justanotheradmin

Thanks XTitan and Lois !

Does anyone know where I can find old revenue rulings online? I am specifically looking for Revenue Ruling 80-155 which is the one that talks about money needing to be allocated if deposited by the end of the plan year. We are having a (hopefully brief) disagreement with an IQPA auditor, and I'd like to provide them with a copy, not just secondhand sources.

I'm going to assume you have already considered the impact/issue of not 2018 paying wages (reasonable W-2 compensation) to an employee in an LLC with an S-corp election. 1. Depends on the document - Many have entity type (LLC, S-Corp, C-Corp etc), but not TAX type. If the document differentiates between an LLC with or without an S-Corp election, then yes, an amendment might be needed. If it does not, no amendment would be needed. 2. Generally no. If there is anyone (other eligible employees) who has not reached their 415 limit, the money is allocated to those people as an employer contribution. This is a separate issue from the employer's ability to deduct the contribution assuming it exceeds the 25% deduction limit. Money that is in the trust as of the last day of the plan year must usually be allocated to the participants for that year. The exception is usually forfeitures, which can be allocated the follow year. I'm sure this particular issue has been discussed a number of times on the message boards, so there are probably some citations, and discussions of reversions to employer, and prohibited transaction issues that you'll want to read up on.

Upon further thought, how is the deemed necessary requirement met if it is not the employee's name on the sale agreement or mortgage? If it is the wife making the purchase, is there really an unmet need by the employee?

Well, the regulations say "for the employee" instead of BY the employee. So the answer might be yes, at least based on a the plain language reading of the regulation. Reg. § 1.401(k)-1(d)(3) https://www.ecfr.gov/cgi-bin/text-idx?SID=1a8961f77e559475c12f53d542617134&mc=true&node=se26.6.1_1401_2k_3_61&rgn=div8 https://www.irs.gov/retirement-plans/hardship-distributions-from-401k-plans "(2) Costs directly related to the purchase of a principal residence for the employee (excluding mortgage payments);" I can imagine a scenario where the participant is a minor or someone very young, who perhaps lives with parents, other family, or roommates and the home was not going to be in the employee's name, but they wanted to contribute towards its purchase. The "prevent eviction" language is similar with FOR instead of BY the employee. But I have not actually encountered this question in the wild, nor have I heard of any one else encountering it. I'm hoping someone else will be able to comment with more insight or perhaps share their experience .

In my experience - I occasionally get calls asking for the allowed hardship amount prior to receiving the actual distribution request. It's not super common, but not rare either. It would be totally justified IMO for a provider to charge to do that calculation. So regardless if a distribution request actually occurs, the provider still gets paid for that time and effort. I have never seen a plan require all of the documentation up front, though I can see why it might want it. I would expect the sponsor to at least be able to give the participant a ballpark figure of how much is available for hardship withdrawal, particularly if it is limited to deferral and rollover. Shouldn't that be enough for the participant to have an idea of how much supporting documentation they need to gather and provide? If the money is tracked by a recordkeeper in an individual account, someone should be able to log on and see the money by source. If the deferral is limited to basis then looking at the payroll reports or W-2 might be necessary, as well as seeing if there have been prior hardships that would reduce available basis.

No, I do not put it on the bottom of my e-mail. Ilene Ferenczy usually addresses it in her ethics webinars and explains it much better than I can. Usually it is explained that the Circular 230 update a few years ago changed the disclosure requirement because the e-mail disclosures weren't really effective disclaimers. The updated guidance says specifically to NOT put one in there. it isn't effective, and probably demonstrates a lack of keeping up with the guidance about Circular 230. Here is a quick article on the change. https://www.forbes.com/sites/kellyphillipserb/2015/01/11/a-reminder-to-ditch-the-disclaimer-this-tax-season/#4695c227210 My experience prior to the change: yes, I would receive paper correspondence from CPAs and attorneys with a disclosure.

If they really want a new plan, and want control of the new plan, it's worth considering a 401(k) plan, in addition to terminating the 403(b). Particularly if the existing 403(b) is already an ERISA plan. But there are different testing and compliance considerations of course for 401(k) plans, so it may not be the best fit for them.

It comes down to creditworthiness. I would check the fine print of your loan policy. The one that is part of the document we prepare for clients goes into detail about it, and even specifically mentions that a a Participant who has defaulted on a prior loan and has not repaid it with interest it NOT creditworthy.

Well - it was the wild west back in the '90s for §403(b) arrangements. Looks like that section applied for plan years 1988 and later, and clarification came out in 1989 - so I'm guessing the document provider didn't restrict it. This paper is from 1995 - but explains the earlier history pretty well I think. https://www.irs.gov/pub/irs-tege/eotopici95.pdf "Prior to 1986, there were no nondiscrimination rules applicable to 403(b) plans. TRA '86 added separate nondiscrimination rules for non-salary reduction and salary reduction contributions under clauses (i) and (ii), respectively, of IRC 403(b)(12)(A). These rules generally must be satisfied in operation for plan years beginning after December 31, 1988. Pending the issuance of regulations or other guidance, Notice 89-23, 1989-1 C.B. 654 (extended by Notice 92-36, 1992-2 C.B. 364), provides guidance for complying with the nondiscrimination rules. Specifically, Notice 89-23 deems a 403(b) plan to satisfy nondiscrimination if either the employer operates the plan in accordance with a good faith, reasonable interpretation of section 403(b)(12) of the Code, or in accordance with the safe harbors set forth in the Notice. A. Salary Reduction Contributions Salary reduction contributions are tested separately for nondiscrimination under clause (ii) of IRC 403(b)(12)(A). Nondiscrimination with respect to salary reduction contributions generally is satisfied only if each employee may elect to defer more than $200 annually. Thus, for salary reduction contributions to a 403(b) plan, there is no nondiscrimination analysis of the amounts contributed. The test focuses on eligibility and generally requires universal eligibility. There is no requirement to offer the opportunity to make salary reduction contributions. Once that opportunity is offered to any employee, it must be offered to all employees in order to satisfy this requirement."

They are required to furnish the Summary Annual Report - which for trustee directed pooled plans is required to contain some investment information.

Is there a specific question? Is it how are the contributions shown in 2019 if the correction relates to earlier plan years? From the EPCRS Rev. Proc 2019-19 1. An employee with a missed opportunity to defer is not included in the ADP / ACP tests. You run the tests without them, THEN do the MOD correction. Page 79: "For purposes of this section .05(2), in order to determine whether the plan passed the ADP or ACP test, the plan may rely on a test performed with respect to those eligible employees who were provided with the opportunity to make elective deferrals or after-tax employee contributions and receive an allocation of employer matching contributions, in accordance with the terms of the plan, and may disregard the employees who were improperly excluded." 2. The correction for the missed match is deposited as QNEC- Not Match. Yes, this will affect the vesting that would have applied, as QNEC is 100% vested. Page 76: "The corrective employer nonelective contribution is equal to the matching contribution the employee would have received had the employee made a deferral equal to the missed deferral determined under section .05(2)(b)." 3. The corrective contribution is generally related to the year of correction - not necessarily the year of the failure (at least for a MOD failure) P. 27 - tax liability for a closed year is not redetermined because of correction P. 30 - for allocation errors (which this is not, but if it were) the correction would count as an annual addition for the year of failure. My experience is that QNEC for a MOD failure doesn't count toward any participant limits, but I can't find a citation for it. I'm sure there are other threads on the message boards.

No, the money source (unrelated rollover) does not affect the 1099-R requirement.

I don't understand option one. Who is getting 1%? Why 1%?

My understanding is that the way the requirement is written is that it is the responsibility of the participant (not the plan as lender) to report and pay the tax. Though I have had plans ask how do they go back and pay it on behalf of their participants because it is being brought to the plan's attention for the first time. I think for other types of loans the lender(such as the bank) takes care of the stamp tax as part of the paperwork. But it's actually the responsibility of the other party. Since it isn't the plan that is responsible, it wouldn't actually be a plan issue.

Why would many of your clients allow for that? That is a horrible provision for probably 99% of plans, at least IMO. I hope someone who does bankruptcy chimes in - but my gut says yes, the loan payments have to stop. No the default is not suspended - I'm not aware of any provision relating to participant loans that makes an exception to loan defaults just because the payments happen to stop due to bankruptcy. I've never even heard of such an exception. Military service, medical leave, etc yes. Those things can suspend defaults. Bankruptcy - NO. But maybe someone else will have a citation that proves me wrong.

We also address it with our Florida clients. The Florida TPAs that I know of all address it with their clients. Very small or solo TPA may not know about it, but otherwise I think it's a known issue to Florida TPAs.

Even prior to the new Rev Proc, my understanding was that late loan payments could be caught up (with any extra interest if needed) as long as it was still within the cure period. I don't believe that has changed.

ERISApedia has a webinar coming up next month specifically on Loan Corrections under the new Rev Proc. It's free, so I'd suggest registering for it, and if possible, submitting your question ahead of time, which will give it a better chance of being addressed. Though if you need an answer sooner - folks here will likely chime in.

Ah yes. I think Lou is right. I work with 401(k) plans much more frequently. I can confirm I have seen partial accruals for HCE in CB plans.

Sure. It favors the NHCE. And it's actually decent plan design for some employers because owners who are leaving a company don't have the remaining owners needing to fund more to account for the leaving owner's contribution credit. If a law firm has a bad split, the ones left holding the bag might not want huge contribution credits for the partners that just left.

I would guess that the allocation schedule is for the employer contributions, whether it be match, nonelective etc. It would show how the employer contribution is calculated or the basis for the employer contribution amounts. For example, if an employer does a year-end profit sharing contribution and the contribution is pro-rata, I would expect a list of everyone's plan compensation, and the employer contribution amount, so that the auditor could cross check it. I would expect the auditor to check that the compensation used for the employer contribution is accurate based on the amounts reported on payroll records and the plan document, and that the allocated contribution conforms with the plan document methodology (match formula, profit sharing formula etc). Just because an employer deposits an employer contribution each pay period doesn't mean the information about how that contribution is calculated is on the payroll reports. If it isn't then whatever separate allocation report / schedule should be provided. You could just ask the auditor. I have found most to be very reasonable and agreeable.

I agree with ESOP Guy in general - but for this specifically - it would be unusual to have a true plan merger of a DB plan and a 401(k) plan, where the participants have no choice, and pension provisions are preserved. I understand there are some hybrid DB/k plans out there, but they aren't common (and I don't know anything about them) and it doesn't sound like that's what you have based on describing it as a rollover. But it is still good to consider ESOP Guy's point in case it for some reason it is a plan merger.

The plan does need to do a distribution for the earnings. It will need to include a breakdown of the earnings calculation with the VCP submission as well. So I would suggest working on that as well.

Answer 1: From Revenue Procedure 2019-19, page 85. .06 Failure to timely pay the minimum distribution required under § 401(a)(9). In a defined contribution plan, the permitted correction method is to distribute the required minimum distributions (with Earnings from the date of the failure to the date of the distribution). The amount required to be distributed for each year in which the initial failure occurred should be determined by dividing the adjusted account balance on the applicable valuation date by the applicable distribution period. For this purpose, adjusted account balance means the actual account balance, determined in accordance with §1.401(a)(9)-5, Q&A-3, reduced by the amount of the total missed minimum distributions for prior years. In a defined benefit plan, the permitted correction method is to distribute the required minimum distributions, plus an interest payment based on the plan’s actuarial equivalence factors in effect on the date that the distribution should have been made. See section 6.02(4)(d) of this revenue procedure. If this correction is made at the time the plan is subject to a restriction on single-sum payments pursuant to § 436(d), the Plan Sponsor must contribute to the plan the applicable amount under section 6.02(4)(e)(ii)(A) as part of the correction. Answer 2: Based on the above, yes. Answer 3: Yes, those two to start. I would suggest reading the VCP submission portion of the revenue procedure, particularly the portion for using the model forms (starting on page 60), and the rules for what to include (starting on page 62) You will need to include quite a bit more than just the two model forms. https://www.irs.gov/pub/irs-drop/rp-19-19.pdf Since the submission is for only an HCE, be prepared for the possibility that the IRS reviewer will have questions. Usually these types of submissions go through without any hiccup, but on occasion if the only participant affected is an HCE I have seen additional questions. Doesn't mean it won't get approved, just means they are reviewing it a little more carefully.