Having a discussion with a colleague regarding minimum participation under IRC Section 401(a)(26), the IRS memo-induced 0.5% accrual rate threshold and cash balance plans that use actual rate of return interest crediting rates (ROR ICR). 

HCE with comp of $260k and $13k contribution credit (5% of pay) in an ROR ICR plan has a 0.39% normal accrual rate due to negative return in 2018 and zero percent projected interest, causing the plan to fail 401(a)(26) if one applied the IRS memo as if it were law or regulation (which it is not), whereas I argue that in what facts and circumstances universe (which is the law and regulation) is a 5% annual credit not meaningful, and why should a one-year interest rate hiccup/blip turn a very meaningful credit into one that is not?

By that standard, every ROR ICR plan that does not have a contribution credit in excess of 6% for 40% or 50 employees would otherwise fail 401(a)(26) every year they experienced an investment loss and would be required to increase contribution credits. I find that ludicrous, and it ultimately creates a de facto (albeit indirect) interest credit floor so to speak, which you could not do directly because of the market ICR rules. So ROR is good, employee wins, ROR is bad, employee still wins - yes, that's kind of the DB premise, but it's not the market rate premise.

Thoughts from those with experience on ROR ICR plans and dealings with IRS on the issue, including the 0.5% accrual rate line in the sand.

Thanks

My apologies for interrupting a previous forum on another topic line.  I am currently trying to find a resolution to a current problem. During the month of August 2018 my father passed away ,he was collecting his social security benefits as well as his full pension of which all began during 2003 and of course ended during his death of August 2018.  He was employed by the city of New York as a New York City Hospital Police Officer.  His retirement pension is through NYCER, "New York City Employee Retirement.  My parents married in 1971 divorced in 2008. During August 2018 my mother was awarded a one time death benefit through my fathers pension retirement organization NYCER.  Thereafter, she was informed she would receive my fathers annuity funds and informed my mother that she was listed as his primary and only benificuary to collect his pension.  My mother was directed to complete some documents and to submit a death certificate.  Thereafter, she was notified she was not elegiable to collect my fathers pension nor was she entitled to my fathers remaining annuity funds because there divorced. NYCER is requesting a DRO of which my mother does not have.  There divorce was an uncontested divorce drawn up in the state of Florida by an attorney or my father who failed to include any and all of my fathers financial information regarding my fathers pension or his social security benefits he was collecting but remember my fathers pension is from New York City of which my mother resides in.  Can any thing be done about this?? At this present time NYCER continues to send letters regarding my fathers Annuity funds which has not been disbursed accordingly and there is NO administrator of his estate.  There are three surviving children including myself.  Please advise.  Thank you.

Looking for some thoughts here since the rules aren't 100% definitive.  If a plan is being spun-off into 2 separate plans and the existing one eventually terminating, could the spun off plans be considered "new" for purposes of filing for a determination letter?

Relatively simple situation. I have a separate interest qdro with the following facts:

* the qdro was issued at the participant's normal retirement date (assume exactly, it was close, not sure if a month off). 

* the alternate payee chose to commence benefits at the participant's normal retirement date (life annuity - no subsidy received in the traditional sense as far as early retirement is usually considered)

* the participant chose to continue working despite suspension of benefits. No actuarial increase is provided (benefit is frozen)

* said participant is now past RMD. The participant is looking to start benefits at age 74, and will receive the appropriate 401(a)(9) increase for starting past rmd

* During the time since NRD, the alternate payee has received benefits continuously, but the deferral period will reflect actuarially equivalent benefits for the participant only for the period after what would've been RBD if said participant had not been active

Question: since the plan is paying benefits to the alternate payee that it would not have paid without the issuance of the QDRO, has the participant forced himself inadvertently into paying for the alternate payee's benefit during the period between NRD and what would've been RBD via reduction of his benefit once he starts. 

That is, instead of receiving his share of the benefit increased for the period past typical RBD, is he required to receive that less an actuarial equivalent amount for benefits paid to the alternate payee?

This is a variation on a participant footing the bill for a qdro that allows the alt payee to get subsidized early retirement when a participant doesn't start, but instead of paying for a subsidy, the subsidy is seemingly a benefit reduction (negative subsidy) that he caused himself by continuing to work after NRD. 

The number of years we're talking about is about 6 1/2 to 7, so the adjustment would be significant. 

Good afternoon to all,

Our client's document says that unrelated rollover money can be withdrawn at any time, while for all other sources, the participant must be 59.5.

A participant in the plan with 6 figure unrelated rollover balance wants to withdraw money immediately for the downpayment on a new home.  She is literally a month away from turning 59.5.  I say that she needs to wait until her date of attainment of 59.5 to avoid the 10% penalty on her withdrawal.  

However, a colleague is speculating that because the funds originated in the retirement plan of a previous employer, she no longer works for that employer, and she left that employer after turning age 55, she shouldn't have to pay the 10% penalty. I think that could be true if she had left the money in the old employer's plan, but once she rolled it into her current employer's plan, she's subject to the penalty if she doesn't wait until she is literally 59.5.  I am never dead sure of anything, though, so I am asking...........

What say all of you?

Thank you as always for your input.

The Plan Sponsor failed to start loan payments timely because they did not understand the process at their new financial institution.  The financial institution said they would refinance the loans if the client filed the loan failures under VCP.  The VCP filing is 99% complete, but I have one question.

Plan loan interest rate is Prime + 2%.  When the original loans were issued, the loans were amortized with a 6.5% interest rate.  Under refinance, the interest rate is 7.5%.  

In addition to covering the cost of unpaid accrued interest during the non-payment period, should the employer also be responsible for covering the difference in the dollar value of the loan interest had the loans been paid timely vs. the higher interest rate?

401(k) plan defines compensation as compensation under section 3401(a).  An employee claimed exemption from withholding on Form W-4.  The box 1 of their W-2 shows zero, and the amounts listed under box 14 for informational purpose.  These amounts are wages paid for services performed by the employee.  Are these amounts considered plan compensation?  Thanks.

A CPA just sent this question to me.  None of these are my clients, so this is all of the information that I have...

Quote

2 dentists each have corporations.  They formed a 3^rd LLC to jointly own.  50/50 Corps own the LLC. Profits flow through to corps.  Docs pay themselves through corps.  LLC will have a 401(k).  Can doc have a SEP?  Would there be any limitations?

Maybe my brain is just fried, or maybe I'm confused, but I can't wrap my head around this one (and I'm not a CPA).  If the profits flow through to the corps, and the docs are paid through the corps, where is the income from the LLC (to even have a 401(k))?  But assuming there is income from the LLC, my quick response would be "yes" that the doc(s) could have separate SEP's for the corps.  But would the combined limit apply?  Again, my quick response would have been "yes" (since each have ownership in both).   Then I thought, why would they want to?  The only reason I could think of, that they would want a separate SEP in addition to the 401(k), would be to have a deductibile contribution for one company (Corp), but not the other (LLC)...?  I don't know if they have employees, or if it would matter, but I would assume that they do.

Any input would be greatly appreciated.

Thanks!

Our client is considering splitting their existing 401k plan into two separate plans through a spin-off to avoid a Form 5500 audit requirement on the existing single plan. To effectuate a spin-off, does the plan assets for the spun-off plan have to be physically transferred to a separate custodial account or can the accounts remain where they are if the custodian is able to segregate the accounts among the two plans within the single contract?

My inclination is no, that the plan assets have to be transferred to a new account under the new plan name & number.

Participant had a  medical procedure 2 years ago and financed the procedure.  The participant now wants to take a hardship to pay off the loan.  It is clear that the financing was for the medical treatment.

My initial response was "two years ago was just too long."  Anyone have a different thought?  So for example, what bills has she prioritized over this one? Did she pay off credit cards ahead of this? In other words at what point does it convert from a medical expense to decision regarding cash flow and personal financial management?

hi we have a calendar year plan that had an employer matching safe harbor contribution for 2018, however they stopped the safe harbor match as of 11/15/18.  Doe the ADP and ACP test only need to cover the period from 11/16/18 - 12/31/18 or does it have to pass the testing for the whole year? thanks

A couple of our plan sponsors received notices that their plan is one of the settlement class members covered by some class action against a bank. The period covers some foreign transaction fees from 1997 to January 2019.

If they do nothing, it explains that a small percentage of the settlement may be sent to them, if the court approves.

Does this mean that years from now, the plan fiduciaries will receive some small check to allocate to participants to offset expenses paid by the plan from 1997 to January 2019? Would it be better to just write back asking to be excluded from the settlement? Or would that be a fiduciary breach?

There were no other Employer contributions for the 2017 Plan Year. The Plan was top-heavy for 2017. Do they have a loss of the top-heavy "exemption" for an untimely deposit?

We intend to have them correct under VCP.

Question - under PPA (or anything else for that matter) must a distribution notice to a participant, for a DC Plan (non-QJSA) provide the dollar amount of the total account balance and the vested account balance? Now, this seems like a ridiculous question, I know, but in response to some fraudulent distribution requests, we are considering what possible options might be available to combat this. Among the questions/ideas floated was not putting these amounts on the distribution statement that is initially/automatically sent to the "participant," and somehow adjusting procedures to require the participants to contact the Plan Administrator/Trustee to obtain this specific information.

Not saying whether this is good, bad, or indifferent, because we haven't yet begun to explore the ramifications - risk/reward, expense, quality/timeliness of service, what various platforms will/won't do/handle, etc. - only starting to determine if it is even possible. And not looking into any other changes (at this point anyway) so all other PPA requirements are NOT open to discussion right now.

It appears to me that this information would be required for a DB plan - (accrued and vested benefit)  but I'm not necessarily finding anything requiring it for DC plan. Of course, the statement must provide the verbiage re the effects of delaying distribution, QOSA if applicable, etc., but that's another matter.

Anyone have any thoughts on this?

Sorry if this is already covered elsewhere.

My ERPA expiration date is 9/30/2019.  Is April 1, 2019 the earliest I can complete the online renewal process?

And I'm assuming this covers my calendar year CE credits for 2016, 2017, and 2018?

Thanks very much.

Taxpayer needed large 2017 tax deduction and was advised to adopt a DB plan in November 2017 with a November 30 plan year end.

Taxpayer funded PYE 11/30/17 in November 2017, funded PYE 11/30/18 in early December 2017 and claimed deduction for both contributions on 2017 calendar year tax return.

Sounds fishy to me, is this allowable?

Group:

I apologize if this is not the proper forum as I didn't see a forum specifically for audits of qualified plans (ESOP's in my case).

Client's ESOP has been under audit for close to 2 years for plan year 2015.  It's been extended a few times and I'm not exactly sure why.  I believe one reason was that due to the Hurricane from 2017 as client is based in FL and the Miami TEGE office is handling matter.

I'm currently reviewing whether or not to come on board to assist.  The current client rep will most likely be terminated for a number of reasons.  I believe the main sticky issue has to do with leased employees.  I don't have all the info just yet and not sure if soon-to-be-terminated rep will be helpful.  I'm hoping the TEGE auditor will at least provide the sticky issues to me when I'm clients POA/2848 rep.

Q:  For practitioners who handle TEGE ESOP plan audits do you normally sign the SOL extensions? I'm usually of the opinion that signing once or twice is in clients best interest.  But I've never had the situation where there is a third request. 

What is the worse case scenario?  TEGE issues its determination immediately? 

Then client has to be prepared to file admin appeal?  then possibly Tax Court petition?

Thoughts and comments appreciated.  Resource/Guide in TEGE audits/appeals matters?

I've had successful TEGE audits and never had to worry about an appeal.

Best,

Joe

In my situation, automatic payment was set up when COBRA benefits began in mid-September 2018. The payment requests were to be sent to a bank account that has overdraft protection. The first payment request, which covered three months of premiums due to coverage being backdated, hit the account and was processed and paid in full on October 2. The beneficiary used coverage for a flu shot in late September or early October and did not use the benefits for the next few months. In late December, after the deadline had passed for signing up for a new health plan, the beneficiary called the provider wit a coverage question and was informed that her benefits had been terminated in September or October for nonpayment. Knowing this could not be possible as payments were made automatically from an account with overdraft protection, she asked for a review and the matter was sent to a supervisor. She left a voicemail that day for the supervisor and called every few days to see if there was a resolution. She was told the matter should be resolved in about a week.

After numerous calls in which she was told the matter was being reviewed, on January 31 she sent an email.  The email included a screenshot of the provider's website section that shows her payment history and she explained that, though this alleged payment history shows more than one payment, she reviewed her designated bank account and only one payment request ever was sent to the account so only one payment had been made in response to that single payment request. She offered to call the bank with the provider to verify that this was true and that the provider's accounting records were incorrect. She later was told that the January 31 email was treated a s a review request and that the review would take about one or two weeks for January 31. Today she received the following statement from the provider:

"First and foremost my apologies. I recently conveyed to you the reason for the cancellation of your Cobra plan was due to a chargeback. That information was incorrect. The reason for the cancellation is because the last payment we received for your Cobra was in November 2018. We have not received a payment since then and unfortunately it is too late to pay back any missed premiums that may be due."

As explained, there was no November payment. The only payment was made on October 2 in response to the only payment request the provider ever was sent to the account for COBRA benefits. If automatic payment has been set up and a payment is properly processed, is it unreasonable to assume that the provider will continue to send payment requests to the designated account for subsequent periods of coverage? Can the beneficiary's benefits be canceled and the provider refuse to reinstate the benefits under these circumstances? Even if coverage could be backdated to the date of cancellation, can coverage be reinstated now and cover the beneficiary going forward?

Client has had a DB plan for his self-employment venture he's run since 2015.  And a 401(k) plan. Now he's hired some employees for the first time as of 12-1-2018.

Under the plan's current adoption agreement, employees would be eligible for both plans as of 1-1-2020.  (Standard 1 year, age 21, dual entry.)  But there may be a request by these new employees to see if the 401(k) eligibility can be accelerated to something less than a year.

We're also thinking about changing the DB eligibility, too, to 2-year at some point during 2019.  Just want to make sure I don't have any weird issues.  If we do change to a two year wait, then I'd surmise (and let me know if I've messed up here, please):

a.  401(a)(26) is fine for 2019 and 2020, because nobody else has met the DB eligibility requirements.

b.  For 2019, the staff employees are otherwise excludable.  So they can be tested for their DC benefits separately against the otherwise excludable HCEs (none), while the statutory employee test only consists of one HCE.  So they both pass.  Staff might only need a 3% THM depending on what other employer contributions are in play.

c.  For 2020, the staff are no longer "otherwise excludable" even though they're still out of the DB plan.  So they may need substantial DC allocations to pass 401(a)(4) against the accruals for the owner in the DB plan.

I'm not missing anything, am I? 

Thanks!

-Bri

Our company has a safe harbor matching plan. I know that there are few amendments that can be made during a plan year. Is it possible to amend the plan to allow a more generous eligibility/entry? Currently, our provisions are the maximum statute - 21/1 YOS, semiannual entry. I would like to move to 6 months of service, quarterly entry. 

I figure it can't be done but I thought I would check.