Belgarath

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!

I haven't heard anything. I had the same question about three weeks ago - hopefully they will come out with something, but I speculate that given the long lead-up to this, plus the extension granted already, that they might not be as inclined to grant additional relief as in the past.

IMHO, I think Revenue Ruling 86-142 covers this, and no, you can't do it. It would be considered a plan contribution for 404 purposes. Stretching far into the dim and distant past, I have a hazy memory that this might have been allowed for a while under some old PLR's (we never had anyone attempt to do this for plans where we were the TPA) but then the IRS reversed course anyway. Whether or not such an arrangement might raise Prohibited Transaction issues, I'll leave to one of the PT experts here - I certainly don't know off the top of my head - but I think the PT issue is moot since they can't successfully utilize the arrangement you mention. P.S. Here's an interesting piece by Groom Law Group on paying "wrap fees" - https://www.groom.com/wp-content/uploads/2017/09/1000_Dold-Levine_MAG_05-11.pdf

Ugh. When you say it is your first year, does that mean someone else in your firm has been doing it and now it has just passed to you, or it came over from an entirely different TPA? If the latter, then I'd be inclined to make it the client's decision - we'll fix for 2019 and 2020 - for all prior years, they should be fixed, and I'll do it (for a princely fee), but if you choose not to do it, you are liable for the consequences. Alternatively, if they refuse to fix, give them their walking papers. How big a plan, and how much interest might this turn out to be - lots, or "not too bad 'cause it is only 11 participants" or something like that? These types of situations make me question my career choices. I should have been an optometrist!

Now THAT makes sense. Thanks for obtaining that clarification.

Interesting. I'd have said the opposite from the CPA. Has the CPA given an explanation for the position taken?

Bringing this up again, due to a non-ESOP question where the SCP issue is raised. I originally thought, without doing much research, that perhaps (as stated in OP) such a situation could be corrected via amendment under SCP. I think that is wrong - the IRS states that SCP may not be used to retroactively amend/conform the plan to the operation if it doesn't provide for a UNIFORM increase in benefits, rights, or features. The fact that this error only affected a few participants wold seem to negate this requirement. This brings up my real question, for a non-ESOP situation: if a plan misses the restatement deadline for pre-approved plans (401(k), 403(b), etc.) can the restatement be done after the fact via SCP, within the two year timeframe, of course, since document failures are always "significant?" A strict reading might seem to say no, yet I have seen opinions that it is allowable, without going through VCP as a non-amender. Any thoughts on this?

If it truly can't be located, file under VCP as a non-amender. However, when faced with a substantial fee (IRS fee and TPA fee to file) you may be astonished at how the employer suddenly locates it. Many times the "I can't locate it" is code for "I can't be bothered to really look." Not saying that is the case here, but it often is. As to your proposed solution, my advice is don't even think about suggesting this to a client. Did the employer search corporate minutes, etc., to see if there is at least a resolution adopting the restated plan?

Interesting. Thanks!

As I recall, there is a VCP fix for this - an Employer Eligibility Failure. Essentially, the employer must cease contributions, but the contributions already made are treated as a proper SIMPLE contribution. I haven't checked to see if this still holds true under RP 2019-19.

Hi Peter - for my own edification, I want to see if I have some of the nuances right here. First, the 2510.3-2(f) is a safe harbor - and meeting this safe harbor is itself a facts and circumstances determination, correct? And even if you fail to satisfy this safe harbor, the fact that it is a safe harbor allows you to still theoretically avoid ERISA status, even if you fail to satisfy the safe harbor? Is it your best guess (or direct experience) that the DOL would more likely focus on the document, or the operational compliance aspect? Just curious. I sincerely hop to never encounter this situation! Thanks.

Taxable Term Cost. Often referred to as PS 58.

Yes. There is still an "economic benefit" and the taxable term costs would be reported. In other words, even if premiums paid from a Roth account, the TTC is not a "qualified" Roth distribution. I have a note here in my file from some time ago, referencing 1.402A-1, Q&A -11. I haven't (thankfully) had to deal with life insurance in plans for a number of years now, so you should probably look this up to make sure it is still valid (and that I haven't misrembered). Also be aware of the different "mechanics" on TTC if you are dealing with an unincorporated owner, as opposed to a common law employee. By the way, it occurs to me that I didn't specify above, but only the portion that represents earnings on the Roth account, that is used to purchase life insurance, would be taxable - not necessarily the entire amount. Gosh, I'm glad I don't have to mess with this stuff any longer!!

I'm inclined to agree with your colleagues. 1.416-1, M-20 states that elective contributions on behalf of key employees are taken into account in determining the minimum contribution under 416(c)(2). The fact that these 402(g) excess distributions are not considered annual additions is a 415 issue, and I don't think that trumps the treatment otherwise applied to deferrals. What if the ADP for Keys ended up being 1%, but due to catch-up deferrals (which don't count against 415) the Key defers 4%. Would you still maintain that TH should only be 1%? I don't have time to do any in-depth research on this, but I suspect the IRS might take the approach that the top heavy is required. I know that for, say, an ADP failure where deferrals are distributed, those deferrals still apply for calculating Top Heavy. I also happen to think that requiring Top Heavy in the situation you posit is clearly a ridiculous result, but that's where I believe the guidance leads. Of course, I may be all wet, and I'll be interested to see what other opinions may be.

I agree with the auditor. There might possibly be an argument that it was timely if it was mailed (with PROOF of mailing) on some date reasonably before the 12/31/deadline - say it was mailed on December 23rd, for example, but didn't arrive until January 4th. That's grasping at straws, however. I don't know the specific details of your situation. Anyway, my take is that given the generous timeframes that IRS allows for the corrections, they are unlikely to be overly sympathetic.

We also have had very few requests for CRD's. I do have some expectation that perhaps Congress is going to end up extending the timeframe for CRD's, given what is happening with the new surge, which shows little sign of abating any time soon. If things remain bad, then I think that many folks who have thus far managed to hang on by their teeth and toenails, may be forced to dig into the retirement savings.