Belgarath

Kevin - thanks for the response. I want to make it clear again that I don't disagree with your interpretation of the regulations. I'm just not necessarily convinced that the IRS position that you assert is a certainty. There are a lot of other smart folks out there, some of them with pipelines to the IRS, who believe otherwise. So, while as always your arguments are logical and well-reasoned, (and you are very likely right) I'll stick with cowardice for the time being.

Thanks Kevin, but I don't think that in any way addresses how the IRS interprets the regulations. It just says "the regulations are there, 2007-59 is there, and we're sticking with the guidance." It does not address the question of, "great, so do you, the IRS, interpret your regulations to prohibit mid-year amendments to, say, a profit sharing allocation method, or __________________fill in the blank." And there's been more than enough questioning of this since 2011 so that they could have easily cleared it up. And they haven't. Mind you, I'm not saying your interpretation of the IRS official position is wrong. It may well be right. It's just that I don't feel confident it is right, either. So I'm neither disagreeing or agreeing with you, and continuing to play it safe until I feel confident that the IRS position is, in fact, as you believe it is. Anyway, thank you for your opinion.

Sorry, I don't agree. Under IRC 402©(11) as amended by ?WRERA?? - it is an eligible rollover distribution, (if paid in a form otherwise eligible for rollover) and thus subject to 20% withholding if not rolled over. I believe this didn't apply until 2010.

I'll merely observe this - since I don't profess to know the answer. The IRS is well aware of the confusion and practitioner questions on this issue, which has now been going on for years. If they truly take the approach that mid-year amendments that do not contradict the specific terms in the Safe Harbor plan requirements under the regulation, then they could have just said so at any time and cleared up this mess once and for all. Since they have thus far failed to do so, not even from the podium where it is unofficial - people are understandably concerned, and thus are often very (perhaps needlessly) conservative. It remains to be seen as to whether this conservatism is necessary or not. I confess that my modus operandi on such issues is generally that discretion is the better part of valor. As to the question of whether the IRS, the qualified plan practitioner community, or both, are responsible for the confusion, I honestly have no informed opinion, nor, to me, does it truly matter at this point. Until the IRS issues guidance, I'll stick with conservatism. To a degree...and that's the problem with all of this - we all have to draw the line somewhere, and the line is often blurred. It is astonishing that this one issue has caused so much trouble.

Thank you all for your replies. I did some additional searching, and found what I believe is a reasonable and apparently IRS approved method, although not the ONLY method, of calculating the imputed income, which would be: The difference between the amount the employer would contribute for the employee alone and the amount the employer would contribute for coverage of an employee and a spouse or family (as applicable). When the particular coverage provided to the individual is group medical insurance coverage, PLRs provide that the amount includible in the employee’s gross income can be the FMV of the group medical coverage. Employers can, therefore, impute income for domestic partner benefits coverage using group rates as opposed to, for example, the higher COBRA individual rate. So, as I understand it, here’s an example of how it might work, with numbers I pulled out of the air for purposes of illustration. Employer health coverage – employer contributes $6,000 per year for single employee; $11,000 per year for employee and spouse, and $15,000 per year for family coverage. Regardless of the fact that the employer currently pays $15,000 for this employee due to the children, the employee will nevertheless be taxed on the imputed income of $5,000 per year if the Domestic Partner is added to his coverage. Since the Windsor decision may not apply to health benefits, it might be a different taxation scheme for same-sex partners. I didn't go that far in looking into this. Now, this is nothing I have any involvement with, so you can bet we will refer the employer to tax counsel, but this was just to be "helpful" to a client - and I appreciate your earlier responses.

A domestic partner situation, man and woman. He has family health insurance coverage since he has children. Can he add his partner to the policy and keep the total premium as a tax fee benefit (his employer pays 100% of the family premium)? My (limited - I don't work with health insurance) understanding is that a domestic partner’s share of the premium cannot normally be a tax fee benefit and he should have her share of the premium added to his pay to be taxed as regular income. This seems simple if he was going from a single to a 2 person plan - the additional premium would be taxable. But since he already has family coverage, does it matter if his partner comes on the plan and he still receives the insurance as a tax free benefit? On the one hand, it seems like some portion should be taxable, as it would be if there were just the two of them. On the other hand, since it is family coverage, and the premium is currently tax free and will not change, it also seems ridiculous to suddenly consider a portion of it as taxable. Maybe my fundamental understanding off off base to start with... Thanks.

Qdrophile - good one. I can only say that I'm tired of all this. Tread softly.

I actually think this was sort of standard language in EGTRRA pre-approved documents. The potential scenarios involved are many, and you really have to look at each situation individually. As a very general rule, if there is qualified military service and qualified reemployment, you would only have to credit up to 5 years. And what is "fair" is determined by the law, which was of course designed to assist those folks in our armed forces who have to sacrifice a lot for the rest of us. But as mentioned earlier, you'll have a lot of reading to do. Some situations are pretty straightforward, and some are pretty complicated. And some employers are very recalcitrant when it comes to properly COMPLYING with the law. Good luck!

I'd say no can do. Or, at least, I wouldn't. By that I mean that although I don't have a problem with it based upon a (in my view) correct and less broad view than the IRS takes, I nevertheless think that it is aggressive until such time as the IRS smartens up on all this foolishness.

You might check to see if there are any Private Letter Rulings allowing a sole beneficiary of an estate to do a rollover to inherited IRA, or something like that. Even if there are, a PLR applies only to the person for whom it was issued, so you'd need legal advice to see if that could be used in your situation. Maybe some of the attorneys here would know if such a PLR exists.

Agree with Mike, except that no 204(h) Notice required for a 1-person owner only DB plan. If your client chooses to "sweep it under the rug" make sure your tail is covered, and that all your communication is appropriate and accurate. Then if they ignore your advice, it ain't your problem.

Your assumption is correct - they did not have 120 participants as of the first day of the plan year. Thanks - 001 made the most sense to me as well, as they weren't actually the "sponsor" of the prior plan, but merely a participating employer.

Thanks. I think it is pretty hard to call it "evasion" or whatever if you have two actual separate corporations, (albeit in a controlled group) who each sponsor their own plan. In the absence of a DOL regulation prohibiting it, which I haven't found, it seems like a reasonable position. It wouldn't surprise me if the DOL, at some point, comes up with a regulation prohibiting this, but in the meantime...

The following has been proposed: Corporation A and Corporation B are both owned by Mr. Big. Corporation A sponsors a non-safe harbor 401(k) plan, and Corporation B, as a member of the controlled group, participates. Calendar plan and fiscal years. Now they have just gone over 120 participants, so Corporation B wants to spin off and have their own plan, effective July 1, so both plans can avoid audit. The new corporation B plan will be identical in every respect to the Corporation A plan, other than having a different census, so as long as both have the same plan year, I don't see any issues with permissively aggregating for coverage/nondiscrimination. Am I missing something? Some trap for the unwary? Anytime something seems relatively straightforward, then when I start to worry... Thanks. P.S. In such a spinoff, would you have the Plan # be 001 or 002?

Ah. I agree that one of the preconditions is that the DOL hasn't notified you that they are imposing the penalty. However, if the DOL has started doing the initial notifications rather than the IRS, it may be the initial notice from the DOL isn't imposing the penalty - hence my question. If I were in client's shoes, and if they have no proof of filing, I'd rehire you, or get their new TPA, to get it filed through DFVCP immediately. (since they had the unmitigated gall to leave you, make 'em pay if they want you to file it!!)

Did they say they were imposing the penalty, or just that they didn't receive the form? If the latter, shouldn't be any reason that DFVC won't be allowed. Do you have the filing acknowledgement number as "proof" that it was filed timely?

Revenue Procedure 2015-32, for submissions on or after June 3, replaces the temporary relief that had been available under Revenue Procedure 2014-32. Biggest difference is that this is now a DFVCP-style program, with a filing fee ($500.00) and a per plan cap ($1,500.00). The procedural requirements are shown below. SECTION 7. PROCEDURAL REQUIREMENTS .01 Payment. The correct payment must be included with each submission. The amount of the payment is $500 per delinquent return up to a maximum of $1,500 per submission (that is, the payment is equal to $500 for a single return, $1,000 for two returns for the same plan, and $1,500 for three or more returns for the same plan). All payments under this program must be submitted by a check payable to the United States Treasury and must be attached to the Form 14704 that is included as part of the submission. The applicant’s EIN and the plan number should be written on the check. .02 Submission limited to a single plan. Multiple delinquent returns for a single plan may be submitted in a single submission, but separate submissions are required for separate plans. For example, if an employer maintains a defined contribution plan and a defined benefit plan, and returns for each plan are delinquent for three plan years, the applicant must submit two separate submissions, one for each plan. In all cases, the requirements of Section 7.03 of this revenue procedure must be satisfied for each such submission (including a Form 14704 and check). .03 Filing contents. The applicant must submit the following information to the IRS in order to receive penalty relief: (1) A complete Form 5500-EZ return. The submission must include a complete Form 5500-EZ return, including all required schedules and attachments, for each plan year for which the applicant is seeking penalty relief under this revenue procedure. All returns submitted in accordance with this revenue procedure must be sent to the IRS at the address listed in Section 7.04 below and cannot be filed through the DOL’s EFAST2 filing system. Filings sent to the DOL’s EFAST2 filing system will not be treated as submissions under this program and will continue to be subject to applicable penalties under the Code. For purposes of this revenue procedure: (a) In general, the Form 5500-EZ return that applied for the delinquent plan year must be submitted on paper. Thus, a delinquent Form 5500-SF return cannot be filed for a plan year, either on paper or electronically (even if a timely Form 5500-SF return could have been filed electronically for the plan year through EFAST2). (b) A Form 5500-EZ return for the current plan year (rather than the Form 5500 series return that applied for the delinquent plan year) may be filed on paper if either (i) the filer would otherwise be required to file a Form 5500 return for the delinquent plan year, or (ii) the return is delinquent for a year prior to 1990. Any such current-year Form 5500-EZ return must be filled out with the beginning and ending dates for the plan year for which the return was delinquent. © All schedules applicable to the plan for the year for which the return is delinquent must be included with the return. For example: · For plan years prior to 2005, a Schedule B (Actuarial Information) was required to be submitted with the Form 5500 series return for non-Title I defined benefit pension plans and certain money purchase pension plans. Accordingly, a submission for these plans for these plan years must include a Schedule B. · For 2005 and subsequent plan years, a Schedule B (or the successor Schedule SB (Single Employer Defined Benefit Plan Actuarial Information)) was not required to be submitted to the IRS with the annual Form 5500 series return for one-participant plans and foreign plans subject to filing under the Code and not under Title I of ERISA. Accordingly, a submission for these plans for these plan years need not include a Schedule B (or Schedule SB). However, an applicant must include in the submission a representation that the applicable annual actuarial report has been prepared (even though it is not being submitted to the IRS). This statement should be attached to the applicable return in lieu of a Schedule B (or Schedule SB). · For plan years prior to 2005, a Schedule E (ESOP Annual Information) was required to be submitted with the Form 5500 series return for an employee stock ownership plan. Accordingly, a submission for these plans for these plan years must include a Schedule E. (d) The Form 5500-EZ (but not required schedules) that applied for each plan year after 1989 may be found at http://apps.irs.gov/app/picklist/list/priorFormPublication.html?value=5500-EZ&criteria=formNumber. In addition, an applicant can obtain a Form 5500-EZ, plus required schedules, for any plan year by calling 1-800-TAX Form (1-800-829-3676). Also, applicable schedules (for plan years after 1994) can be found at http://www.dol.gov/ebsa/5500main.html. (2) Delinquent returns must be marked. For each delinquent Form 5500 series return submitted to the IRS under this revenue procedure, the applicant must mark in red letters in the top margin of the first page of the return (above the title of the form): “Delinquent Return Submitted under Rev. Proc. 2015-32, Eligible for Penalty Relief.” Failure to properly mark the submitted delinquent return may cause the IRS to treat the return as ineligible for the relief provided under this revenue procedure and assess all applicable penalties. (3) Required Form 14704. Each submission must include a completed paper copy of Form 14704. Form 14704 may be found at http://www.irs.gov/Forms-&-Pubs. A completed Form 14704 must be attached to the front of the oldest delinquent return in the submission. For example, if delinquent returns are included in the same submission for the plan years 2010, 2011, and 2012, the completed Form 14704 must be attached to the front of the 2010 return. Failure to include a completed Form 14704 as directed may cause the IRS to treat the returns as ineligible for the relief provided under this revenue procedure and assess all applicable penalties. .04 Mailing address. Submissions under this revenue procedure should be mailed to: Internal Revenue Service 1973 North Rulon White Blvd. Ogden, UT 84404-0020 .05 Private delivery services. Applicants may make their submissions using any of the private delivery systems listed in the instructions to the most recent Form 5500-EZ. The private delivery service can provide information on how to obtain written proof of the mailing date. SECTION 8. EFFECTIVE DATE The relief provided under this revenue procedure is effective June 3, 2015. Returns submitted before June 3, 2015 will be processed in accordance with Rev. Proc. 2014-32.

Thanks. And of course no permissive aggregation with separate plan years, although plan years could be amended to be identical if permissive aggregation would make the difference if plans otherwise fail. Actually, on that subject, does it really matter? I don't think, using permissive aggregation, you could maintain the two separate 401(k) ADP safe harbor plans using different SH formula (1 matching, 1 nonelective) right? Only way to do that is to have both plans pass 410(b) separately as Rcline already mentioned previously. What a pain...

Thanks. So just to clarify a bit - suppose each plan satisfies 410(b) on its own. Are you are saying that because the safe harbor feature is a design-based safe harbor, that this, in and of itself, is ok? Or are you saying something else entirely? If yes, then I assume if one plan has general tested PS formula, that you'd still have to run nondiscrimination testing on a combined basis, which might well fail... Thanks again

I haven't yet started looking into this, but wondered if anyone had any off-the-cuff opinions. One business acquires another - buys their stock. two separate plans involved, two different plan years. Once the 410(b)(6)© transaction period ends, they want to know if they can continue to run the plans separately. Other than the usual testing issues for coverage/nondiscrimination, they also have separate safe harbor formulas - one is the SH match, and one is the SH nonelective. Neither plan excludes HC's. Again, without having delved into this, I don't see how this would work as is by maintaining separate plans. Any general thoughts?

Bird - yeah, I agree that the Relius bulletin seemed ridiculous. I thought (and I can't really blame them) that this was just an ultra-conservative CYA corporate position. I think it is easily covered by (for Relius documents with AA format) making certain provisions effective as of the first day of next year in the Appendix. So I wouldn't hesitate to do a restatement before the deadline in 2016, making it effective as of 1/1/2016, other than any "changes" that wouldn't be allowable for a mid-year safe-harbor amendment.

Austin - does the document by any chance break down the specific purposes for which the equivalency will be used? For example, many documents use the equivalency for, say, vesting or allocations, but not for eligibility, or vice versa. Or it only applies to salaried people, etc... It seems like SOMEWHERE in the document, it should address this. But if not, then I'd lean toward being forced to use the equivalency for all purposes. Doesn't mean I'm right!

Does the DOL have the right to notify the plan sponsor that the penalty for an incomplete filing WILL be imposed, without doing the normal letter that is sent by the IRS? (I'm not sure of the answer - offhand I don't think they are legally required to send advance "warning"?) If so, then DFVCP might not be a bad idea - very conservative, but can limit the potential damage.

Yeah, you are fine. There's an exception permitting this - see 1.411(d)-4, Q&A-2(b)(2)(v).

This a question of curiosity only, as I don't know of any such situation. Has anyone ever done a plan for a worker cooperative? If you do, how does it work - for example, are employees paid on a W-2, or are they treated as individual "self-employed" people? I'm under the impression that cooperatives pay out amounts similar to an S-corp "pass-through" payment, but some payments are taxable and others aren't, etc... - and perhaps these are in addition to W-2 salary. And would a worker cooperative "deduct" any qualified plan payment? I think the cooperative, as an entity, perhaps isn't subject to federal tax anyway - money is either legally retained to a certain extent - whatever that might be - or paid out either in a taxable or non-taxable form? Again - just idle curiosity.