Belgarath

I know Larry and some others here do a lot of pooled plans, and I'm just curious to hear your opinions (if you have any at this early stage) of this suit: [Lipshires v. Behan Bros. Inc. Retirement Plan, No. 20-252 (D.R.I. complaint filed Jun. 8, 2020)]

You may find this helpful. P.S. - this doesn't get into the detail about reasonable delays due to illiquid assets, or time beyond when d-letter is issued as Effen mentions above, etc. https://www.irs.gov/retirement-plans/plan-termination-failure-to-timely-distribute-assets

Short answer, yes. Could get pretty complicated depending upon what you are ultimately doing - testing on an allocations basis, or cross testing, possible gateway, top heavy issues, etc. - you might be restructuring, whatever. Could pass easily, could be a nightmare...

And probably right! I remember when we first bought our house, it had a mother-in-law apartment attached, and we decided to rent it to a tenant (about 30 years ago, and we got out of THAT business after one year) our attorney told us that the best leases are written by landlords who have gotten shafted. The burned hand teaches best!

"I wonder if it can be charged that requiring a notarization on non-required item could be considered interference with the participant's ERISA rights?" Hi Larry - I thought of that aspect as well, but I think it is a real stretch. Maybe one of the ERISA lawyers will chime in, but I think a Fidicuary could make a pretty strong argument that such a policy is prudent in fulfilling one's fiduciary obligations under ERISA in these days of rampant identity theft.

I believe that a plan CAN, if the sponsor so chooses, require a notarization for other items - a regular withdrawal, for example, that doesn't require a spousal consent. I speculate that such provisions might become more common in an attempt to reduce fraud.

CB - while the 2-year period you refer to is required for a Plan Document Failure under SCP, I think this "insignificant error" is eligible for correction under SCP without the restriction of the 2-year period? See RP 2019-19, Sections 2.02 and 4.05(2)(a), as well as Appendix B.

I was not (and won't on these boards, not the place for it) opining on right or wrong. Merely observing that since we have a bitterly divided House and Senate controlled by different parties, not to mention the Executive branch issues, that for ANY legislation to pass it must, by definition, be bipartisan. And the spirit of cooperation ain't strong.

June of an election year, so bipartisan compromise may be in short supply...

Ah, so that they suffer "informational injury" or some such drivel?

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!