Gruegen

A participant loan fails to meet the repayment requirements of IRC 72(p)(2) and is deemed distributed to the participant in April, 2014. A year later, the plan sponsor now wants to: 1) Un-do the deemed distribution, which I would presume includes amending / cancelling the previously issued 2014 Form 1099-R. 2) File a VCP Application to ask that the outstanding balance of the loan (including accrued interest) be reamortized over a remaining period that does not extend beyond five years from the date of the original loan. Is this possible?

The new Form 5500 rules impose additional reporting disclosures for multiple-employer plans starting in 2014. The DOL rules use the term "participating employer." However, I am unclear how this term should be interpreted in the context of a multiple-employer plan that has both related (part of a 414(b)/© controlled group) participating employers and unrelated (not part of a 414(b)/© controlled group) participating employers. For example, suppose there are 3 participating employers that have employees covered in a multiple-employer plan in 2014 - - ABC Company, DEF Company and XYZ Company. ABC Company owns 100% of DEF Company. ABC Company owns 50% of XYZ Company and the other 50% is owned by some unrelated individual. Therefore, ABC Company and DEF Company are related companies. XYZ Company is unrelated. How would the Form 5500 schedule look: Option #1 Under this interpretation, each participating employer (both related and unrelated) are listed. ABC Company 12-3456789 – 50% (proportion of contributions) DEF Company 55-5555555 – 20% (proportion of contributions) XYZ Company 98-7654321 – 30% (proportion of contributions) Option #2 Under this interpretation, only unrelated participating employers are listed. ABC Company 12-3456789 – 70% (proportion of contributions) XYZ Company 98-7654321 – 30% (proportion of contributions) Or is there another manner of disclosure?

Is anyone aware how many TPA's/recordkeepers are prepared to administer/recordkeep the new in-plan Roth transfer provision under IRC 402A©(4)(E) as permitted by the American Taxpayer Relief Act of 2012? Given the fact that the IRS has not yet issued guidance on the new transfer provision, it may be prudent for plan sponsors to wait until such guidance is issued. However, some participants are anxious to convert amounts to Roth in 2013 to avoid higher tax rates in future years.

Is it a prohibited transaction to pay life insurance premiums (for a policy held within a defined contribution plan) with personal assets?

Assuming that a 401(k) plan uses the "safe harbor" method of determining immediate and heavy financial need (and thus requires the participant to obtain a participant loan prior to applying for a hardship withdrawal), does IRS Announcement 2012-44 permits plan sponsors to make Hurricane Sandy Hardship Withdrawals without the participant first applying for a participant loan? In other words, does the relief in Announcement 2012-44 that a plan sponsor may cease to follow "procedural requirements for plan loans and distributions" mean that Hurricane Sandy Hardship Withdrawals can be processed even though the participant has not obtained a participant loan first?

A participant received a distribution of his entire $10,000 account balance on September 1, 2011 which was not rolled over. As such, the participant received a $8,000 check and $2,000 was withheld for federal income tax withholding purposes. The original reason for the distribution was on account of termination of employment. A 2011 Form 1099-R was properly prepared to report this distribution and the federal tax was withheld and remitted to the IRS. However, in February, 2012, it was determined that the participant did not have a termination of employment in 2011 (just a change of divisions). Under Section 5.01(3)© of Revenue Procedure 2008-50, it appears that the correction method would be to take reasonable steps to have the amount returned by the participant to the Plan. My question is....what is the amount that the participant should repay to the plan? $8,000 or $10,000? 1) If the participant repays the full $10,000 to the plan, how is the $2,000 of federal tax withholding treated since that $2,000 has already been remitted to the Treasury - - is it just "extra" federal tax withholding that is considered/counted when the participant completes his 2011 Form 1040? Further, is it "fair" to ask the participant to repay more than what the participant received in hand? 2) If the participant only repays $8,000 to the plan, would the IRS consider the error to be corrected even though the participant's account has not been put in the same position as if the error hadn't occurred? I am assuming under either scenario that the 2011 Form 1099-R would need to be amended to reflect a lesser taxable distribution.

The plan document for this client does not include any verbiage requiring the profit sharing contribution to be limited by IRC 415©. As such, if the plan sponsor allocates the full $20,000 profit sharing, could the $4,000 excess annual addition be corrected under the Self-Correction Program, rather than VCP?

A participant (under age 50) makes 401(k) contributions and receives matching contributions each payroll period during the 2011 plan year. The total 401(k) and matching contributions equals $33,000. In March, 2012, the company declares a profit sharing contribution for the 2011 plan year. Under the terms of the plan document, the participant would be entitled to a $20,000 profit sharing allocation for the 2011 plan year. Such profit sharing allocation would cause his 415© annual additions limit to be exceeded by $4,000. Can the employer knowlingly allocate the $20,000 profit sharing contribution in March, 2012 (attributable to the 2011 plan year), and then use the correction methodology under the Final 415 Regulations (EPCRS) to issue a refund of $4,000 of 401(k) contributions? Or, must the 2011 profit sharing contribution be limited to $16,000 prior to it being funded to the participant's account?

An attorney has a sole-proprietorship for a portion of 2010. He establishes a SEP for his sole-proprietorship and contributes $49,000 to the SEP in 2010. He also becomes an equity partner (self-employed individual) in a 50 partner law firm partnership. The law firm sponsors a top-heavy 401(k) profit sharing plan that he is eligible for in 2010, but makes no 401(k) contributions and receives no employer contributions in 2010. As a non-key employee with respect to the law firm qualified plan, he is entitled to a 3% top-heavy minimum contribution. Do the contributions to the SEP and qualified plan need to be coordinated?

Is anyone aware of which retirement plan vendors are offering In-Plan Roth Conversions in 2010?

What is the deadline to amend a defined contribution plan for the PPA Technical corrections aspects of WRERA (elimination of gap period income for excess deferrals; mandatory non-spouse Inherited IRA Rollovers; and remove QDIA requirement for EACA's)? Is it 12/31/2009 (amendment deadline for PPA) or 12/31/2011 (WRERA Amendment deadline)? I am hearing conflicting reports.

Under the "currently includible" definition of compensation (aka, "Safe Harbor 415 Compensation"), compensation includes all wages, salaries, fees and other amounts received by the employee for personal services rendered in the course of employment with the employer, but only to the extent includible in gross income. See Treas. Reg. §1.415©-2(b)(1). Do you think "signing bonuses" would be included in this definition of compensation? In other words, are "signing bonuses" for personal services rendered?

I wanted to find out what "default" document providers are putting in their Final 415 Regulation Amendment regarding salary continuation payments for military service and disabled participants pursuant to Reg 1.415©-2(e)(4). The "default" in the Regulation appears to be that these military service and disability payments are excluded unless the plan elects to include them. In addition, the "default" in the Final 415 Regulation Amendment furnished by Relius Corbel is to exclude these payments. However, that seems rather participant-unfriendly. How are other document providers or TPA's handling this election? Are you including or excluding military service and disability salary continuation payments?

I have a client with a calendar plan year and a 5/31 corporate (fiscal) year. They would like to condition receipt of the profit sharing contribution on being employed on the 5/31 following the end of the plan year. Please note that compensation would be measured during the calendar plan year, it is just that that employee would have to be employed on 5/31 to receive the profit sharing contribution. Do you think this is permissible to have allocation conditions that are beyond the plan year? I could not find any guidance on this issue. Thanks.

There was a recent article posted on BenefitsLink by Deloitte regarding a potential problem with rollovers of Roth 401(k) money into Roth IRA's during 2008 and 2009 for taxpayers with adjusted gross incomes in excess of $100,000. http://benefitslink.com/articles/washbull070716.html Do others agree with their conclusions? If so, how come there has not been more uproar to get this snafu corrected for 2008 and 2009? Are any industry groups carrying the torch to get this corrected? How come it is not in the PPA Technical Corrections bill recently introduced? If this is indeed correct, then try explaining this to participants......you can roll over your Roth 401(k) to a Roth IRA in 2006, 2007 and anytime in 2010 or later, but for 2008 and 2009, you are out of luck.

A participant died in 2005 at which time he was 52 years old. His designated beneficiary is his brother. The plan document follows the 2002 RMD Regulations which state that "distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died" (ie - the default is the life expectancy rule). Using the life expectancy rule, payments must have started by December 31, 2006. However, no payments have yet been made. What are the options: Option #1) Double payment for 2007 - Consider this to be a failure to timely pay a minimum distribution required under 401(a)(9) - - Appendix A, .06 of Rev Proc 2006-27 - - and distribute both the 2006 and the 2007 life expectancy payment in 2007. The 50% excise tax is going to need to be paid by the beneficiary. Option #2) Transfer him to the 5-Year Rule - Since he did not start payments by December 31, 2006 pursuant to the life expectancy rule, and since the IRS has ruled in PLR 9812034 that it could not extend the deadline for starting distributions under the the life expectancy rule, the beneficiary must receive the entire account by December 31, 2010. Any help is appreciated.

For a distribution of excess contributions (failed ADP test) attributable to Roth 401(k) contributions within 2 1/2 months after the end of the plan year, how should the Form 1099-R be completed? Assumptions For the 2006 Plan Year, the plan's only HCE made $15,000 of Roth 401(k) Contributions. After performing the ADP test, it is determined that a $1,000 excess contribution needs to be returned. Further, there is $75 of earnings (including gap period earnings) returned. A check for $1,075 is cut on March 1, 2007. Option #1 - 1 Form 1099-R Box 1 - $1,075 Box 2a - $75 Box 5 - $1,000 Box 7 - P (note that the 1099-R instructions do NOT permit use of Code P and Code B) Option #2 - 2 Form 1099-R's The return of Roth 401(k) contributions would be reported as: Box 1 - $1,000 Box 2a - $0 Box 5 - $1,000 Box 7 - B The return of earnings would be reported as: Box 1 - $75 Box 2 - $75 Box 5 - $0 Box 7 - P Or is there another option that I am missing? Thanks for any help.

The separate accounting requirement of the Final Roth 401(k) regulations state that "gains, losses and other credits or charges must be separately allocated on a reasonable and consistent basis to the designated Roth account and other accounts under the plan." (Treas Reg 1.401(k)-1(f)(2)) Further, the proposed Roth regulations warn that "any transaction or accounting methodology involving an employee's designated Roth account and any other accounts under the plan that has the effect of directly or indirectly transferring value from another account into the designated Roth account" would violate the separate accounting requirement. (Proposed 1.402A-1, Q&A-13) To the extent that a plan permits designated Roth 401(k) contributions, and to the extent that the plan has self-directed brokerage accounts (SDBA's) in which designated Roth 401(k) contributions are being invested, is it necessary to have 2 SDBA's? Or can both regular 401(k) and Roth 401(k) be invested in the same SDBA assuming that the plan has a "reasonable and consistent" method of allocating investement gains/losses to these sources? During the ASPPA webcast on February 22 regarding Roth 401(k), the speaker made a point to indicate that 2 SDBA's were not required. However, during a recent ALI-ABA webcast, a speaker from the IRS seemed to indicate that 2 SDBA's were required. I am trying to find out how recordkeepers in the industry are handling this issue. Any responses are greatly appreciated.

Treasury Regulation 1.401(k)-1(d)(3)(iv)(D) of the Final 401(k) Regulations generally states that participants need not take a participant loan prior to taking a hardship withdrawal if by taking the participant loan, it would increase the amount of the participant's financial need. Since the IRS only gives 1 example in the regulations (regarding purchase of principal residence and bank financing), how narrowly or broadly do you think this should this be interpreted? What do you think the IRS' intention is regarding this exception? Narrowly - Few participants will qualify for this exception and therefore, most participants will need to take a participant loan prior to taking a hardship withdrawal. Broadly - Most participants will qualify for this exception (because the act of taking a loan decreases an employee's net pay), and therefore, most participants can bypass participant loans and go straight to a hardship withdrawal. Further, what documentation should a participant provide that substantiates that taking a participant loan would "increase their financial need?" Any help is greatly appreciated.

I realize that the IRS has not issued guidance yet regarding the Form 1099-R Box 7 Distribution Code for "disaster-relief distributions" due to Hurricane Katrina (which are exempt from the 10% 72(t) early distribution penalty pursuant to KETRA), but I wanted to get people's opinion whether you think the IRS will: 1) Recommend that Code "1" be used for disaster-relief distributions and leave it up to the participant to exempt it from the 10% early distribution penalty when they do their 1040/5329. 2) Have Code "2" be used, and modify the 1099-R instructions to add this to the list of 72(t) exceptions. 3) Create a new Code for use for disaster-relief distributions only. Thanks.

Does anyone have more information regarding the mysterious "brown envelopes" mentioned by Steven Miller at the LA Benefits Conference and the related IRS enforcement initiatives?

Even though bottom-up QNEC's are on their last legs given the July 17, 2003 proposed 401(k) regulations, I've always felt that bottom-up QNEC's are still permissible until those regulations become final and effective. However, how does the IRS' new guidance on discriminatory practices (October 22, 2004 memo from Carol Gold) effect bottom-up QNEC's used to cure failing ADP or ACP tests? Do people think that bottom-up QNEC's are still permissible?

1) Does anyone know if the DOL/IRS will be issuing a model amendment to comply with the new IRA automatic rollover regulations? 2) Does anyone know what financial institutions are willing to serve as IRA custodians for these small accounts? Thanks.

Although the DOL has not finalized the automatic rollover regulations, I was wondering how recordkeepers are planning to administer these rules. For example, if the qualified plan is being recordkept by a large financial services company (ie - Fidelity, Vanguard, T Rowe, Putnam), will the participant's cash out be moved to an IRA with that financial institution? What about those recordkeepers that are not financial institutions (ie - Hewitt, TPA's, etc) - - who will be the IRA recipient for cash out from those plans? Thanks.

The plan only allows those employees that have satisfied the age and service requirements (21 and one year) to make rollover contributions into the Plan. However, there were two employees that made rollover contributions into the Plan shortly prior to meeting the one year service requirement - - the rollovers were made a couple months prior to meeting their entry date. Both employees have now met the service requirement and are currently participating in the Plan. Although a strict interpretation might lead one to distribute the improper rollover contribution, it would seem counter-intuitive to distribute it now since both employees are now eligble to make rollover contributions. Any suggestions?