I have a plan that failed the ADP test.  Several HCEs terminated and rolled their money out prior to the refunds being calculated so their balance is $0.  What's the fix?

Florida imposes a document tax on loan transactions that are made, signed, executed, issued in the state.  Before you ask, why would a Plan Sponsor care, the loan is under a Qualified Plan ( and ERISA), the Florida statue  specially states that  "promissory notes made in connection with a pension plan loan, 401(k) loans and share loans"  ARE specially included. 

Failure to pay the stamp tax, could result in a state courts inability to  enforce provisions of the promissory note. It has been suggested failure to pay the tax  could mean the 401(k) is extending loans that are not adequately secured and could result in prohibited and/or operational failures.

Seems everyone I have spoken to about this matter is aware of it but no one is enforcing the stamp tax.  Obviously the recorkeepers are not doing anything on their end and TPAs processing loans, state it is not their responsibility. Ironically, the TPAs I have spoken with do not address the stamp tax with their clients.

Since the loan is issued under the regulation set by ERISA, could the State of Florida come in and challenge the loan? While the plan followed  ERISA guidelines with issuing the loan, not sure why some feel there is a prohibited/operation issue if the stamp tax is not paid.

For group who deal with Florida clients, are you recommending they file the payment and have the loan recorded with the state? Or is everyone just sweeping this under the carpet until the first major blow up occurs!!

Participant terminated 12/31/2018.  In March of 2019 he told a lump sum payment and rolled his benefit to his new employer's plan.

At the time of distribution he had an outstanding loan balance. The recordkeeper issued two 1099Rs, one for the rollover and one for the offset loan amount.

Under the Taxs Cuts and Jobs Act does the  participant have until 4/15/2020 to fund the "outstanding" loan amount to an IRA or his new employer's plan as a rollover contribution?

Any restrictions on funding the outstanding loan balance by the due date of tax return?

Plan has increasing rates of match based upon years of service.  Top rate has insufficient # of NHCEs so fails.

Top rate is 50% up to 12% deferral.  Second rate is 50% up to 10% deferral.

No one in the second rate deferred more than 10% so moving them up to the top rate and applying the formula would have no effect on the contribution.  So, can I:

1. Just give them 1% of pay anyway and be ok, or

2. Do I have to elevate lower years of service people with 12% or more deferral?

ER would like #1 since they are longer service employees but would it be a valid correction of the match problem?

Thank you

401(k) plan participant turned age 70 1/2 in 2018.  Attained age in 2018 was 71.  RMD should have been made by 4/1/2019.  Because it will be late, earnings will also have to be calculated.

The distribution is being made for 2018 when attained age was 71.  The distribution will actually be made in 2019 when attained age will be 72.  

If attained age in 2019 is used to determine the factor for the first RMD for 2018, then the same factor would be used again to calculate the RMD for 2019.

So the question is: which age factor to use to calculate the first RMD? 

Thanks!

Many of our clients plans permit participant loans to be repaid through "home bill" or "direct bill" (i.e. non-payroll deduct).  Is there a best practice for handling an automatic stay issued pursuant to a Chapter 7 or 13 bankruptcy filing in connection with these type of loan repayments?

We understand the bankruptcy code (section 362(b)(19) exempts payroll deduct loan repayments from the automatic stay, but the code is silent on non-payroll deduct repayments. Does that mean non-payroll deduct loan repayments are subject to the automatic stay? If so, are defaults suspended too during the stay?

Thanks!

The Employer is an S Corp tax filer, calendar year, cash-basis.

The Plan covers the owner and 2 staff members, 1 of whom terminated in 2018. The other staff member terminated end of Q1 2019. There is no last day reqd for any contributions. Employer contributions: 3% SHNEC plus discretionary PS.  Plan is cross-tested.

We have just been notified that the business return was filed on time and was not extended. This is the 1st plan year and the company prepared their own returns. [... today, they did hire an accounting firm...]

• 1120 reported $41k in retirement contributions
• the employer had intended to contribute $49k employer contribution (SH+PS) for the year but reported $41k because it is "cash basis" and this was the amount actually deposited into the plan during 2018 (note, this $11k included 401k plus SH deposits)

Of the $41k contribution reported, only $11k was contributed by the due date of the tax return (3/15/2019). The balance remains due, therefore is outside the 30 day Annual Additions window for 2018 Limitation Year. The $11k deposited was SH but there is about $1k SH contribution remaining due for the year.

Q1: Does EPCRS provide a correction such that the employer can deposit the $30k balance ($1k SH + $29K PS) at this time and in doing so avoid amending the 2018 tax return? Or can it be deposited under EPCRS however they must amend 2018 to reduce the deduction to $11k, and deduct the $30k on the 2019 tax return, along with any 2019 plan year contributions, of course subject to 404 limits?

Q2: Also, wouldn't depositing it now for 2018 PY count towards the 2019 Annual Additions LY for each participant who shares in the allocation of it because outside the 30 day window?  If so, one participant terminated in 2018 therefore 2019 Annual Addition limit is zero for him - is there any correction available for this? The other staff member terminated at end Q1 2019... may be okay with 2019 Annual Addition limit. Will this ultimately make it impossible for the employer to contribute any PS for 2018 because of this Annual Addition issue, limiting the employer to only the SH for 2018?

Q3: If the Employer decides to leave the 2018 Return as filed, make the deposit now and the plan is later audited and the $41k deduction is  reduced to the $11k, how are the contributions over and above the $11k allocated for 2018 corrected (i.e. the $30k)? Both of the staff members are now terminated and 0% Vested in the PS portion. Assuming they elect distributions, the non-vested PS portion will forfeit ... 

Thank you in advance if you are still reading this and can provide assistance.

A coworker has a plan where everyone's his/her own group, but still has a last day/1000 hours rule.  Also there's a safe harbor 3% for everyone.

There's a young HCE (owner's daughter) who made 108,000 or so in 2018.  And a couple of NHCE terminees who only got the 3%.

The profit sharing allocation was run such that each individual's group was allocated the exact same amount they would have gotten if the plan were written to be integrated at $80,000, with the percentages backed into by solving to get the parents to $61,000.  (Maybe something like 13% of pay plus 4.3% of excess over 80k.)

That, in and of itself, would be a safe harbor formula.  But since it's not actually written that way in the plan document, is it enough to simply pass the coverage on the additional profit sharing?

I'm concerned that because the integration level is 80,000, the young HCE got an extra "integrated piece" that would not normally have come into play had the actual TWB been used as the integration level.  And so, when general testing the actual amounts, her total allocation rate (imputing disparity) ends up being just slightly higher than everyone else's, thus failing her rate group.

So - does that matter?  In other words, is it enough to run the plan as though it were an integrated formula and hang our hat on that?  Or does the fact that the document doesn't actually say it's integrated, mean that we have to general-test it with the actual taxable wage base in those calculations?

Thanks!

--bri

If a participant takes a $200,000 in-service withdrawal (and pays the 20% mandatory tax withholding), then they decide they don’t need the money after all, can they put it back into a plan or an IRA?  Or is it a done deal since it was a cash distribution to the participant?

Under Rev Proc 2019-19, can we can correct a delinquent loan that has not yet been defaulted?  The Rev Proc says that a “defaulted loan” is any loan that is not repaid in accordance with plan terms.  Can SCP be used to correct a loan in which several loan payments were missed because the employer’s payroll messed up and failed to withhold the loan deductions?  The cure period has not expired so there is no default yet. 

The question arises because the Rev Proc states that it applies to “defaulted loans” and does not mention delinquent loans.  My thought is that the term “defaulted loan” is being used differently than the conventional definition in the Rev. Proc. and we may correct a delinquent loan.

Thanks in advance for any thoughts.

Rev. Proc. 2019-19, Section 6.07(d) states:  Defaulted loans. A failure to repay a loan in accordance with loan terms that satisfy § 72(p)(2) may be corrected by (i) a single-sum corrective payment equal to the amount that the affected participant would have paid to the plan if there had been no failure to repay the plan, plus interest accrued on the missed payments, (ii) reamortizing the outstanding balance of the loan, including accrued interest, over the remaining payment schedule of the original term of the loan or the period remaining had the loan been amortized over the maximum period that complies with § 72(p)(2)(B), as measured from the original date of the loan, or (iii) any combination of (i) or (ii).

Client is closing down his medical practice on July 31, 2019.  He sponsors a safe harbor 401(k) plan. 

1. Does he have reliance on safe harbor status even though plan is not a full year?

2.  Is a notice to participants required?

3. Is there any special language needed in the amendment to terminate?

The small firm that I was employed by has been bought by another firm whose termination procedures were very different from the way we handled plan terminations.  I am looking for guidance on how others handle plan terminations.  Thanks for your reply.

I am taking over a CB plan that provides NHCEs have to work 1000 hours to receive the contribution credit but HCEs must work 1000 hours AND be employed on the last day of the plan year?  Is this allowed for HCEs?

A client's 401(k) Plan is undergoing an IRS audit and the auditor requests both an Allocation Schedule and a report of 401k contributions for each pay period. 

Anyone know the difference, or what exactly they're looking for in an allocation schedule?

Let's say the plan requires 1 year of service with 1,000 to become eligible. The entry dates are 1/1 and 7/1 (semi-annual). Also, let's say if the participant did not complete the 1,000 hours by anniversary date, the plan changes the eligibility computation period to calendar year.

An employee is hired in 2018 (let's say on 1/10/2018). He is terminated in 2018 before completing 1,000 hours. He is then re-hired in 2019 (let's say on 2/10/2019 - so he hasn't completed 1,000 hours by anniversary date) and works 1,000 hours in 2019 calendar year. Would he become eligible on 12/31/2019 (and enter the plan on 1/1/2020) or 2/9/2019 (and enter the plan on 7/1/2020)?

Basically, would the plan switch to calendar year eligibility period because the employee did not complete eligibility by anniversary date? Or, would he be treated as a new employee as he did not complete the eligibility requirements by his initial anniversary date?

Thanks.

From a Sole prop., husband and wife only, DB plan, a direct rollover distribution from the DB plan unrelated rollover account was made to the Sole prop newly established 401(k) Plan as internal transfer in 2018.

The TPA who is also the recordkeeper  didn't think a 1099R was necessary because of the nature of the internal  transfer between two plans of the same employer, Sole prop.

Wasn't 1099R required when the money leaves one plan regardless of whether it was direct rollover within the same sole prop?

If so, how can we correct it now May, 2 1/2 months after  the due date?

If possible please include the section of the code that pin-point a situation like described.

Many thanks

AdKu

A 401k plan converted from one investment product to another product with the same recordkeeper.    A couple, but not all, funds in the plan's core lineup changed and the account number changed.   Discovered that the notice to the participants announcing the change was not delivered.   Is the fix to forward the notice now to communicate the change?   What other correction would / should be made?   Thank you

I googled on the topic, but did not find this situation addressed in the 401k fix-it guide and no articles or citings came up regarding the specific topic....

I have a court ordered QDRO, and am the alternate.  I hired an attorney to process and submit to the judge for approval. On the last page, the signing page it has my name as the petitioner and Pro Se. I know that Pro Se means by myself or no representation, is this standard procedure?

I appreciated you articles and was wondering if you can help me understand irs rules re ownership vs voting control. I have a question about controlled groups for 2 corporation 1 SCorp individual A owns 100% , individual A also owns 49% of a c-Corp but has a retained proxy voting rights for an additional 5% of the c-Corp (so he has voting proxy for 54%)  would both companies be a controlled group for 401k and DB plan purposes. 

We have a client who is a 5% owner through attribution and still working.   He turned 70-1/2 in 2015.   It's a 401k self directed account.   

For reasons I can't explain, probably because the attribution wasn't coded correctly, he didn't receive RMDs.

Based on actual account balances RMDs for 2015, 2016, 2017 and 2018 have now been made without regard to earning or taking into account an offset for expected RMD.   

The client is leaning toward filing VCP to request waiver of the excise tax.

Here are my questions: 

1.  How should I have calculated the RMD?  

2.  Should I have taken the expected RMD for the previous year into account when calculating the current RMD?

3.  Is there any good examples or explanations on how to prepare the VCP filing?  I think I can do it on 14568 and 14568-H but I am not sure.

Thanks for any light you can shed on this murky topic!

I have a plan participant that wants to roll his IRA into the 401(k)(allowed by the plan).  He is over 70 and has taken his MRD for a few years.  Can he stop taking his MRD now that the funds are in his 401(k) plan?  He is still working for the plan sponsor and making referrals.