So, basic story is plan permitted deferrals from some types of bonuses but not others.  Due to admin / payroll error, all bonuses were considered eligible comp and some deferrals were made from ineligible bonuses.  The amounts were not great and the company caught after a couple of years but a few of the participants have since terminated and taken distributions.  The distributions included the erroneous deferrals tied to the ineligible bonus amounts (that would have been treated as regular wages had the plan been properly administered) plus corresponding matching contributions and earnings.  Some of the terminated participants rolled the amounts over to IRAs or other plans and some just took a taxable distribution when they left.

Employer is self-correcting and wrote letter informing former participants of the errors,  that the excess amount distributed was not eligible for rollover etc., and asked the former participants to return the full excess amount to the plan.  Interestingly, one former participant who rolled to an IRA has indicated he is wiling to return but asking about process.

I'm trying to understand how the deferral portion of the excess amount gets handled here?  The deferral portion should have been taxable wages subject to withholding generally.  Here, the plan will presumably get the full amount back  and will put the match amounts back in a suspense account but how does it get the deferral portion to the participant.  Will the IRA return and issue a 1099-R noting distributions per EPCRS (Code E)?  If the 1099-R is issued, it seems that just reflects the removal of the amounts from the IRA.  How should the employer return the erroneous deferral amounts to the former employee--report on a 1099-R, a 1099, a corrected W-2 for the year deferred? 

As a twist, how would this get handled for somebody that had received a taxable distribution and returned the amount?  Can they just get the matching contributions and earnings back and let the deferrals go then since they were already taxed?

Am I making this more complicated than it is?  The guidance I've seen just seems potentially incomplete with respect to addressing all the possible tax issues.  Thanks.

Good evening:

Not sure the following is right and/or passes BRF.

A floor offset plan - assume 401a26 passes. After all offset are applied, only the owner has a substantial benefit in the DB plan. Only the owner is HCE.

So far so good.

Now the agent wants to provide insurance to the owner under the DB plan, thinking since no one has any benefits and plan passes 401a26, kosher, right? Also, they do not think that they need to provide any insurance under the DC plan.

I am not in agreement for the following reasons (the ones that come to mind - possibly missed a few):

1- Any insurance provided to the rank&file (or NHCE) under the DC plan is not of the same value as the one provided to the owner under the DB plan;

2- For any insurance provided to the rank&file under the DC, the premiums have to be paid thru their benefit i.e. the contributions provided to them by the employer where in the DB plan, only the employer pays as contribution to the plan and does not reduce any benefits;

3- There is BRF issues for DB and combined plans.

4- As per some prior information I heard, even if the DB plan provided a benefit to the rank&file employees (say 2% and the owner gets 10% of pay), the insurance provided is not of equal value (even if calculated the same way, say 50X) due to the discriminatory type of benefit formula. The DC portion would not make it equal due to the reasoning I provided on item 2 above.

5- How is 410b satisfied?

Please let me know your thoughts/comments on this and if I missed anything and/or misunderstood.

Thank you

I must confess, being a qualified plan TPA, I know next to nothing about HSAs or Section 125 plans.

My client has inquired about updating their 125 plan document; are these two plans, an HSA and a 125?

Stupidity is not excuse.

Treasury Official Gives Favorable Interpretation of 401(k) Hardship Amendment Deadlines for Volume Submitter and Prototype Plans

And suggests there may be more to come

At the ASPPA Annual Conference on Tuesday, October 22, 2019, Carol Weiser, Benefits Tax Counsel at the Treasury, discussed recent concerns about the deadline for preapproved plans to amend to conform to the recently published final hardship regulations.  In effect, she said that the deadline is the due date of the employer’s income tax return (e.g., Form 1120), plus extensions, if any, for the tax year which includes January 1, 2020.  

This is true even if the amendment was put into effect in 2019.   This gives us more time than many of us had feared, based on a conservative reading of the final regulation.  She gave three examples to illustrate Treasury’s view.  In each case, assume the employer is a C corporation and the corporation does not extend the return.

• Assume a plan sponsor with a calendar year fiscal year implemented the mandatory changes of the regulations in 2019. The deadline is the due date of the 2020 return (April 15, 2021).
• Assume a plan sponsor implemented all of the changes on June 1, 2019 and has a fiscal year and plan year that ends June 30. The deadline is the due date of the employer’s return for the tax year ending June 30, 2020 (October 15, 2020).
• Assume a plan sponsor delays implementation of the mandatory changes of the regulations to the latest possible date, which is distributions made on or after January 1, 2020. If the plan sponsor has a tax year that begins on February 1, then the change to the plan would be effective for the fiscal year beginning February 1, 2019 and ending January 31, 2020. (May 15, 2020).  

She added “We are still looking at whether there is anything else we should be doing to consider whether [the third situation] is perhaps too short a time frame given when we were able to issue the final regulations – so something that we are still looking at, so stay tuned for that.”  This offers the prospect of a later announcement of a later, or perhaps fixed deadline, unrelated to tax return due dates.

While Ms Weiser prefaced her comments that this was not an “official” pronouncement of the Treasury, the context of the statements put to rest the concerns of those in attendance that the deadlines for calendar year taxpayers might be in early 2020. 

https://www.erisapedia.com/static/HardshipAmendmentDeadline.pdf

As BenefitsLink this morning reported, tomorrow’s Federal Register will publish notice of a proposed rulemaking under which fiduciaries of an ERISA-governed retirement plan could furnish some ERISA-required communications under a notice-and-access regime with a notice that the communication is available at a plan-maintained website.  Relying on the new regime would require, among other conditions, having an electronic address for the person entitled to the communication to be furnished.

If that electronic address is an e-mail address (rather than a smartphone number):

Is there a reason why a plan’s fiduciary should not attach to the e-mail message a .pdf of the document to be furnished?  (One could do this besides posting the document on a website.)

Is there ever a situation in which attaching a .pdf could be harmful to the e-mail’s addressee?

A dental practice was sold and the new doctors who purchased the practice took over payroll.  I was not made aware of the sale until after it was finalized .  As a result deferrals were not withheld or paid in.  Employees paychecks were bigger as a result and no one spoke up.  Is there a cure?  Instead of making everything right with one correction to an employee's next paycheck, can the missed deferrals be spread out over a few paychecks?

Thanks

A participant signed a distribution form requesting a large lump from his DB plan, then dies the next day.  His spouse predeceased him.  At this point, I don't know if the distribution form is still on somebody's desk, or if the check is in process.  I'm hoping his children can at least get the benefit of inherited IRAs.  Any thoughts?

What are our options for handling low or small balance accounts (between $0.01 and maybe $10) where the participant or family member in death cases does not want the funds. The individual(s) are voluntarily forfeiting the funds. Do we forfeit funds back to employer or do we automatically disburse the small balance (i.e. to the estate). How do we distribute small amounts out of the account (403b, 457 and 401a)?

I filed a VCP request on behalf of a client over eight months ago but we have never received even an acknowledgement form from the IRS. Does anyone have a telephone number that they call to speak with a live person to determine the status of the request and possibly, to which agent the request has been assigned?

Thanks.

I have a plan in which a participant (Owner) passed away 10 years ago.  She was receiving RMDs from the plan.  The beneficiaries are her son (employee) and daughter (non-employee).  They each have been receiving RMDs every year from the plan.  The distributions started by 12/31 of the year following the mom's death.  Daughter now wants to transfer her portion of the remaining account balance to an inherited IRA.  Is this possible?  I looked over Notice 2007-7 as well as other regulations and my thought is yes but getting disagreement in the office here.  RMDs would have to continue under the IRA as they now do in the plan.   

Thanks for the help.

Mike

I know this seems like a silly question, but a plan sponsor has closed his business (physician) and the only 2 participants left with a balance are the physician and his spouse, are they required to receive the annual Safe Harbor and QDIA notice?  Thanks.

I was a contacted by a CPA that has a recently deceased client with an IRA. There are several beneficiaries for this IRA and they are all foreign nationals. Can these beneficiaries set-up rollover IRA's in the US to avoid having to pay taxes? Are there any other options for these beneficiaries to keep the monies tax-sheltered?

Wheee... just got an e-mail from someone who had adopted a Section 125 plan app. 20 years ago - it has never been amended or updated since then. Wanted to know "What happens" if they don't do anything?

The truth is, I'm really not sure. I'm not even sure where to start to determine what "required" changes/amendments etc. would have been missed, and when.

My assumption is that since there is no EPCRS equivalent for Section 125 plans, that for prior years, if any, that were "noncompliant" in terms of document language, the pre-tax deductions could be disallowed upon audit. Seems like all that can be done is to adopt updated document, and hope for the best for all prior years? Have them talk with legal/tax counsel re the possibility/advisability/risk of initiating some sort of settlement with IRS?

Furthermore, do you know of any good source(s) for information to determine what updates were missed, and when?

Thanks!!

P.S. - as to the consequences of incorrect documents, I'm really asking if there is any guidance in addition to Prop. Reg. 1.125-1(c)(1) through (7)? And, what source(s) might one readily use to determine that dates and changes that may have been "required" for all those years - if such sources exist?

I searched the boards and could not find any information on my question so I hope someone can help me find the answer.

I have joint custody with my ex-wife of our 13yr old child.

She pays for the childs' medical expenses with her husbands FSA and under my support order, I am required to reimburse her 65%. I reimburse her with my HSA account.

My question is about legality and making sure this is a qualifying expense for my HSA.

She is using money that is tax free, getting reimbursed cash (by me) and not having to claim it as income because it is considered "support".

This seems like a sketchy way of using an FSA to cheat the IRS. Would love an explanation here as to the legality of what she is doing. She insists on paying and having me reimburse her because the bill is in her name and says she wants to insure timely payments.

She sends me the medical bills and payment receipts which I keep for my HSA records but since I am paying her and not the medical facility, is it still a qualifying expense under my HSA?

Thanks for any and all help!

Our client wants to allow for In-Plan Roth conversions regardless of age - does not want to require the participant to be of in-service distribution age for any money source. Can someone provide guidance on how to amend the Relius volume submitter document to allow such provisions?

I'm just curious about something. One-person plan has a plan document prepared by prior TPA using one of the national vendor's volume submitters. It is not the TPA's own document. It is also not the vendor we use.  Looking to control costs, wondering about preparing the H/S amendment only, rather than restate the plan document, think that works?

Does anybody know the fees that Charles Schwab charges for a small business 401k?

Plan Sponsor has a PBGC-covered DB Plan and a 401k Profit Sharing Plan. I understand because of the PBGC coverage there is no combined deduction limit. However, does the 25% limit still apply to the DC plan only? My understanding is that yes, it does.

For example, they could deposit and deduct as much as they want into the DB Plan. And in the DC Plan, anything up to 25% of compensation is allowable. But anything over 25% in the DC plan would be a non-deductible contribution and subject to an excise tax.

If a client's plan is excluding leased employees, do you check to see if:

A person shall not be considered a Leased Employee if: (i) such person is covered by a money purchase pension plan providing: (1) a nonintegrated employer contribution rate of at least 10 percent of compensation, as defined in Code section 415(c)(3), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee's gross income under Code sections 125, 402(e)(3), 402(h)(1)(B), 403(b), 132(f) or 457, (2) immediate participation, and (3) full and immediate vesting; and (ii) Leased Employees do not constitute more than 20 percent of the Employer's nonhighly compensated work force.
 

I never thought to ask if their leased EEs are covered under a MP.

And what is the second part saying?  Leased EEs must make up more than 20% of the workforce in order to be considered leased and able to be excluded?

The loan policy states a loan may only be taken for a safe harbor hardship reason. What if the documentation of the financial need ($900 medical bill) is less than the loan minimum ($1,000)?