Belgarath

Any reason DC plan that didn't allow partial distributions at termination date (12/31/2017) can't be amended to allow them now? Final distributions won't be available for quite some time, and they want participants to be able to receive some money currently. I think it is fine, but I seem to recall some post-termination amendment issues with DB plans particularly. Thanks.

Thanks all. This was helpful!

Has anyone else run into this situation/question? Seems like with everyone restating 403(b) plans it may come up more often. P.S. - as I look at it further, I have even less hope that it is allowable. 1.403(b)-6(c) doesn't seem to provide any wiggle room. The fact that everything specifies that the distributions cannot be less stringent also implies that it is ok if they are MORE stringent, although this flies in the face of "protected benefit" issues that we are accustomed to under 401(k) plans. I just saw an insurance company document (an ERISA 403(b) plan) that allowed in-service distributions at ANY time for employer contributions. So participants would certainly need to be adequately informed of this before they transfer their funds from the annuities to the custodial accounts. I wonder if this was intentional, or just an oversight on the part of the IRS. But I've wondered that before...

My worry was that the payment made during the first loan quarter would be less than in subsequent quarters. Let's use a more extreme example to illustrate my concern, and just assume a once-monthly payroll, on the last day of the month. Loan date is January 1. They propose to have first payment due on March 31. Payment amount is $500.00 per payment - and the payments (all made within the 4 year period, calculated from January 1, 2018) work out to, say, $500.00 per month. This amount takes into account the interest accrued from January 1 to March 31. So the first level payment is $500.00 - which represents the total payment being made during the first quarter of the loan. Second quarter has 3 monthly payments - total of $1,500.00. That was my worry.

Nope. Just a question from a client.

Wow, the strange stuff keeps popping up this week! So it has been proposed that a participant loan be granted, with payroll deduction repayments, but with a twist. Let's say loan is granted on, pick any day, January 15th. But the (equal) payroll deduction repayments are not scheduled to begin until March 15th. The repayment schedule would be 4 years - well under the 5 year limit. To me, this violates the "substantially level payments" made at least quarterly requirement of 72(p)(2)(C). During quarter 1 of the loan, the repayment is far less than during subsequent quarters. Since I'm questioning my sanity this week (cold medicine creating more fog than usual) I thought I'd see if it's just me, or if folks agree. Thanks.

Muchas Gracias!!

This is related to an earlier post, but a somewhat more targeted question. I'd love to hear opinions from the DB experts here. The question is this: Prior to Notice 2015-49 (the "de-risking Notice"), the RMD regulations under 1.401(a)(9)-6, Q&A 13 and Q&A-14, provided for certain allowable accelerations/modifications. For example, retirement after the annuity starting date, or plan termination. Within certain limits, a lump sum was allowable. The question is whether these exceptions are still allowable in a situation where someone is taking RMD's but has not yet retired, or for plan termination. It appears from section III of the Notice that the removal of these exceptions is only for situations where there is an AMENDMENT to the plan that previously, under 1.401(a)(9)-6, Q&A-14(a)(4), would have allowed an acceleration. But the exceptions in Q&A-13 still exist for "normal" non-amendment situations. Agree/disagree? Thanks!

Question - do you think IRS Notice 2015-49 precludes an acceleration that was otherwise allowed in the regulations? It appears that an "acceleration" or lump sum option at RETIREMENT, even if otherwise allowed by the plan terms (such plan being drafted before this Notice) isn't allowed if already receiving an RMD? This Notice appears to have been intended to prevent large scale "risk transferring" programs, but also appears to paint with a very broad brush. I don't see a lot of wiggle room in the Notice. (A person much more knowledgeable in this arena brought this up - I had forgotten all about this...) So in the case at hand, assuming no death, if the participant who is receiving the RMD just retires at a later date, he's stuck with the annuity payment - can't change to lump sum? Yuk.

Thanks Effen. Let's see...I think he's looking at the Jt & 100 to receive the smallest possible RMD, as he's still working. He can't (I don't think) take a lump sum, since he hasn't reached Normal Retirement Age yet. I doubt his current accrued benefit is even fully funded on a lump sum basis, as the plan was started only 3 years ago. (I'm probably using the wrong terminology on that...) He could change the election when he retires (basically accelerate the payment, within the allowable 415 limits) but the question here wasn't involving a later RETIREMENT election, but a death benefit question if both he and his spouse die prior to his retirement. I don't have access to the ACOPA board - as you can doubtless tell I'm not a "DB person" but I thank you for the suggestion and your information.

Thank you! P.S. - so I think I was simply asking the wrong question. The real question becomes, (assuming the RMD was NOT being paid from an annuity contract purchased from an insurance company) what happens to the remaining plan assets if both husband and wife die in a car crash after RMD's commence? Seems like there is no further plan retirement benefit to be paid, so funds will revert to employer? (Employer is sole prop, so I guess this ultimately means it reverts to estate?)

I should know this, but DB plans are strange. Suppose someone is still working (100% owner) and becomes vested AFTER attaining age 70-1/2. Now must start taking RMD's. Question is: if the RMD method selected is 100% J&S with his spouse as beneficiary, and he dies, since this is an RMD, the spouse should be able to elect a lump sum payment of the death benefit (assuming proper waiver had previously been executed, and plan allows a lump sum), correct? In other words, an RMD method election doesn't lock in that method as a post death payment method for the beneficiary, does it? DC RMD's are so much simpler... P.S. - it seems like 1.401(a)(9)-6, Q&A-14(a)(5) covers this? Or am I all wet? Thoughts on this situation - evidently participant is concerned that if both he and spouse die together while taking the RMD's that nothing further would be paid out to contingent beneficiaries.

How can you use 5-year cliff? Wouldn't this automatically be top heavy (no non-keys) and therefore subject to 3 year cliff, rather than 5-year cliff being available?

Yes, I have seen this as well.

For all of you and your families and friends, wishing you all a Happy Holiday Season - drive carefully, and enjoy!

I don't have time to do any research on this question, but my recollection is that it must still be a "deferral" - in other words, she can't write a check. But don't take my word for it!

Interesting question. 1.403(b)-10 would require distribution restrictions that are no LESS stringent than the distribution restrictions under the annuity contract, but it doesn't specifically address this question. The fact that the distribution restrictions would prevent hardship withdrawal if the transfer was going the OTHER direction would also lead me to believe that it is reasonable to preserve the hardship option for those assets transferred TO the custodial account. At least in theory. HOWEVER, you'd have to determine if the custodial account agrees, or has language that permit this. I'm dubious that they do, but maybe...

I don't think you can give an answer that fits all situations. I'd say that generally, however, clients want closure/certainty, which doesn't exist while the application is pending, so they can get frustrated. However, they certainly don't blame me because the IRS hasn't yet even assigned it to a reviewer.

Filed a very basic VCP on a SIMPLE-IRA plan in June. Received an acknowledgement letter in mid-AUGUST. Called twice recently to check status. In spite of the IRS voice mail promising a call-back within 2-3 business days, it took 7 business days, but at least they did call. I didn't speak to the person - they left me a voice mail, but it has NOT YET BEEN ASSIGNED TO A REVIEWER. It will be "at least several weeks" before it is even assigned. Just an fyi to prepare yourself to hurry up and wait...

I wouldn't lose any sleep over paying this with a hardship withdrawal. The regulation deems it an immediate and heavy financial need if it is for ..."up to the next 12 months..." Sure, you can split hairs about the meaning of the word "next" in this set of facts and circumstances, but given the precise example above, in "real life" I'd allow it. I'm sure that RBG is correct, and that it was billed once already anyway, unless there was a screw-up in the billing orifice (yes, the typo is intentional - we had plenty of issues with billing stupidities when our kids were in college). If you wanted to pro-rate it, I certainly can't argue with the conservative approach.

HRA's are employer funded, not a salary reduction. You might be thinking of an FSA.

Can you roll over profit sharing funds to a SEP? Sure. Does the PS plan have to be terminated? Not necessarily, if it allows in-service withdrawals and the client qualifies for a complete in-service withdrawal of all funds, but I can't possibly imagine why anyone would not terminate the plan if they are rolling all the funds out of it. (Unless they intend to continue to contribute in the future.) A final 5500 form would be required for the terminated PS plan, assuming it is terminated. And the PS document must be up to date, if it hasn't been appropriately restated already.

While I agree with Jpod that it is a bit of an administrative fiction in such a situation, I'd put it a little more strongly than "it couldn't hurt." I would absolutely recommend that there is a deferral election in place before writing a check, etc. The requirements of 1.401(k)-1(a)(6), which also refer you back to 1.401(k)-1(a)(3), are such that you may have a difficult fight with an IRS auditor if there isn't an actual "election" in place. If there isn't, then of course as Jpod suggests, you would have to make your case, but it is so easy to avoid trouble by putting an election in place prior to any contribution that I can't see a valid reason for not doing so.

They say there are two things that you never want to see how they are made - Laws and Sausages.

I'm not aware of a minimum age requirement. However, I've never specifically investigated the question.