Gilmore

We had this exact issue with a payroll service that stopped the match as soon as the participant hit the comp limit, even though the document did not have such a limitation. It required a response from an ERISA attorney and a letter of instruction from the plan sponsor for the service provider to "modify" their system.

Hi Larry. The participant is one of the owners, so I'm pretty good with them not being eligible because they said so, but I do understand what you are driving at and appreciate the information as always.

In this case the participant is not eligible under the CARES Act. Having said that, I do not mind at all being reminded of the different options that are available since it is difficult to keep up with the many recent changes and still work on 5500s.

Plan has a 4/30 year end. For the plan year ending 4/30/2019 the ADP test fails, and a catchup eligible participant has a $3000 refund recharacterized as catch (for the 2019 plan year). The participant had deferred $8600 from 1/1/2019 to 4/30/2019. The participant then defers the full $16400 from 5/1/2019 to 12/31/2019. Thus they have deferred the full catchup, and also had ADP refunds recharacterized as catchup. Am I correct that the $3000 ADP recharacterization is now an excess deferral for 2019? If so, is the correction to distribute the excess with gain/loss adjustment? The participant does have an inservice distribution option available under the terms of plan. Are there any further ramifications since the excess was not distributed by April 15, 2020? Thank you.

Thank you.

My apologies if I missed this. Has there been any rollover relief offered for participants who took their 2020 RMD in January and would like to roll back into the plan (or IRA)? I know they missed the 60 day rollover window, and don't fall under the April 1 to July 14 extension to July 15, but was wondering if I missed any further guidance on the January distributions. Thanks very much.

Is there a resolution yet regarding the deductibility issue? Thanks.

Hey Luke, in our client's case, which is a group of engineers, the owner hammers home that they aren't going to get a match unless they defer 4% so participation is great. For them it works well, but you are correct, this would not be a good design for most plans.

I had a similar question (match started with deferrals at 4% or more), and received pretty much the same response as CuseFan from a reliable ERISA consultant, although he emphasized effective availability should not be an issue as long as you can demonstrate that the match formula was communicated to all participants.

What about the deductibility issue? I'm assuming that is still not resolved?

I didn't see anything in those FAQs that addressed that question. There was an article in the WSJ on 5/17 concerning expected changes to the program, including reducing the 75% level for payroll related expenses so that small businesses that were unable to rehire employees and need the money can use more of it towards rent, for example. Am I too naive in thinking that if this does happen it might relieve some of the need to use the funds for retirement plan contributions. Has there been any changes in the IRS position that forgiven amounts are not deductible? Thanks.

Thank you for the reply Luke. Our document's loan procedures say: "The "cure period" is the repayment period allowed by the Plan Administrator which will not extend beyond the last day of the calendar quarter following the calendar quarter during which the last scheduled installment payment was due and not paid." I'm assuming then since it does not specifically say the last day is the default day, the Plan Administrator could default the loans on 12/30.

Thanks Luke. The recordkeeper in my original question has revised their forms since then.

I'm wondering if this is a possible upcoming issue with respect to loan defaults. Assume a plan is not allowing participants to suspend their loan payments (I think the IRS Q&A said this was optional?). Loan program allows a grace period to the end of the quarter following the quarter in which the payment was missed. If I'm laid off in the second quarter due to the coronavirus, my loan would default 9/30/2020, and I could claim the defaulted amount as a CRD. If I'm laid off in the 3rd quarter due to the coronavirus, my loan would default on 12/31/2020, one day after the last CRD is allowed? I'm probably missing something here so fire away!

Thanks Larry and Peter. I think the unemployment issue was brought up briefly in a seminar last week, and we saw an article that mentioned that NJ had some rules about unemployment being affected by 401(k) distributions, but nothing as specific as Peter's info. Thanks to you both.

Ah, so that's why they run out of money. ?

Does anyone have a good reference they would not mind sharing that shows for which state's taking a plan distribution may affect the individual's unemployment benefits? Thanks.

Mike, are you thinking, with all respect to Larry, that a narrower application of the acceptable contributions may be more appropriate? I've seen every opinion from anything goes as long as it's deposited in the 8 week term, to only fixed-type contributions that can be specifically tied to the compensation paid during the 8 week period. Larry and Mike, are you anticipating that further guidance will actually be coming? It seemed, unless I heard incorrectly, that at least one presenter in last week's ASPPA online conference was suggesting that more guidance may not be coming. Thanks.

Ok, makes sense. Once suspended, continues to be suspended regardless of the participant's change in status. Thanks Mike.

Participant is furloughed due to the coronavirus. Not terminated, but no pay. Participant requests suspension of loan payments. Two weeks later the plan sponsor receives PPP loan proceeds and the participant is back to working, for argument sake let's say at full hours and pay for at least the eight weeks of the loan. Must the participant begin payments again, or can the suspension continue? Thanks very much.

I seem to remember that phone forum causing a bit of an uproar at that time and the IRS backtracking a bit on that calling informal guidance or something like that?

Thank you Bill and Bird. Bill your comment seems in line with the ASPPA article that I believe was prepared by Marty Pippin? I'm probably off base, but my thinking was if the intent was to provide employers assistance during an anticipated stretch of time in which the government put many out of business, then it makes more sense that 2019 receivables could be included as that was cash intended to be outlayed in 2020 albeit maybe or maybe not during that 8 week period, but cash that was needed nonetheless.

I saw the great discussion on the PPP earlier in the week, which pertaining mainly to prefunding 2020 contributions. Are 2019 contributions eligible for consideration in the PPP. For example, employer was planning to fund a 2019 profit sharing contribution by their 2019 extended tax filing deadline, and makes the deposit during the 8-week window? Thank you.

Thank you very much.

A participant takes a $100,000 COVID distribution. The participant is rehired in July and is able to repay $75,000 of the $100,000 by the end of 2020. Assume he does not make any additional repayments in 2021 or 2022. Is his $100,000 still divided by 3, for a taxable distribution amount of $33,333 in 2020, 2021, and 2022, and uses the $75,000 to reduce each year's liability, (so $0 in 2020, 0 in 2021, and $25,000 in 2022)? Or is the entire $100,000 reduced to $25,000 in 2020 and he pays $8,333 in 2020, 2021, and 2022? The first way does not seem to make much sense unless you consider that if it is handled in that manner than if he does make additional payments in 2021 he would not need to amend his 2020 tax return since he would not have paid any taxes on the distribution in that year, whereas in the second method he would need to amend his 2020 return to recoup the taxes paid on the $8,333. I hope this is not a ridiculous question. Thanks.