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Last summer a participant took a maximum loan equal to 50% of their VAB, to be set up for repayments via payroll deductions twice a month. No repayments have been made to date. The outstanding balance of the loan went over 50% of the VAB once the first repayment was missed due to accrued interest, though eventually it went down below 50% due to continued deferrals. It's a PT if a loan for an amount exceeding 50% is taken and a Form 5330 should be filed for the excess - is it also a PT if the loan's initial amount is OK but the 50% max is breached due to accrued interest from non-payment? If this is a PT, does a 5330 need to be filed even if the OB went below 50% before the end of the year? Hopefully not, since the excise tax in this case would be far less than $100. It seems that section 6.07(3)(d) of Rev. Proc. 2021-30 permits self-correction of loans whose IRS maximum cure period has expired (this occurred on this loan 12/31/21) if the participant pays a lump sum for the missed payments with interest to bring the loan current. So it appears the loan becoming a deemed distribution won't be an issue if the participant does this, even if it happens in the following year. I suspect that the employer neglected to set up the automatic payroll deductions for the repayments, and I remember hearing that the employer may be liable for some of the repayments? Does anyone have any info on this, or know where I can read about it? It's surprising to see that some of the major recordkeepers do not add interest for missed payments onto outstanding loan balances - I thought they were required to do so.

The top heavy requirements wouldn't apply if the plan is considered to be a safe harbor plan throughout this process, and I can't imagine that the amendment would cause any issue, especially since the participant is an NHCE.

A 401k plan has over 70% in each of its rate groups for its nonelective contributons when the ratio percentage test is performed - does that allow the plan to avoid the ABT when deferrals have been made? Having to consider the deferrals in the ABT would sink testing.

Frozen initial liability.

Excellent information. The agency sells home and auto insurance, but it's interesting to know that life agents are treated differently. Thank you all and enjoy the holidays!

Thank you for your responses but I'm afraid I still need some clarification. No doubt the employees fall into at least one of the four categories described in the link provided, but the page only refers to their treatment for certain employment tax purposes. What I'm trying to determine is whether the employees I've described are required to be covered by a qualified plan that is sponsored by the entity that issues W-2s to them and not whether they can be excluded by design - I should've been more specific. There's no document as the agency is thinking about starting a new plan, so my question is geared towards how federal laws apply.

An insurance agency says that its employees are statutory employees, but pays them W-2 income instead of 1099 income. Their W-2s consist entirely of commissions and they all work from home. They work as they wish - essentially as independent contractors - but are paid a W-2 income. Is the agency able to exclude them from their 401(k) plan? It seems that most statutory employees who get paid 1099 income may not be considered eligible employees, but I couldn't find information that discusses how eligibility is handled when their income is reported on a W-2. Has anyone come across a situation like this?

That's a good thought BG, but that kind of generosity doesn't exist with this employer - quite the opposite. This is a takeover and now that they need to have a restatement done, they would like to tighten up as many provisions as possible - does anyone know of a source available that lists which benefits, rights and features are protected and can't be eliminated or reduced?

If you don't file the 2020 return you'll double your problems by having two years that didn't have timely returns filed. Best to file the 2020 return now imo and minimize the issues.

A plan that currently permits profit sharing allocations to participants with 1,000 hours wants to add a last day requirement effective 1/1/22. I believe that not having a last day requirement is not a protected benefit, so the amendment would be OK? Is this correct?

Thanks Lou, but perhaps I should've been more specific - I was referring to normal inservice distributions and the BBA seems to have lessened restrictions only on hardship withdrawals.

Regarding the requirements that elective deferrals and safe harbor contributions cannot be distributed to employed participants until they attain age 59.5 (assuming the doc permits such payouts), I was recently speaking with someone who mentioned that recent legislation (he said either the SECURE or CARES Act) now permits inservice distributions from all sources including deferrals and SH money. I normally defer to him since he's a TPA, but I haven't been able to locate anything in writing that backs up this change - have the inservice rules changed in this respect?

Gotcha, Bird - an auditor would have to go deep to figure that out, and be in a bad mood to make an issue of it, especially if the trustee has followed the doc terms regarding the applicable distribution timing and missing payee provisions. Dak, I was guessing that that was probably the IRS' intent and just an oversight that they didn't formally revise the notice.

What I don't get is the reason for your snide comment. The form instructions for the 8955 say that it's required to be filed for a plan year that follows a plan year in which a participant with a vested benefit separated from service, which is the case here. The deadline for that 8955 has passed which is why penalty relief is being sought. Are you assuming I was referring to a voluntary 8955 filing for the plan year in which the participant separated? Notice 2014-35 links the 5500 and the 8955 for DFVC purposes, and I'm trying to find out whether the 12/1/14 date it mentions has been revised/eliminated.

I recall seeing a prior thread here some time ago concluding that zeroing out plan assets with the payable amount shouldn't be done. I've seen it done both ways over the decades and haven't seen it ever be an issue either way, that is, if the check is cashed close to the end of the year. I think three weeks may have been the longest I've seen anyone let it slide before mandating another year of admin. Jakyasar, you have a valid concern, since going into another plan year can require different stability and look back periods, i.e., different interest rates to be used for a calc determined as of a different date. Making all of these adjustments to a calc can be a considerable revision, and the IRS would probably expect the updated rates to be used, especially if the check is cashed much later that the determination date. A couple of weeks afterwards can be argued as acceptable, but a large part of this seems to come down to one's risk tolerance. Six weeks later? Much closer to unacceptable, but how close is OK?

Happy New Year everyone! We are doing a DFVC filing for a return that requires an 8955-SSA. We've done DFVC filings before but they've never involved an 8955. The DFVC page of the IRS website refers to Notice 2014-35 with a link to the Notice, which states that the 8955 must be filed no later than December 1, 2014. I haven't been able to find any evidence, on the IRS website or anywhere else, that this deadline has been extended. I would have guessed that this would've become a permanent relief program for the 8955, much like how the pilot DFVC program for the 5500-EZ became permanent. Can anyone verify that this deadline has been eliminated and that one can currently get penalty relief for a delinquent 8955 if a paper copy is filed after a DVFC filing is made for the accompanying 5500-SF? If a cite can be provided, that would be great!

Although a CG situation does not currently exist, the wife is actively seeking to acquire a significant ownership stake in another business within the next 12 months. As the acquired business would employ NHCEs, a CG issue would arise if she were participating in the husband's 401(k) plan. Both H & W have made it clear that they have no interest in covering the NHCEs in the new plan, even if it were a SH plan, or if a DB/DC combo was set up. Very likely marital harmony plays a part in this, spiritrider, ha ha. However, we were just told that it's the family trust, and not the husband himself, that owns the husband's company. Wouldn't this cause a CG to exist at this time since both the H & W are the beneficiaries of the family trust?

Thank you all for your input. C. B., neither spouse is employed by the other. My statement to exclude the wife was meant to imply that they are not interested in establishing a multiple employer plan, as may be considered by some couples in such a situation. I will ask them about minor children. Hopefully it's not an issue since the couple is in their 60s, but you never know.

Husband and wife each own a business. The businesses are unrelated and are not members of a controlled group or ASG. The wife has a SIMPLE IRA. The husband wants to sponsor a 401(k) plan and exclude the wife. Is there anything preventing the wife from contributing to her SIMPLE IRA after the husband's 401(k) plan is established?

I'm guessing you're required to file electronically because you have to file >250 various returns during the year, otherwise a paper form can be filed. Your suggestion seems to be the way to go since the IRS isn't giving you a choice.

It is not a controlled group.

That's a very good point, Former Esq. Would you happen to have any insight regarding whether or not the husband's 401(k) plan would prevent his spouse from contributing to her SIMPLE IRA?

Thank you, Bill. The 401(k) in question will be an owner-only 1-man plan. If the owner's wife also has a SIMPLE IRA, do you know whether the wife can keep contributing to her SIMPLE IRA while the husband contributes to the 401(k)? Each spouse owns a business but the businesses have nothing to do with each other, and each spouse is the only employee in their respective business.

A single plan can be established for them, and as there are no NHCEs participating, nondiscrim tests are n/a. If the business entity can be construed as a partnership, a filing would not be needed until plan assets exceed $250,000, otherwise a 5500-EZ would be required when such threshold is reached. If it can't be considered a legal partnership, a 5500 or 5500-SF would be needed right off the bat, generally depending on what type of assets are held in the plan.

Although contributing to both a 401(k) and a SIMPLE IRA in the same year is not allowed, can an employer keep the SIMPLE account open if the only contributions made going forward are to the 401(k), or must they close the SIMPLE account before the 401(k) plan is started?