EBECatty

They must have done something to flush these out. I just got a compliance statement on one in late March, then a request for additional information a few days later on a different one. If memory serves, both were filed in early (i.e., January or February) 2019.

This is my understanding. I believe in 2009 plans could still choose to continue paying on the same schedule, but it wouldn't technically be an RMD.

I will keep beating this horse until it gives. Look at Notice 2005-92. It's not CARES Act guidance, but interprets the exact same statutory language in Section 103 of KETRA. Footnote 3, on page 14, reads: The Department of Labor has advised the Department of the Treasury and the Service that it will not treat any person as having violated the provisions of Title I of the Employee Retirement Income Security Act (ERISA), including the adequate security and reasonably equivalent basis requirements in ERISA section 408(b)(1) and 29 CFR 2550.408b-1, solely because the person made a plan loan to a qualified individual in compliance with KETRA section 103, Code § 72(p), and the provisions of this notice. I can't imagine the DOL now reversing course and asserting an ERISA violation based on a lack of adequate security, especially where doing so would render the statute's explicit loan increase illegal for anyone with a vested balance below $100,000.

I'm finding that Notice 2005-92 following KETRA addressed many of the open questions in the CARES Act. Even if it's not the same guidance eventually released on CARES Act, it's at least very instructive in how similar situations have been handled previously and probably can be safely handled pending official guidance. To the extent the same rules govern 402(f) notices and direct rollovers, if you default to no 20% withholding for plans not offering CRDs, would you also default to no 402(f) notices and no direct rollovers? This is from Sections 2.B and 2.C: B. Direct rollover and 20% withholding requirements are not applicable to Katrina distributions. If a distribution is treated as a Katrina distribution by an employer retirement plan, the rules for eligible rollover distributions under §§ 401(a)(31), 402(f), and 3405 of the Code are not applicable with respect to the distribution. Thus, the plan is not required to offer the qualified individual a direct rollover with respect to the distribution. In addition, the plan administrator does not have to provide a § 402(f) notice. Finally, the plan administrator or payor of the Katrina distributions is not required to withhold an amount equal to 20% of the distribution, as is usually required under § 3405(c)(1). However, a Katrina distribution is subject to the voluntary withholding requirements of § 3405(b) and § 35.3405-1T of the Temporary Employment Tax Regulations. C. Treatment of distributions as Katrina distributions. An employer is permitted to choose whether to treat distributions under its plans as Katrina distributions. Further, the employer (or plan administrator) is permitted to develop any reasonable procedures for identifying which distributions are treated as Katrina distributions under its retirement plans. However, if an employer retirement plan treats any distribution of an amount subject to § 401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11) or 457(d)(1)(A) as a Katrina distribution, the plan must be consistent in its treatment. Thus, the amount of the distribution must be taken into account in determining the $100,000 limit on Katrina distribution payments made under the retirement plans maintained by the employer.

See page 2 of the Form 8915-B instructions for an analogous situation: https://www.irs.gov/pub/irs-pdf/i8915b.pdf Any repayments after the first year will reduce the amount of ratable income included in the year of repayment. Any repayment in excess of that year's ratable taxable amount can be carried back (by amending prior year's return) or forward.

I mentioned Notice 2005-92 in a thread yesterday. While it's not CARES Act guidance, it interprets the exact same statutory language in KETRA from 2005. This is also from Section 5(b) of the notice: "The loan repayments must resume upon the end of the suspension period, and the term of the loan may be extended by the duration of such suspension period. If a qualified employer plan suspends loan repayments during the suspension period, the suspension will not cause the loan to be deemed distributed even if, due solely to the suspension, the term of the loan is extended beyond five years." It also addresses, among other things, the DOL's agreed non-enforcement of the adequate security requirement for plan loans and eligibility, distribution, and re-contribution rules for Katrina distributions, the statutory language for which mirrors the coronavirus-related distributions almost precisely.

I'm finding conflicting information here as well. The statute says "shall" but follows, to the letter, section 103 of the Katrina Emergency Tax Relief Act of 2005: https://www.congress.gov/bill/109th-congress/house-bill/3768/text (FWIW, the coronavirus-related distribution provisions of the CARES Act track section 101 of KETRA very closely.) Notice 2005-92 gave guidance on implementing both sections, which I imagine is similar to what we will get under the CARES Act. The notice doesn't outright say "under KETRA, the loan extension is optional," but section 5(b) of the notice very strongly implies that it is optional (e.g., "Thus, an employer is permitted to choose to allow this delay in loan repayments under its plan with respect to a qualified individual, and, as a result, there will not be a deemed distribution to the individual under § 72(p)" and "If a qualified employer plan suspends loan repayments during the suspension period, the suspension will not cause the loan to be deemed distributed even if, due solely to the suspension, the term of the loan is extended beyond five years" and "If an employer, under its plan, chooses to permit a suspension period that is less than the suspension period described above, the employer is permitted to extend subsequently the suspension period, but not beyond December 31, 2006." See also the example in section 5(b).

Does anyone have thoughts on whether distributions that would otherwise be required before December 31, 2020, could qualify as coronavirus-related distributions? For example, a plan has a mandatory distribution for terminated participants who reach normal retirement age. If the participant reaches NRA next week, can they certify they have been impacted and receive the first $100,000 as a coronavirus-related distribution? Or existing ESOP installment payouts? Say a participant was scheduled for an installment payment to be made this summer. If they certify they have been affected, is the first $100,000 treated as such? Assume each plan is willing to accommodate by operating and subsequently amending the plan in accordance with the new provisions.

(A) IN GENERAL.—Any individual who receives a coronavirus-related distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make 1 or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), of the Internal Revenue Code of 1986, as the case may be. (B) TREATMENT OF REPAYMENTS OF DISTRIBUTIONS FROM ELIGIBLE RETIREMENT PLANS OTHER THAN IRAS.—For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to subparagraph (A) with respect to a coronavirus-related distribution from an eligible retirement plan other than an individual retirement plan, then the taxpayer shall, to the extent of the amount of the contribution, be treated as having received the coronavirus-related distribution in an eligible rollover distribution (as defined in section 402(c)(4) of such Code) and as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.

This treatment is limited to certain provisions only, including 402(f) notices; 3405 mandatory 20% withholding; and the requirement to offer direct rollovers under 401(a)(31). If I recall correctly, the 2009 RMD waiver in WRERA had similar terms and I believe the IRS position was that plans could offer direct rollovers but were not required to offer them.

That was my thought as well. The language covers someone "laid off" and also explicitly applies to IRAs. So it can't be just a new distributable event, as both "those laid off" and "those with IRAs" already have permissible distributable events, but rather a wholly separate type of distribution for anyone with a plan balance.

I may be missing something, but hopefully someone can confirm. I've seen the newly permissible CARES Act "coronavirus-related distribution" referred to as a new form of "in-service" distribution (or some variant thereof). It pretty clearly seems to apply to in-service distributions, but I don't see anything that would limit a coronavirus-related distribution to in-service. Perhaps people are just referring to it in that shorthand as that seems to be the most useful practical application? In other words, if a 50-year-old participant terminated two years ago with a $200,000 401(k) balance, does anything prevent them from taking a $100,000 distribution (assuming they are affected by the virus, etc.) and taking advantage of the favorable tax treatment of this new distribution type?

Fair enough. Our Relius loan policy says "Generally, the Administrator will require that the Participant repay the loan by agreeing to payroll deduction." I do think the OP is describing a "qualified individual" as a participant who has been furloughed/laid off. Presumably they are suffering adverse financial consequences and could represent as much to the plan administrator. Even with stricter language in the loan policy, I think there's a reasonable argument to be made that repayment still must (and can) be accomplished by means of payroll deduction. The fact that they don't have any payroll currently does not mean they will not have any payroll a year later when the first payment is due. In other words, it's not impossible to comply with the loan policy at the time repayments are actually required. Either way, I suppose there's no harm in amending the policy to address specifically.

That section starts: "In the case of a qualified individual with an outstanding loan (on or after the date of the enactment of this Act)..." suggesting that even new loans (i.e., those not outstanding "on" the date of enactment, but outstanding "after" the date of enactment) would be covered as well. Deferring payments on new loans would also seem to further the goal of letting participants access the funds now (when needed) as opposed to solely providing relief for pre-existing loans.

If I'm reading it correctly, the CARES Act working its way through Congress now would defer loan payments for a year, possibly avoiding the issue altogether.

There is no severance from employment if the new employer assumes the old employer's plan. See 1.401(k)-1(d)(2): (2) Rules applicable to distributions upon severance from employment. An employee has a severance from employment when the employee ceases to be an employee of the employer maintaining the plan. An employee does not have a severance from employment if, in connection with a change of employment, the employee's new employer maintains such plan with respect to the employee. For example, a new employer maintains a plan with respect to an employee by continuing or assuming sponsorship of the plan or by accepting a transfer of plan assets and liabilities (within the meaning of section 414(l)) with respect to the employee.

See 1.415(c)-2(g)(8): (8) Back pay. Payments awarded by an administrative agency or court or pursuant to a bona fide agreement by an employer to compensate an employee for lost wages are compensation within the meaning of section 415(c)(3) for the limitation year to which the back pay relates, but only to the extent such payments represent wages and compensation that would otherwise be included in compensation under this section.

While it may not help at this point, as others note, we have several clients who offer prevailing wage contributions and they all limit the PW contributions to non-HCEs in the plan document to avoid this exact issue. Anyone on a PW contract who is an HCE has to be provided the required fringe amounts another way. This seems to be the accepted means of addressing the issue, so (hopefully) shouldn't cause too much pushback from the plan sponsor.

Thanks. Appreciate the further thoughts. I'm not committed one way or the other, but: On the first point, this concern would be moot if both plans separately satisfied 410(b) without having to use the transition rule. Even if you needed the transition rule, I think you could take the position that the proposed change to buyer's plan (only "legacy" employees of buyer are eligible; no other coverage changes) and seller's plan (only "legacy" employees of seller are eligible; no other coverage changes) arguably do not "significantly change" the coverage of either plan. The same people are covered by the same plan with the same terms both before and after the sale. On the second, I think you could also take a similar position that, under Section III.D.2 of Notice 2016-16, the proposed amendments would not "reduce the number or otherwise narrow the group of employees eligible to receive safe harbor contributions." Every employee is getting the same safe harbor contribution both before and after closing. Acknowledging there's some risk of interpretation, but I think both those positions could be taken in good faith.

Thank you both!

In my experience, most 457(f) plans are structured as short-term deferrals that are exempt from 409A and its plan termination/liquidation rules. Generally 457(f) on its own does not prohibit an acceleration of vesting and payment (again, as long as the plan is exempt from 409A). I would think applying the 409A 12-24 month payment delay may actually subject the plan to 409A where it otherwise may not be and potentially cause early taxation upon the date of accelerated vesting under 457(f). If the existing plan is a short-term deferral, I think you can terminate the plan, accelerate the vesting terms to require continued employment only until the plan termination date, and make full payment immediately thereafter. I believe that would also continue the substantial risk of forfeiture until the plan termination date (assuming the plan has been in place for a few years).

Thanks Luke. My understanding also is that you get the transition period following an asset purchase. Either way, that just solves 410(b). So, assuming you either (a) have the 410(b) transition, or (b) pass 410(b) independently with respect to each plan, I guess my fundamental question is can one employer simultaneously sponsor a SH match plan and SH nonelective plan?

I'll try to pull those. Thanks. If they can't use the transition period, and assuming they can accurately categorize the employee populations (e.g., "legacy seller") and both plans pass 410(b) independently, it's okay to have one plan use a safe harbor match and one plan use a safe harbor nonelective, correct?

I believe this is permissible, but am hoping someone with more testing experience can confirm. Say Company A acquires the assets of Company B. Company B employees will become Company A employees at closing. Company A has a safe harbor match 401(k) plan, and Company B has a safe harbor nonelective 401(k) plan. If Company A assumes sponsorship of Company B's plan, can both plans be maintained separately (for their respective pre-acquisition employee populations) during the 410 transition period without any adverse testing consequences? Thanks in advance.

For what it's worth, this is explicitly permitted for incentive stock options, which also need a FMV exercise price. See 1.422-5(c): (c) Additional compensation. An option does not fail to be an incentive stock option merely because the optionee has the right to receive additional compensation, in cash or property, when the option is exercised, provided such additional compensation is includible in income under section 61 or section 83. The amount of such additional compensation may be determined in any manner, including by reference to the fair market value of the stock at the time of exercise or to the option price.