Belgarath

The fact that a government contract was canceled does not, in and of itself, result in a partial plan termination. The PPT is determined starting with a "rebuttable presumption" that all participant terminations are involuntary. You can then prove otherwise, if you can, based on facts and circumstances. Were all these people already 100% vested in all accounts? If so, the PPT has no real effect. There are few absolutes in this arena - see the Matz case. But in most circumstances, if your turnover rate was at least 20% involuntary terminations, then I agree, it is a PPT, barring unusual or egregious circumstances. If, as you say, it was less than 20%, then it would generally not be a PPT. Your situation seems pretty straightforward. Don't forget to take into account the CAA relief, if applicable, with your March 31, 2021 participant count when determining PPT status for 2020.

Sorry, apparently I submitted this twice. Once is enough!!!

Long story short - participant loan apparently defaulted in 2018. Started making payments again in 2019, but should have been a deemed distribution. Too late to correct under SCP, but can be corrected under VCP, as per RP 2019-19, Section 6, .07(3)(d). Here's my question - the person involved is the company owner. Has anyone submitted under VCP in such a situation, and was there any problem with the IRS not approving it because it was the owner/fiduciary who defaulted?

I agree completely.

Deleted.

I wouldn't say NEVER. For example, you can be an employee for company A. You work there, totally under their control, from 8 to 5. Outside of those hours, you run a landscaping business. And your 8 to 5 employer hires your landscaping business to do the grounds. I could envision many other scenarios where someone could be both. I grant you that in most situations, such a dual designation is crapola.

Technically correct. (I didn't count the exact 210 days...) - I would say, however, that nearly every plan we work with notifies pretty promptly, either through the SMM we provide when we do the amendment, or through some other means. When you have something like an amendment, with an extended remedial amendment period, it becomes even longer. Look at CARES/Secure Act amendments, for example. Again, I believe that most plan sponsors out there do provide reasonably timely notifications of operational changes. Personally, I'm glad about the SMM deadlines. Gets some people out of trouble when they don't provide them quickly.

"A quick phone call" - with the DOL? I like your sense of humor. I haven't had good luck with phone calls to the DOL, so your experience has obviously been better. I will grant you that they are generally quicker than the IRS... Thanks for the response.

Now I've got a follow-up question. Plan has previously been filing a 5500-SF, 'cause based on the instructions, they weren't eligible to file the EZ. Now in 2020, you file an EZ. Is the DOL going to give you a hard time (send letters or whatever) because you didn't file an SF? This could be a major PIA.

Hi Peter - the term "excellent thinking" has never been applied to me, even by people who want to borrow money. I'd say that at this point, a Plan Administrator isn't necessarily under any obligation to provide such information, but I'd reiterate that I believe it is a good idea. And I have no doubt that it'll be required at some point. I'm just afraid that the DOL, when they borrow Thor's Hammer to implement something, will use excessive force, as is their wont.

Aargh - now a related question has arisen. Let's say that a client had 3 plans - no wrap document - for 2019. Vision, Dental, and Medical. Medical filed 5500. Vision and dental did NOT, because they had less than 100 participants. Now effective 1/1/2020, all three plans fall under a wrap document. Seems to me that there is no final filing due for the vision and dental, as they are still existing, just under the wrap plan, and they will be included in the wrap plan filing. Any other opinions?

Hmmm. - just off the top of my head, without really considering more in-depth ramifications: At this point, I'd say bad idea. Data security and risk are not currently part of the plan's formal provisions. Introducing this into the SPD, particularly where the regulatory authorities have not (yet) published official guidance or Fiduciary "safe harbors" if certain protections are put in place seems, from my non-lawyer perspective, to put the Fiduciary at greater risk. But it may be just the opposite, I don't know! Giving information, such as the DOL's new informational piece, OUTSIDE of the formal SPD seems like a good idea to me.

Suppose you have a business that has been filing 5500 forms separately for Vision, Dental, Medical plans, etc. Now they switch to a Wrap plan. So only one 5500 filing. Do they have to file a "final" form for the formerly separate plans? That seems crazy, but if they don't, will they get nasties from the DOL? Geez - look at 2019...

I agree with you. In fact, if the bank is also Trustee, certain otherwise non-qualifying assets could be considered "held by" a regulated financial institution and you can still avoid the audit requirement. Haven't seen anything like this in a long time, but as I recall, it could apply to art, or limited partnerships, for example, but not to safe deposit box items. But I'd want to look into that aspect - it's been a long time, so don't take my word for it...

I had a question come up from a staff member in essentially the same situation a few years back. FWIW, here was my take on the situation: Code § 402(g)(1)-(2) and Reg. Sec. 1.402(g)-1(e)(2) clarify that, unless timely distributed, excess deferrals are (1) included in participant’s taxable income for the year contributed, and (2) taxed a second time when the deferrals are ultimately distributed from the plan. The excessive deferrals involved in the error were not timely corrected because the April 15 deadline has already passed. Accordingly, the excessive deferrals must be taxed for the 2017 year (i.e. the year contributed) and again when the excessive deferral is distributed from the plan. If a corrective distribution is not made within the correction period discussed above, then excess deferral cannot be distributed until either (1) the distribution is otherwise permissible under the terms of the plan, or the distribution is necessary to avoid plan disqualification under Code § 401(a)(30) (note: there is not a plan disqualification issue under Code § 401(a)(30) because the error involves excessive deferrals between two unrelated plans and employers). To elaborate on this point, under Code § 401(a)(30), if the excess deferrals aren't withdrawn by April 15, each affected plan of the employer is subject to disqualification and would need to go through EPCRS. However, in the situation involving the error under discussion, the excess deferral amounts involve two unrelated plans with two separate employers. The IRS has stated on its website that “excess deferrals by a participant will not disqualify a plan if the excess is due to the aggregation of the participant’s deferrals to a plan maintained by an unrelated employer.” Accordingly, the fact that the error involves excessive deferrals among two unrelated plans/employers means that neither plan has experienced a disqualifying event because of the excess deferral. Reg. Sec. 1.402(g)-1(e)(8)(iii) allows for distributions of excess deferrals after the correction period to be distributed from 401(k) plan only when permitted under Code § 401(k)(2)(B). As discussed above, plan disqualification is not an issue; accordingly, the excessive deferral can only be distributed if permitted under the terms of the plan (i.e. termination, age 59 1/2, or other Code § 401(k)(2)(B) permissible times). Is the excess a Roth deferral? (Please say no.) If Roth, it would somehow have to be separately “tracked” so that if ultimately distributed after 5 years/59-1/2 , the excess deferral plus earnings would NOT be a qualified distribution, and would be fully taxable. I’m not sure the IRS ever fully contemplated this foolishness properly. I’m not sure I can blame them – it is a pretty wacky scenario.

Nah. It's an operational failure. Just correct under SCP.

These situations are so dependent upon facts and circumstances that I think it is difficult for anyone to provide a meaningful opinion that fits across the board. In the situation you describe, I'm guessing that most waiters/waitresses who are working to support their two kids will not wish to report any more of their cash tips than they have to. Some exceptions, of course. (A friend of our daughter's took a substantial pay cut when she switched from waitressing to a full-time high school English teaching job.) Unless your clients and their payroll systems are a heck of a lot better than many of ours, I can forsee administrative angst in trying to properly administer this for all employees. But maybe it'll work out ok with a motivated client who is willing to put in the time and oversight to accurately and consistently handle 401(k) deferrals from cash tips. However you decide to handle it, can you let us know in a year or so how it is working out, and give us any tips (pun intended) on things that work well, and things that don't? Hopefully everything will all work well!

Maybe I'm misunderstanding the question, but in DOL Advisory Opinion 2012-02A, the DOL said that making the matching contribution to another plan would cause the 403(b) plan to be an ERISA Title I plan.

I can see it being reasonable where the platform company is acting as Trustee. Hopefully their requests won't be unreasonable. Where I was having a problem with it is where they are NOT the Trustee.

Certainly the technicalities can be debated. But I don't understand - how are they getting a match on the $1,000 of cash tips? How would the employer even know that they had $1,000 in cash tips? Are you assuming that all participants actually report 100% of their cash tips to their employer? That would seem to fly in the face of common practice, at least as far as I understand it... Assuming for the moment that they do report 100% of cash tips - and cash tips are excluded, there is no dispensation that I'm aware of for 414(s) testing for such an exclusion, so yes, if you EXCLUDED the tips for deferral (and match, for that matter) purposes and the tip amount is known, then it would have to pass 414(s) - IMHO. I'd be very surprised if FIS opines otherwise. Assuming the employer doesn't know how much the cash tips are, then I don't see how 414(s) testing is even possible. Be careful what you wish for - any IRS guidance on this could lead to far worse problems...

I want to see if this is just us, or are others encountering similar things, and also to get other perspectives on the issue - maybe mine is skewed. This week , we have received notifications from a couple of vendors/recordkeeping platforms. To paraphrase succinctly, they are saying that due to the fact that Trust Provisions are no longer in the IRS pre-approved documents, that we need to notify them (the vendor) and send them a copy of the PROPOSED plan restatement provisions, at LEAST 30 days prior to sending them a copy of the restated plan. This so they can "review the provisions" to make sure they can handle the plan. For all I know, this may be something that many vendors are doing. And these are plans where the employer is the Trustee, or it is a corporate Trustee. My feeling is BS on that. It is hard enough to do these restatements and coordinate with the employer, without getting the VENDOR to approve the choices. As far as I'm concerned, we do the restatements as usual, (after getting employer approval of any changes) and send the completed document to the vendor afterward. If they have a problem with it, we can amend the plan, or the employer can find anther vendor if the vendor won't handle the employer's desired provisions and it is important enough to the employer. I should also state that the changes that employers are making are nearly always basic things - maybe eligibility, or adding or removing hardship withdrawals, etc. - normal things that are handled all the time by vendors when plan amendments are completed anyway. Maybe I'm just grumpy and unreasonable this morning. Have you been seeing anything similar, and if so, any thoughts? Thanks.

Some (most?) IRS pre-approved documents have a kind of "catch-all" paragraph where certain compensation, including tips, may be excluded from salary deferral elections if the employer adopts a uniform policy and does not or may not have the ability to withhold elective deferrals in cash for purposes of transmitting them to the plan. So I think cash tips would fall nicely into this category. Have you checked your document to see if it contains such a provision? You use FIS docs, right? They have it - or at least their basic DC Cycle 3 doc does. That may solve your problem. The employer can ignore cash tips, and the salary deferral election the employee signs could be a higher amount than they would otherwise elect, to make up for cash tips (whether declared or undeclared, but we won't go there...)

Perhaps this will help. https://www.irs.gov/pub/irs-drop/rr-02-45.pdf

First, there is no mandatory 20% withholding on a RMD, as it is not an "eligible rollover distribution." The participant could then have elected out of 10% withholding. So although there is no excuse for no 1099-R being filed, there may not be any penalties for failing to withhold. Failure to declare it as taxable income is another story. Beyond that, the son needs to take this to tax counsel. Did the institution agree, in writing, that they were responsible for 1099-R reporting? (I doubt that anyone else was responsible, as "solo-k" plans rarely have a TPA. ) But, the financial institution may be relying on maximum deniability, and be very unhelpful. Or maybe they will step up to the plate. Again, he son should go to tax counsel.

Perhaps this will help? (I'm not an expert either...) In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit. In 2021, this limit on your earnings is $50,520. We only count your earnings up to the month before you reach your full retirement age, not your earnings for the entire year. If your earnings will be over the limit for the year and you will receive retirement benefits for part of the year, we have a special rule that applies to earnings for one year. The special rule lets us pay a full Social Security check for any whole month we consider you retired, regardless of your yearly earnings. Read our publication, “How Work Affects Your Benefits,” for more information. When you reach full retirement age: Beginning with the month you reach full retirement age, your earnings no longer reduce your benefits, no matter how much you earn. We will recalculate your benefit amount to give you credit for the months we reduced or withheld benefits due to your excess earnings.