BTH

I've seen all sorts of different rules and such regarding accrued participant loan interest, so I just want to see if my interpretation is correct in the situation below: Profit Sharing Plan is pooled, so it not a directed investment of the participant. Participant has an account balance of $50,000. Participant has an outstanding loan of $10,000, terminates employment and accrues $500 of loan interest by the time he elects to rollover his entire account balance. Would this be correct: Taxable offset distribution of $10,500, consisting of loan balance plus accrued interest. Rollover would be for $39,500 -- $50,000 less the $10,500. Thanks!

A participant terminates employment and is automatically cashed out into an IRA by the recordkeeper. The individual was less than 100% vested, so forfeited his unvested funds. The individual is then re-employed and wants to repay the rollover in order to have his forfeited funds reinstated. He rolls over most (but not all) of the distributed balance back into the Plan, but there is a catch. Some of funds which were automatically distributed from the plan were Roth, but the plan does not accept rollovers from Roth IRAs. So while the participant did not fully repay the distribution, he did repay all that was technically allowed to be repaid back into the plan. I'm leaning towards the position of reinstating the participant's forfeited amount since they did transfer back all that was allowed by the plan. Any other thoughts? Thanks.

A Plan has a short plan year running from 7/1/2022 through 12/31/2022. For the 5500 filing, an auditor's report was not attached and the "it will be attached to the next Form 5500 pursuant to 29 CFR 2520.104-50" box is checked. For the 1/1/2023-12/31/2023 5500, I figured that we would attach the auditor's report, which would cover the full period running from 7/1/2022-12/31/2023. However, they also want us to file an amended 2022 short year return and attach the auditor's report. From what I can tell, an amended return isn't necessarily required for the 2022 short year, just that you have to include the auditor's report with the 2023 return. Thoughts?

Normally, when we assign a signature to a 5500 filing, the signer receives an email from the DOL about signing the return. We found out today that a few clients have not received these emails to sign their 5500. These were all returns over the past month. Anyone else having this issue?

We have a few small plans whose only tax deposit is for the annual withholding on participant RMDs. This is usually done through EFTPS with no problem, but now as we approach the end of the year, they are being surprised that they are unable to login to their EFTPS accounts. I was told by a representative that accounts are being inactivated due to not having made a tax deposit in the past 18 months. Considering that RMDs were suspended in 2020, these small plans haven't made a tax deposit since 2019. So they have had to go through the trouble of re-enrolling, waiting for the PIN to arrive in the mail, etc., etc. and hope they can get the tax deposit in before the end of the year. Just ridiculous.

In a DC plan subject to the QJSA requirements (merged MP assets) that has terminated, if a participant is unresponsive or cannot be located, what is the best option for account balances of over $5,000? Are there insurance companies that will set up a QJSA without a participant's signature? Or is it allowable/easier transfer the funds to the PBGC under their Missing Participant Program? Thanks for any input.

Here are the facts: 1. Plan Year: 7/1/2013-6/30/2014 2. Participant is still actively employed and turned age 70 1/2 in March of 2014 3. Participant was a greater than 5% owner until June of 2013 and is no longer an owner Question: Is the participant still considered a 5% owner for RMD purposes and must receive a 2014 RMD? Thanks!

A month ago, a participant receives a large participant loan and uses the funds to purchase a principal residence. However, the participant did not apply for the 15-year home loan exception, so the loan was set up with a standard 5-year amortization. Apparently, the participant was unaware of the option, even though it's clearly stated on the loan appication. Anyway, now the participant wants to reduce the monthly payments by switching to a 15-year amortization. In looking through things, it seems like the only option here (besides telling him "no") would be for the participant to refinance the loan and since the original loan was in fact used for the home purchase, it should be allowable. But I'm not completely sure on this. Any thoughts or concerns? Thanks. BTH

A 401(k) allows for participant loans, which are repaid through payroll deduction. An employee who is out on disability leave and having financial difficulties would like to take a participant loan. The loan (at least initially) cannot be paid via payroll deduction since they aren't working and it's possible that the individual won't return to active employment. The Plan's loan program includes language indicating that the Plan Administrator should check the creditworthiness and ability to repay in determining whether to approve a loan. This might lead the Plan Administrator to reject the loan request. But, we don't want a situation where the Plan is not making loans available on a "reasonably equivalent basis" and possiblity discriminating against an otherwise eligible employee because they are out on disability. Are there any loan rules that would lead one to lean one way or the other in this situation? Thanks.

Thanks for the info & links. My main concern is that any charge to the participant be considered "reasonable" by the DOL. Unlike usually set charges for loans or distributions, the amount of time involved in a QDRO determination can vary quite a bit. Since it doesn't appear that the DOL has any guidance on what is considered a reasonable expense for a QDRO, was just trying to get a sense of that.

In 2011, a distribution is made and reported on the 2011 5500-SF under line 8d - Benefits Paid. Turns out the participant received the wrong amount (too much) and in 2012 actually returned the excess portion to the Plan. Any thoughts on how the return of the mistaken distribution should be reported on the 5500-SF for 2012? Not sure if there is a right answer, but the following seem to be the options: 8a(3) Other Contributions 8b Other Income 8d Add back to Benefits Paid 8j Transfer to the plan Thanks.

In your experience, what is a typical charge to a participant's account for the determination and processing of a QDRO? $200? $400? More? Thanks.

In this case, the correct beneficiaries are not minors and the more recent beneficiary form certainly appears valid. Assuming that the wife does not return the funds, the "make the plan whole" option makes sense, but is naturally not an option the client will want to do. Definitely a mess.

Yes, a death distribution was made to the wrong beneficiary. In 2010, a participant passes away and his wife receives a distribution of the participant's account, per the beneficiary designation form that both the employer and TPA firm had on file. A year goes by and the employer then comes across a much more recent beneficiary form in which the participant names his two children as primary beneficiaries. The spousal consent signed by his wife was witnessed by a Notary and appears valid. Any thoughts on how to handle this situation? The only similar topic that I can find is with a distribution overpayment and to try to get his wife to return the overpayment. But, realistically, she won't be inclined to return the funds, especially after a year has gone by. Thanks for any help. BTH

In the end, I decided to send a letter to the IRS Director of EP Rulings & Agreements in Washington, detailing my attempts to find out the status of the 5307 filing. I also included copies of the original filing, attachments, etc. Not long after, I received a call from his office indicating that it had been referred to the appropriate party in Cincinnati. The same day, I received a call from a representative in Cincinnati with finally an answer to my long standing inquiry. The Plan in question (along with others) had been transferred to the Federal Records Center, was supposed to have been issued a determination letter, but wasn't for some reason. By the next day, they had re-acquired the filing and shortly after, actually issued the favorable determination letter. Each individual that I spoke to at the IRS over the past couple of weeks was very helpful in resolving the matter. Hopefully, this will be of help to anyone else who encounters a similar problem.

As part of the EGTRRA restatements, we filed and received favorable determination letters some time ago for all of our clients...except for one. We filed the Form 5307, etc. in early 2010 and received the standard acknowledgement letter from the IRS dated 2/12/2010. And that is the last we heard from the IRS -- no follow-up, no determination letter. So, I called the 1-877-829-5500 number earlier this year and was told that the review was "in progress." I was able to have the representative put it for review by a supervisor, who I was told I could expect to hear from within 30 days. Naturally, I never received a call. Two months go by and I called the number again and get the same "review in progress" answer. On 5/3/2011, I sent a fax to (513) 263-4330 number shown on the IRS website to request copies of EP Determination Letterss or case files. It's mid-June and I still haven't been contacted. As this point, I'm sure it's just gathering dust somewhere or has been completely lost. As noted, it was received by the IRS and the client paid the $300 User Fee, so if we had to re-submit things because it's been lost, then we would do so. But I can't seem to get an answer on what happened here. Does anyone have any ideas on the best way to contact to the IRS to get information on a 5307 filing? Thanks.

Yes, both Employer A & Employer B were related and participating employers in the same Profit Sharing Plan until a business transaction ended all connections in 2009. It seems that to qualify for the age 55 exception, Employee X needs to separate from service: (1) in or after the year in which employee turns 55 and (2) from the employer maintaining the plan. In this case, Employee X turned 55 in 2010, but terminated employment from Employer A in 2009, when age 54. So, the employee would not be eligible for the exception. However, the status of Employer B is the wild card here. Is is possible that Employer B would be considered as "maintaining the plan" since B was a participating employer in the past? Or does the ending of all connections between Employer B and the Plan in 2009 effectively end that status? If Employer B is considered maintaining the plan, then when X terminated in 2010, it was in the year when age 55 was reached and would qualify for the exception. Another note is that although the employee was hired by Employer B in 2009, the employee never received any contributions to the Profit Sharing Plan from employer B or any income from Employer B when it was related to Employer A. Ok, this is confusing enough for now!

I want to get some opinions about what seems like a complicated situation regarding the Age 55 exception on the 10% early distribution penalty. Here are the details: Employer A and Employer B are both related, participating employers in a Profit Sharing Plan. Employee X works for Employer A and has received contributions over the years to the Profit Sharing Plan from A. On 9/1/2009, X terminates employment with A, but is employed by B. Because of a business transaction, Employer B is no longer related to A and ceases being a participating employer in the Profit Sharing Plan effective the same date -- 9/1/2009. X turns age 55 in June of 2010. X terminates employment from B in September of 2010 and receives a lump sum distribution from the Profit Sharing Plan in October of 2010. Based on your knowledge of the age 55 exception, do you think this employee would be eligible for the exception and have Code 2 on the 1099-R? Thanks.

Thanks, Bird. Don't know how I managed to miss that thread in searching, but that's exactly the type of information I was hoping to find.

Last year, a recently retired participant in a Profit Sharing Plan decided to elect an annuity as their form of distribution. Her account balance was used to purchase an annuity from an insurance company and going forward, she will receive any payments directly from the insurance company. I know that the annuity purchase itself it not a taxable event and the individual will receive a 1099-R from the insurance company whenever money is withdrawn from the annuity. From the standpoint of the Profit Sharing Plan, however, is a 1099-R required to be issued to the participant? If so, which boxes and codes should be used? I could be misssing something, but the 1099 instructions don't seem to address this particular situation. Thanks!

A participant in a 401(k) has an old IRA account which consists of non-deductible after-tax contributions and the earnings. She wants to do a Roth conversion of the IRA, but only for the basis and wants to rollover the taxable portion (earnings) to her 401(k) account. The 401(k) does allow for rollovers from IRA accounts, as long as it's otherwise includible in gross income (i.e. no after-tax money allowed). The 401(k) does not have Roth provisions. For those of you who deal with Roth conversions, does this sound like it would work? Thanks.

Last week, 3 different clients received Form 945 letters from the IRS for 2009. These are all for small plans in which no withholding was done and therefore no Form 945 is required to be filed. In two cases, the notices were for TIN's for terminated plans for which a final 945 had been filed back in 2006. At this point, I'm anticipating that all of our clients are going to receive these notices. What a waste of time.

An existing Profit Sharing Plan adds 401(k) deferral provisions effective 7/1/2010. Since the 401(k) portion of the Plan is only effective for part of the year, I believe that you may do the ADP test based on the full Plan Year or just the part of the year (7/1/2010-12/31/2010) when the 401(k) portion was effective. Assuming that the ADP test is done based on the partial year, does the maximum compensation taken into account need to be prorated? So if someone earns $150,000 during the 2nd half of the year, can you use that figure or must it be reduced to $122,500 ($245,000 x 50%)? I know that if this was a short plan year, you would be required to pro-rate, but techncially it's not a short plan year. Also, in a situation where participant enters a Plan mid-year, their compensation is not required to be pro-rated. I'm hoping that this would be considered more like when a participant enters mid-year and therefore the compensation adjustment is not required. But I want to make sure! Thanks. BTH

The Plan doesn't appear to have any deferral limits outside of 402(g), so it sounds like it would be acceptable to frontload. Good point on the Match -- better to point that out now to the participant rather than having to tell them the bad news later! Thanks.

In most cases, we see participants wanting to maximize their 401(k) contributions by contributing equal amounts per paycheck through the year. However, are there any issues with Highly Compensated Employees fully frontloading their $16,500 401(k) deferral in the first pay period of the year? I seem to recall the IRS having an issue with this years ago(perhaps during an audit), but haven't seen anything specifically prohibiting it. Thanks!