AlbanyConsultant

I've got a participant who took a hardship distribution from the plan to pay medical expenses (using the safe harbor hardship rules). We now find out three months later that the participant used the money for other purposes... so those invoices are still unpaid. Now he is asking for a hardship using the same bills he provided before (or maybe they are updated versions, but it's the same amount for the same place). Is there any reason the Plan Administrator can deny the request under the regulations? He has enough of a basis to take the amount again. Thanks!

Is it just me, or does the second sentence of 6.06(4)(a) not seem to be complete...?

Thank you. I knew I had to be overcomplicating this...

Is it just me, or is this one heck of a labyrinth to figure this out? I've got a participant who was overpaid by about $1,000 in an individual account (i.e. on a platform) 401(k) plan (erroneous deposit combined with immediate distribution - every TPA's nightmare). I started with Appendix B, Section 2.05 "Correction of Other Overpayment Failures". That says that for a DC plan, I go to Appendix B, Section 2.04(2)(a)(iii). Flipping back a few pages, I find that section is headed "Return of Overpayment Correction Method" and is generally talking about a 415(c) refund, but it directs me to Section 6.06(3). 6.06(3) is "Correction of Overpayment (defined benefit plans)" - !?!? That's a little odd, since 6.06(4) is the same section for defined contribution & 403(b) plans. I'm sure the IRS wouldn't make a typo, though, so I'll stick with 6.06(3). This kicks me back to Appendix B, Section 2.04(1), keeping in mind that I might want to consider Section 4.05 (correction via plan amendment - no, I don't want that), and also keeping in mind that I don't violate Section 6.02 (general correction rules, like don't favor HCEs, etc.). Appendix B, Section 2.04(1) talks about "Failures Relating to a 415(b) Excess". Again, we're back to 415 violations, and the examples are all DB-esque. This is the worst "Choose Your Own Adventure" book ever. Can anyone help me make sense of this? Or point me to something that makes the steps to correct this clearer? Thanks!

The plan is unfortunately silent about this exact situation... It is very clear that if you don't already have a beneficiary, then the spouse becomes the beneficiary (first sentence in second paragraph of 3.4.1), but that's not what I have here. I went back to the doc provider, and their response was "...but it does not appear that the document specifically addresses this." Thanks again.

Thanks, everyone. I know this was an exercise in stupidity - I feel your pain, MoJo! - but I'm dealing with a client who takes everything literally confronted with a situation that is being twisted by the mother. I was looking for a clear "spouse is always the beneficiary, and this supersedes any previous" to make it perfectly clear. I guess I just need to raise my billable rate for these kinds of questions. :o)

I have run into a situation where the employee became a participant while unmarried, and selected his mother as his beneficiary (awww, how nice). He has recently married. We all know that this means that his spouse is now his primary beneficiary... but where is that stated in the law? The mother is reluctant to no longer be the beneficiary, and the participant, who could choose to solve this by just completing a new form listing his wife, is not doing so. This is a 403(b) plan - I don't think that matters, except that the document language isn't pre-approved and therefore maybe isn't as 'tight' as I'd like it to be. It says that if there is no designation in effect, the spouse is the default beneficiary unless he/she waives that right. But it doesn't specifically say that becoming the spouse supersedes other beneficiary forms in effect. And it's not subject to QJ&SA for anything (which I think rules out IRC 411 and 417). So where in the Thanks.

I'm working on a PYE 9/30/16 401(k) plan where the employer is just not giving us what we need to complete the ADP Test. I know it's going to fail, but I can't even get in the ballpark of completing the test. Since we're past 2.5 months after the end of the plan year, the 10% penalty will apply. Now that the next plan year end is looming, I'm trying to scare the employer into getting us the data or else. If we cross 9/30/17, then the correction is an EPCRS issue and the plan sponsor has to deposit a QNEC equal to the amount refunded. But what about the 10% penalty - is that still applicable? Or does that go away somehow? Thanks.

Just thought of something: the plan uses the "expected to work less than 20 hours per week" exclusion for their employer contribution ONLY. Does auto-enrollment mean you are auto-enrolled for all sources?

I have only a couple 401(k) plans with auto-enrollment, so now that a 150-life NFP with an ERISA 403(b) asked me to add auto-enrollment to their plan, I figured I should ask around to see if there is anything that I specifically need to be careful of implementing this in a 403b. I figure they will go the EACA route because they are not going to want to do the required QACA contribution, and they sound like they want the ability to let the participants do the 90-day withdrawal. Following the Relius chart I'm linking below, there doesn't seem to be anything else that would pose an issue in this situation. Any tips or advice would be appreciated, thanks. http://www.relius.net/news/pdf/Form376ACAcomparchart.pdf

Sounds reasonable - I was going right past the 'segregated' issue. Thanks!

I have a client who made their final deposit for 2016 (payroll date 12/30/16) and first deposit for 2017 (payroll date 1/13/17) were not processed by the recordkeeper for several weeks; it wasn't discovered for another month or two. To make good, the recordkeeper reversed the initial transactions and re-processed them as of the date they should have been done, using that dates' share prices (I wonder if the relative share prices made it come up a net positive or negative for the rk?). So... I presume that this gets us out of having to calculate any lost earnings (presuming that the rk also made sure to correctly credit any dividends or capital gains)? And how in the world do I begin looking at a 5330? Any suggestions?

I've got a plan with a non-safe harbor discretionary match that is calculated per payroll with no true-up. Halfway through the year, the plan sponsor now wants to cut the rate of the match in half. Is there anything that would prevent this? I don't see anything in the plan document that discussed this specifically. I know they'd still have to pass the ACP test, so if this is a ploy to lower the match after the HCEs have maxed their deferrals, they'll just fail that anyway. Is there anything else that could come into play? Thanks.

Just saw the new article that ASPPA now wants us to Save our Savings: https://www.saveoursavings.org/ I thought we were still saving our 401k and protecting our piggy. I can't save everything - I'm not Melissa McCarthy. :)

I've got a typical ASG - 2 lawyers O and P who each have their own sole-prop practice, and they have a partnership where their receptionist and other staff are paid from (and they receive small K-1s from it). O owns 1/3 and P owns 2/3 of the partnership. When I split the pension cost for the staff, does that also affect the Schedule C income because this is treated as one employer (i.e., add the Schedules C and K-1 together and then subtract the portion of staff contribution)? Or do I reduce only the K-1 compensation and then add the Schedule C compensation? Or is it the same thing and I'm just overthinking this? Thanks.

I can't believe I had forgotten about the S-corp owner restrictions... wow. Thanks for the reminder. So maybe that's the problem. That situation doesn't (hopefully) come up too often anymore. What about where the loan was only taken recently? When does non-payment create a PT, if it does at all?

This came up because a local CPA asked our advice for an audit his (not ours!) client is going through. The owner of the business (an s-corp) took a loan that satisfied all the 72(p) loan provisions when he took it out. He never made a single repayment, and the CPA is still carrying it as a plan asset for the face loan amount. Oh, did I mention that the loan was taken 20+ years ago? No doubt this is bad. But we in the office can't agree on where the badness starts... Is this a PT? Where? When? Is it different because it's an owner? I've heard that they have a "higher standard", but unless this owner is a fiduciary (which of course he is), I don't think that's generally true. Thanks.

I have a client who is just now realizing that the safe harbor match true-up provision they've had in their plan for almost a decade is "costing [them] money" by making them do more match than just what they calculate weekly (I suspect a new bookkeeper). They want to do a mid-year amendment to remove the annual true-up of the safe harbor match effective ASAP. I don't see where this neatly fits into one of the prohibited amendment boxes, so I'm thinking this might not actually be too bad. It feels wrong, but maybe that's just me. If this is OK, would you keep the true-up through a date 30-days in the future (maybe April 30)? Thoughts? Thanks.

It seems to be about three years since this topic has come up, so I was just wondering what everyone's current opinion is regarding making the deposit of employer contributions timely. Obviously, we'd prefer if the money was actually deposited into the Trust by the deadline date. But we all have clients who, for one reason or another, aren't ready to make the deposit until the day before the deadline and still have to mail a check somewhere. What's the best current guidance we can give those poor souls? From searching previous threads here, I've found: There’s a footnote to the 1996 DOL deposit regulations (the regulations that relate to the definition of “Plan Assets”) that gives an example of an employer mailing a check to the plan counting as the money being segregated as of the day the check is mailed (provided that the check clears). This example relates to employee deferrals and doesn’t mention employer contributions. IRC 7502 gives general guidelines about using the postmark date, but it explicitly says that this section does not apply if you’re making the deposit to “any court other than the Tax Court”. There are apparently several Private Letter Rulings that use the mailing date as the deposit date for their various scenarios. There is at least one instance, however, where the postmark date was rejected because the employer couldn’t prove what was in the envelope they postmarked. Some of these threads are over a decade old, so I'm hoping that someone has gotten a clearer answer by now. Thanks.

Thank you!

Working on an s-corp where the two owners deferred $25K in 2016. They are both over age 50, so they'll get $1K (+ earnings) refunded by 4/15/17. Fine. This plan also has an integrated profit sharing that they like to max out. I know that these excess deferrals would count in the ADP Test (if the plan wasn't a safe harbor 3%), but could they affect the profit sharing? Do they count towards their individual 415 limits? Thanks.

Because... they're not due yet? That's our viewpoint, too. But it's nice to know so we can answer the question. :)

I've got a participant's CPA who is saying that because we haven't electroncially filed the 1099-Rs yet, if his client electronically files their 1040 it will bounce because there is no 1099-R at the IRS to match it up to. I don't think I've ever heard of this before - is this is thing? Thanks.

Thanks, everyone.

A question similar to this started quite a debate at the ASPPA Annual Conference a few months back, but I don't think there was ever a clear answer... Small plan with immediate eligibility, the participants are the owner, his son, and one non-related worker. The son was not employed when the plan started in 2015 (he came aboard in 2016) and has never worked more than 1,000 hours per year. The company is expanding and now wants to change the eligibility provisions to have 1 Year of Service (1,000 hours). If the plan provision is changed to require a YOS, is the son grandfathered in the plan, or is he now considered an excluded employee (i.e., no future contributions) because he has not met the new eligibility requirements? Could the resolution (if the adoption agreement itself doesn't give you the flexibility to do it) be written to grandfather him in? Is that discriminiatory? If the son is terminated (and hopefully paid out) before the change, does it even matter? Thanks.