Belgarath

Agree, if the short plan year is due to the establishment of the plan, and is seven or fewer months, then no audit required. But of course the 5500 still needs to be filed. No exception for that.

Can you clarify your original question - were the hardship amounts distributed just from deferrals in a safe harbor plan, or did they include actual employer safe harbor contributions?

Yes.

Seems reasonable. Thanks.

Thanks Kevin - Maybe I'm just being dense today, but I'm still not seeing this as the appropriate reference for the correction. To me, the appropriate reference is Appendix A, .05(8) through .05(10). Thoughts? Gracias.

Is it possible to have an arbitration clause that provides that the decision will be "all or nothing?" In other words, that one party's position will be chosen - no splitting the difference. Seems like I've heard of this in things like salary contract negotiations with unions, which of course is a different thing anyway. Just wondered - as a non-lawyer, I'm not sure how well, if at all, such a provision could even work in a TPA/Client contract.

Hi Kevin - are you sure that really applies in such a situation? I'd have said it only applies where an employee was improperly EXCLUDED from making any deferrals for a certain period. That isn't the case here - an election was already in place, and just wasn't followed.

Yeah, we've done it as well.

Thanks for your thoughts. Yeah, I thought of that as well. If this was an automatic enrollment, I could see a valid reason to include "earnings" - but in this case, the participant ELECTED to defer, and chose the specific investments. So the participant is already receiving a "windfall" to the extent the participant is not suffering any loss. As I said, in this particular situation, turns out it is less than a dollar, so it is utterly meaningless - I'm just trying to wrap my head around it for future reference. Oh well. Another auditor might have a different opinion, who knows...

Plan allowed someone to participate early. Deferrals were refunded, rather than amending plan to allow early participation. Investments selected by participant lost money - no earnings. Employer paid the participant full amount of incorrect deferrals - the reduced amount in the plan, plus a make-up outside the plan, through payroll. So, for example, $100.00 deferred, $80.00 left at time of correction. Participant received full $100.00. IRS is saying that the participant is owed interest on the deferrals. This doesn't seem reasonable to me, (the amount is meaningless - a dollar or two, but for future reference I'm trying to determine if there's any "proof" that earnings aren't required when there is a loss in such a situation) - I'm sure I've looked right at it, but it is eluding me. Anyone recall where (if) in 2016-51 it specifically says that earnings aren't required? Or is the auditor correct? I can find where corrective ALLOCATIONS need not be adjusted for losses, but I'm not finding what I'm looking for in this situation. Thanks.

Relius and divisions, FTW PS - BG, what does the "FTW" stand for? I'm sure it will be painfully obvious once you tell me...

for anyone's reading pleasure: https://www.irs.gov/pub/irs-pdf/p547.pdf

Well, the underside of the roof is panels of Renaissance Italian Fresco paintings by Michaelangelo, while the tiles have been handcrafted by Buddhist monks from an inaccessible Tibetan monastery, and "pre-trodden" by beautiful virgins with feet that have been pedicured daily in sacred lavender water and precious oils. All kidding aside, I would say that if it is a major improvement including things NOT DAMAGED by the "event" causing the damage, rather than "reasonable" repairs, that it isn't allowable. Some repairs are necessarily upgrades, but at some unknown point it crosses over from reasonable/necessary to no longer allowed. I'm not sure just where that line is...

A timely post. I was planning to do mine today, so this is good to know!

Gracias.

Just curious - since I haven't been involved with many plans where restructuring has been used for a plan that otherwise fails Average Benefits Percentage Test, I don't have a solid frame of reference. For those of you who have done a lot of it, it seems like much of the time it just won't work anyway. Is that a fair statement? Or do you find that (much, most?) of the time it does work? Obviously it works sometimes - just had one that worked nicely, but that may just be good luck with a particular population.

FWIW, I'd say it would be extremely rare. Certainly I've never seen, nor even heard of such a situation, until now. Perhaps others have seen it with some frequency - I don't know.

BG - as I understand it, who owns the ASSETS is immaterial - and I agree that the assets are owned by the plan regardless of whether it is a ROBS plan or not. The exemption is based on who owns the CORPORATION. So if my wife and I are the sole owners and employees of corporation A, then we qualify for the exemption. However, if the PLAN owns the corporation, then this requirement is failed, and we have to get the bond. Again, I'm just curious if folks agree or disagree, and if they disagree, what justification would you use to say no bond is required? Thanks again. P.S. - for my reasoning on this, see DOL 2510.3-3.

Ignoring the fact that the 5330 is, IMHO, one of the more obnoxious forms ever, I'm taking a poll. Let's take a fairly standard situation, and keep it simple. Suppose an employer forgets to deposit deferrals from one payroll in 2016. Discovers error in 2017, and corrects, with interest and prior to July 31, in 2107. Interest amounts are very small - say less than (pick a number) $25.00. In the real world out there, do people: A. File a 5330 for 2016, and be done with it. B. File a 5330 for 2016, and another for 2017. C. Other. I've seen all kinds of answers/solutions, particularly when you get down to absurdly small amounts such as a few cents or a dollar or two. So I wondered what the experts here do. In case anyone cares, I would say the correct method is "B" above, since this isn't a "discrete" transaction, and is treated for these purposes as a "loan" - RR 2006-38 has an example of this.

Yeah, how does the saying go..."Pigs get fat, but hogs get slaughtered." To my way of thinking, it just isn't worth screwing around for relatively small dollars. But, of course, it ain't money coming out of my pocket, so my views might be suspect...

Not as I understand it. The problem is that the PLAN is the owner of 100% of the stock, rather than "Mr. and/or Mrs. Jones" which moves it out of the definition of a "one participant plan" for 5500 purposes. Other thoughts? Am I misinterpreting something?

1.401(a)(9)-5 discusses the requirements for a DC plan. Basically, since the "account" is not reduced for an outstanding loan, then the value of the loan is included by default. Since you clearly cannot distribute funds that are not actually in the plan, if you DID have a calculated RMD in excess of the assets, you'd probably have to rely on plain old common sense, and perhaps the sentence in Q&A-1 that says, "However, the required minimum distribution will never exceed the entire account balance of the date of distribution." An imperfect justification at best, but I don't see any other option than to handle, for these purposes, as if there is some "non-vested" money, even though there isn't. See A-8 for a discussion of that methodology. I have a hard time imagining that an IRS auditor would attempt to assert a RMD failure in such a circumstance.

I wonder if the fiduciaries (the "owners" but not really owners) in these plans are getting the ERISA bond - I don't think the IRS project necessarily addressed this. I'll bet lots of them don't...

Default answer - yes. But it depends upon how it is done. 1. If policy is simply assigned to the individual, the "Fair Market Value" (FMV) is taxable, minus accumulated Taxable Term Costs for common law employees (but not for sole props or unincorporated partners). FMV is often the same as "Cash Surrender Value" but not necessarily the same. Depends on the ins. co. and the policy. 2. If participant PURCHASES the policy from the plan for FMV, no taxable event. This is the best option if the participant can afford to do it, and wants/needs to keep the policy in force. 3. Getting more into the weeds, the Plan Trustee can first take a loan against the policy to essentially "strip" out the cash value, THEN assign it. This will reduce or eliminate any taxable distribution, BUT, the former participant will now have a policy with a loan against it, which may not be desirable or appropriate, depending upon a lot of factors. The answers to your situation are not simple, depending upon facts and circumstances, so some careful analysis may be needed. If the insurance agent is good, agent can actually help you with this. If not, then you'll need to seek other advice.

Facts and circumstances. It has to be a "bona fide" loan. If auditor determines that there was never any intention to repay the loan, then there could be a PT, as the 72(p) rules then do not apply. I've not actually seen a live case where this occurred, so I have no direct experience as to whether PT is actually asserted, or disqualification for prohibited distribution (if distribution otherwise not allowed under terms of the plan), etc.