Has anyone considered the issue of whether a retirement plan can permit the employer discretion over whether to approve an employee's application for phased retirement without violating the definitely determinable benefits rule?

Basically, the idea behind allowing phased retirement is that they want to hold onto a valued employee on a part-time basis so the employee can train a replacement.  But they don't want to offer phased retirement to someone in other situations--e.g., if there are many other employees with the same skills, so they don't need the outgoing one to train the incoming one.

It's a governmental plan, so we're not concerned about discrimination in favor of highly compensated employees.  And I wouldn't have any issues if they said from the beginning something like, "Phased retirement is available only to employees in the X department," or "Phased retirement is available only to employees who are level Y or above."  But can they retain the discretion to decide when the employee applies whether or not to grant that employee phased retirement?

My concern would be that Employee A requests phased retirement, and gets it.  Employee B is denied phased retirement, but then requests and receives part-time status.  So in effect the employer has exercised its discretion in such a way that Employee A gets benefits from the retirement plan, and Employee B does not, even though both are otherwise in the same situation.

We have an employee who is leaving and his benefit will be forfeited because he is not due to vest for a couple years.

Can we do the following:

1) accelerate vesting and pay the benefit according to the schedule?

2) offer him the exact same (or modified, even) benefit in a second agreement that is fully vested, and then just let the current benefit forfeit?

I'm concerned with (2) because I know that there are issues with replacing one benefit for another, but that doesn't seem to be the case here.  The current benefit is being forfeited pursuant to the terms of the plan, so we are in a position where we don't owe him anything -- why shouldn't we be able to provide a separate benefit, even if it looks like the one being forfeited?  It would be maybe an issue if he voluntarily forfeited it for a new benefit, but that isn't the case here.

Second random question.  If the Plan currently says the benefit will grow at 5% annually, can we revise the Plan to say the benefit will grow based on some other metric (e.g. company performance) starting on a future date (e.g. tomorrow or next month)?  Or is that an impermissible modification?

Plan sponsor offers hardship withdrawals but the plan document only requires a 6 month suspension for one of the participating employers. The client believes that they are not required to suspend deferrals at all for the other participating employers after a hardship distribution.

While the IRS uses the word generally in its description of suspensions I believe the context is that it could be longer or may not apply if deferrals are not withdrawn. Otherwise I'm unaware of any ability to bypass this minimum 6 month suspension requirement.

If they are not using a safe harbor definition for hardship is there some exemption?

At least the forums?

I'm not a fan.  :(

2 S corps own a medical practice as a partnership

Each S Corp receives distributions and a K-1 from the practice which 100% of the distributions are invested back into the practice

Each S Corp pays the owners W2 salaries

Do I use only the W2 compensation (paid by the S Corps) for retirement plan purposes, or do I have to add in the K-1's that the S corps receive regardless of it being given back to the practice?

I work with a company that just received a "Dear Taxpayer" letter, purportedly from the IRS, asking them to re-submit all Form 1095-Cs because they were incomplete, or not in the required format. Has anyone else seen a letter like this? I haven't seen any chatter online and am curious about its legitimacy. This appears to be a form "1865C" (which I can't find any reference to online), and directs us to send the 1095-Cs to a particular IRS stop in Kansas City (which I've also never seen referenced online). 

Any thoughts? Has anyone received something similar or seen anything about this?

Thanks much!

No contributions made to profit sharing plan for at least 8 years.  PS only plan.

I guess the contributions are no longer substantial and recurring.  So 100% vesting is probably triggered.

Are there any other ramifications?

Plan Year End = 12/31/16

Fiscal year = 08/01 to 07/31

What is the latest date a C-Corporation can fund Employer Contributions for the 2016 Plan Year?

Would anyone have a reference to the relative percentages of trustee vs. participant directed 401k plans.

Short of that, anybody want to hazard a ballpark estimate.

The things you find out long after they have already happened months ago!

Employer apparently, in mid-2016, simply wrote a check to a participant - did not run it through payroll. This was apparently treated as a "bonus" for no discernible reason. The employee held the check, then deposited it in DECEMBER. It was deposited (endorsed directly by the participant to the vendor) to the employee's deferral account at the vendor.

This is wrong on several levels. First, as an aside, the plan does not allow a separate deferral election on bonuses, so even if this had been done directly and otherwise correctly through payroll, it wouldn't have been allowable. Aside from that, this isn't a "deferral" because the participant already received the check directly. So really, this is an employee after-tax contribution. Also not allowable under the terms of the plan.

Only correction I see is distributing the amount, plus earnings. Seems like this would be reported in Box 1 and Box 5  on the 1099-R, since it is a return of after-tax employee contribution, (and a Code E in Box 7?) and the earnings would be reported in Box 2? Earnings, of course, would be taxable.

As to whether the employer correctly reported this on W-2 and did appropriate SS tax, etc., etc., it is their problem. We'll mention it to them, and they can work with their CPA...

Any thoughts would be appreciated.

Company offers three insurance choices for Medical, an employee can only choose one. Three Schedule A's are filed on one 5500.

Employees may also elect Drug coverage, offered as a separate self insured plan. Can it be filed on same 5500 or does Drug have to be treated as a separate plan.

(moving forwarded a megawrap is in place)

HR noticed they missed paying an ee a few vacation days in a paycheck a few months ago.

In correcting this missed salary, would the 401(k) be considered late and require lost earnings, even though the 401(k) is being deferred, withheld and deposited at time of actual payment of the portion of the salary that is late?

There's been some discussion on this topic over the years, and as far as I know, there's no concrete guidance from the IRS. Situation is where a participant legitimately requests hardship withdrawal, has all proper paperwork, etc., check is issued, cashed and deposited and deal falls through at closing. (And closing go sour quite often...)

Participant wants to know if funds can be deposited back into plan.

I've seen various solutions. QDROphile has sensibly suggested in the past that funds be delivered to escrow, then if closing falls through, redeposit to the plan. Seems defensible. My question on this is do you have problems with the investment provider and reporting, particularly due to withholding if it crosses calendar years?

Someone else (I think it was KevinC) suggested it could be corrected under EPCRS as an overpayment. While probably true, this should theoretically work only once, because part of SCP correction is changing procedures so it doesn't happen again.

You could just allow it to be re-deposited, under a "common sense" approach. Again, I'm not sure how different vendors/platforms might view or allow/disallow this.

You could take the approach that "too bad - it was a legitimate hardship when made, and you can't undo it." This actually seems like probably the most appropriate answer, although perhaps an unjustifiably harsh result for the participant.

All of this of course tempered by some of the incredibly asinine requirements by many mortgage LENDERS and what/how/when they require things to be done. It's conceivable that they might not allow the closing if the funds are in escrow? Seems ridiculous, but I've heard some strange scenarios.

Really just wondering if anyone has any other brilliant ideas/insights, or has heard of any pending guidance, discussion from the podium at conferences, etc... Thanks!!

Consider these circumstances:  An individual-account retirement plan that includes a 401(k) arrangement allows a distribution as needed to meet a participant's hardship need.  A participant submits a claim for such a distribution.  The plan's administrator approves the claim, and instructs the plan's trustee to pay the requested distribution.  But had the administrator read the participant's claim, it would have known that the participant was not entitled to a hardship distribution.

Assuming the plan is ERISA-governed, does the participant have a viable claim against the administrator for its approval of the participant's claim.  If there is such a claim, why is it viable or not viable?  If there is a claim, what is the measure of the losses that result from the administrator's breach?

I guess a court would dismiss a participant's claim.

But perhaps I suffer from a failure of imagination.

Can anyone pull together a claim a court would recognize?

Hello. Anyone know what the limit is on participants in Relius? I just received a plan with close to 5,000 participants from another administrator in my company. It's not on Relius because of its size, so testing, eligibility is all done manually. Does anyone have a plan this large that is on Relius?

Thank you in advance for all replies!

Client has a pre-approved 401k plan.  Recently discovered error allowing early inclusion of noneligible employees following purchase of company.  Employees of purchased company were allowed to enter plan immediately; however, plan requires one year of service.  Client would like to retroactively amend plan to allow immediate entry into plan for these employees in conjunction with the purchase.  Rev. Proc. 2016-51, Appendix B, Section 2.07 allows correction by plan amendment and requires submission of the amendment to the IRS for a determination letter.  Section 6.05 states that determination letters shall not be submitted with the VCP application and addresses determination letters and pre-approved plans under VCP or Audit CAP (but does not mention SCP). Can anyone confirm for me that if we correct through SCP with a retroactive amendment to a pre-approved plan whether we are required to submit the amendment (i.e. the plan) for a determination letter?  

After reviewing documentation on a PS plan (calendar year) we recently took over, we found the following:

• Owner of "Company" retired in mid-2013, and his step-son took over all his employees as well as his PS plan.  Step-son's business has a name close to but not identical to original sponsor ("Company II"), and has its own EIN
• In operation, Company II assumed sponsorship of the plan, and the plan was renamed as "Company II Profit Sharing Plan".  Nothing else has changed, and employees continued in plan with credit and vesting for past service
• Starting in 2014, 5500s were filed by Company II with Company II's EIN and the new plan name.
• No documents were ever prepared transferring sponsorship of the plan or amending the plan for the new plan name and sponsor.
• No PPA restatement was ever done (somehow because of the documentation problems prior to that)

This was all TPA negligence and as far as we can tell the sponsor has no idea that anything is improper with the plan's documentation.

I welcome any and all suggestions on how to best remedy this situation.  Does this fit into any EPCRS programs?

After reviewing documentation on a PS plan (calendar year) we recently took over, we found the following:

• Owner of "Company" retired in mid-2013, and his step-son took over all his employees as well as his PS plan.  Step-son's business has a name close to but not identical to original sponsor ("Company II"), and has its own EIN
• In operation, Company II assumed sponsorship of the plan, and the plan was renamed as "Company II Profit Sharing Plan".  Nothing else has changed, and employees continued in plan with credit and vesting for past service
• Starting in 2014, 5500s were filed by Company II with Company II's EIN and the new plan name.
• No documents were ever prepared transferring sponsorship of the plan or amending the plan for the new plan name and sponsor.
• No PPA restatement was ever done (somehow because of the documentation problems prior to that)

This was all TPA negligence and as far as we can tell the sponsor has no idea that anything is improper with the plan's documentation.

I welcome any and all suggestions on how to best remedy this situation.  Does this fit into any EPCRS programs?

Plan Sponsor of HW plan has never filed 5500 and is preparing all past years with intention to submit to DFVC. They have asked that 5558 not be filed for most recent year because it could trigger an alert to the IRS that they are not filing and they could be penalized. Both their broker and CPA have advised them this. 

I'm just curious if anyone has ever seen this happen (ie, is there any connection between the dept. that receives the paper 5558's and the audit departments?), and if so, within what time period?

Because there are many years, it would not reduce the DFVC penalty, but I like the idea of having one less year be late.

An employer accidently paid a former employee a paycheck when no wages were due and deferrals were also withheld from the paycheck and deposited into the plan. The can get the net paycheck back and they are able to offset the taxes withheld with their next tax filings, but they are not sure what to do about the "deferrals".

Technically the real paycheck is zero and thus no deferrals should be possible.

Can the plan distribute these "deferrals" back to the employer without triggering and excise tax?

Or, should the amounts be held in the plan under a suspense account until the next contribution to the plan is made, and offset that contribution by the suspense account?

Any other ideas for handling this?