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?

It was discovered that the coverage testing has been done incorrectly for several years (more than 5). Plan fails coverage and there is no fail-safe language so we are proposing an 11(g) amendment and to file the correction under VCP.   The TPA's suggestion is to allocate a QNEC contributions to the lowest paid participants sufficient to pass the AVB.   While QNEC for ADP testing needs to be limited to no more than 5% or twice the representative rate, there doesn't appear to be any limitations for purposes of the QNEC for ABT.

Tres Reg 1.401(a)(4)-11(g)(vii) states that the QNEC should be equal to the NHCE's compensation multiplied by the ADP and/or the ACP  so I'm afraid that allocating a QNEC contribution to the lowest paid employees might be considered discriminatory by the IRS.   It does not appear to me that they would pass the reasonable classification test.

Is it permitted to target the QNEC allocation? Is there any guidance on how to allocate the QNEC?

https://www.erisapracticecenter.com/2018/01/annual-irs-revenue-procedure-includes-surprising-change-to-user-fees/

They got rid of the reduced VCP filing fees for stupid things like RMD's and loan defaults.  

Schedule of User Fees for VCP submissions, is revised to change the user fees to: $1,500 for plans with assets of $500,000 or less; $3,000 for plans with assets of over $500,000 to $10,000,000; and $3,500 for plans with assets of over $10,000,000.

(4) All other reduced or alternative fees previously set forth in Appendix A, .09, no longer apply.

so the small business which is likely to have loan failures and missed RMD's pays $1,500 or $3,000.  Plans over 10 Million pay just $3,500.  What a nice thing for the mega corporations.

What an awful decision.  I hate to be political but I swear the most important thing for this administration feels like undoing as much as possible from the prior administration.

A participant in a 401(k) plan with automatic enrollment e-mailed her initial enrollment on 12/18/17 to her payroll department. She requested 3% deferral. The payroll administrator missed the e-mail and auto enrolled the participant at 6%. Payroll was processed on 1/2/18.  So the participant's deferral was 3% more than requested.  The plan does not allow for distributions when opting out of automatic enrollment.  She also received a higher match as a result of the error.

I know what to do if the deferral was missed, but in this case the deferral is too much.  My thoughts are to keep the deferral as processed and make sure payroll is updated.

Thanks for any guidance!

Participant is going through a divorce and the plan administrator has been contacted by the spouse's attorney regarding information on the participant's 403(b) account.  Currently, there is no QDRO, although that likely will be coming.

The participant claims she needs to take a hardship from the plan.  However, is that allowable if the plan administrator knows that the spouse may be entitled to a share of this account, even if no QDRO has yet been produced?

Thanks

Quick question on hardships for medical expenses.

Would a participant be able to claim a hardship to pay for medical insurance? My first though is/was no, but as I look at the text I am unsure as the IRC seems to suggest that they can.

The SPD says: 

The Plan does allow for hardship distributions for the following qualifying expenses:

 Expenses for medical care (described in Section 213(d) of the Internal Revenue Code) for you, your spouse or your dependents....

When I look at IRC §213(d), 213(d)(1)(D) says for insurance covering medical care referred to in subparagraphs (A) and (B) or for any qualified long-term care insurance contract.

exact copy and paste of §213(d)(1)(D) from Cornell Law below:

Happy New Year -

A couple questions related to the prior 60 day rollover period and the extended rollover periods for plan loan offsets effective for tax years after 12/31/17.  By way of example, lets say the loan procedures provide that a loan is due and payable in full within 90 days of termination of employment or it is offset.  Participant under age 59-1/2 terminates 1/2/2018 with an outstanding loan that is not in default.  Loan is not repaid in full by 4/2/2018 and the participant has left their money in the Plan.  The loan is technically supposed to be offset on 4/2/2018.  However, TPA/record keeper does not offset the loan in their system until the end of 2018 and a 1099-R is issued to the participant in late January 2019.  Under the prior 60 day rule, when should the participant have "rolled over" the loan offset by making a contribution to an IRA or another employer plan to avoid adverse tax consequences?  Is it within 60 days of 4/2/2018, 60 days from the end of 2018 when the TPA offset in their system or 60 days from receipt of the 1099-R? I assume it is within 60 days of 4/2/2018 unless participant wants to submit a PLR requesting extension of time until receipt of 1099-R because they were unaware that loan was offset...one of the benefits of having this new extended period.  Under the new rules, participant would have until the due date of their tax return (4/15/19), plus extensions, correct? 

Thank you!

DB plan NRA is 62 & 5 YOP. The plan sponsor wants to amend to add an in-service distribution provision upon reaching NRA. My question is: Does the law allow the in-service distribution to be mandatory upon reaching 62 or NRA?

I should know this, but DB plans are strange. Suppose someone is still working (100% owner) and becomes vested AFTER attaining age 70-1/2. Now must start taking RMD's.

Question is: if the RMD method selected is 100% J&S with his spouse as beneficiary, and he dies, since this is an RMD, the spouse should be able to elect a lump sum payment of the death benefit (assuming proper waiver had previously been executed, and plan allows a lump sum), correct? In other words, an RMD method election doesn't lock in that method as a post death payment method for the beneficiary, does it?

DC RMD's are so much simpler...

P.S. - it seems like 1.401(a)(9)-6, Q&A-14(a)(5) covers this? Or am I all wet? Thoughts on this situation - evidently participant is concerned that if both he and spouse die together while taking the RMD's that nothing further would be paid out to contingent beneficiaries.

Assuming the plan document does not preclude the following, can "Excess Allocations" placed into an "unallocated account" pursuant to EPCRS, Rev Proc 2016-51, Section 6.06(2)be used to fund corrective QNECs required under EPCRS, Rev Proc 2016-51, Section Appendix A.05(2)(b, for a missed deferral opportunity? 

Situation: Sponsor failed to withhold deferrals for an eligible participant, but contributed $7000 to his deferral account anyway.  Since the amounts were not deferrals, the amounts are being removed from his deferral account and placed in an unallocated account.  This participant now has missed deferrals and is owed a QNEC.  Can the amounts removed from his account and placed in an unallocated account be used to fund his corrective QNEC?  Please assume there is nothing in the plan document that would preclude such a practice.

Thanks in advance for your thoughts.

Has anyone tried using the IRS website to request a trust identification number recently? 

What should be listed for line 7a, and 7b?

I would think the "Name of responsible party" would be the Plan Sponsor as the trust grantor, and then the EIN of the Plan Sponsor would be used, but the instructions say to use EIN only if the Name of the responsible party is a government entity. 

The website will not accept an EIN, and that screen cannot be by passed?

Should the instructions for listing a responsible person for the business entity (principal officer, etc) be followed instead? but we aren't applying for an EIN for the business, its for the trust. 

what have folks been doing?