Belgarath

Thanks. What I really meant to ask was: let's say a current standard Notice is based on the "old" IRS model Notice. So it doesn't currently comply with the changes due to CARES Act. Is there any timeframe by which updated 402(f) notices must be used? Seems like there must be some reasonable lead time before you go to jail for using one that isn't updated. The IRS Notice 2020-62 doesn't address this question.

Did any of the NHC terminate with less than 500 hours, so that you have something other than 6/10? At any rate, for coverage, they are considered as benefiting if they receive a Top Heavy allocation.

Re new 402(f) Notices. How quickly do you think these (or similarly updated Notices) need to be utilized? For distributions as of today, or are we realistically ok for a couple of weeks, etc.? Doesn't take long to manually copy the IRS model into a Word document and do this manually, but takes a little time to update systems/procedures, etc. Curious as to how quickly folks are implementing this. Of course, sometimes these are produced by the recordkeeping platform, so that's a separate question.

Thank you Peter.

I was just looking at an engagement agreement, and I saw something that I don't recall seeing (or perhaps never noticed, because I don't necessarily review a prior TPA's engagement agreement) before. It states that the TPA will bill the Plan Sponsor for services, then goes on to state that the TPA may deduct the service fees for the services directly from the participants' accounts upon non-payment of fees by the plan sponsor after 60 days. Is there any problem with this from a legal standpoint? It feels funny, but maybe it is fine as long as the plan sponsor/fiduciary has authorized it. Is this a common provision?

A nice general blurb. https://www.irs.gov/retirement-plans/tax-consequences-of-plan-disqualification P.S. I also found this blurb in some old notes, FWIW. Disqualification. The tax advantages of a qualified retirement plan are: (1) employer contributions to the plan are immediately deductible, (2) earnings on qualified trust assets are sheltered from income tax, and (3) participants only have to include amounts in gross income when they are distributed from the qualified plan. While there are exceptions to each of these, they generally describe the tax attributes of a qualified plan. Disqualification removes these tax benefits. In general, disqualification will arise from the time the IRS determines that a plan failed to meet the Code § 401(a) requirements. So disqualification is likely to be retroactive in nature, and it follows that the change in applicable tax rules for the employer, the trust, and the participants will likewise be retroactive. This raises the distinct probability of underpayment interest, and the possibility of penalties being assessed. The statute of limitations could serve to limit the period for retroactive inclusion. Generally, the statute of limitations is 3 years from the return filing date. However, Code § 6051(e) provides for a 6 year statute of limitations if the amount omitted from the tax return exceeds 25% of the amount of gross income claimed in the tax return. If the plan is the subject of a favorable determination letter, the general position of the IRS is that the plan is entitled to Code § 7805(b) reliance on that letter. As a result, disqualification would only apply from the time the IRS provides notice of the qualification defect (i.e. no retroactive disqualification).

Yes.

So I'm just curious, not being even remotely tech-savvy by today's standards. Let's say you (plan sponsor, and/or recordkeeper/TPA in conjunction with plan sponsor) decide to avail yourself of these new regs. Does it open up big potential holes for a breach of security, when a gazillion participants are receiving e-mails stating that their statements are available, and providing a hyperlink or instructions, etc. on how to access them? A lot of participants have internet access that isn't as secure as perhaps what they have at work, and it may be easier for passwords to get stolen, ghosted, whatever? It just seems like in a general way, the more things are done via internet-based applications, the more potential security breaches come into play. Just wondering what folks think about this aspect, entirely aside from whether the process is better/worse/indifferent from an administration viewpoint.

Nice!

https://www.businessofbenefits.com/2020/08/articles/403b/are-there-partial-terminations-of-403b-plans/ The information in this article, while interesting (and I didn't bother to evaluate it), makes no difference to us, as our plans provide for 100% vesting upon full or partial termination anyway. I expect most plans do...

BG -just in general, I'd say Bipartisan Budget Act Amendment, SECURE Act Amendment, and possibly CARES Amendment. You'd also maybe need the Disability Claims procedures Amendment. Maybe others, depending upon your plan...

They trust us. They just don't trust their payroll service! Kudos to you if 100% of your clients do exactly what you recommend. Our percentage isn't quite that high.

Run - it does occur to me that I should mention my assumption that we are talking about "regular" Roth IRA contributions. If you are "converting" an existing IRA to Roth, and you subsequently take a distribution prior to age 59-1/2, a premature distribution penalty may apply. This is generally referred to as the "recapture" rule. You'd want to run this by your tax advisor if such a situation applies. I know this wasn't the situation you posited, but I thought I'd toss this in FWIW.

We also have a few (very few) holdouts on this. Typically it is bad memories of an incompetent payroll service (or in-house payroll administrator) who constantly screwed up deferral changes and caused a lot of work/expense to fix.

Agreed, and this brings up a question I asked in another forum. If the formal termination date is after the date of the IRS letter for the pre-approved documents that most plans use these days, (generally 6/30/20) are you restating - in which case the time and expense is no longer minimal? And in case anyone cares, my stance is that if the formal termination date is prior to the 6/30/20 date, then just update with Interim Amendments. If on or after that date, restate. The line of doubters may now form on center stage!

I've seen something similar to this (or maybe it was the same) quite a while back - didn't spend much time looking at it. I don't think you necessarily buy a "policy" per se in the classic sense, depending upon how you define a "policy" but rather you buy into an asset pool. And the more bankruptcies amongst the pool members, the smaller the percentage of your potential benefits you get. Or something along those lines. But this one may have different parameters. Seems kind of like a lottery - the more people who match the winning (or in this case losing) number for a given jackpot, the smaller the amount that each receives. I have no opinion whatsoever on whether or not something like this is a good deal/idea. But I don't have to worry about it. Not having scads of money does have some few, small advantages...

No. The outstanding loan is still part of their account balance. Example - account balance prior to loan is 100,000. COVID loan taken for 100,000. We'll ignore any payments/accumulated interest for illustrative purposes to keep it simple. Now they terminate employment, still owe 100,000. Their account value is still 100,000. The loan is offset. Account balance is now zero.

Just getting opinions here - what is your feeling on restating a plan with new, IRS pre-approved document, when the plan termination date is PRIOR to 6/30/2020? Yes, you need Bipartisan Budget Act Amendment, SECURE Amendment, and possibly CARES Amendment, but are you going to retroactively restate these plans? Oops, typo in the date above - now corrected. 6/30 is the date of the IRS approval letter for the docs.

I'm not sure there is a direct citation one way or the other. You can perhaps glean a bit of "sideways" information on the general IRS thought process by looking at 1.401(k)-1(a)(6), and 1.401(k)-2(a)(4)(ii), but I wouldn't classify those as definitive for purposes of a profit sharing deduction in this situation. I will say that general industry practice, (in my experience) and the CPA's I've worked with, have taken the approach that it is earned on the last day of the tax year. I'm not saying you can't make an argument for prorating, (whether you'd win or not on audit is debatable) but why would you want to take the aggressive approach in a situation such as this, which can so easily be fixed as previously proposed by several people?

I like Larry's suggestion - Retirement Plan Service Provider.

Roth IRA's are FIFO on basis. So if a Roth IRA, yes, if you contribute 20,000, have 25,000 total, then you can withdraw 20,000 tax free. The interest earnings taxation depends upon "qualified" vs. "non-qualified" distribution, as 'Cuse mentions.

I can't, off the top pf my head, refer you to any formal guidance on this. FWIW, I would not report this on the 5500. No distribution of plan assets has taken place. It is merely changing the taxation of the existing account. Now, if the option is chosen (if the plan permits) to allow a portion of the amount that may otherwise be "distributed" as an in-plan Roth rollover distribution, to be actually distributed solely for purposes of State or Federal income tax withholding purposes, then THAT amount I'd report on the 5500 as a distribution, since the plan assets have now actually been reduced.

I agree with Mike, and others before him. I think Dalai is focusing merely upon the "purchase right" which is NOT the only issue. If you have different types of policies, there are distinct BRF's (or let us say there are LIKELY to be different BRF's). And these have to be tested. If you've ever studied the terms of different life insurance contracts available from the same or different insurers, I'd say the odds of finding identical provisions in all circumstances are, to put it mildly, rather poor. Just my humble opinion. Excerpt from the RR below. "Similarly, differences in insurance contracts (e.g., differences in cash value growth terms or different exchange features) that may be purchased from a plan can create distinct other rights or features even if the terms under which the contracts are purchased from the plan are the same. Under § 1.401(a)(4)–4(d)(4), an optional form of benefit, ancillary benefit, or other right or feature is permitted to be aggregated with another optional form of benefit, ancillary benefit, or other right or feature if one of the two is, in all cases, of inherently equal or greater value than the other, and the optional form of benefit, ancillary benefit, or other right or feature that is of inherently equal or greater value separately satisfies the current availability requirement of § 1.401(a)(4)–4(b) and the effective availability requirement of § 1.401(a)(4)–4(c). For this purpose, one benefit, right, or feature is of inherently equal or greater value than another benefit, right, or feature only if, at any time and under any conditions, it is impossible for any employee to receive a smaller amount or a less valuable right under the first benefit, right, or feature than under the second benefit, right, or feature."

Agreed - we had someone come to us with one of these, and I told them that the first thing, regardless of whatever may come after, is to adopt an updated document immediately.

I'm hoping as well!