Issue: A loan made to a “disqualified person” (owner/participant) that; 1) exceeds the maximum amount permitted under Code section 72(p), and 2) exceeds the maximum payment period under Code section 72(p). Because the loan was made to the owner (“disqualified person”) over the maximum amounts there is also a prohibited transaction. So, there are two issues.

1. Violation of 72(p) which results in a deemed distribution and can only be corrected under EPCRS/VCP where the maximum period for repayment of the loan has not expired. To permit the Plan Sponsor to report the loan as deemed distribution in the year of the correction instead of the year of the failure or to request relief of reporting the loan as a deemed distribution at all is only available upon request in the VCP application.

2. Fiduciary violation under ERISA where correction is permitted under the DOL’s VFC Program. In addition, the Applicant (Employer), can request relief of the excise tax under IRC section 4975(a). Upon receipt of a compliance letter from the EBSA, the EBSA will not impose the penalty under section 502(l) of ERISA on the amount repaid to the plan.

I understand the correction method under EPCRS and the VCP application. My main questions are regarding the VFCP and coordination of these two correction programs.

1. Can you confirm that a Form 5330 would be required for each year of the loan failure. Example; loan originated 2014 and was corrected in 2016. Would there be a Form 5330 in 2014 for 15% excise tax and then an additional 100% since the PT was not corrected in taxable year and the same for 2015 and 2016?

2. When correcting loan failures in regards to the VFCP application are the correction methods set forth in EPCRS Section 6.07 appropriate? Are there any additional earnings calculations that are required?

3. Should the VCP application be done and a compliance statement be received from the IRS prior to submitting the application for VFCP? How does one coordinate these applications?

4. In order to request exemption for the excise tax under 4975(a), I understand that a notice to interested parties within 60 calendar days of the application must be provided; do I also prepare all Forms 5330s showing the amount for the exemption (but not submit them to the service w/payment)?

5. Is there anything that I am missing? For example; is there excise tax besides the one under 4975(a)?

Thank you!

Payroll was not basing the deferral election percentage on Gross Pay, but rather the Net Pay for the Roth contribution. Taxes were calculated correctly using Gross. Result is the Roth contribution is less than what was elected on the deferral election. Goal for the participant was to have the same contribution amount for pre-tax and Roth.

Example:

Gross Pay $1,000

Roth Election 4% ($40)

Taxable Income $1,000

Fed w/holding (15%) $ 150

Net pay $850 - This was used to determine the Roth Deferral of $34 (short by $6)

I'm confident that the result is a "missed deferral opportunity" and can be corrected with EPCRS. Where I'm hazy is what the corrective QNEC contribution should be? It is a 09/30 plan year so the plan year is almost over so there is definitely less than 9 months left in the plan year, so that option is out. So, the only other option is the corrective QNEC.

Rev. Proc. 2013-12 states that the corrective QNEC for after-tax contributions is 40% of the missed deferral, 100% of any missed match and of course plus earnings.

The relaxed corrections with 2015-28 do not seem to apply to after-tax contributions. Can anyone tell me otherwise and point me in the direction of any guidance that has been issued by the IRS of the appropriate corrective QNEC for after-tax contributions?

Thank you!

I have a church plan that has elected not to be subject to ERISA. However, they have filed a 5500 for several years. If they want to continue to file in future years, are they automatically an ERISA plan? If so, and if they amend to be subject to ERISA, are the prior years when they filed 5500s considered operational failures?

In Plan Year 2013 the owner contributed the max, $51,000, twice, and we just caught it.

What is the best course of action?

Thank you.

I'm curious what the penalties are, if any, for a first year PBGC Premium Filing that is submitted after its due date. Assuming the first year filing had no payment due, would there be a penalty charged for a late submission?

This is what I found on the PBGC website:

The late payment penalty charge is established by us, subject to ERISA's restriction that the penalty not exceed 100 percent of the unpaid premium amount. Subject to this cap, the penalty is a percentage of the unpaid amount for each month (or portion of a month) it remains unpaid with a minimum penalty of $25.

So if the unpaid premium amount is $0, would there be any fees?

We have a participant who died with no beneficiary designation on file. Under the terms of the plan, his estate is the default beneficiary. We are ready to make the distribution to the estate, but I had a question on withholding. The distribution is in the form of a single, lump sum payment.This is not an eligible rollover distribution because the estate is the beneficiary, so are we required to send a 10% withholding notice and allow the executor to opt out of withholding? Not sure what to do here because we do not often make payments to estates.

Hello All,

A recent discussion in the office brought rise to a hypothetical question on eligibility of minors. Assuming the plan has no age limit on contributing, what would be the youngest age someone can participate in the plan?

From research not much came up, and the few posts I could find on here were dated 10+ years ago.

My guess is as long as they have eligible wages as defined by the plan they would be okay, but I also am thinking it wouldn't make sense to have a 2 year old deferring (say from a advertisement for that company).

Thanks

Recently took over a profit sharing plan where the one owner participant died in 2014. He was 80 when he died so he had already been taking RMDs. His spouse is the sole beneficiary and she is almost exactly his age. The plan has about $6M of assets. In 2014 the participant already took his RMD by the time he died. It looks like his beneficiary (his spouse) was paid an RMD in 2015 based on the Uniform Lifetime table.

Per the plan document, the 2015 (and now 2016) RMD should be based on the single life table. Since they were both the same age, it should have been the single life expectancy at age 81 for 2015 and 82 for 2016.

I am not aware of any exception to using the single life table other than if she would have rolled over the death benefit to her own IRA back in late 2014. Then the 2015 RMD and beyond could be based on the uniform table.

It looks like VCP for 2015 and a large RMD for 2016.

Question: Can she now roll over the balance of her death benefit to an IRA and then be able to use uniform lifetime table for 2017 and beyond?

Could she instead somehow roll over the balance of her death benefit inside the plan and be able to use the uniform lifetime table? The plan accepts rollovers from ineligible participants.

Thanks!

Professional partnership firm with money purchase pension plan.

One of the partners no longer has ownership in the firm, but is now a nonequity partner with his own MP plan that is tested together on a control group basis with the main plan.

Are there compliance issues for the main plan if the one separate nonequity partner either does not deposit his contribution or take his RMD?

A participant in a DB plan designated his trust as beneficiary for payment of death benefits. Upon his death, the trustee of the trust requested a direct rollover to an IRA established fbo the trust. I've never seen this. Can the plan rollover the money to the IRA? Any thoughts would be appreciated.

Participant exceeded the 401(2) limit for 2015 with two un related plans.

the error was not discovered until AFTER 4/15.

1. Excess is income for 2015.

2. Excess and income will be distributed in 2016 and income for 2016

is the excess subject to 10% since the participant is under 59 1/2? since he was not eligible to defer the amount, I would think the 10% does not apply.

Thoughts

According to the plan provision plan allows one loan at time and does not allow loan refinance. So, if a participant paid a 2nd loan mistakenly, how to correct the error?

I believe that a governmental grandfathered 401(k) plan is subject to the same safe harbor hardship withdrawal rules as non-governmental plans. I have someone who is insisting that a governmental plan is not subject to the deferral earnings rule. I looked at the regulations and didn't see an exception.

If these plans can permit deferral earnings accrued generally after 1988 to be withdrawn on account of hardship can you please give me a cite.

Thank you.

Does anyone have any recommendations to prevent a 402(g)(1) failure given the following information?

Facts

1. Participant A receives compensation from Company X and defers $18,000 in salary to a qualified retirement plan in the 2015 plan year.

2. Participant A also receives Self Employment Income of $9,000.

3. Participant A sets up a Solo 401(k) Plan for herself, and “defers” $9,000 of income to her Solo 401(k) Plan in the 2015 plan year. This contribution wasn’t coded by the investment house.

Question: What is the best way to treat the $9,000 contribution to minimize the amount of potential excise tax due?

Solutions

1. Profit Sharing: The $9,000 could be considered a profit sharing contribution, but it would be limited to 25% of compensation. So:

a. $2,250 ($9,000 * 25%) would be a deductible contribution,

b. $6,750 ($9,000 - $2,250) would be a nondeductible contribution, and

c. $675 ($6,750 * 10%) would be due in excise taxes due to the nondeductible portion of the contribution.

2. Voluntary Contribution: The $9,000 could be considered a voluntary contribution, and it would be limited to 100% if compensation. So:

a. No excise would be due, but the plan did not provide for voluntary contributions in 2015.

Has anyone encountered this problem? If so, do you have any recommendations aside from the two solutions listed above?

Thank you,

A

I am trying to be discrete about how our Company's ESOP was terminated, two years ago and I have some new information and I need some answers and advisement. Here are the facts:

1. 110 employees of my company held ESOP shares resulting in ownership of 49% of the company

2. We incurred valuation every year for the share value. The last valuation we received was for total for $3.1 million dollars for the 49% of the company

3. The President of the Company bought out the owner's 51% of the company. We attempted to find out what the purchase price price was and we were told that it was confidential. We believe the owner received between $18 - 25 $million dollars for his 51% of the company.

4. In the industry that we work in company's are sold typically for 2 x the sales revenue. At the time of owners buyout, we were at $30 million in sales revenue, current sales revenue is $45 million dollars.

5. Soon after the owner was bought out, we were told by the President of the Company the ESOP was being terminated and told we had to sell the stock back to him for the $3.1 million dollars for the 49%

6. We had no lawyer represent us

We had no independent valuation done to represent fair market value at the

time of the stock buy back from the President / Owner.

If the owner received $18 million dollars for his 51% shares how is it we received $3.1 million dollars for our ESOP 49% shares?

Can someone clarify this. Is this legal and does this follow ESOP guidelines??

NEED HELP / ALOT OF US ARE HURTING IN OUR RETIREMENT.

We have single person plan covering only owner & his wife. He is terminating plan, and before advising us he rolled over ALL of the money to his IRA. We advised him that some of the money belonged to his wife and that he had to re-open the plan's account to put her money back in so the plan could pay her out.

He of course got it all wrong and transferred money directly from his IRA to his wife's IRA. Not only has the wife never been properly paid by the plan, but we are also concerned about the tax consequences to both of them.

Some of our concerns:

1. Can husband transfer IRA money from his account to wife's?
2. What amount is reported on 1099-R as rollover for husband?
3. Does wife get 1099-R from the plan?
4. How might IRS view the plan in all of this since the plan never actually paid out the wife?

i have been asked to weigh in on the following situation:

participant is in a contributory career average plan for 20 years(part A). the plan is then amended to a cash balance plan with the pay credits based on a combined age and service schedule. for the first five years of the cash balance plan the participant will accrue under the contributory career average formula if greater(transition benefit)(part B). the participant retires 8 years after the cash balance effective date with three years cash balance accumulation(part D).

the benefit is then described as A+B+D(pre cb plus transition plus cb). Note if first five years of cash balance is bigger it is called C. Participant marries five years before the cash balance effective date and divorces shortly after retirement. for simplicity the cutoff date is being deemed the retirement date. When participant went into receipt he was told what A,B, and D are. Counsel for alternative payee proposes marital portion to be (13/28*A) +B+C with spouse to get 50%. I think 13/28(A+B+C)is more fair and equitable. In any event counsel should use 5/20*A+B+C to even have the summation approach make sense. Any thoughts?

note:accrued benefit at date of marriage is not known.

there are a few policies in a terminating plan, a couple participants have significant CSV north of $300K. If they do not have the funds to buy the policy and it is their desire to keep the coverage, is the only option to take out a loan on the policy?

thank you.

We have a plan for a sole Prop. Doctor. He has filed an extension on his 1040 for 2015. He has not funded his own $6000 catch up contribution for 2015. Is it too late or does he have until he files his 1040? I can't remember - since I guess his income has not been determined for 2015. He did contribute regular deferrals during the year.

Has anyone considered what, if any, type of correction would be corrected for failure to properly map participant's accounts to certain investments when switching service providers? The accounts were supposed to be mapped to the same investments in which they were already invested prior to the transition, but it was discovered that at least participant account was improperly invested and suffered a loss as a result of the improper mapping. The employer/TPA intends to make the participant whole, but I was wondering what, if any, any other corrective action must be taken?