A participant received a lump sum distribution and the employer deducted 20% mandatory withholding. Over a year later, the administrator discovered the distribution should not have occurred. I believe the participant should repay the distribution amount, and the employer should file for a refund of the erroneously withheld amount using Form 941c and 843 (per the IRS's letter on recovery of erroneous withholding (https://www.pbgc.gov/prac/terminations/missing-participants/irs-letter-on-recovery-of-erroneous-withholding). Does this correction seem appropriate? Thanks in advance.

I hope to have an "easy answers" question, but I don't know....

Plan compensation is defined as W-2.  Exclude fringe benefits.

Auditors are picking apart the profit sharing calculation.

In the employers words "When the Profit Sharing was calculated, the Wage base included pretax deductions, Flex Spending and Health Insurance.  They(auditor)believe this is incorrect and those deductions should not be included for calculating the Profit Sharing".

With w-2 compensation per the document, I would expect the wage base plus pretax deductions, Flex spending to be included.  I have a question whether Health insurance deductions are included in compensation.

1.  I always thought Flex or Section 125 deductions were to be added to W-2 compensation.  Correct?

2.  Are Health Insurance deductions added to W-2 compensation?

Thanks

Hello.  I am working through the calculation of earned income for a sole proprietor for 2016.  He is 70.5 years old in 2016.  And the amount on his 2016 Schedule C line 31 is $13,870.  The accountant has reflected his deductible Self Employment tax on line 27 of his Form 1040 an amount that equals just Medicare tax of 1.45% and no FICA deduction.  So our calculation of his allowable contribution is different than the accountant's number. 

Can anyone tell me if there is an amount of income earned that is not subject to FICA due to age?

Small dividend check under $25 deposited into 401(k) trust instead of non-retirement account. Minor, we think, but goal is to correct.

Recommended approach - leave in plan, treat as current year contribution, and have plan sponsor write same amount into his other account from his personal checking

Plan sponsor's preference - withdraw amount and transfer directly into correct account

Just contemplating best approach.

Just getting notice that my IRA Custodian (large discount online brokerage firm) put my 2015 IRA contribution in the wrong account.  The check was accompanied by a full size 81/2 x 11 IRA Deposit Form with Traditional IRA and the year marked on the deposit slip and the check.  Still waiting for them to provide copies of check and deposit form, but they said I had the wrong account number on the check, (having trouble locating the deposit slip) so it was deposited in my minor daughter's account (UGMA) which is a regular stock account and not an IRA account.  As a result it is costing me almost $3,000.00 in taxes, interest and penalties to the IRS.  Do you think they were negligent in not depositing it to an IRA account and should have contacted me?  If so, would it be appropriate to file a claim with the FINRA (Cost of $175.00) or is this regulatory agency just for securities fraud?

I'm uncertain of how to complete Lines 7a-7c in Part III of the 5500-EZ.  For End of Year Total Plan Assets (7a column 2) for a calendar year plan, should the value on the participant's 12/31 account statement be used?  Or should any contributions made throughout the calendar year be subtracted from the 12/31 statement value? 

The instructions state to not include contributions designated for the plan year but those could be part of the 12/31 value if contributions were made during the calendar year. 

If contributions are made after 12/31 but before the tax filing deadline, should those be excluded from 7a-7c and just stated on 8a-8c? 

I know the 5500-EZ is supposed to really simple but how to arrive at the values for 7a-7c are confusing to me for contributions made during the calendar year and after the calendar year since the 12/31 statement is how I could arrive at the end of year value but contributions account for some of that value but the instructions mention not including contributions.

Wondering how we might address an over contribution to a SEP IRA if it has since closed and the funds transferred into a 401(k).

2016 tax year, looks like about $2K over the limit was added to the SEP, but a withdrawal doesn't seem possible since the account has since transferred into an Individual 401(k)

Any ideas on how to resolve this?

An accountant called me, has a calendar year 2016 C-corp client with a DB plan.  Because C-corps 1120 deadline now extends to 10/15, client just funded the 2016 DB contribution this week, after 9/15.

So there will be a 10% excise tax on the minimum required contribution, but because the 2016 contribution was made within the filing time for the 1120 including extensions, do they still get the DB plan deduction for 2016?

IRC 404(a)(6) hasn't changed, still says "a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof)."

When an employer self corrects an error of matching contributions calculated on compensation in excess of the 401(a)(17) limit, are those amounts subject to 4972 excise tax?  I don't find this addressed in the EPCRS Revenue procedure.  I have never had an IRS auditor ask for this on audit, but someone else in my office is asserting that we do need to compute and pay the tax on a 5330.

Thank you

A very large plan with 3,300 or so participants terminates 500 participants (15.1% of the plan size) in 2016. The auditor asks the TPA whether or not this constitutes a partial plan termination and the answer from the TPA is no, since the termination represented less than 20% of the participants in the plan. However, the auditor is aware that an additional 700 employees (25% of the remaining participants) have/will be terminated in 2017. The plan is not fully terminating per se, just reorganizing, and will continue to operate going forward.

Therefore, knowing what the auditor knows, is there a partial plan termination for 2016? Definitely 2017, but, given the facts and circumstances of this, the argument could be made that the partial plan termination affects 2016 as well.

Thanks for any replies.

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

ASPPA NET article

Quote

 ...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.)