Belgarath

You are welcome! These are original lyrics by yours truly, so I'm glad if they give anyone a smile, that was the whole purpose. Of course, I didn't update them for the freak tax filing deadline this year - too much work.

Reviewing a plan for takeover. The base document provides for a default beneficiary of: 1. Surviving Spouse; 2. Participant's issue, per stirpes; 3. Participant's surviving parents, in equal shares; or 4. Participant's estate. Fairly standard stuff. Now, in the Appendix, this default is modified to be: "the Participant's spouse, children, or parents, then estate." My question to you legal dudesses and dudes is, other than no per stirpes for the children, what, if any, is the real legal effect of this? How would a Plan Administrator determine, for example, anything other than a 50/50 split for the parents? Etc.? Is there a good reason you can see for this modification of the default? Seems to me it can only cause confusion. Thanks.

Huh?

Yes, it is that time of year again – the annual tax lament, to the tune of “Yesterday” by the Beatles. Remember, it is only when the final line is truly sung from the heart that one can appreciate the scope of anguish and angst that the artist is attempting to convey… Yesterday... Income tax was due, I had to pay... All the funds I tried to hide away... I don't believe, I'll eat 'till May. Suddenly... I'm not sure that I am fiscally... Ready for responsibility... Oh yesterday, came suddenly. Why, I Owed so much, I don't know, I couldn't say May be Forms were wrong, how I long, for yesterday. Yesterday... Seemed like prison time was on its way... Now I need a place to hide away... While keeping IRS at bay. Why, I Owed so much, I don't know, I couldn't say May be Forms were wrong, how I long, for yesterday. Yesterday... Taxes due, I filed come what may... Losing all deductions that's my way... Of giving IRS my pay. mm - mm - mm - mm - mm - mm - mm.

Hi Luke - this issue comes up on occasion. Revenue Ruling 66-144 permits the full extension period to make the contribution, even if the tax return has already been filed. Way back then, it only applied to accrual basis taxpayers because back then, 404(a)(6) only applied to accrual basis taxpayers. But then ERISA changed 404(a)(6) to include this for cash basis taxpayers.

Thanks all.

Brain cramp!!! Suppose corporation A sponsors a plan. Newly formed corporation B now purchases the assets of corporation A. Corporation A still exists. No controlled group/affiliated service group involved. Can corporation B assume the liabilities of the corporation A plan and become the new plan sponsor, if both corps. are willing? I feel like I'm missing something... P.S. - I think they can - just concerned I'm missing something. Thanks.

I like that - a very civilized way of saying it. Nicely put!

See RP 2019-19, Appendix A.05(2)(d)(i).

Short answer, yes, it is generally possible. There are a LOT of plan document and design issues that must be addressed, including compensation period and compensation definition, coverage/nondiscrimination issues, 415 limits, effect on top heavy, etc., etc.

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.