JPIngold

Thanks all --- I have always advised my clients to err on the side of conservatism and simply wait to file the tax return until after the original due date if they have extended the return for funding purposes. Thanks to C.B. for the cite!!! Tells me I don't need to be so concerned. I wouldn't think the cash versus accrual would make a difference since cash basis taxpayers have always been treated as "accrual basis" taxpayers solely for the purpose of the retirement plan contribution.

If a corporate taxpayer and plan sponsor files for an extension of time to file its tax return, extending the filing deadline from March 15th to September 15th, but then files their tax return on March 13th, should they have funded the profit-sharing contribution deducted on the tax return by March 15th or is the extension to September 15th still recognized? Something in the back of my mind tells me the IRS can invalidate the extension if the return is filed by the original due date.

I'm going to toss out an answer to my own question and see if anyone has any comments. I believe that if I simply change both references to 'seeing the SPD for more details' in the section regarding distribution provisions to 'seeing the Administrator for more details', then there is nothing misleading and nothing else in the safe harbor notice that would be affected by the changes to the hardship distribution provisions. The Administrator would then be able to provide details to the participant upon request.

Totally agree with Larry!!! In my experience, it is normally the owners who decide they want to crank up their contributions near the end of the year when they see what kind of year they are having. So I learned when I handled the EGTRRA restatements to "encourage" all clients to allow modifications every pay period.

I'm a Relius document user and am seeking advice (since they don't seem to respond as quickly as they used to). They posted a notice on the site with regard to the safe harbor notices saying to select 166b on the checklist and then: "Clients can run a provisional report within RD ASP using the logic string in paragraph 166b as their selections. This report will assist in determining what action, if any, is needed regarding 166b for 2020 annual notices". Can anyone out there tell me how to run a provisional report in RD ASP??? If not, does anyone out there have suggestions on the safe harbor notice revisions due to the hardship distribution changes that have not been incorporated in the SPD (or even an SMM) at this point? Some folks hemmed and hawed at ASSPA Annual, but I didn't get anything concrete in the sessions I attended. Thanks. James

The problem is we are 8-2/3 months after the plan year. If we return the excess to the employer via a negative contribution, they would need to process a taxable payroll to the employee for 2019 (which would be right for federal and state tax purposes), but it would cost FICA and Medicare again (unless you could get the payroll service to label it as non-taxable for FICA and Medicare.

I did read the document and it says to apply the principles set forth in EPCRS. EPCRS states that the operational failure "may be corrected by using the plan amendment correction method". I guess I was interpreting that to mean I have other options. If it said "shall be corrected" with a plan amendment, I would feel like I don't have a choice. Maybe I am reading it too literally.

I have a client that let a new employee enter the plan before meeting the eligibility date. I know EPCRS allows the plan to be retroactively be amended to waive the eligibility conditions as long as it meets the conditions of EPCRS. However, they don't want to do this because it would trigger a top heavy contribution for the employee. Can we claim that her 402(g) limit with respect to this plan was zero and process a taxable distribution as a corrective distribution for exceeding the 402(g) limit or do we have to return the money to the employer and have them make her whole? The problem with that is dealing with payroll taxes as it would be taxed a second time if you process a taxable bonus. Anyone do something different? Thanks. James

Thanks to you both for the reply. I've never had any doubt, but she was saying that none of the other TPA's she works with in her area (Chicago) treat it as compensation. Of course, she also said that she doesn't consider it a fringe benefit. I'm just glad to hear others validate what I have always said. Thanks and good luck with the rest of the busy season.

I am having a CPA tell me that they don't feel it should be included in compensation for plan purposes even though my plan's definition of comp is "W-2 wages". Has anyone ever had the Service question the inclusion?

Correct --- C would have NO plan. Since they aren't eligible to defer, no requirement to give them safe harbor contribution and A/B plan still satisfies the safe harbor. Thanks for your confirmation.

Having a brain freeze ---- looking for confirmation or a directive to hit the books! Controlled group with companies A, B and C. Client wants to adopt a safe harbor plan for A and B and not allow C to be a participating employer. A has 7 HCE and 34 NHCE B has 4 HCE and 17 NHCE C has 7 HCE and 8 NHCE Total is 18 HCE and 59 NHCE A sponsors a plan and B signs participating employer agreement …. coverage is (51/59) / (11/18) = 141.45% coverage Safe harbor is met with respect to A and B and we can forget about C as plan satisfies coverage so no ADP testing necessary. Any 401(a)(4) testing for employer contributions would include the C employees with zeros, but probably fine since they have such a large number of HCE's. Am I missing anything or misspeak somewhere?

I have a business client who is getting grief from their bank requiring them to inject some capital into the business. Unfortunately, their money is tied up in long-term construction projects and cash is tight. The company has a SIMPLE IRA for two of the three owners to participate in. The other owner and the rest of their employees are in union plans and are subject to collective bargaining agreements. I know, they should have listened to me years ago and establish a 401(k) plan instead of the SIMPLE. Will the following idea work??? Have the company establish a profit-sharing plan now that accepts rollovers and allows plan loans. Roll enough money into the PS plan from the SIMPLE and then have the two owners take loans sufficient to satisfy the bank's capital injection requirement. No contributions will be made to the PS plan for 2018 so as to not violate the exclusive plan requirement as it is my understanding this requirement is satisfied as long as no employee accrues a benefit under a QP in the same year as the SIMPLE IRA is maintained. We can then implement 401(k) provisions as of 1/1/2019 and have them cease making SIMPLE IRA contributions in 2018 and roll the rest over to the 401(k) PS plan in 2019. Any problems with this idea? Thanks in advance.

Thanks everyone!!!

Wondering if anyone has more clarification on this issue after a year and a half. Lou S says you must prorate. Kevin C says check the plan. I can find nothing in my research which is black and white. My VS document, in the "in-service distribution" language states "Procedures to implement in-service distributions. The Employer and the Administrator may adopt a procedure to implement the in-service withdrawal provisions, applied on a uniform and consistent basis to all Participants. For example, when more than one Account is available for distribution (e.g., both pre-tax Elective Deferrals and Roth Elective Deferrals), a procedure may be implemented setting forth the order in which Accounts are accessed to make up such withdrawal, or it may provide Participants with the ability to request that the amount withdrawn come from particular accounts. There is nothing in the RMD section of the document addressing it. The participant in my case is retired and turned 70-1/2 earlier this year so this is an RMD and not an in-service distribution. Do you feel I can use this provision to allow the employer to adopt a procedure enabling participants to specify which account each distribution is from whereas to enable the following process: Defer her first RMD until early in 2018; Assuming she would like to avoid using the Roth for estate purposes and not take any withdrawals from it, have her take her 1st and 2nd RMD's in early 2018 and elect them to be all from the pre-tax accounts (knowing she will be in a low tax bracket) Immediately thereafter, roll 100% of her Roth account to a Roth IRA to avoid future RMD's from the Roth account. Retain the pre-tax money in the plan and continue taking RMD's in 2019. Obviously this will not work if things have to be pro-rata as (1) part of the first two RMD's would have to be Roth and (2) you couldn't roll just the Roth account to a Roth IRA ---- you would have to roll both to respective traditional and Roth IRA's. Thoughts? Thanks. James

Sorry, I meant to include that in my facts .... the physician-owner of the practice will receive a "unit" of ownership in the "organization", so although small, he will have an ownership interest. I just can't see how this isn't an ASG and, unfortunately, I can't tell them to get a determination letter anymore. I am going to insist on a legal opinion or find another TPA.

Does anyone have a good way to explain the terms "service organization" and "regularly associated with an FSO in providing services to third parties" to someone who just doesn't want to believe an ASG exists??? I have a physician client (yea, surprise surprise) who decided to sell his "practice" to an organization who will take all of his employees off of his hands, leaving just the physician in his "practice". I inquired as to whether the organization was a service organization and if the physician and the organization will work together to provide health services to patients and the answer given was "_________ (the organization) does not provide healthcare services, but rather administrative and support services to the doctors". Well, if the employees that were moved to the organization include nurses who will draw blood, insert IV's, etc., how is that NOT considered providing a healthcare service??? I guess I am looking for the Sesame Street version of explaining an A-Org ASG.

Bummer .... time to get them on my document! Thanks Mike.

99% of my plans are on the Relius volume submitter document, so I am used to having flexibility in testing assumptions. However, I have one plan on a prototype document that actually reflects the cross-testing assumptions of 8-1/2% pre and post and the 1984 unisex table. Am I stuck with using those assumptions or if I fail using them, can I use other assumptions to show I pass?

I have an employer who insists on maintaining a one year wait for eligibility in his plan, but in order to attract an incredible salesman who wants to defer, he would like to waive the requirement for him .... saying it would be a one time exception. Does anyone have a good list of reasons not to do this (other than water cooler talk)? He wants to just let him in to defer and not receive the employer contributions until he is otherwise eligible. Thanks.

Yes, withdrawing the RMD from the IRA is going to be my suggestion. The interesting part is that the custodian of the 401(k) refuses to issue two 1099-R's and says they will only issue the one 1099-R reflecting the rollover. I guess as long as the IRA will issue the 1099-R for the taxable RMD it is a no harm no foul situation. However, I told them that based on the rules in place, they are not complying with them. [in the end, it will probably be easier than trying to get the custodian and the IRA to both report it correctly. I can just imagine trying to get the IRA to not report it as a taxable distribution!!!] Thanks for all of your input and happy Thanksgiving!

I based my proposed solution on information found in Sal's ERISA Outline Books.

Thanks .... both great responses. That was the discussion I planned to have with the employer, but just wanted to make sure others felt the same. Didn't know if anyone had been down this road with an IRS agent.

I have a strange situation and looking for advice: I have a salesman who has slowed down as he turned 70 on September 5, 2015. He is still trying to make some sales, but decided on February 5, 2016 (before he even turned age 70-1/2) to take an in-service distribution and roll it to his IRA as he felt the grass was greener in the IRA. He received a commission check in January, 2016, but didn't receive another one until September, 2016 (I told you he slowed down). Not sure he'll ever make another sale. If this is the case, I could see the IRS having the opinion that his retirement date falls in 2016 and, as a result, his RBD is 4/1/2017, making his first distribution calendar year 2016. Suddenly, that in-service distribution, which looked ok in February as he was still working, becomes a distribution that included his RMD. I feel I need to suggest to the Trustee and the custodian platform that they split that rollover distribution into two 1099-R's, one for the RMD amount (taxable) and one for a non-taxable rollover. We then need to advise the participant that he should request a distribution of excess contributions from the IRA for the RMD amount on or before the due date of his 2016 tax return. Agree??? Thanks in advance. James

Sorry I was at a tax client's office all day yesterday and this morning and couldn't chime back in. Here are some factors (which makes reality always more difficult than theory): Plan does not allow loans; The participant has been told without hesitation that he would not qualify for a home equity loan because he is actually not working right now as he is on workman's comp leave; The workman's compensation leave is not sufficient enough to qualify for social security disability, which would allow him to take a distribution; The attorneys have already settled the divorce without even talking to the employer about the possibility of a QDRO; Suddenly, the guy needs $30,000 to even up the property settlement (which is tax-free to her), which means her attorney was smarter than his attorney since he knew that would be tax-free versus the ultimate taxation of the money received via the QDRO; This guy really wants to keep this house, partially because he may not be able to clear the $30,000 on a sale. Lawyers sometimes create little choice for the parties involved.