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 

Post Secure - an IRA inherited by a non EDB is subject to a 10-year payout.  

Pre-Secure - an IRA inherited by a DB can stretch based of their life-expectancy

All successor beneficiaries that inherit an IRA on or after 1/1/2020 are now subject  to the 10-year payout 

Question:

Does the 10-year payout start fresh upon an successor beneficiary inheriting?  Or.. does the (beneficiary of the beneficiary) only eligible for what's left of the original beneficiaries 10-year payout?

I have a participant who exceeded the $56,000 limit in 2019 due to employer contributions.  He made both Roth and pre-tax deferrals for a total of $19,000.  Does the refund of the deferrals need to be prorata or can he elect to have the Roth distributed?  This is his first Roth year so the earnings would be taxable.

I have a 3% SH cross-tested profit sharing plan that seems to work best at this time using an integrated allocation method.  Is it mandatory to use the full taxable wage base as the integration level?

I know this topic has been covered, but figured I'd start a new thread for this year.  Two questions:

1) Are we expecting a faster response on renewals since they can be submitted through pay.gov?

2) Do we have to wait until 4/1/2020 to use the 20-prefix or should we start using it as soon as our application is filed (assuming we meet all relevant criteria of course)?

I understand that the new law increased the start-up plan credit for tax years beginning after 12/31/2019.  How would this work for a plan started in 2019.  Would their maximum credit be 500 on their 2019 tax return, but then 5,000 in the next two years?  Or do they stick with the 500 credit for all three years.  

A client is considering beginning to contribute a match. However, they are considering different ways to fund it. They have asked about offering the option of receiving the match in cash or in privately held company stock.  The administrative complication is obvious.  But would this funding arrangement be permissible?

Can a money purchase dc plan maintained by a municipality offer elective salary deferrals and matching contributions in addition to 457(b) plan?  Not eligible for 403(b) or 401(k), so I think not.  Am I missing something?

This is one of those issues that comes up periodically and I never think I have a full grasp on it--likely because I don't but also in part because I've never found what I thought to be a clear, authoritative, and fulsome discussion of the issues.  Can you help?

Situation this time involves a true Mom and Pop employer with husband and wife owners (both highly compensated) and a handful of other employees--3 or 4 full-time working more than 30 hours a week and a couple part-time working 15-20 hours per week.

The company offers a fully-insured group health plan for full-time employees.  Of those, only the owners and a couple of the full-time employees have elected to participate.  The company has always "covered" 100% of the owners' group health premiums but historically only 60% of the others' premiums with the employees required to contribute the remaining 40%. 

Mom and Pop seem confused about the existence of an actual cafeteria plan but it appears they have been deducting the 40% of employees' premiums from pay on a pre-tax basis so seems they likely have a POP whether they realize or not.  (Our understanding is the company has just paid 100% of the total premiums over to the insurer, including 100% of the premiums on behalf of the owners, plus the combined 60/40 contributions for employees without considering the premiums paid on behalf of the owners to be salary to them or a deferral from their pay in some way.  In other words, it's just been employer-paid fully insured group health insurance coverage.

As I understand the current rules, it does not seem like there is a per se problem with charging varying rates for the fully insured coverage from a group health insurance,  HIPAA, ERISA, or other perspective.  (The 60% contribution satisfies the 50% minimum employer contribution amount required by the insurer / underwriting so insurer is fine with arrangement.)

Cafeteria Plan discrimination testing would appear to be a potential issue here, however.  Even though they presumably only have a POP, my understanding is POPs are still subject to Section 125's "Eligibility Test" as part of the streamlined safe harbor testing.  And based on some less than clear 125 examples and discussion in EBIA, the Eligibility Test arguably includes something of a "benefits" component that could be construed to prohibit an employer paying a greater percentage of benefits for HCs than NHCs.  So that's potentially an issue here.

However, in this situation, the HCs are not actually participating in the Section 125 plan--because the company is paying their full cost and they have no need of the 125 Plan.  In essence, the NHCs are arguably getting more benefit from the Section 125 plan than the HCs because the NHCs are actually getting a benefit.  I'm not wild about that argument for obvious reasons.  However, what if we took this one step further and actually amended the Section 125 Plan to exclude all HCs from participation.  There's no practical impact on the owners (the only HCs now and likely forever) because they are not participating in the Section 125 Plan.  Under that approach, it seems impossible for the Section 125 plan to have a discrimination issue since no HCs could participate?  But it also seems the company should still be able to pay 100% of the owners' premiums for the fully insured health coverage and not treat that as taxable compensation. 

I understand that could all change if and when the new Section 105(h) rules are extended to fully-insured group health coverage but, in the interim, are there nondiscrimination or tax issues with this sort of approach to having the company pay 100% of HCs' premiums and a significantly lower percentage of NHCs' premiums?

Thank you.

[edited to fix link]

https://www.forbes.com/sites/davidrae/2018/09/20/rich-person-roth/#4b7ddee471fe

Whenever I read "backed by life insurance" I just think used car sales man.  Is this legit?  I have a client who is doing this.

Although it is intended that Qualified Birth and Adoption Distributions are permitted to be taken from any defined contribution plan (Code Section 72(t)(2)(H)(iv)), is anyone considering adopting one for a money purchase plan? According to Section 72(t)(2)(H)(vi)(IV), a Qualified Birth or Adoption Distribution is treated as meeting the distribution restrictions of specific Code sections (which apply to 401(k) plans, custodial 403(b)s, annuity contract 403(b)s and eligible deferred compensation plans). Does the latter section citation concern anyone who has been asked to consider whether to allow Qualified Birth and Adoption Distributions for a money purchase plan? How about as applied to a profit sharing plan without a 401(k) feature?

Employer A deducts a $10,000 profit sharing contribution on his 2018 1120.  The contribution was inadvertently never deposited, and is just being discovered now.

Is there any way to "Cure" the deduction or is the only option to amend 2018 to remove the deduction and pay the new taxes?