Bird

Well, if you are borrowing to make an investment then it would appear so. I know the red flag but not the details of the rules.

The plan is borrowing money from a third party? And doing what with it? There could be Unrelated Business Taxable Income ramifications for the plan. Suggest you review those UBTI rules to see if it makes sense.

I'm not sure it's so easy. There's no doubt - or at least little doubt - in my mind that this was a scheme to avoid capital gains tax on appreciated securities. Just returning it in a "no harm no foul" transaction aids and abets tax evasion. I'm (still) not saying I know what to do about it. I'd at least want to talk to the accountants and see how they reported or proposed to report the various transactions. My math says that the loss per share was $50 - the (supposed) price of the stock when transferred. They were sold for $0? There are also potential issues with DB minimum funding if these weren't really assets but were included in the asset values. And presumably 5500s have been filed and need to be amended.

Exactly. There is absolutely positively nothing wrong with doing a special val. But when you repeatedly say "you'll get your 12/31/19 account value," that causes a problem, or at the very least a perception of a problem. All easily avoidable by anticipating this known event and setting aside cash. Again, not a lawyer, but I'm familiar with the phrase "bad facts make bad law" (or something like that) and the facts here could lead to the perception that you can't do a special val.

https://www.napa-net.org/news-info/daily-news/401k-plan-sued-covid-19-related-missteps I don't think the participants can win this but if you've been sued you lost. Monday morning quarterbacking it, they communicated poorly (I'm not a lawyer but it seems that some of those communications might have left them exposed), and totally dropped the ball on moving assets to cash when they KNEW these distributions were pending.

Notice 2020-50 Am I the first one to see this? Under this safe harbor, a qualified employer plan will be treated as satisfying the requirements of § 72(p) pursuant to section 2202(b)(2) of the CARES Act if a qualified individual’s obligation to repay a plan loan is suspended under the plan for any period beginning not earlier than March 27, 2020, and ending not later than December 31, 2020 (suspension period). The loan repayments must resume after the end of the suspension period, and the term of the loan may be extended by up to 1 year from the date the loan was originally due to be repaid. "I was wrong." They even said you can do the crazy thing of suspending through Dec 31, making the regular payments until the 1 year mark for the suspension, and then reamortize what is left. "I was totally wrong." At least we know what we have to do.

I'm not sure how to fix this. I'll go a long way to help someone who innocently makes a mistake, and maybe give them some options to "slide by" and take chances...but not here. This is mind-boggling. Do you have any idea how hard it is to transfer stock from one registered entity to another?! How f-ing stupid can people be? I see your answer "Their client somehow was able to transfer the stocks into the pension accounts and nobody caught this until it was too late, how it was done without the trustee's knowledge is still a mystery." I seriously don't believe the client of the sponsor could do that without the sponsor's knowledge, and the fact that there are two plans makes it all the more suspicious/stupid. I know this is of no help but... Also how is it found in 2020 when it happened in 2018?

I don't think there is any mechanism to relieve them of the contribution. If I'm the TPA, that's what I tell them, and say they can consult an ERISA attorney but I don't think they are getting a different answer. I'd keep the plan "open" with the receivable and refuse to prepare a final return until the receivable is satisfied.

Sorry but I don't think "erroneous failure to allocate" and "forgot to contribute" are equivalent. I thought the EPCRS correction was for required contributions, e.g. SH or a fixed match, but I'm not sure.

That's very thorough - impressive. I'd say if it didn't have that language it is implicit - if there is no longer a plan then there is no entity to restore the benefits (the employer perhaps but it's not referenced).

We get a certification from the employee that it really is qualified money (with options for IRA, plan, 403(b) etc) and I believe that you are in fact supposed to get such a certification - it would seem that's what they are looking for.

Agree; I started thinking that way too but decided "no." If you're asking for something that is definitely not required, such as spousal consent for a loan in a non-annuity plan, then I'd say that is definitely a problem.

We pointed that out to sponsors who are gung-ho to do it now and they just want to get it over with. Don't want to carry the loan any longer and one was fearful the government would change its mind. As is the unfortunate case in so, so many things, perception trumps reality.

The SH is required and must be made. The due date for 2018 was 12/31/19 and I believe that you can self-correct before the end of the next year. I'm not sure what the interest rate is but it has nothing to do with market results - actually I'm not sure if they specify the rate to use but I think I remember using the late deposits rate. As far as PS, that is an optional contribution and is too late for crediting to 2018 for any/all purposes. You can say the contribution "was" X but if not made in a timely manner then it "wasn't."

I think if the plan says 80% is the max it is implicit that it is per pay period. I don't see anything clarifying this in our (FTW) document.

Well, there is the list of assets - you know, the one the DOL was required to issue regs on within 6 months of passage of the PPA of 2006...still waiting.

While I haven't seen these bad results, this is why I advise clients to think carefully before adding forceouts. It's just something else to screw up (by not doing them). If it becomes a problem (to have dormant accounts), then amend the plan.

I'm not sure what that means. I think you are asking questions that only you (or the accountant) know the answer to. If the S corp owners are getting W-2 income and deferring from that, then yes, the W-2 should reflect that. But something is wrong if you don't know that is happening. And by the way, are the S corps adopting employers? If the partnership is only paying the S corps, then I don't see how deferrals are reflected anywhere on the partnership or individual returns. In fact, as described, the partnership has no income or employees to sponsor a plan.

It's hard to imagine them refusing. We ask for, and get, Schedule A info all the time when all we really want is the commission info (for small plans). It says "...as needed by the administrator to file the annual report..." so I suppose they could argue it isn't necessary. But again, hard to imagine - is a company refusing?

Unless the plan has specific provisions saying the match is deposited after the end of the year, which is doubtful, then I see no problem with calculating and making deposits based on whatever period you want and then effectively truing up at or after the end of the year.

Working backwards, I think the answer to whether it is offset or not depends on the plan's distribution provisions. If the participant is entitled to a distribution (e.g., in this case, either immediately following termination of employment or at least in the next year...but NOT if the plan calls for a one-year break in service) then it is offset as an effective distribution. As far as the impact of Notice 2020-23, I think it means that loan payments aren't "due" until July 15 which, if you use the "end of the next quarter" default provisions, means the loan defaults Dec 31 if payments aren't made. For the first Q, I agree it depends on what is in the amendment the employer adopts.

There is no way to fix this. He owes the tax, plus 10% penalty if he was under 59 1/2 (plus late payment penalties if applicable). The only scenario for avoiding the tax and penalty would be for a 2019* distribution (loan offset) where he comes up with money outside of the plan and rolls it to an IRA before the filing deadline. Very few, if any, people repay the loan back to the plan (intentionally), because it doesn't accomplish much. *Which I think was a natural assumption of previous posters.

OK, I'm in a bit of a bubble and haven't ever worked for a larger firm, and just do things the way I've always done them. This isn't necessarily just for Mike but Qs about cash basis reporting: I assume you confirm that all 401(k) contributions were deposited? What about prior year accrued PS, SH, match of any kind? Is there some reconciliation process to confirm that the calc'd amounts are indeed contributed properly? We spend large amounts of time on this kind of stuff and find enough problems to make it worthwhile, I think. If we just told clients their contribution for 2018 and didn't check it in 2019 (even if we did it for them) I wouldn't feel right. Every once in a while I think it might be nice to just suck data from a recordkeeper, but then...what would we do all day? ?

While I wouldn't call it common, unfortunately it's not unheard of - especially when the plan has a SH match. The wheels turn and the light goes on - "so if nobody contributes I don't have to contribute for them...mmm." The question is whether the business owners are motivated to fix it at all, especially when they find out the potential cost. (As a TPA) I'd generally make some gentle suggestions about what would need to be done to fix it, or suggest that they might be able to slink away into the night and terminate it asap, but without my involvement. Let 'em stew in their own juices along with whomever let it happen.

Agreed, the instructions say any method may be used as long as it is done consistently. We do everything* on an accrual basis so the contribution ties to the business tax return, as suggested above, and also to make sure everything reconciles. It would drive me nuts to do a cash basis report (quickly) and then find out that there were errors in the deposits; I'm not sure how you even reconcile in that scenario. Or maybe others just trust that there are no errors and move on? That gives me chills. *Except for one, or maybe two takeovers. We do financials and accounts on an accrual basis and then convert to cash for the tax return and it creates a lot more work that way.