Belgarath

Thanks Luke.

Individual made an election to defer the start date for payments to a date later than what was permitted in the document. Post-severance payments could be deferred, but not beyond age 65. Post severance payments for someone who retired later than 65 had to start within 60 days. This person retired after 65, but was mistakenly allowed to postpone payments until 70-1/2. So there's an operational error, and under 1.457-3(a), it appears that the plan, in both form and operation, must comply with the 457 requirements. When I'm grasping at straws here, I was wondering if, since such an election is PERMITTED under the 457 regulations (as you note) whether an operational error which nevertheless allows something that is otherwise permitted in the regulations, can be "forgiven" without endangering the status of the plan?

Ugh - just reviewing a 457(b) plan where there was an operational error a couple of years ago. Long story short, a participant who terminated employment was required, under the terms of the plan, to start receiving distributions within 60 days. Instead, participant was allowed to make an election to delay distributions to start at age 70-1/2. Under the excellent reference book by Peter Gulia, Garry Lesser, and David Powell (the 457 Answer book) it doesn't sound hopeful as to possibly correcting - limited at best even for governmental plans, and worse yet for non-profits. So my question relates to what is done in real life - aside from the obvious of seeking legal counsel. Seems like it could be ignored, and hope no one notices, or attempt to correct as best they can (start distributions now, and hope no one notices) or treat it as an ineligible plan, subject to 457(f) as of a couple of years ago?

Thanks - not questioning whether Section 125 deferrals are added back in. In this plan, they are. The question is whether EMPLOYER contributions to the HSA through the 125 plan are considered deferrals to be added back in to plan compensation.

Thanks. That's my opinion as well, although I don't feel overly confident about it! It at least seems reasonable...

Grrr - this seems sticky. Employer contributions to the HSA are a "qualified benefit" under the Section 125 proposed regs. (See 1.125-1(3)(J)). And under the W-2 instructions, excerpt below, they would need to be included in Box 12 with a code W. Assuming for the moment that the contributions, when made, are "reasonably" excluded from the employee's income, is this considered a Section 125 "deferral" which is added back in as compensation under the terms of the plan? I'm having trouble coming up with a definitive answer on this. Does the fact that 1.125-1(3) contains the language that the term "qualified benefit" means ..."any benefit attributable to employer contributions"... mean that it is treated as a deferral that is added back in? Anyone gotten a CPA decision on this question before? Thanks. Health savings account (HSA). An employer's contribution (including an employee's contributions through a cafeteria plan) to an employee's HSA is not subject to federal income tax withholding or social security, Medicare, or railroad retirement taxes (or FUTA tax) if it is reasonable to believe at the time of the payment that the contribution will be excludable from the employee's income. However, if it is not reasonable to believe at the time of payment that the contribution will be excludable from the employee's income, employer contributions are subject to federal income tax withholding, social security and Medicare taxes (or railroad retirement taxes, if applicable), and FUTA tax, and must be reported in boxes 1, 3, and 5 (use box 14 if railroad retirement taxes apply); and on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. You must report all employer contributions (including an employee's contributions through a cafeteria plan) to an HSA in box 12 of Form W-2 with code W. Employer contributions to an HSA that are not excludable from the income of the employee must also be reported in boxes 1, 3, and 5. (Use box 14 if railroad retirement taxes apply.) An employee's contributions to an HSA (unless made through a cafeteria plan) are includible in income as wages and are subject to federal income tax withholding and social security and Medicare taxes (or railroad retirement taxes, if applicable). Employee contributions are deductible, within limits, on the employee's Form 1040 or 1040-SR. For more information about HSAs, see Notice 2004-2, Notice 2004-50, and Notice 2008-52. Notice 2004-2, 2004-2 I.R.B. 269, is available at IRS.gov/irb/2004-02_IRB#NOT-2004-2. Notice 2004-50, 2004-33 I.R.B. 196, is available at IRS.gov/irb/2004-33_IRB#NOT-2004-50. Notice 2008-52, 2008-25 I.R.B. 1166, is available at IRS.gov/irb/2008-25_IRB#NOT-2008-52. Also see Form 8889, Health Savings Accounts (HSAs), and Pub. 969. https://www.irs.gov/instructions/iw2w3#en_US_2021_publink1000308298

Don't forget that top heavy does not apply to a 403(b). It can be an issue.

No no no - it wouldn't be in reference to deferrals, it would be sheer "coincidence" that it happened that way... you look good in an orange uniform, right?

I'll toss this out as a possibility - any chance that the plan provides for PS with everybody in their own group, and if so, would contributing the otherwise "missed" match in the appropriate amounts to those employees pass testing? Of course, even if this could work, might be issues if vesting for the PS is less favorable than for the match...

Aren't itemized deductions rather limited now? I know this is a CPA question, but maybe it is only itemized deductions for certain specific categories (property taxes, etc.) that are curtailed.

"Remember the entire withdrawal needs to be repaid; not just the check amount." Yup. I gets even better. The owner/Trustee withdrew the funds, and didn't withhold anything! Pooled account plan, so we didn't discover that there was a distribution until a couple of days ago, when reviewing the fund numbers for 1099 due to a QDRO distribution last year. Fun times! We have sometimes (rarely) had a repayment, but only of relatively small amounts. Those (small amounts) are also the ones where the employer is likely to say it isn't worth the hassle, and just repays it with interest, 'cause they don't want to fight with the employee.

Thanks for the input. BG - assuming the repayment takes place after the 1099 date, I'd think it would be reported as a taxable distribution, and repayment would represent basis. Agree/disagree?

DC plan, partial distribution. Repayument does sound like a better option - I'll have to reconsider in greater detail. Thanks.

During 2021. Calendar year plan.

So, the 100% owner, who is over age 65 which is NRA, takes a distribution from the plan. Problem is that the plan does NOT permit in-service distributions, even at NRA. I THINK this overpayment can be corrected under SCP with a retroactive amendment to conform plan terms to the operation of the plan. I haven't delved deeply into Rev. Proc. 2021-30 yet - just going from memory. But I wondered if anyone had dealt with this recently and had an opinion? Thanks. P.S. it does appear that it would otherwise be allowable under 6.06(4)(a), which refers you to 4.05. Under 4.05(2)(a)(i) and (ii) - it appears it satisfy (i). My only "squeamish" issue is whether it satisfies (ii) since it is due to the impermissible distribution to a HCE. It would be available to NHCE's as well, but the only current correction would be for a HCE.

Yup. Lesser of 10% or $1MM.

I didn't know what a "PTET" was, so I googled it. I include one of the links below if anyone is interested. I'm sure there are zillions of other links! https://www.tax.ny.gov/bus/ptet/

Full 1.5 MM.

Good point. You've convinced me.

"Super integrated" to me always conjured up an image of laundry detergent. I have no idea why it brought that image to mind...

Well, I think the potential ambiguity is the number of hours the employee was working prior to becoming a common law employee. So if working 10 hours per week, this person would NOT have become a leased employee, even if working for a full year. On the other hand, if the employee was working 40 hours per week, they WOULD have become a leased employee, "but for" the fact they became a common law employee prior to having the opportunity to satisfy the "substantially full time for at least a year." So, say you have 1 YOS eligibility. Person was working for 10 hours per week as a temp for 6 months, (260 hours) but when hired as a common law, has 800 hours in the second 6 months. Do they have a Year of Service or not? Depends upon how you interpret it. Personally, as I said, I favor counting that service.

Thanks - very helpful. Makes me feel more confident - although we left choice up to the client, we had recommended it as "safer" in our opinion. But as far as Relius doc goes, I'm still not aware of it being formally addressed. Have you asked them?

Ah, got it. So you are talking about a situation where an employee who was hired through a temp agency, then formally becomes a common law employee prior to satisfying the "substantially full time for a year" requirement? If that's the case, I don't believe the document we use would cover it. As far as I know, this is "Administrator's choice" - I don't think there is formal guidance on the issue. Perhaps some pre-approved documents either have an election available, or it is hard-coded one way or the other, but I don't think the Relius document addresses it. We've had this situation come up a time or two in the past, and after discussion with the client, they elected to count this service for eligibility and vesting, which I think is reasonable. P.S. - in the situations we had, the employees were "full time" when they were temps - they just didn't have enough time in to meet the "substantially full time for a year" requirement before they were formally hired as common law employees.

Not sure which doc you are using, but the Non-Standardized Defined Contribution document using an Adoption Agreement has it in Appendix A, Section B, n. At least, I think this is what you are asking, but not entirely sure.

Hey Mike - did they give their reasoning for this statement/position? I frankly find it confusing, given what seems (to me) to be the pretty clear language in 1.401(a)(4)-4(e)(3)(iii)(B). Is there any official guidance that updates the regulation? Thanks.