shERPA

I have a small non-profit client, they have a DB plan, and they are now out of business, done. The lockdown has ended all their activities that generate revenue. They won't be able to operate in an extended "social distancing" environment either. The DB plan has been frozen for several years with just 3 participants, they were about one year away from being fully funded to the plan termination liability, but with the market drop and the lockdown, there will be no more contributions and the plan is underfunded. They will need to file a distress termination. All benefits are well under the guaranteed benefit amount. Any recent experiences with distress terminations? The last one I'm familiar with in the early 2000s did not ever get resolved, PBGC did not do anything, the plan eventually ran out of money paying fees and no participants ever received any plan benefits. I'd like to be able to tell the board members (who are all volunteers) what to expect.

To answer your question, there may be some TPA somewhere doing this. Is it a good idea? NO!

Sorry, I meant CRD all the way thru. It was Friday of a long week. I edited the OP to fix this. OK, so you are limiting CRDs to deferral accounts only, got it. What are others doing?

Normally for plan sponsors who want to provide for in-service distributions, I recommend restricting them to accounts that are fully vested only, just to eliminate a potential error in later determining vesting. What are people doing/seeing WRT CRDs? Suppose an employee has $50K in deferrals and $25K in match, 60% vested. Total vested benefits are $65,000. Limiting CRD to $50K from deferrals only or also allowing up to $15K from match?

Years ago we switched to treating all loans as self directed investments allocable only to the participant/borrower, even when the rest of the plan is pooled. This prevents the account balance from dropping below the loan value and does not distort the asset management of the plan by having plan assets tied up in them, (except on a self-directed basis). In times where the investment portfolio outperforms the loan interest rate, only the participant is bearing the opportunity cost of having a lower investable balance for having taken a loan.

Not too concerned about ADP/ACP. Worst case some refunds to HCEs, not the end of the world. Far more significant is relief from TH minimum. Many key ees will have deferred in Jan/Feb with no concern about TH minimum due to the SH. Now the company has to stop the SH due to COVID-19, they may or may not be in business by the end of the year, they may be scrambling to stay in business and we are going to hit them with a required 3% TH? Not good.

The taxpayer (corporation) can do whatever they want. However, is the CPA going to sign the return as the paid preparer, knowingly taking a deduction that the corporation is not entitled to? There isn't really any arguable position here, the deadline is passed for 2019 deductibility for this corp. How does this comport with Circular 230 and/or the CPAs' state board of accountancy requirements?

Even if the CEO has no ownership and is legitimately an independent contractor, assuming this role is his principal business, wouldn't this be a management services ASG? As Larry said, maybe he's a CEO for hire with other clients, so this is not his principal gig, but it bears investigation.

Yes, please cite the document for this. I have been working on PPP related stuff most of the day and do not see this in any government guidance. From the instructions to SBA Form 2483:

Agreed an amendment would be needed assuming the loan program does not already so provide, but wouldn't the timing of this amendment be covered by the deferred amendment date in CARES? Also, it appears that a qualified individual can take both a $100K in-service distribution and a $100K loan?

That's an awfully poor response by a vendor in a time like this. Many companies are bending over backwards to help their clients navigate this crazy time.

Oh yeah, it is a good thing, no disparagement of our administrator intended. There's no reason to clutter up current rules with ancient outdated stuff from the past and younger people in the business wouldn't hear it unless talking to someone of a certain age. Just makes me feel old. Like the time an employee asked how you use a typewriter.

Had an exchange with an employee today - a client's CPA referred to a client's "Keogh" plan. Our administrator didn't know what that term meant.

Yes, attorney needed. I've done non-amender VCPs where there is already a plan document and they have been operating the plan in accordance with such. But where there is no actual complete document over the course of decades, who knows what the plan provisions were? Also an employer that doesn't have any complete document is likely one where attention to plan operations was, shall we say, casual? And a plan that has been around that long implies more money in it, and more participants over the years, so greater downside risk. Not only is this not making the client's liability your liability, getting an attorney involved is also protecting the client. Issues can be discussed under attorney client privilege, helping to protect the client should IRS or DOL get involved or participant litigation. And, though it seems far-fetched, there are possible criminal issues that could arise, who knows what has gone on? As a TPA, anything we learn is discoverable, potentially putting the client at risk.

Yeah, unless there is an actual bill that looks like it has some momentum, I'm not going to suggest to clients that a minimum funding extension is even a possibility.

Anyone? People are asking if they can delay their contributions til 7/15.

Well the good news this goes back just one year, so it can be self-corrected. The bad news is the shareholders (they are not partners if it is a corporation, again it’s important to use precise language) won’t like the fix, which is to reallocate the PS contribution based on the correct plan compensation of eligible participants. So if they truly don’t have any W-2 wages, they won’t share in the allocation.

Problem is that deferrals count in determining they key ees’ contribution percentage. Likely in many such plans key ees have already deferred, this can’t be undone. Legislative relief would be welcome.

Well, it is a deductibility issue, and what was reported on the 1120s, it’s not really a plan issue, so it is up to the sponsor and their tax accountant how to deal with it. These sorts of decisions are made all the time. If under audit the deduction is denied for 2019, it’s probably deductible in 2020. So it’s a timing issue, with maybe some penalties and interest. They don’t have the same concerns we have. When a plan has an error it is potentially disqualifying, thereby nuking the whole plan. OTOH if something is wrong on the 1120, the whole Corp is not nuked.

OK, so this came out just now. It is silent as to 404(a)(6) and IRAs. Do employers automatically get til 7/15 to make and deduct their 2019 plan contributions? I think it should work for sole props and C corps whose returns are due 4/15 but get this automatic extension to 7/15. It specifically extends the due date of the returns and 404(a)(6) references the due date of the return. Do IRA deposits also get an extension to 7/15?

I would not count on any relief. They are probably SOL.

Are you saying ADP refunds are not an "act" required by the IRC?

The law itself is clear. Why would additional guidance be necessary? It says “any act”. Doesn’t get much broader than that. https://www.law.cornell.edu/uscode/text/26/7503

Considering that whole states are being closed down, it may be a moot point. One the economy is dead, plan assets will be worthless. Who cares if the plan is qualified at that point?

Quite true. Yup, we shall see.