shERPA

Yes, the defaulted loan was a way around not being eligible for a distribution. If 70.5, then eligible for a distribution of any amount, even if still employed not retired (plan might need an amendment for this but it is permissible). So take the loan if the intent is to pay it back (to avoid immediate taxation). If the loan would end up defaulting and being taxable anyway, just take a distribution. Of course if the distribution would come from the DB plan, then it's possible the DB is under a top 25 or 436 distribution limitation that might throw a monkey wrench in the works. If there is a companion DC plan, it would not have such distribution issues.

Of course I would tell them they need to repay the loan, they are signing a legally binding promissory note. I would also tell them the consequences of not repaying it, both the definite (plan benefit offset and taxable income) and the theoretically possible (if IRS thought the owner/trustee took the loan with no intent of repaying it they could try to impose further consequences even up to plan disqualification (is it a violation of plan terms to take a loan with no intent of repaying?)). But the reality is under examination I've never seen anything other than taxation of a defaulted loan, and sometimes not even that.

Goin' in circles....

Borrow $50K personally as a participant. Contributes the $50K to the corporation (???) as additional paid-in capital. Corp makes/deducts the contribution. Owner never makes a loan payment, gets $50K in taxable income due to default. Corp gets $50K greater loss or lesser taxable profit (due to deduction of plan contribution), which passes thru to the owner sheltering the $50K income from the default. All good if everything (basis, timing, etc.) aligns perfectly.

He could default on the loan, no? But it's still not that easy. Form of business entity, amount of profit/loss after taking plan contribution deduction, any basis limitations on recognizing the loss and offsetting the plan distribution might mean that it's not a wash.

IRS does not recognize benefit waivers for plan funding purposes - even for owners. This is a long-standing position, unlikely you will find an actuary who would sign the Schedule SB with the funding requirements calculated on the basis of a waiver.

Yeah, what Lou said. Not gonna find any retroactive relief from 3-letter agencies. Really need to make that contribution, if not, things just get worse from there on out.

Sounds like you need legal advice specific to your situation. Sort of beyond the scope of a public message board to delve into these issues.

BITD when we did this (15 years ago), we would not engage with terminees until notified of the termination directly by the plan sponsor. Would then ask the participant for name, DOB, SSN and DOT. For ongoing participant inquiries, client had a choice of providing us the name of participants in advance, or utilizing a password. IIRC pretty much all clients chose the notification in advance option. We'd ask for the caller to verify name, DOB & SSN. We were not recordkeepers, so while we were providing plan information, we were not initiating any transactions, so it seemed good enough at the time.

Exactly.

Back when I had my own firm, we had an addendum for our engagement agreement where a client could authorize and engage us to respond directly to participants. This gave us the chance to point out to a client ahead of time that our relationship was with the plan sponsor, describe what we would and would not provide to participants (we'd provide stuff they are entitled to under ERISA, but would not provide advice of course). It further communicated to the client that this was an additional service beyond the regular administration work and was billable. Some clients would hand out our name and number to participants for virtually anything, and then not be happy when we billed them. Finally when clients would not engage us to do this, we then had a nice simple response for their participants, the client has not authorized us to respond to them. This addendum process worked really well. I tried to spread the idea around to other TPA friends but but it never caught on.

Seems to me RR 81-114 could apply in some situations. If it was simply a PS plan and no 2018 PS contribution was to be made, I would certainly take the position that there is no plan for 2018 as there is no corpus, hence no 5500. But if deferrals started 1/1/19, then contributions would be made prior to the due date of the 2018 tax return. Does this satisfy the corpus rule for 2018 even though the deferrals are 2019 contributions? Can argue either way I suppose, and 81-114 doesn't really address this. So, it's probably less time, risk and brain damage to just do a 2018 5500 than it is to think too hard about the emanations and penumbras of 81-114.

End of June, no change. One submitted in August 2018 - still not assigned. One submitted in December 2018, still not assigned. One is a relatively simple document issue, another a missed RMD, pretty straightforward. IRS says call back in 8 weeks. VCP is pretty much worthless if turnaround is measured in years.

Lot at stake for over 20. Seems like this should be handled under the guidance of an ERISA attorney, and with attorney-client privilege to protect the plan sponsor as much as possible. Really hard to get more specific here as much depends on the facts.

First, change your terminology. As a TPA you can't "do", "make" or "force" anything. The plan sponsor either amends the plan to freeze benefits, or he does not. He either funds the plan, or does not. You don't collect contributions from the estate, you don't pay out NHCEs, the plan fiduciary does. The TPA has no authority over the plan and your language should not imply that you do. You can advise, your client is free to follow or disregard your advice, and you are free to either continue or discontinue your services on this basis. As pointed out by StephenD, once he quit paying premiums the plan failed to meet the 412(e)(3) requirement of benefits guaranteed by the contracts. That was the time to act, the client either continues the plan as designed, the plan (and corresponding TPA and actuarial services) is changed, or you resign. Now it's a mess. The one saving grace, assuming the successor plan fiduciary (not the TPA) can find a way to pay out the NHCEs their proper benefits, the IRS under examination is unlikely to beat up a dead person's estate over compliance matters. But someone has to figure out what the NHCEs are due. 412(e)(3) documents typically provide that the accrued benefit is the accumulated value in the policies, but since the premiums weren't paid, the accumulated values don't reflect the benefits as promised by the plan formula. I recommend the successor plan fiduciary engage ERISA counsel and these things get worked out under attorney-client privilege. If the brother is "taking over" the business, he may or may not be a successor plan fiduciary with personal liability. That's probably the first thing he should determine with the help of legal counsel. If he won't take this step, you're pretty much done and can't do anything but resign.

BRF needed for different rates of match. Not PS though.

This!

Yes. Often when you hear bizarre statements like this, it is the client re-stating what they think they heard from the TPA, not what the TPA actually said. This is not always the fault of the client. It is incumbent on us to constantly strive to communicate clearly with clients. It is difficult, as this is a very technical area where logic doesn't necessarily apply, and our industry jargon does not help. A favorite of mine, how many times has a prospect or advisor told you their HCEs keep getting ADP refunds because the plan is "top heavy"?

That is a really nice list of PTEs to have linked all in one place, Peter. Thank you. Yes, what’s the going rate for stock transactions, $5 - $10? Trivial compared to even asking an attorney about a PTE, let alone actually applying. Bird likely identifies the underlying issue, he’s thinking that contributing rather than selling would avoid the taxable gain. Once he understands that’s not the case, the motivation to do this goes away.

Commissioner v. Keystone, went all the way to the SCOTUS, held that contributing property to the plan to satisfy a funding obligation is a PT. No reason to ask the Secretary or an attorney. Sell the securities and contribute the cash proceeds, it will be much cheaper than trying to fight the PT battle. https://www.law.cornell.edu/supct/html/91-1677.ZO.html

It's a trade-off. Higher comp = higher contribution for owner/lower NHCE contributions, but also higher payroll taxes. Also with S corps now wages do not get 199A deduction, but pass thru income does. So the business owner has to work with CPA to determine the optimum mix of wages, payroll taxes, plan contribution/deduction, ee plan expense and 199A deduction.

I get the idea, we've had a couple clients ask about it. Assuming a PS contribution is allowed in the plan, and further assuming the allocation method is "every participant is a separate group", it seems like something a plan sponsor can just do. If it benefits only NHCEs, then it's a deemed pass for coverage and non-discrimination. If there are HCEs also, then need to test. If there is other PS contribution, just add it in for testing of the PS.

Unless you've been engaged as a plan fiduciary, it's really up to the employer to make the partial termination decision. Explain the guidance, explain the concept of a series of related severances, explain the cost of a partial term and the consequences of getting it wrong. Let them make the decision.

Amendment/restatement, whatever. The requirement is that the plan be amended to reflect all changes in law/regs that are in effect as of the date of plan termination. If you have an amendment that does this, fine. If you find it easier to do a restatement that's fine too (a restatement might need additional good faith amendments). I would not want to write a DB amendment to update an EGTRRA doc to curren law now, much easier to restate on an updated PPA doc and know that you've got all the PPA stuff covered and have reliance on the opinion letter for at least that much of it.

Thanks FGC. This seems consistent with 87-57: