One of our clients has a 401(k) plan.  During 2017, the employer created 2 new controlled group companies.  All of the employees then became employees of one of the new companies.  We were never informed of this and the 2 new companies were never added to the plan as participating employers.  They continued to deposit deferrals for the employees.  Do the deferrals have to be refunded?  Or can this be corrected under EPCRS?  Any other suggestions?

sole proprietor sponsors a one person defined benefit plan.  the plan is overfunded on a lump sum basis but the participant is interested in purchasing an annuity upon plan termination.  i'm aware that an owner can forego receipt of a portion of their benefit in the case when he/she elects a single lump sum.  can the owner elect to forego receipt a portion of his/her monthly benefit to make plan assets sufficient?

for example, the participant who is age 75 (and currently receiving RMDs) is entitled to a $15,000 monthly benefit.  the plan only has sufficient assets to purchase a $14,000 annuity for the participant.  can the participant forego receipt of the shortfall? the sole proprietor is not interesting in making any additional contributions to the plan.

An RMD eligible 5% owner participant has a 401k balance 12/31/2016.

July 2017 - They rollover their balance to their IRA .

Sept 2017 - They make a lump sum contribution to the plan .

Dec 2017 - We force out RMD from the balance created by the contribution.

Participant adamantly stated that they took the RMD from the IRA rollover and that we were not supposed to force his RMD.

Any support to the rules would be greatly appreciated. I will need something to cite.

I understand from reading the new final rule from the PBGC regarding missing participants, that a terminating DC plan can utilize the program as well.  I am just confirming that if the program is utilized that once the assets of the missing participants is transferred to the PBGC (and all other assets are distributed out), that a final Form 5500 can be filed?

Thanks!

I have an ESOP client that normally makes you wait 5 years in order to get a distribution via 5 installments.  They however have a provision that if a person terminates and then is ruled disabled they can be paid the year after the disability ruling. 

I just took over this plan.  A person terminated in 2012.  They were ruled disabled in 2014.  They got their first payment in 2015.  The firm that prepared the 1099-Rs in the past gave this person a code of 3. 

I am just not finding any guidance on this.  Do you have to terminate because of disability or merely be paid because of disability in order to get a code of 3?  It matters as the person is <59.5. 

Back when I did 401(k) plans if a person terminated and refused to take a distribution for years and then became disabled I don't recall making such a person a code 3. 

Thanks

On a call with an IRS representative today, after I faxed over Form 2848, the representative asked me for my personal SSN in addition to my CAF number and my client's EIN.  When I expressed surprise, she indicated that it was a very new IRS procedure.  I'm curious - has this happened to anybody else?

We have a client with a plan document that defines Earned Income as "net earnings from self-employment with respect to which the Plan is established, for which personal services of the individual are a material income producing factor."  

The plan is sponsored by ABC, LLC.  Owner O owns 100% of ABC.  O also owns 100% of XYZ, LLC.  XYZ has no employees.  O has net earnings from self-employment from XYZ that he would like to use to support his compensation in the plan.  My question is whether XYZ must adopt the plan as a participating employer in order for O to rely on the NESE from XYZ.  My thought is that it couldn't hurt, so why not.  

Client started a H & W DB plan in 2016.  They bought a stock that increased 4000% so now they are way overfunded and benefits will never catch up.  I am going to suggest they take out the money into a regular brokerage account and thus intentionally disqualify the plan.  Pay regular capital gains.  Taxes and penalty on the disallowed deduction are better than a reversion tax on an overfunded DB.  Or are they?  Please help!!

Hoping that someone can help...or point me in the right direction...

I worked for a company from 09/10 to 02/13. I won't get into details, but there was some shady and questionable things on their part and they found/fabricated a reason to terminate my employment...a lot of which had to do with my chronic illness...and the company requiring me to abide by my own set of rules, which didn't afford me the same flexibility as all other employees. If someone needs specifics, I can provide them. Anyway...

I haven't worked full-time since then and was determined disabled as of 07/14 by SSA. I received my ESOP distribution in 2014 (can't recall the month, offhand, but I believe it was November). I was only 20% vested, but it was brought to my attention that since I was still part of the plan, while waiting for my distribution, I should have been vested at 100% and also be able to forgo the 10% early distribution penalty. 

I managed to get the plan documents but they are not clear. Can anyone help?

We administer a traditional defined benefit plan that is offset by participant's vested balances in a profit sharing plan.

Our understanding is that the 415 limit applies to the gross benefit and not the net benefit under the floor offset plan. This does not seem right but apparently an IRS examination guide indicates that the “current approach is that the limit applies to the gross benefit (i.e. prior to offset).” There was a discussion between an actuary and Jim Holland a few years back on this issue. Rev. Rul. 76-259 was often cited in the discussion. I don't believe we have seen any further guidance on this issue, has anyone else?

The actuary made some good points as to why the 415 limit should apply to the net benefit. In our case, our pre-approved document makes no reference to the 415 dollar limit applying to the benefit prior to offset.

Any comments on this?

Thanks.

A client wants to terminate a phantom stock plan.  No shares have vested and value of shares minimal.  There would be no distributions on termination, therefore no acceleration on distributions.  Are we subject to the rules on terminations under 409A? in other words, can we only terminate if one of the 3 tests in 409A is met? Does it matter if there is no acceleration on distributions here because no distributions would be made. 

Follow up on this.  So the client is now thinking converting to an LLC and offering those same execs some type of an option plan.  I imagine that's improper substitution, but thoughts? Thanks 

We have a 401(k) client where the plan sponsor/corporation became owned by an ESOP in 2017.  I don't know any more about this transaction other than the company is now owned by an ESOP.  This company has sponsored a 401(k) plan and still does during 2017.  

Some research I did indicates Code Section 318 states that the constructive ownership of stock does not apply to shares owners by a 401(a) employee trust which is exempt from tax under 501(a).  So it seems since the ESOP is the owner of the company, the 401(k) plan no longer has owners for purposes of HCE and key employee determination.  All shares of the company previously owned by all the family members are now owned by the ESOP and don't attribute to them personally is my take.  The plan is subject to ADP testing but perhaps will be a non-issue if attribution does no exist.  I also have to question whether officers exist for top heavy purposes.  the plan is a long way from being top heavy thank goodness .  I'm told there are board members of the ESOP but the client is implying there are no longer officers.  If this is the case there may be no testing whatsoever.  But I'm approaching this with much caution! 

Comments anyone? Thanks

When someone is rehired, they have immediate entry if they had a vested balance in employer contributions.

I know pretax and Roth are counted as employer and Rollover is not.

Is voluntary aftertax counted?

How about the Employers DB Plan.  Do we count that?

I'm writing a procedure and I would like ideas.

If an employee filled out a form to go form 5%  to 2% and payroll misses it for 3 pays, how do people handle this?

Wow, the strange stuff keeps popping up this week! So it has been proposed that a participant loan be granted, with payroll deduction repayments, but with a twist.

Let's say loan is granted on, pick any day, January 15th. But the (equal) payroll deduction repayments are not scheduled to begin until March 15th. The repayment schedule would be 4 years - well under the 5 year limit.

To me, this violates the "substantially level payments" made at least quarterly requirement of 72(p)(2)(C). During quarter 1 of the loan, the repayment is far less than during subsequent quarters.

Since I'm questioning my sanity this week (cold medicine creating more fog than usual) I thought I'd see if it's just me, or if folks agree. Thanks.

Our 401(k) plan just received a consent order from the state probate court ordering the reformation of a deceased participant's beneficiary designation from the estate to the trusts of the participant's three children.  I've seen PLRs on this topic (e.g., 201628005) with respect to IRA's - and the IRS has said no to reformation, but in the context of Section 401(a)(9).  Has anyone come across this?  And, if so, how did you proceed?

This is related to an earlier post, but a somewhat more targeted question. I'd love to hear opinions from the DB experts here.

The question is this: Prior to Notice 2015-49 (the "de-risking Notice"), the RMD regulations under 1.401(a)(9)-6, Q&A 13 and Q&A-14, provided for certain allowable accelerations/modifications. For example, retirement after the annuity starting date, or plan termination. Within certain limits, a lump sum was allowable.

The question is whether these exceptions are still allowable in a situation where someone is taking RMD's but has not yet retired, or for plan termination. It appears from section III of the Notice that the removal of these exceptions is only for situations where there is an AMENDMENT to the plan that previously, under 1.401(a)(9)-6, Q&A-14(a)(4), would have allowed an acceleration. But the exceptions in Q&A-13 still exist for "normal" non-amendment situations. Agree/disagree? Thanks!

We administer an 18 participant DB plan covered by PBGC. We are going through a standard termination and the company will fund any difference between assets and liabilities. Participants will likely be paid benefits in late March 2018. Exactly at that time a contribution will be funded.

Given the plan termination, are there any restrictions on what year the deduction for the contribution can be taken? Must it be 2018 or could it be 2017 (assuming they went on extension)

Thanks.

Treasury Regulation 1.401(k)-1(d)(3)(iii)(B) permits Participants to take a “safe harbor” hardship distribution if they incur expenses for the repair of damage to the employee’s principal residence that would qualify for the casualty deduction under IRC §165 (determined without regard to whether the loss exceeds 10% of adjusted gross income). However, the Tax Cut and Jobs Act seems to amend IRC 165 (effective after December 31, 2017) to state that casualty losses are only deductible to the extent it is attributable to a federally declared disaster. 

This would mean that participants would only be able to take a hardship distribution for a casualty loss situation if they live in a federally declared disaster area, which would appear to dramatically reduce the number of participants that could take hardship distributions due to a repair of principal residence. 

So, in 2018, if my house burned down due to an accident (and was not covered by insurance) and it is unrelated to a federally declared disaster, I can't take a hardship distribution anymore?  Is that right?

A business owner employs her children (all younger than 14) as employees of her business.

The employer’s employment-law counsel has vetted these jobs as proper under Federal and State child-labor laws.

The 401(k) plan’s document does not impose age 18 or any age as a condition.

Assume each child’s employment involves real work with no more than reasonable compensation.

Could anything under ERISA or the Internal Revenue Code preclude such an employee from making elective deferrals and getting the plan’s safe-harbor matching contributions?