Belgarath

Hey Austin - question for you while we are on the amendment subject. I just looked at the FIS CARES Amendments that they developed in May. I'm curious - since the amendments are not generally required until way into the future, and since it is very possible that additional guidance/change will be developed which may require updated versions of these amendments, do you see any point (generally) in trying to get these adopted relatively soon? My thought is to wait, since they may well change - perhaps include them in the package with any DC restatements (that are completed prior to the CARES Amendment deadline).

I haven't looked into this, but it isn't an IRS-approved model language interim amendment, so couldn't you modify? In other words, do 2 different sponsor level amendments - one for each "default" so there's no employer sign-off required? Just a thought...

Thanks Luke. Not sure I understand your offset comment? Under IRS Notice 2020-23, if the loan is in default as of 7/15, then the maximum cure period is the end of the clendar year quarter following the calendar year quarter of the default. So December 31. Yes, I botched the typing of the Code reference, thanks for correcting. As to the CRD issue, I agree, but I wasn't getting into that aspect, just trying to nail down the loan issues.

Glad I don't have to deal with it...

Thanks Peter!

Several pieces come into play here. Situation - Employer A has a 401(k) plan. Employee X has a participant loan, and terminates employment in December of 2019. However, Employee X continues to make repayments on the loan, as permitted under A's plan. Employee X subsequently goes to work, for Employer B. In May of 2020, Employee X is laid off from employer B, and is a "Qualified Individual" for COVID purposes. Employee X now defaults on the loan with Employer A's plan. Whew! First, purely with regard to the COVID loan delay provisions under the CARES Act, Assuming employer A's plan will allow the CARES Act delay, would it apply to a terminated participant from a different employer? I incline toward this being an employer decision when they do the amendment, but I'm not certain. Second, at the very least, there is a delay in the deemed distribution/offset due to the IRS Notice 2020-23 provisions applicable to all loans with due dates during the applicable period. Finally, when this loan does default and is offset, is this a "Qualified Loan Offset" under IRC 402(3)(c)? I would tend to interpret the statute that this would only apply if the offset occurred due to the termination with Employer A, and not because of a termination with a subsequent employer. Thoughts? Other observations? (ii)Qualified plan loan offset amountFor purposes of this subparagraph, the term “qualified plan loan offset amount” means a plan loan offset amount which is treated as distributed from a qualified employer plan to a participant or beneficiary solely by reason of— (I) the termination of the qualified employer plan, or (II) the failure to meet the repayment terms of the loan from such plan because of the severance from employment of the participant.

There's always a new question! Tax-exempt 457(b) plan. Participant retiring, and is going to take monthly installments for some number of years. The recordkeeper or TPA or whoever handles this is going to be charging a monthly fee to calculate each month's distribution. Employer wants to know if this can be charged to the participant's "account." I've reviewed their plan document, and it is silent on this issue. It provides for payment of Trustee fees form the plan assets if it is a Governmental plan, but this isn't. While it seems reasonable to have fees charged to the participant's account, (which is a general asset of the employer, not in a Rabbi Trust) I can't find anything specifically addressing this issue in the regs. Is this just a matter of State law? Or have I missed something? Anyone ever dealt with this issue?

Sorry, I should have been more precise in my wording. The document did mandate that the diversification could ONLY be transferred to the 401(k) plan. Hence the operational violation that prompted the question. Thanks.

We were asked to look at this plan - they also have a 401(k) plan - and we referred it to another TPA. Too much of a mess, and ESOP's aren't our thing. But I did have one question, for my own edification. The plan diversification provisions provide that the amount may be transferred to the company's 401(k) plan. However, some number of prior diversification amounts were distributed in cash. How might this be corrected? I can't see any way to fix, other than to go through VCP, and ask the IRS to bless a retroactive amendment permitting a distribution in cash? Is there another option? Actually, it seems like this could qualify for SCP by amendment, under RP 2019-19 - other thoughts? (2) Availability of correction by plan amendment in SCP. SCP is available for corrections made by plan amendment, as provided in section 4.05(2)(a), (b), and (c). In addition, a Plan Sponsor may adopt a plan amendment to reflect corrective action. For example, if the plan failed to satisfy the actual deferral percentage (ADP) test required under § 401(k)(3) and the Plan Sponsor must make qualified nonelective contributions not already provided for under the plan, the plan may be amended to provide for qualified nonelective contributions. (a) Correction of Operational Failure by plan amendment for a Qualified Plan or 403(b) Plan. A Plan Sponsor of a Qualified Plan or 403(b) Plan may correct an Operational Failure by plan amendment in order to conform the terms of the plan to the plan’s prior operations only if the following conditions are satisfied: (i) The plan amendment would result in an increase of a benefit, right or feature. (ii) The increase in the benefit, right, or feature applies to all employees eligible to participate in the plan. (iii) Providing the increase in the benefit, right, or feature to participants is permitted under the Code (including the requirements of §§ 401(a)(4), 410(b), 411(d)(6), and 403(b)(12), as applicable), and satisfies the correction principles of section 6.02 and any other applicable rules of this revenue procedure.

In a statement from the DOL, among other things, they had this to say: “The new safe harbor is an additional method of delivery and does not substantively change the 2002 safe harbor.” Nice that it takes them 150 pages to issue a regulation that doesn’t "substantively" change the existing one. Our tax dollars at work! Now, to be fair, I haven't read it, so maybe it provides more help than I expect. Since my expectations are very low, that's possible...

Let's see...Ned Ryerson??

Albany - I agree. For whatever reason, I was thinking about the 1-year extension. But yes, I agree, the extension to July 15th is automatic.

From the IRS FAQ's issued May 4th - Q9. Is it optional for employers to adopt the distribution and loan rules of section 2202 of the CARES Act? A9. It is optional for employers to adopt the distribution and loan rules of section 2202 of the CARES Act. An employer is permitted to choose whether, and to what extent, to amend its plan to provide for coronavirus-related distributions and/or loans that satisfy the provisions of section 2202 of the CARES Act. Thus, for example, an employer may choose to provide for coronavirus-related distributions but choose not to change its plan loan provisions or loan repayment schedules. Even if an employer does not treat a distribution as coronavirus-related, a qualified individual may treat a distribution that meets the requirements to be a coronavirus-related distribution as coronavirus-related on the individual's federal income tax return. See section 4.A of Notice 2005-92.

From the instructions for Line 7(a) Enter the total amount of plan assets at the end of the plan year in column (b). Do not include in column (b) a participant loan that has been deemed distributed during the plan year under the provisions of Code section 72(p) and Treasury Regulations section 1.72(p)-1 if both the following circumstances apply: (1) Under the plan, the participant loan is treated as a directed investment solely of the participant’s individual account; and (2) As of the end of the plan year, the participant is not continuing repayment under the loan. If the deemed distributed participant loan is included in column (a) and both of these circumstances apply, include the value of the loan as a deemed distribution on line 8e. However, if either of these two circumstances does not apply, the current value of the participant loan (including interest accruing thereon after the deemed distribution) should be included in column (b) without regard to the occurrence of a deemed distribution. After a participant loan that has been deemed distributed is included in the amount reported on line 8e, it is no longer to be reported as an asset on line 7a unless, in a later year, the participant resumes repayment under the loan. However, such a loan (including interest accruing thereon after the deemed distribution) that has not been repaid is still considered outstanding for purposes of applying Code section 72(p)(2)(A) to determine the maximum amount of subsequent loans. Also, the deemed distribution is not treated as an actual distribution for other purposes, such as the qualification requirements of Code section 401, including, for example, the determination of top-heavy status under Code section 416 and the vesting requirements of Treasury Regulations section 1.411(a)- 7(d)(5). See Q&As 12 and 19 of Treasury Regulations section 1.72(p)-1. The entry on line 7a, column (b) (plan assets at end of year) must include the current value of any participant loan included as a deemed distribution in the amount reported for any earlier year if, during the plan year, the participant resumes repayment under the loan. In addition, the amount to be entered on line 8e must be reduced by the amount of the participant loan reported as a deemed distribution for the earlier year.

I blush to think that I didn't bother googling it. That's usually the first thing I would do. I plead temporary insanity - I was working at home, and the town grader sliced off our waterline, so I was trying to deal with that while juggling e-mails from work. Anyway, thanks!

One of our CPA contacts, for a client NOT located in Arizona, but in Northeastern US., received this form from the Arizona Department of Revenue. We don't administer the plan, but the CPA had never seen such a form, and asked if we knew anything about it. I certainly don't. The plan in question is a Union, and it is a defined benefit plan. Anyway, the form is for a "TPT License" - and says that penalties will apply if you haven't paid. We told the CPA we knew nothing about it, but for my own information, do any of you out in the Southwest (or anywhere else, for that matter) know anything about this? Is this a "normal" thing that actually applies to a defined benefit or other qualified plan in Arizona, perhaps similar to the (often ignored) loan document fee in Florida?

Austin - I have to say I agree with the previous posters. While I grant that a very small employer would generally "know" that most of these statements were PROBABLY not applicable, there are certainly circumstances where you might THINK you "know" when you really don't. For example, suppose your business partner was diagnosed with Covid, but did NOT disclose this to you? I realize this raises other serious issues, but for purposes of the certification, you don't KNOW. Another situation that comes to mind is a dependent. "Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;" - again, MAYBE their spouse got diagnosed and they have not told you, for fear of adverse consequences such as being forced to stay at home and miss work. MAYBE they have a dependent that you don't know about - a child from an illicit affair, etc., etc... I suppose I can see your point, if an active employee sends you an e-mail and says, "I want a Covid distribution because I've been laid off" and the employee is still working for you every day, then yes, in such a situation, I'd refuse to accept a self-certification. But other than a completely ridiculous situation like that, I feel very confident that the Plan Administrator is allowed to accept self-certification without a second thought.

Thank you! I had never seen this. In fact, I already used this approach on another plan just last week, but in that plan, the recission was PRIOR to the effective date of the amendment that removed the safe harbor. I'm not aware of any guidance allowing you to amend back in to safe harbor status during the same year when you already amended out, if you have passed the effective date of the original amendment. I already told 'em no can do, but if there is any other official guidance permitting it, I'm perfectly willing to feast upon some crow.

FWIW, you do have a short limitation year if the plan is terminated on a date other than the last day of the plan's limitation year. 1.415(j)-1(d)(3).

I understand these points, but they specifically asked this question. Yes, I can advise them on alternatives, good choices and bad choices, but I did want to make sure I hadn't missed anything. I had already thought about BG's solution as a solution that accomplishes what they are really trying to do, although I was thinking about a discretionary match instead - that way, they wouldn't have to amend out again - just stop matching. Anyway, thanks for the responses.

So, a Safe Harbor 401(k) plan amended out of Safe Harbor (match) a couple of weeks ago. Now they got a PPP loan and want to amend back in, for the next 8 weeks, then will probably want to amend out again. I say no, but this stuff has been changing so fast that I wanted to make sure I haven't missed anything.

Curious as to how this is handled in most plans - specifically, tax exempt plans with no Rabbi trust. Some plans allow participants to direct "their' account (although of course it is employer money) and others don't. When it comes time for the participant to elect a distribution, and they choose "substantially equal" monthly installments, do the plans you see: A. Take the account balance at the time of distribution, divide by the number of months, and pay a fixed payment - interest or losses on the funds absorbed by the employer. B. Still allow the participant to have investment control, and the "substantially equal" payments can fluctuate with the underlying market value? C. Other? I've only seen "A" but I don't see many 457 plans.

Thanks Larry!

If a plan allows rollovers from "401(a)" plans, does this include a governmental TSP? I know TSP distributions CAN be rolled to IRA's, qualified plans, etc., but does a TSP specifically need to be listed under the plan types that can be rolled in, or is that covered under the umbrella of 401(a)? P.S. - it seemed to me that it does constitute a "qualified trust" under 401(a) - also see paragraph (5)(G) of 401(a) which specifically exempts governmental plans from paragraphs (3) and (4). It just isn't entirely clear to me, so I thought I'd check to see who else might have considered this issue.

"I suggest the employer help set up payroll deduction IRAs with their own bank for any new employee who wants to defer before the one year eligibility is met. There is a rule that if an employer has reason to believe that the IRA contribution will be deductible for the employee, he doesn't have to subject that amount to withholding so it operates much like 401(k) deferrals. Most new employees won't go over the IRA cap anyway." Larry, that's very interesting indeed. Do you know, offhand, a citation for that? Please don't take any time, I can dig around when I have a chance.