Doghouse

The employer is actually going to issue a W-2c. The complication here is that employee has now repaid exactly the amount of the check he got, and the employer has reversed the payroll, so it is a bit of a bookkeeping mess. Still, we may have to do some version of ERISAAPPLE's solution to get this fixed. Thanks!

I have a situation I'm hoping to get some suggestions on. I have a participant who received an erroneous large commission payment in 2017 which was repaid in 2018. 401k deferrals were taken from the erroneous payment, and the amount was such that it caused the participant to reach his 2017 402(g) limit, so no 401k deferrals were taken for the rest of the year. Reversing the deferral contribution results in him NOT exceeding the 402(g) limit. In correcting this situation, I assume the company has an obligation to make up what his 401k contributions would have been for the rest of the year? Do you agree that this will be at least at a 50% rate plus match and earnings? Of course he is an HCE - fortunately it shouldn't change the testing results appreciably.

I spoke with an attorney in Puerto Rico and he agrees with Bird on the compensation issue. However, that doesn't make it any easier to fix (this has been going on for years).

Thanks, Bird! I was leaning in the other direction but it sure is difficult to find something on point.

I am working with a plan that defines plan compensation as 3401(a) compensation. The plan covers a couple of Puerto Rican residents/participants. Their compensation is reported to Hacienda. Does this compensation constitute 3401(a) compensation? We're trying to do some clean-up and want to determine if we have an issue on the U.S. side. Thanks to any who can help! Dog

Aren't the requirements for filing an owner-only 5500-SF exactly the same as for filing an EZ?

If not a husband and wife, the entity is a corporation and does not meet the definition of a partnership. Sorry, I was originally reading it as a husband and wife situation.

A one-participant plan means a retirement plan (that is, a defined benefit pension plan or a defined contribution profit-sharing or money purchase pension plan), other than an Employee Stock Ownership Plan (ESOP), which: 1. Covers only you (or you and your spouse) and you (or you and your spouse) own the entire business (which may be incorporated or unincorporated); or 2. Covers only one or more partners (or partners and their spouses) in a business partnership; and 3. Does not provide benefits for anyone except you (or you and your spouse) or one or more partners (or partners and their spouses).

It sounds to me like it may have been processed as a withdrawal, rather than as a loan, in the first place. Which would explain why the repayments were "returned".

Hey! Thank you, Jean!

Thanks, KW - I saw that post, but it doesn't really answer any of my questions. So if anyone else wants to chime in, that would be great!

One of the plan sponsors we work with recently mentioned that their U.S.-qualified plan has a couple of Puerto Rican employees participating in it. At least one of them has been contributing up to the 402(g) limit. No Form 480.70 or 6042 has ever been filed, although it's not clear to me whether this is a requirement or not. This brings up a few questions: 1. Should Puerto Rican employees participate in a 401(k) plan that does not have dual qualification? 2. If there is anything wrong with this situation, what needs to be done to fix it? Thank you! Dog

Here is a sample provision for this: (b) Application of Automatic Rollover rules. The Automatic Rollover rules described in Section 8.06 of the Plan do not apply to any Involuntary Cash-Out Distribution below $1,000 (to the extent available under the Plan). To override this default provision, check this subsection (b). ___ Check this (b) to apply the Automatic Rollover provisions under Section 8.06 of the Plan to all Involuntary Cash-Out Distributions (including those below $1,000).

I have worked with many, many plans that had an IRA forceout $0-$5K.

We have run across this same issue in plans with allocation groups - as of what date is group status determined? We now specify that in the document (usually first day or last day of plan year).

Sure. Not that unusual.

Many times I see different SPD's provided to different populations - such as when different nonelective contributions are provided to different allocation groups. The provision should probably be addressed in the CB version though.

My point actually was that many service agreement require a certain amount of advance notice. In many cases, this may be as much as 180 days (although that usually applies for larger plans).

You would need to review the service agreement between the client and the recordkeeper. That's the first step, anyway.

And that has pretty much been my approach!

We were at 63% totality and I was unable to find glasses but fortunately there was a group of people standing in front of our building who were willing to share their glasses. I have to admit it looked pretty cool, but I doubt it looked quite that cool without the glasses. I had a very hard time not looking.

The following from this IRS article is interesting: Keep documentation on plan loans A plan sponsor should retain these records, in paper or electronic format, for each plan loan granted to a participant: Evidence of the loan application, review and approval process. An executed plan loan note. If applicable, documentation verifying that the loan proceeds were used to purchase or construct a primary residence. Evidence of loan repayments. Evidence of collection activities for defaulted loans and related Forms 1099-R, if applicable. If a participant requests a loan with a repayment period in excess of five years for the purpose of purchasing or constructing a primary residence, the plan sponsor must obtain documentation of the home purchase before the loan is approved. IRS audits have found that some plan administrators impermissibly allowed participants to self-certify their eligibility for these loans.

One of the challenges our industry struggles with is that of bringing new people into the industry. The last few places I've worked have had distribution and trust accounting specialists, but everything else, including relationship management, was handled by the administrator. Distribution processing and trust accounting were always good entry level positions and hey, if you can't handle trust accounting, you might not be cut out for the business at all.

We had a similar situation. No MV adjustment option was available. There was only a handful of participants involved so we contacted them prior to the transfer and told them that their balances in the SV fund would be updated only quarterly and would not be reflected on their statements, and if this was unsatisfactory, it would be a good time to consider transferring out (which seemed to be allowed). Besides the fact that no one acted based on this information, there haven't been any complaints either.

The crazy client apparently got bored with the discussion and went ahead and filed as an amended return, so I guess there won't be much to report back on. I'm sure the opportunity will come up again though!