Belgarath

We don't have a document available to look at, or I would have cheerfully done that! The document is not a pre-approved plan, and last D-letter was 2014. We aren't doing admin on this plan - we were just asked to compare the provisions, as available in an on-line SPD, for a college for whom we DO handle the administration, as sort of a very informal "benchmarking" that they are doing - we're just doing this as a favor.

Non-profit organization, non-governmental (a private college). They have a qualified plan (money purchase) where, as a condition of employment, the employee MUST contribute 5% of pay. Employer then matches anywhere from 5 to 10 % of pay, depending upon service, etc. So far, so good. The baffling part is that the SPD, and the plan audit notes on the 5500 form clearly indicate that these mandatory employee contributions are PRE-TAX. We’re under the impression, and the EOB seems to confirm, that such mandatory contributions are AFTER-TAX. Am I missing something? Are mandatory employee contributions (non-governmental plan) allowed to be pre-tax? Or is it perhaps poor drafting in SPD?

Fascinating. But for us, where we don't sell product, nor are we affiliated with anyone who does, we only have, sometimes, some minor Revenue Sharing that is paid to us by the platform (and we don't keep it anyway - we reduce our charges to the client by whatever we receive) and the Revenue Sharing is disclosed. So I don't think, hopefully, that the "deep dive" would apply to us.

We do them for everyone - really just to have everything out in the open, and also, frankly, as a competitive issue - we don't want someone else to come in and trash us because we are "hiding" anything. So the fiduciary rule has no effect on us from that perspective.

Just be careful that it is in fact an offset and not a "deemed distribution." A simple "deemed distribution" doesn't satisfy the RMD requirement. Sounds like you have an offset situation, so should be ok. Q-9. Which amounts distributed from an individual account are taken into account in determining whether section 401(a)(9) is satisfied and which amounts are not taken into account in determining whether section 401(a)(9) is satisfied? A-9. (a) General rule. Except as provided in paragraph (b), all amounts distributed from an individual account are distributions that are taken into account in determining whether section 401(a)(9) is satisfied, regardless of whether the amount is includible in income. Thus, for example, amounts that are excluded from income as recovery of investment in the contract under section 72 are taken into account for purposes of determining whether section 401(a)(9) is satisfied for a distribution calendar year. Similarly, amounts excluded from income as net unrealized appreciation on employer securities also are amounts distributed for purposes of determining if section 401(a)(9) is satisfied. (b) Exceptions. The following amounts are not taken into account in determining whether the required minimum amount has been distributed for a calendar year: (1) Elective deferrals (as defined in section 402(g)(3)) and employee contributions that, pursuant to rules prescribed by the Commissioner in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2) of this chapter), are returned to the employee (together with the income allocable thereto) in order to comply with the section 415 limitations. (2) Corrective distributions of excess deferrals as described in § 1.402(g)-1(e)(3), together with the income allocable to these distributions. (3) Corrective distributions of excess contributions under a qualified cash or deferred arrangement under section 401(k)(8) and excess aggregate contributions under section 401(m)(6), together with the income allocable to these distributions. (4) Loans that are treated as deemed distributions pursuant to section 72(p). (5) Dividends described in section 404(k) that are paid on employer securities. (Amounts paid to the plan that, pursuant to section 404(k)(2)(A)(iii)(II), are included in the account balance and subsequently distributed from the account lose their character as dividends.) (6) The costs of life insurance coverage (P.S. 58 costs). (7) Similar items designated by the Commissioner in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin. See § 601.601(d)(2)(ii)(b) of this chapter. [T.D. 8987, 67 FR 18994, Apr. 17, 2002, as amended by T.D. 9130, 69 FR 33293, June 15, 2004; T.D. 9319, 72 FR 16894, Apr. 5, 2007]

It's a 5329, and you can file it attaching a statement and request a waiver. The IRS is generally pretty reasonable about this. If they don't grant the waiver, the client may be going after the CPA for reimbursement...

There's often a big difference between what you MUST do and what you perhaps SHOULD do. So it may be good business practice or employee relations or whatever you want to call it to notify employees sooner rather than later. But the exclusion you describe should be covered in the safe harbor notice, which is given in advance of 2018 anyway. If you think it is necessary to notify them prior to that, that's an employer/HR decision, and I have no opinion - each employer looks at it differently. Some want to notify them immediately - others want to wait as long as possible. The SMM deadline isn't until way into 2018, so the Safe Harbor notice will be the first required notification.

Yeah, in the future, I'd consider just amending to credit service with the prior employer instead. Back in the day when we submitted all plans for d-letters, we often had such plans - it was a common recruiting tool, and the IRS always approved it. Now, if we'd credited service with "X" to bring in an exec, then immediately amended to no longer do that, then hired some NHC from "X" - I think that would've been a different story, and goes to Tom's citation. Also, of course, just because the IRS didn't have a problem with it 15 or 20 years ago does not necessarily mean they feel the same way now...

Now there's a nice, technical answer. Thanks Peter! (and thanks BG)

A little discussion going on. Suppose you have an adult child - not a dependent - say 30 years old. Participant wants to take a hardship withdrawal to pay the tuition. I see no problem with this under the regulation, but I suppose it could hinge on how you interpret it, and in conjunction to the reference to Code Section 152. The regulation deems it an immediate and heavy financial need for "...the employee, or the employee's spouse, children, or dependents(as defined in section 152...) Now, I read the reference to 152 as applying only to the definition of "dependent" and not applying to spouse or children. And therefore, the term "qualifying child" in 152 is meaningless for this question - it matters for tax purposes if determining whether the child is a dependent, but not for determining whether the hardship withdrawal to pay the tuition for "children" is allowable under the 401(k) hardship distribution rules. I think if the IRS had wanted to limit it to dependent children, they would have so specified, but they didn't. Opinions?

Thank you. So in two situations, it seems clear to me that an HRA can reimburse: 1. Retiree only HRA 2. Subject to the parameters of IRS Notice 2015-17 (and other applicable guidance) and the MSP rules. But in a 125 plan, I'm still less "certain" of the answer, although it does seem to me that you can't. Thanks again for the link.

Advance notice, yes, but 204(h) doesn't apply to PS plans. So you only have the safe harbor advance notification period to worry about,

Thanks for the above. But am I correct that the guidance is re an HRA, rather than a 125 plan? I feel pretty comfortable that Medicare premiums as discussed can be reimbursed through an HRA, subject to the parameters and the 20-person rule mentioned already, but I thought you couldn't do in a 125 plan? In a twist on this - can a cafeteria (125) plan allow an employee to purchase private Medicare supplemental insurance? I think the answer is no, but a second opinion would be great!

Yes,

Yeah, that' unlikely to work (assuming paperwork was accurate in the first place) - the assignment form where the policy is absolutely assigned to the insured should have specified if it were a sale.

RB - I think the language under 1.402(a)-1(a)(2) is a little confusing, but it seems to draw a distinction between nontaxability due to irrevocable conversion to a nontransferable annuity contract, or treating it as a rollover contribution under IRC 402(c), and either method is acceptable. It isn't entirely clear to me exactly what is meant by "treating" it as a rollover under IRC 402(c), but it seems likely that this might include what you propose. I don't know if there is other guidance on this or not.

Thanks Jpod. Yeah, that's the conclusion I have been reaching after looking into it a little more. Now the general question that was asked has morphed into the REAL question - funny how often that happens - you frequently don't get asked the real question up front. Real question turns out to be whether the employer can offer an HRA (for active employees) that reimburses Medicare premiums. Looks to me as though if the requirements of Notice 2015-17 are satisfied (Q&A-3) that it is ok to reimburse Medicare Part B and D premiums, including Medigap premiums. Also TRICARE. Sadly, I do not yet even know what Medicare Part B & D really are, nor what TRICARE is, and I am merely assuming the Medigap is something that covers expenses that Medicare doesn't. I've got some reading to do! This is probably old stuff to y'all, but I found this website to be very helpful. https://www.medicare.gov/supplement-other-insurance/how-medicare-works-with-other-insurance/how-medicare-works-with-other-insurance.html

Yeah, funny how the owner can just "forget" to make payments. No one ever seems to "forget" to pick up their check when they are withdrawing the funds. Perhaps you can claim that the owner's Achilles limbic system was acting up.

I wonder if they mean you can't use the "streamlined" 14568-E, in which case I agree. But you can still file under VCP. Don't have any experience to judge whether or not it will be successful. Section II - Eligibility for Use of Form 14568-D (my edit - this is what the IRS form says, but that's an incorrect reference, cause the form is a Form 14568-E...) Yes No A. Is any affected participant either a key employee (as defined in Code section 416(i)(1)) or an owner- employee (as defined in Code section 401(c)(3))? If “Yes,” proceed to Section II B. If “No,” skip Section II B and proceed to Section II C. Yes No B. Is the purpose of this request limited to permitting the plan sponsor to report the loan as a deemed distribution in the year of correction instead of the year of the failure? If “Yes,” complete Section III and then proceed directly to Section IV D. (Sections IV A, B, and C do not apply.) If “No,” STOP - do NOT use this schedule. Any request for relief should be made by filing a detailed written attachment to Form 14568, Model VCP Compliance Statement describing the relief requested and the reasons why such relief should be granted.

I see that MoJo responded before I finished typing my post. Looks like the "real life" situations are trending towards conferring fiduciary status. I wonder if that will change...

Would it be possible that that the ROBS "promoter" might be a fiduciary in some circumstances and not in others based upon facts and circumstances? I've pasted in an excerpt from one of MoJo's links, and I frankly find this whole subject confusing anyway. But isn't it possible that a very careful ROBS "promoter" who doesn't recommend to a client that they engage in a ROBS transaction, but has a website describing the ROBS transactions (which I don't much care for either) and essentially saying, in all written and verbal communications, the following: "I'm not recommending that you do this, but if you DO decide to do it, upon advice of your tax and legal counsel, I can assist you with the paperwork to establish the Plan" would avoid fiduciary status? I'm guessing that this is not how they mostly operate (or haven't in the past) so perhaps most "real life" ROBS transactions might put the promoter into fiduciary status - but I really don't know. It does seem like perhaps fiduciary status could be avoided if handled very carefully? Thankfully, this is an academic question for me! Glad I don't have to deal with this stuff. status will occur if a person makes certain "recommendations" (as described below) for a fee and (A) represents or acknowledges that they are acting as a fiduciary within the meaning of ERISA or the Code, (B) renders advice pursuant to a written or verbal agreement, arrangement, or understanding that the advice is based on the particular investment needs of the recipient, or (C) directs the advice to a specific recipient or recipients regarding the advisability of a particular investment or management decision with respect to securities or other investment property of the employee benefit plan or IRA. What are the Key Features of New Fiduciary Rule? Expanded Fiduciary Status - All those who make "Recommendations" The existing five-part test [5] that formed the basis for determining when a person should be treated as a fiduciary investment adviser has been replaced and only the final prong of the old test regarding the provision of "individualized" advice remains a part of the new analysis. Under the new rule, fiduciary investment advisor status will occur if a person makes certain "recommendations" (as described below) for a fee and (A) represents or acknowledges that they are acting as a fiduciary within the meaning of ERISA or the Code, (B) renders advice pursuant to a written or verbal agreement, arrangement, or understanding that the advice is based on the particular investment needs of the recipient, or (C) directs the advice to a specific recipient or recipients regarding the advisability of a particular investment or management decision with respect to securities or other investment property of the employee benefit plan or IRA. What are Recommendations? A recommendation is a communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the recipient of the advice engage in or refrain from taking a particular course of action and includes: • A recommendation as to the advisability of acquiring, holding, disposing of, or exchanging, securities or other investment property. • A recommendation as to how securities or other investment property should be invested after the securities or other investment property are rolled over, transferred, or distributed from the plan or IRA. • A recommendation as to the management of securities or other investment property, including, among other things, recommendations on investment policies or strategies, portfolio composition, selection of other persons to provide investment advice or investment management services, selection of investment account arrangements (e.g., brokerage versus advisory); or recommendations with respect to rollovers, distributions, or transfers from a plan or IRA, including whether, in what amount, in what form, and to what destination such a rollover, transfer or distribution should be made. The determination of whether a recommendation has been made is an objective rather than subjective inquiry and the more individually tailored the communication is to a specific advice recipient or recipients, the more likely the communication will be viewed as a recommendation. A series of actions, directly or indirectly (e.g., through or together with any affiliate), that may not constitute recommendations when viewed individually may be considered recommendations when taken together as a whole.

Not sure if this is the correct forum - question is, (for a governmental entity, if it matters) - can the entity set up an HRA for former employees that also covers expenses for spouses and dependents? I lack expertise in this area (putting it kindly) and although it seems very clear that Retiree Only HRA's are perfectly allowable, I'm not finding hard guidance that permits coverage for spouses and dependents. Or perhaps the guidance is the other way around - coverage for spouse and dependents allowed unless otherwise prohibited, and it ain't otherwise prohibited. 1. Anyone know the answer? 2. Any citations/sources you can point to? Thanks for any assistance!

Curious as to both strict interpretations and "real life" if different. The following is (really, really) a hypothetical question. Suppose you have a 125 plan, and despite a couple of mid-year tests that passed, it still ends up failing the Key Employee 25% benefit test. Let's say only one Key, and $10,000 deferred, and to pass, Key could only have deferred $9,000. You find this out, of course, after the end of the year. So, under the regulations, is the entire $10,000 taxable to the Key, or only the $1,000 excess? Now, if the answer is the entire $10,000 - is there a "real life" fix where if caught before end of January, the W-2 would simply show $9,000 as a contribution/deferral, and the other $1,000 would show up as normal W-2 taxable income? Or some other "real life" fix? Doesn't seem quite legit to me... Thanks for any discussion/answers/insights!

Thanks - that was exactly my understanding as well. But always nicer to hear that someone agrees!

I have found the IRS very reasonable on this, and haven't seen the penalty imposed when a waiver has been requested. I suppose in an egregious situation they might be less forgiving, which is reasonable, but I agree with RBG that the possibility seems remote.