Disaster Tax Relief and Airway Extension Act of 2017 (H.R. 3823)

ASPPA NET article

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 ...the retirement relief provisions are consistent with the recommendations by the American Retirement Association to provide hurricane victims and their families relief from penalties and taxes, mirroring the relief previously provided by Congress to victims of Hurricanes Katrina, Wilma and Rita in 2005.

A participant, who is 72 years old, works for a company (Company A), which is owned by an unrelated third party, and also works for a company (Company B) that she owns with her husband.  In 2017, she took an in-service distribution from Company A's 401(k) and rolled it to the Company B's 401(k), which was established in 2017.  Company B has also sponsored a DB plan for several years and she has been taking RMDs from the DB since she was 70-1/2.

Since she did not have an account balance in Company B's 401(k) at 12/31/16, would 12/31/18 be her first required minimum distribution date from the 401(k)?

§1.401(a)(9)-7 Rollovers and transfers.

Q-1. If an amount is distributed by one plan (distributing plan) and is rolled over to another plan, is the required minimum distribution under the distributing plan affected by the rollover?

A-1. No, if an amount is distributed by one plan and is rolled over to another plan, the amount distributed is still treated as a distribution by the distributing plan for purposes of section 401(a)(9), notwithstanding the rollover. See A-1 of §1.402(c)-2 for the definition of a rollover and A-7 of §1.402(c)-2 for rules for determining the portion of any distribution that is not eligible for rollover because it is a required minimum distribution.

Q-2. If an amount is distributed by one plan (distributing plan) and is rolled over to another plan (receiving plan), how are the benefit and the required minimum distribution under the receiving plan affected?

A-2. If an amount is distributed by one plan (distributing plan) and is rolled over to another plan (receiving plan), the benefit of the employee under the receiving plan is increased by the amount rolled over for purposes of determining the required minimum distribution for the calendar year immediately following the calendar year in which the amount rolled over is distributed. If the amount rolled over is received after the last valuation date in the calendar year under the receiving plan, the benefit of the employee as of such valuation date, adjusted in accordance with A-3 of §1.401(a)(9)-5, will be increased by the rollover amount valued as of the date of receipt. In addition, if the amount rolled over is received in a different calendar year from the calendar year in which it is distributed, the amount rolled over is deemed to have been received by the receiving plan in the calendar year in which it was distributed.

For my LL.M. students in my ERISA Fiduciary Responsibility course, next week’s lesson is about prohibited transactions and exemptions.

As a part of that lesson, I explain that the ERISA § 408(b)(2) exemption is grounded on an assumption that an approving fiduciary gets enough information about a service provider’s services and compensation.  With this, I explain that many disclosures that arguably meet what’s required under the 408b-2 rule don’t, practically, furnish information in a way that’s useful to the fiduciary’s decision-maker.

I hope to show my students some real-world effects of the 408b-2 rule.  To do so, I’d like to show them a contrast of disclosures:

• one that is short, clear, easy to read, and fulfills the purpose of furnishing useful information to an unknowledgeable fiduciary; and

• one that is too long, ambiguous, a pain-in-the-neck to read, and difficult to understand.

So I hope BenefitsLink mavens will help me by attaching or linking here (or, to avoid putting something on the Internet, e-mailing me) some samples of “best” and “worst” disclosures.

(I understand you might redact names and other identifying information to protect nonpublic information, or to avoid offending someone.)

I’m looking for disclosures addressed to plans smaller than $50 million, and preferably including small and “micro” plans.

Likewise, because the difficult issues often aren’t in a TPA’s disclosures, I’m looking for disclosures of investment brokers, insurance companies, or recordkeepers that get (and keep) “revenue-sharing” or indirect compensation.

I don’t want to praise or embarrass anyone, so I’ll further redact and deidentify the illustrations before I show anything.

Also, I’ll use the illustrations only for show-and-tell in the classroom, and won’t allow a student to keep anything.

I have begun to educate myself regarding DROs in relation to governmental pensions/retirement plans.  If I understand correctly, a DRO is based on what is written in the divorce stipulation.  If something is silent in the divorce stipulation can it be added to the DRO?  For example, if the divorce stipulation is silent on the issue of a survivorship pension for the alternate payee can it be added to the DRO? 

Thank you.  

Why do my colleagues save up their questions for Friday?

Participant in DBP makes a valid election - assume lump sum, and all the forms are properly completed and submitted - for an annuity starting date of 10/1, but the participant dies today (9/29). Unless the Plan states otherwise (which I've seen, but rarely), I believe the QPSA provisions of the Plan apply and the benefit election is moot. Furthermore, I think Plan language is fairly explicit that if the Participant dies prior to the ASD his/her surviving spouse gets QPSA. My colleagues were thinking election should be honored.

Plan QPSA is defined as 50% survivor annuity but the Plan provides a total death benefit that is actuarial equivalent of 100% of the accrued benefit. The portion of the death benefit above and beyond the QPSA is an ancillary benefit, but is it protected or can the Plan be amended to eliminate it?

So to be exempt from the audit requirement a DB Plan must disclose in it's SAR the regulated financial institution that holds the plan assets.

But what if the Plan is not doing an SAR because it is a PBGC plan and preparing the AFN?

Full disclosure, I am not an actuary -  we hire an actuary to do the actuarial work. So even though I don;t know something basic, we pay people who know but I thought I'd start with you folks.

A participant in a MPP Plan had a MassMutual annuity contract from the 80's as an asset in a Pension Plan. This year he thought it was rolled over into an IRA at Wells Fargo.  We only receive a letter from MM stating the value of the annuity at the date it was to be assigned to his IRA earlier this year.  The account doesn't appear to be fbo of the participants IRA and he is afraid that it will be a taxable event.  Last week a 3 paragraph letter was issued from MM Tax Dept stating that "the contract is an individual owner former pension trust contract. It is considered qualified since the nontransferable endorsement was not cancelled upon transfer of ownership to the annuitant. The market type on this contract can be changed to an IRA using from number FR1212."  

By all accounts it does appear that this IS a taxable event since it is not in an IRA and if the 60 day rollover period has elapsed, then how can it be placed into an IRA by way of FR1212? 

Terminated participant left money in employer's plan, and received annual MRDs for a few years through 2015.  The 2016 MRD was not distributed in 2016.  Participant died in 2017, and 2016 RMD still hasn't been distributed.  Assume Plan document has normal 401(a)(9) provisions that REQUIRE that MRDs be distributed by year-end.  Is there any doubt that the participant's estate, rather than the death beneficiary, is entitled to receive the late 2016 RMD amount?  (Executor is not worried much about the 50% excise tax, but even so he feels he has a fiduciary obligation to the estate to collect this money from the Plan.)      

I have a plan that has held a life insurance policy for only 4 participants for many years. They would like to terminate the polices, just get rid of them and take whatever the value is to themselves (they want the cash). Our record-keeper is telling us that in order to cancel the policy they HAVE to deposit the funds into the plan and then follow the plan document as far as being able to actually take the funds themselves. In this case, you have to either terminate employment or be 59 1/2 take a distribution, per their plan doc. However, we were told by the outside insurance agent that they could take the cash and be taxed on it, as normal.

I just need guidance on how to get a life insurance policy out of a plan - when the participant is under 59 1/2 and still employed?? It is possible, right??

TIA!

Just a matter of idle curiosity - now and then, in a QDRO situation, an attorney includes the entire divorce decree, or draft decree, or whatever it might be called. This is the exception rather than the rule, but it happens. I was wondering if this violates any sort of privacy rule, client confidentiality, etc.?

It isn't that I mind receiving them - in fact, they sometimes make for fascinating reading - I've seen some crazy, zany, entertaining, humorous, and sometimes incredibly sad stuff. Just wondering if it is allowed, or technically a no-no? 

I am the alternate payee (ex-wife) I have been divorced since 2007. Recently my ex husband and I had QDROs completed, agreed upon and signed by the judge in 5/2017. One the retirements was deferred compensation. Our QDRO was very specific and stated that I was entitled to 50% of the marital portion including gains and losses until the time of distribution. Everything went through smoothly and the money was distributed into a separate account for me. I ended up obtaining 33K in gains. Now the ex husband is upset and stated he didn't realize what he was agreeing to. He is upset about me receiving the gains. He and his attorney recently filed a motion to modify the QDRO to remove the provision of losses and gains, and for me to return the 33K back to the former husband. It is now 9/2017, 4 months later. Do you think a judge would reverse this being that there was no error and all parties originally agreed at the hearing in 5/2017? And what would I need to do in this case.

We have a plan that has Roth deferrals and participant loan options.   2014 was the first year of Roth Contributions for Participant.  In 2016,  Participant took a $1500 loan from the Roth source, (before meeting “qualified” status).     The record keeper allocated the loan payout between the Roth basis and earnings pro-rata (reducing Roth basis).  example:  $1100 Roth basis; $400 earnings.

The participant terminated nine months later, in 2017.  The loan balance was paid down to $450.   The record keeper did not increase Roth basis for any portion of the repayments, so the distribution will tax the original loan amount including all principal that had been paid off.  

By taking the loan, the participant will be taxed on the entire amount of the loan, including the amount attributable to Roth, regardless of loan repayments.

Is it correct that there is Roth basis adjustment (decrease) for the loan withdrawal but no  Roth adjustment (increase) for any portion of the loan repayments?
 

OK, it looks like I have a plan sponsor that thought their document didn't allow deferrals off a bonus, when the plan document (both the current PPA, prior EGTRA by us and the EGTRRA from Ascensus, their prior tpa/RK) says that there is no special election on the deferrals off bonus.  The current PPA allows for a separate election if the participant chooses.

I don't know how far back this misunderstanding of the document goes.  How do you correct this kind of operational failure?  I don't know the specifics of bonus, as the client doesn't report that separately to us.  The HCEs at least for last year was the owner and his 2 children.  None of them made more than $265k.  The owner has the highest comp and it was below $150k.

Thoughts?

Are IRS approved nonbank trustees and custodians allowed to issue certification of assets for a limited scope audit?

Company A is being acquired by Company B. One of the terms of the acquisition is that A's 401(k) plan must be terminated the day before the acquisition closes. (So far, so good -- they actually planned ahead!) Company A will cease to exist following the acquisition and most employees will transfer to the Company B payroll the following day. 

Company A pays in arrears and will have a final paycheck for work done before the acquisition a week or so following the acquisition.  Because the final paycheck will be after the plan termination date, I have always understood that it is not eligible for deferrals or employer contribution calculations. Company B's TPA insists that it is because it is payment for work before the plan termination. Even if the elections below were changed, I don't believe that would apply in this situation.

Have I been mislead by multiple employers and their ERISA attorneys all these years?

How can I definitively determine whether a church plan is a 403(b)(7) or 403(b)(9) account?  As far as I know, for the client in question, all of the plan assets are in mutual funds on the American Funds platform.   The existing plan document does not reference investments.  To be an RIA, it seems that you have to specify this in the plan document, but there was not an option to specify this is our plan document, although there will be with the updated pre-approved version.  Can this RIA designation be made elsewhere, such as in the service contract with the investment company?  Also, if the plan only allows employees to invest in mutual funds with American Funds, can it still be an RIA?

I have a client who is considering purchasing annuities for some of the retiree group.  Their attorney says a plan amendment is required.

i have been trying to find this answer, would seem like others have had this situation but I can't find a thing. if you have a 401k plan with safe harbor and no employees want to participate do you have to pay the 3% or can you say you are doing the 4% and since no one is deferring, there is nothing to contribute ???

and if you had just one NHCE, you could do 4% for them and you would satisfy the requirements?

I hope this makes sense

thank you so much!! 

I am swirling in a little confusing.

We have a employee that is in two unrelated plans that we administer.  Because we administrate both plans, I can see that he deferred 24,000 in Plan A, and 350.00 in Plan B.

My original thought was to distribute the 350.00 as a 402g error and be done with it.  (We did email the employee and let him know the error)  But, being the deferrals are in two unrelated plans, am I needing direction from the employee?  What's the deal with the March 1 deadline in the plan document?

What if I never knew the 350.00 deferred to Plan B?  I'd move forward like normal....

Do I cut a check for 350 plus earnings, issue 1099-R for 2017 and be done with this?

What are your thoughts?