlink or instructions, etc. on how to access them? A lot of participants have internet access that isn't as secure as perhaps what they have at work, and it may be easier for passwords to get stolen, ghosted, whatever?

It just seems like in a general way, the more things are done via internet-based applications, the more potential security breaches come into play. Just wondering what folks think about this aspect, entirely aside from whether the process is better/worse/indifferent from an administration viewpoint.

Are governmental defined contributions plans subject to the 6-year restatement period? If so, are their restatements due the same time as 401(k), profit sharing and money purchase deadline of 7/31/2022? 

Calendar year plan, employee is hired during the last week of 2019.  However, the first paycheck they receive isn't until the first week of 2020 (and counts on the 2020 W-2).  Does the universal availability clause require that the participant be counted as a participant in 2019, even though there is no official 2019 compensation?  And this plan has an ACP Test - I would say that the participant had no opportunity to receive a match and therefore can't be counted in the 2019 ACP Test... but I would have to include them in a coverage test.  I don't really have a basis for that (yet), but it seems ridiculous to include someone in a test that they had no opportunity to take advantage of (hmm, so then why include them in 410(b) testing?).  Any sage advice?  Thanks.

when is a plan actually considered disqualified?  does the IRS have to formerly disqualify before it is considered disqualified? i know the IRS can reach back to open years but was wondering how the SOL applies to plans that might not be qualified due to failures (but not formerly disqualified by the IRS)