AlbanyConsultant

A CPA asked me about this yesterday. His client has money left over, and has no existing retirement plan. So rather than return it, he'd like to open a profit sharing plan for his employees and pre-fund it with the PPP money (understanding that at the moment it may not be deductible). Seems like it would be allowable, if maybe not quite in the spirit of the program...

For those plans that just don't participate in the automatic force-out process and therefore aren't following the helpful provision that's in their document: is it a cutback to remove it?

401k plan changed payroll providers at the beginning of 2019. For the first three payrolls of 2019, they accidentally keyed the employee deferral amounts into the company match line (not sure why that was even set up, since there isn't a match in the plan!). The plan sponsor "fixed" this by taking the deferrals from the first two paychecks out of the third paycheck... but never took the next step of fixing the "match" from the third paycheck. So the net effect is that there is a February 2019 payroll where the normal deferrals were paid by the employer. Since this was never fixed, the W-2s have the wrong amount, in the sense that they don't match the deposits, and also if you multiply the deferral election times the compensation, it's not right... but the W-2 does match what was deducted from compensation, so is it really wrong? Most of the amounts in question are <$50 per person, though there are a couple that are about $100. What kind of correction should be made? It seems like something needs to be done. In the plan, the participant is not short any money; in fact, it's the employer who is short about $2K overall. There is a profit sharing contribution to be done, but it's a set percentage (one of those few plans remaining) - I could recommend that the excess for each participant offset their profit sharing, but I'm not sure that's OK since it was an employer error. It would feel that the employee would be losing out on the amount they should have in their account.

OK, so it exists. But how to use it functionally? Telling plan sponsors to automatically not deduct loan repayments until July 15 seems extreme. #liberateloanrepayments LOL Do they have to ask each participant with a loan how they want to handle it (and for those with multiple loans... ugh)? And then just double-up after 7/15 to get them caught up ASAP so they don't end up in default?

Thanks for confirming, everyone. Now I'm wondering if one payroll company is doing it wrong, how many others are... and who is going to catch it?

But @Belgarath, Notice 2020-23 isn't part of the CARES Act (it was issued about two weeks earlier... which is something else I just learned). I see the FAQ is titled "Coronavirus-related relief for retirement plans and IRAs questions and answers", but it seems to specifically refer to the CARES Act provisions and not the prior Notice (except 2005-92 as referenced).

This is the first question I've gotten on this, so I'm hoping it's an outlier and not the beginning of a trend... The plan uses W-2 definition of compensation. The sponsor noticed that their payroll company was not applying the deferral election for those who elected a percentage of compensation to be deferred against what was being coded as "FFCRA EE Sick" pay on their paychecks (so it was being calculated from "regular wages" only). The plan sponsor asked the payroll company, and the response was to double-check the plan because "by default" FFCRA wages aren't included. I admit that I haven't paid much attention to FFCRA from a consulting standpoint, since I figured that it wouldn't matter - taxable wages are taxable wages, so we'd count them. But this deferral thing is concerning. I don't know what payroll company they're using, but what can they be thinking?

Does this really give everyone a blanket suspension on loan repayments until July 15? I didn't read it that way, but the latest ERISApedia webinar with Derrin Watson said that's what it meant (though the loan has to be caught up by 12/31/20). So... since you don't have to be a "qualified individual" like for the coronavirus suspension, are all loan repayments for everyone suspended until then? Or just if requested? I assume this is mainly a mechanism to postpone defaults. And of course the Notice doesn't say anything about accruing interest or reamortizing... I don't see the recordkeepers just giving everyone a few months off.

Not sure what you mean, Mike... Thanks, Luke. I was beginning to suspect that this was not as easy as in the profit sharing testing...

For 401a4 testing, we can do some exciting disaggregation of the participants to get groups with the most beneficial characteristics for testing purposes. How much of that is applicable to ADP testing? There's the standard excludable employee segregation that can be done, but I don't recall if we can go any further than that. I've found some slide decks on testing from seminars I've gone to (and online) but none have mentioned it so far, which is leading me to think that it's not a thing... or do I just need to keep digging? Anyone have a direction to point me in? Thanks.

I've got a participant who is confident that they will be brought back from furlough in "three of four months" and wants to start making repayments when they come back. It sounds like they will be at reduced pay: enough to make the weekly loan repayment, but not enough to 'double up' and catch-up on the missed ones, at least not right away. Can the CARES suspension period be used for less than a year? So we'd add a few months of interest accrual and reamortize from the date he came back, but it's not the "1 year" as CARES 2202(B)(2) says. It seems reasonable...

I've got a plan that wants to be nice and add loans until 9/23/20 as part of the CARES options. Loans were never offered in the plan before. The plan sponsor would like to pass the costs of the loans on to the participants. Functionally, do we add the loan provision dated 30 days from now, giving out the notice today that starts the fee disclosure clock? That feels wrong, if not from a legal standpoint, then certainly from a "doing the right thing" standpoint (and I fully realize that sometimes the rules are written such that "doing the right thing" is not as easy as it could be).

Along the lines of the OP, I've got a plan asking me if they have to match on the paid family leave under FFCRA. It's a discretionary match made after the end of the year (that they always do), and the plan uses a W-2 definition of compensation. It sounds like the pay would be included - if I understand it correctly (and I certainly may not be), the company is paying the employee and the federal govt is reimbursing the employer. I asked if they knew if how it would be reported tax-wise and got this answer: Their goal is to not give match on this FFCRA pay, but I'm not sure that's going to be allowable. If it's "compensation", it can be deferred upon, and it gets the match (unless the plan is amended, I suppose, but no way would that pass nondiscrimination testing). Is this still the same thing - compensation is compensation? Thoughts, comments... thanks.

It seems obvious, but I presume this means that there is no 30-day period to be waived...

Makes sense to me. Thanks.

Thanks @k man. Not sure what you mean by "optional distribution"...

Section 2203 of the CARES Act seems clear to me that 401(a)(9) does not apply to RMDs paid in 2020 or for 2020 - they are "waived", which I would interpret as meaning that they are not to be taken (I'm not a lawyer, though, and I don't claim to understand Congress). But I'm seeing some recordkeepers including it in the list of optional provisions that plan sponsors can choose to elect. Are they being overgenerous, or am I mis-reading? My concern is that we've got most plans written such that terminated participants can't take partial distributions (though I suppose coronavirus-related distributions would get around that), so if there is no legitimate RMD for 2020 per regulations, then can the plan really elect to let a 2020 RMD happen? This also applies for those few plans without an in-service withdrawal provision where the 5% owners would be affected, but we can amend to fix that if we had to. Thanks, and stay safe.

Most of the NHCEs are part-time and some work in the 1,000-1,200 hour range. If 1,000 hours are needed to get the profit sharing allocation and they now fall below 1,000 hours, they may have a 410(b) issue. Yes, there's a fail-safe provision because this is the annoying cross-tested plan that still insists on having a 1,000 hour requirement written into the plan document, so it's not a real problem (at least in this plan), just something to be aware of in general. But the lower hours threshold for this year would solve that handily. Thanks to everyone for the ideas.

I know this is way early for this discussion, but here goes anyway... Just had a dentist call to say that he is following the ADA recommendation and basically shutting down for the next three weeks. Since his employees don't want to use their vacation days and prefer to collect unemployment, he is going to give them what they want and fire them (NY is waiving the usual one-week waiting period for unemployment benefits). He intends to rehire them all in about a month, but was concerned about what effect it might have on the plan. Obviously, they can't defer while they're not paid, and they don't have plan compensation during this period so their end-of-year safe harbor and profit sharing will end up being lower. For those normally working just over 1,000 hours per year (and if that's a requirement for a profit sharing allocation), they might fall below the threshold and it could cause a problem with 410(b) testing. And... what if he doesn't hire them all back? I know partial plan termination is partially facts & circumstances, so maybe this could be argued, but I'm thinking this might come into play if he lets go 7 and rehires 4 because business is slow to restart. According to this dentist, this is going to be a common situation for many small dental practices, so I figured I'd toss it out here so we can start discussing it.

We took over a plan and discovered that a participant died ten years ago and her balance is still in the plan. Had she still been alive, she would have hit 70.5 a few years ago. All the plan sponsor has for beneficiary information is a few names and phone numbers, and when they were called, all are no longer in service (and there was no SSN information, so any detailed search is out). The old plan document (before we restated it when we took it over) said that all benefits would have to be paid out within five years of death... and that clearly wasn't done. The prior TPA was just one person at a CPA firm who was doing bare minimum (calcs, 5500s, amendments/restatements), so it seems this never was discussed. I don't think that our usual rollover partner, Millennium Trust, takes distributions for deceased participants (at least, not knowingly). And it seems a little late to try and pay it to an estate now. Any suggestions for the best thing to do with this $1,600? Thanks.

The 403b doc was restated, and now it is being amended again. Does this new amendment need to get it's own administrative addendum to show that it's the change from the previous version? Or does it get added onto the addendum that they had from 2010 that listed all the changes for the past ~10 years? Thanks.

Spoke to another friendly CPA this morning about this and got some interesting feedback: > Other TPAs that he works with [but clearly not us] are just taking whatever is on the W-2 Box 1 and not asking any further questions. > Some CPAs don’t take the deduction for the premiums on the S Corp so then the K-1 income is higher and then they take the deduction on the personal 1040. So as we have heard, mathematically they work out on their side. The IRS has made it clear that they are supposed to put it in box 1 of the W-2, but upon audit, no action has been taken against them (this being the key for why they are not changing anything). This ruling of having to put it in the W-2 was the IRS’s way of kicking the can down the road to be a problem they would deal with later and the IRS has never gotten back to it. So the accountants and payroll companies have no incentive to change the way they are doing things because they are not being penalized for doing it the wrong way. They are leaving pension allocations on the table for their clients, but 99% of their clients don't realize that. Does using a different definition of compensation fix this? As originally noted, we use a W-2-based compensation definition. Does changing to 3401(a) or 415(c)(3) as the definition of "plan compensation" (we're using a Datair document) get around this problem (without causing a host of new ones)?

I just spoke to another client about this who uses Paychex. She said that she called in the shareholder premium information at the end of the year, and it shows up on the W-2 as a note... but it's not reflected in Box 1. If one of the largest payroll companies can't do this properly, then what hope is there? I know, the answer is to find a better payroll company, but they do payroll for thousands and thousands of S-corps; they can't be willfully getting it wrong, can they?

I agree that if the health insurance benefit for a >2% S-corp shareholder is included in W-2 Box 1, it is included in plan compensation (we use W-2 definition) and 415 comp. But I've got an accountant (several, actually) who doesn't get that information to be added in - he claims that his way, it ends up deductible to the employee, not the S-corp, so he doesn't bother adding it to the W-2. Plus, it means he doesn't have to chase it down while preparing W-2s. I'm not an accountant, so I don't know how OK that is, but what I do know is that there are some participants whose "compensation" is significantly affected by this, and are now receiving a few thousand less in profit sharing. Is there a leg for us to stand on as TPA to add that amount in, even though it's not on the W-2? Or do we just tell the plan sponsors to get more diligent CPAs? Thanks.

The concern is that an audit could come in and notice that there are several hundred employees for whom no completed deferral forms exist in the company records. Therefore, how does she prove that she offered the plan to all the participants if they don't return the forms? Of course it's not required to get one back, but we've all had pesky auditors who make life difficult when they don't see a complete set.