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?

I have a safe harbor new comparability plan.  They are unable to pass average benefits test due to one of the owner's 90% deferral rate.  Therefore new comparability isn't working.  Can we shift to an integrated format and bypass the average benefits test?  We pass coverage, etc.

of course the govt can always run things cheaper!

The Treasury Department said Friday that it will end an Obama-era program called myRA that created accounts aimed to help Americans start saving for retirement.

After about three years, just 30,000 people had opened a myRA, and of those only 20,000 people had saved money in the account, the Treasury Department said.

The program has cost taxpayers $70 million so far, according to Treasury, and was expected to cost $10 million annually going forward.

"Unfortunately, there has been very little demand for the program, and the cost to taxpayers cannot be justified by the assets in the program," said U.S. Treasurer Jovita Carranza in a statement.

In total, myRA account holders have saved $34 million to date.

An employee requested a hardship distribution to prevent foreclosure on his principal residence.  The foreclosure notice is not addressed to the employee, however.  It is addressed to the estate of the employee's deceased father, care of the employee's brother.  The address of the property is the same address we have on file as the employee's home address. 

I'm inclined to recommend approval of the hardship request, as this appears to be the employee's principal residence that is in danger of being foreclosed on, but I'm concerned that the property is apparently owned by someone other the employee or his spouse.  Any help would be appreciated.

Sanity check requested here.  Traditional IRA owner is well past 70-1/2.  He essentially pays no Federal income taxes due to minimal taxable income and massive medical expense deductions due to nursing home charges and other expenses (he's living off his after-tax savings and Soc. Security and doesn't need to take IRA distributions beyond his MRDs).  If he converted his IRA to a Roth the overall tax rate on the converted amount would be fairly low (say 15%).  Non-spouse death beneficiary is in the highest bracket (39.6%).  So, IRA owner takes his 401(a)(9) distribution on Monday, does the Roth conversion on Tuesday, then dies on Wednesday.  Are distributions to the Beneficiary completely tax-free, including the 10% penalty, whether or not those distributions satisfy the 5-year rule for "qualified distributions"?

I have an age weighted profit sharing plan that I am working on.  I haven't seen many of these in my 20+ years. Plan Document is SunGard PPA. NRA in document is age 55. UP-1984 8.5% is mortality table.  Based on the document the units are determined by multiplying compensation by the table factor on years to NRA and table factor of adjustment factor if NRA is not 65.  Does the adjustment factor change for those over 55?  Our testing software is using the adjustment based on participant's current age if over Age 55.  This appears reasonable, since the participant's NRA is their current age since they are still employed.  Or would the adjustment factor remain at Age 55 even if the participant is over age 55?

I can't find any documentation on this and ERISA Outline Book doesn't have much on Age Weighted allocations and there is not much on the web doing a general search.

A client added his brother's company to their plan in 2016. The recordkeeper forwarded a participation agreement, the client signed in error, and the plan was set up as a related participating employer. Since its not part of a controlled group with the other entities, can this be self-corrected by retroactively amending the plan to be a multiple employer plan?

The auditors are making a change to the beginning balance for 2016 which they deem to be negligible, and are therefore not issuing an amended '15 audit (they are simply putting a footnote in their report).  In theory this would mean that the beginning balance will be different then the '15 ending balance.  Is there a way to note why somewhere that I'm missing, or will the IRS simply pick it up from the attached report?

Thanks in advance!

Participant in profit sharing plan over age 70.5 in pay status died in 2016.

2016 RMD was made to participants Trust.

In 2017 the balance of the account will be rolled to an IRA that will be divided by 5 beneficiaries.

The 2017 RMD must be made prior to the rollover to the conduit IRA and will be made to the trust prior to the rollover. Assume for this that attorney handling trust and rollover IRA has done it properly.

I get confused on what the RMD divisor for 2017 RMD is in this situation. Is it "the participants single life divisor in 2016 minus 1", or "the single life expectancy of the oldest of the 5 beneficiaries in 2017" if that results in a smaller RMD?

Or is there a different rule I'm missing?

Any guidance appreciated.

Can you please let us know how you handle late reported deaths concerning 1099-R tax reporting?

Example:  Annuitant dies in 2013, benefits are paid by direct deposit, spousal beneficiary never reports the death to the pension group until 2017.  (SSA master file did not have death)  All the time the pension group was reporting the income for 2013 through 2016 under the deceased person. 

Would you issue corrected 1099's all the way back to the member's death year, and then issue new 1099's from that point forward under the survivor's tin for each specific year?  Or, report the whole amount received from the death forward on a current year 1099?  (with keeping constructive receipt in mind)

Can the tax withholdings from the prior years be "transferred" from the deceased person to the surviving spouse for 1099 purposes?  What about 2013 being a closed tax year, or if the death was many years prior?

It would be hard to understand how their tax returns would accurate.  Unfortunately this happens more frequently than one would think. (an issue with direct deposit being too automated and occasional dishonesty)

We haven't been able to find much guidance on how to proceed for the tax reporting.

Thank you!

Greetings friends!

I have a question regarding the attribution from a grantor trust to the beneficiaries of the Trust. The EOB says that if a trust has an ownership interest in another organization, that interest is attributed to the beneficiaries in the trust who have a 5% or more actuarial interest in the trust, in proportion to each beneficiary's actuarial interest. 

What is actuarial interest and how is it determined? 

I found in S. Derrin Watson's Who's the Employer Q&A column, question 167- https://benefitslink.com/cgi-bin/qa.cgi?db=qa_who_is_employer&n=167, that it is determined according to IRS actuarial tables, but what table and how?

Any help would be appreciated!! 

Thanks in advance!

So, 403(b) plan sponsor withholds deferrals way back when, and never submits them. So multiple years involved.

I'm trying to determine how this works for both calculating the penalty, and submitting it/requesting a waiver.

When you start with the 5330, you quickly realize that even if the 403(b) plan is subject to Title I of ERISA, it is not a "plan" subject to IRC 4975(e)(1). But it IS (in this case) subject to Title I of ERISA, and the prohibited transaction penalties.

So, is it really just as simple as submitting a VFC filing (in this case, it is worth it) and calculating the interest amounts using the VFC calculator, and requesting a waiver of any PT penalties? And if so, what has your experience been about a waiver being granted?

I feel like I must be missing something.

If I filed for an extension but now am filing the 5500 on time, do I leave the 5500 form marked as filing under 5558 or do I remove that check box and file as if an extension was never filed?