bito'money

In an old presentation by IRS on EPCRS (when RP 2008-50 was still in effect) they provided the following example for a failure to include bonuses in deferrals: Correction: Missed deferrals attributable to excluded elements of compensation need to be determined. Generally, the employee’s elected percentage of compensation would be used to determine the amount the employee would have deferred from the excluded elements. The corrective contribution for the missed deferral opportunity would be 50% of the missed deferral (adjusted for earnings). If the plan calls for matching contributions, a corrective contribution must be made equal to the full matching contribution that the employee would have received (adjusted for earnings) had the missed deferral (attributable to the excluded element(s) of compensation) been made to the plan. Do not apply the 50% missed deferral opportunity rate. Any missed discretionary contributions on the omitted compensation (plus earnings) must also be contributed. Ginco, Inc. had 4 employees in 2010. The plan document for the Ginco 401(k) plan provides that bonuses are included in the definition of compensation. Alan and Lourdes were the only employees receiving bonuses in 2010, and each received a $20,000 bonus. They each also elected to defer 5% of compensation. In 2010 Ginco decided to make a discretionary profit sharing contribution equal to 6% of compensation on behalf of each employee. In operation, the contribution was calculated without regard to Alan and Lourdes’ bonuses. The total compensation for all 4 employees excluding bonuses was $200,000, with each employee earning $50,000. Thus, each employee received a $3,000 profit sharing contribution. The missed deferral for Alan and Lourdes is $1,000 each (5%x$20,000). Ginco must contribute 50% of this amount ($500) plus earnings each to Alan and Lourdes’ account. Alan and Lourdes should also each receive a $1,200 (6% x 20,000) contribution for the discretionary profit sharing contribution.

Yes. If they are terminating the plan on 8/31, it's going to be a short plan year from 1/1 to 8/31, but that doesn't give them a free pass for the short year.

Is $2,948.26 the monthly amount he would have received if the 5-year C&L annuity started on his required beginning date, and is the $43,342.26 single sum simply the make-up annuity payments (with interest on the retro payments from required beginning date to the annuity commencement date)? (Since you didn't say, when was this person's required beginning date?) If so....the deemed RMD (subject to excess accumulation excise tax in each year from the year containing the required beginning date until 2022) would be 9-months of payments for the year containing his required beginning date, and, assuming the required beginning date was not 4/1/22, it would be 12-months' worth of payments for each subsequent year until the end of 2022. The RMD for 2023 would be equal to the 12 months of the annuity payments for 2023. Since the lump sum is to make up for annuity payments that were supposed to have been received from required beginning date until the benefit commencement date and that would not have been eligible for rollover in the first place, none of that lump sum amount would be eligible for rollover.

Paul I, I disagree with the following statement because the High Paid threshold (145,000) applies to the FICA wages of the individual participant, not the combined household income: "Further, the High Paid threshold will impact a subset of the NHCEs. A common scenario is where the children finally are financially off the parents budget and both parents now are working and trying to save more for retirement. This provision works against them because combined household income makes them High Paid."

Another important consideration is the RMD separate account rules (which allow you to apply the rules separately to the account of each beneficiary). To avoid having to use the life expectancy of the oldest beneficiary for all the beneficiaries, avoid applying the 5-year rule to all the separate accounts if a non-person is one of the beneficiaries, or avoid having to use the 10-year rule if one of the beneficiaries is not an eligible designated beneficiary, it usually makes sense to split the account by no later than the end of the calendar year in which the death occurred if at all possible. If the participant died after required beginning date and the participant didn't satisfy his RMD before death, it is best to split the accounts even earlier since the beneficiaries are required to receive the remainder of any RMD the decedent was owed by end of the year anyway, and you are going to need to report the distribution as taxable to each beneficiary separately.

PS, I don't think you have provided enough info for anyone to properly help with your inquiry. What kind of plan is this? DB or DC? (Guessing DC since you asked about loans, but is it a plan with a cash or deferred arrangement? Does it have a match or after tax feature, or just profit sharing?). Is the plan PR-qualified only or dual-qualified in both US and PR? If it's a 401k or 1081.01(e) plan, can you confirm that the plan sponsor does not sponsor an alternative defined contribution plan that would subject the distributions to the successor plan rule under both the US and PR law?

One thing you may want to warn your client about is that he may end up owing unrelated business income tax on the limited partnership interests (which can involve filing 990-T annually and paying the associated tax).

ConnieStorer, the regulations say the presumptions apply starting with the 4th month/10th month of the PLAN year and it stands to reason that these deadlines are based on plan months (as defined under 1.430(j)-1(e)(7)(ii) for plan years beginning on a date other than the first day of the month), not calendar months. Therefore, I think your first interpretation is the correct one. Better safe than sorry by certifying and issuing the AFTAP a few days before the deadline in any case.

You're not missing anything Austin3515... https://buck.com/secure-2-0-significant-changes-for-employer-sponsored-retirement-plans-start-now/ Buck comment. Currently, 150% of the age 50 catch-up limit is greater than $10,000, so the limit at ages 60-63 would already be $11,250 (even before cost-of-living increases are applied). Additionally, the elimination of pre-tax catch-up contributions for high-income earners will also apply to these catch-up contributions.

SECURE 2.0 also includes a provision (Section 327) that allows a surviving spouse as sole beneficiary to elect to treat their inherited interest in the plan as if they were the employee starting with distribution calendar years in 2024 and later (sort of like the rule that applies to allow IRAs inherited by spouses to be treated as if they were their own). If a spouse elects to treat their inherited interest as their own (as if they were the employee), this would change the date when RMDs are required to begin (to no earlier than when the spouse attains RMD age rather than 12/31 of the year the dead participant would have attained RMD age) and for purposes of calculating the RMDs (so they can use uniform lifetime table factor instead of single life table factor for years after the year of the employee's death). I think we need guidance from IRS on the following: Whether it's optional or mandatory for plans to offer this election to spouses. Exactly when is the spouse be required to begin if they elect to treat as their own? For example, would it be 4/1 after end of year the spouse hits the RMD age - as would be the case if they are actually treated like the employee, 12/31 of the year in which the spouse hits RMD age, or the actual date the spouse attains the RMD age? When exactly does the election have to be made by the spouse? Can spouse put it off until the earlier of when either the spouse or the participant would have had an RMD required? If the employee doesn't make an affirmative election and doesn't take an RMD in time based on the employee's birth date - would a deemed election apply as would be the case with an IRA inherited by a spouse? Such a rule could help spouses avoid RMD penalties in a lot of cases. Is this type of provision something a plan would have to include a provision for, or will plans be subject to some sort of default rule in the regulations unless the plan affirmatively says it will not apply? If a spouse elects to treat as his/her own and then starts before the spouse attains 59 1/2, would spouse's distributions then become subject to 10% penalty tax before age 59 1/2? I would think so, and that in order to avoid this possibility, it may make sense for the spouse to wait until after the earlier of when the spouse turns 59 1/2 or when the spouse would be required to take an RMD based on participant's age. What changes are needed to the special tax notice in 2024 or later for this rule? Can a spouse who treats their inherited interest as their own name a subsequent spouse as a beneficiary and can that subsequent spouse also elect to treat their account as their own? Can this rule be applied to a QPSA under a DB plan? I would think so, but typically QPSA is only payable as life annuity and spouse wouldn't get choice of optional forms like the employee and generally couldn't elect a J&S under 401(a)(9). Is it ok to only allow life annuity if spouse elects to treats as her own? If a DB plan is required to, or allowed to permit a spouse to elect forms of payment that provide for another beneficiary for life, are there any new incidental death benefit limits to watch out for? Does this rule mean that a spouse/former spouse Alternate Payee under a QDRO can also apply this rule to delay their commencement date? If the QDRO is silent, is the plan required to offer AP an election to treat account as her own if it offers surviving spouses such an election?

Rev. Ruling 2002-27 said that the participant's cafeteria plan right to elect to receive cash instead of medical benefits was effectively impinged upon (by requiring them to certify they have other group health coverage) - and that practice effectively converted the amount that would have been an elective deferral under 125 (that would have been includible in comp under section 415) into an employer-paid medical premium that was excludible from comp under section 415 (as employer provided medical coverage excludible under section 106(a)) - but only for those who didn't or couldn't certify their ability to receive other coverage). This was a messy and somewhat inequitable result - because the amounts that would have been paid toward the employee's portion of medical coverage for some people was 415 compensation (who certified that they had other coverage) but was not 415 compensation for others (who didn't and couldn't certify they had other coverage). The ruling probably was issued in 2002 because some employer had adopted this practice and treated the amounts that the employee wasn't allowed to elect to receive in cash as elective contributions under 125 (and thus includible in 415(c) pay) and was looking for a way to include these amounts in 415 pay (to avoid some sort of retirement plan qualification failure). The issue probably came up when an employer submitted a plan for a determination letter for GUST (when section 415 pay definitions were required to be amended to include elective deferrals under section 402(e)(3) and 125 for the first time - starting in 1998). I think the upshot of the ruling was that even though the plan in question shouldn't have included the amount that they mistakenly included in comp as if they were still section 125 elective deferrals, IRS gave them relief by saying they could treat such amounts as if they were section 125 deferrals (even though they were really employer contributions excluded from income under section 106, not section 125 elective deferrals). I still see some plans that include deemed 125 comp in their plan documents. Nowadays, employees can go to the ACA marketplace and get access to coverage going forward without pre-existing condition exclusions. Now employers seem to be more concerned about meeting the ACA employer mandate (and offering affordable coverage to enough employees) than they are about paternalistic concerns about employees opting out of employer sponsored coverage and then not being able to get coverage outside of the employer plan. Mostly, those who still have deemed 125 comp in their plan documents probably don't still carry on the practice of requiring proof of other other group health coverage for employees to opt out of employee only coverage to receive cash (or taxable benefits) from their cafeteria plans, but since they are a pension plan (and they need to look at pay over the employee's career), they did so at one time and still include the deemed 125 comp in their pension plan's pay definitions for the period back when they used to do it.

Ftam, if, as you say, the plan document really says it is a safe harbor plan, and you sent out notices telling everyone it is, I don't think that's the end of it. There's more to being qualified than 401(a)(4). How about 401(a)(7) (failure to meet section 411 due to a 411(d)(6) violation)?

I think that under the regs, you can have a safe harbor plan for less than 3 months in the initial plan year if the employer just came into existence during the year and you started the plan as soon as administratively feasible after they did. If the plan doesn't say that safe harbor matching will be determined based on each payroll period, and that the match will be deposited by the end of the following plan year quarter, that may be seen as requiring the true-up (and that taking away the true-up after the fact would be a cutback). You can't do a cutback amendment under SCP.

You don't have to provide the W-4R (but note that the $200 threshold is based on the total of all distributions during the same year). See IRS regulation section 35.3405-1T, F-6 and F-7 (which exempts distributions under $200 from the requirements to provide a withholding notice and election), 31.3405(c)-1, A-14 (which exempts distributions under $200 from mandatory withholding) and 1.401(a)(31)-1, A-11 (which exempts the plan from offering a rollover election on distributions reasonably expected to total less than $200).

David, There are a few SECURE 2.0 provisions that affect QDROs that you may have overlooked. SECURE 2.0 Act section 339 says that now DROs issued by Indian Tribal Governments (or subdivisions, agencies or instrumentalities thereof) under tribal domestic relations laws can now be qualified - just as if they were issued by a State. Another interesting SECURE 2.0 provision is section 327, which says that starting in 2024, employer-based plans can now permit surviving spouses to elect to treat the account/benefit they inherit from the participant as their own for required minimum distribution (RMD) purposes. (Up to now, this type of treatment was only available for IRAs inherited by spouses, but not for employer sponsored plans). This could affect the latest time when an alternate payee's separate account or segregated share can commence to be paid out under a QDRO. Yet, another interesting provision, section 325, makes designated Roth accounts not subject to the RMD rules during the participant's lifetime and makes them more like Roth IRAs (which could affect the timing when such accounts are required to be commenced with regard to an AP's separate account while the participant is still alive). This section is applicable starting with the 2024 distribution calendar year. Generally, under the RMD rules, the AP's account is treated like a separate account of the participant while the participant is still alive and then is treated like a beneficiary account after the participant's death. So, this could also delay the RMD commencement timing for an AP's separate accounts (that are held in a designated Roth account) until after the participant's death. If at the death of the participant, the spousal AP elects to treat the account as her own under the surviving spouse election rule I mentioned in the previous paragraph, it would seem the AP could then delay the RMDs on the designated Roth accounts portion of her account until the AP's own death. (Again this type of treatment was available in the IRA world before, so an AP who was allocated a portion of the participant's designated Roth account would have been able to achieve a similar result by rolling the designated Roth account to her own Roth IRA account. Now AP's can get the same treatment in an employer sponsored plan - that is, if the plan doesn't force them out sooner than the law requires).

Thanks for your reply Nate. Are you just saying that the right to repay post-transfer is somehow required under Notice 20-68? Otherwise, I don't understand how the right to repay a QBAD withdrawal from the prior plan could be required if the QBAD optional form itself is not a protected benefit. The receiving plan is an individually designed plan, so the last sentence of your reply (cycle 3 document, administrative procedures checklist, special effective dates sections) is inapplicable to my situation.

I assume your client pension plan pays lump sums that would be eligible for rollover. Based on the 2022 proposed regulations, if he is already beyond required beginning date (which he would be if the distributing plan is an IRA or if he no longer worked for the employer maintaining the pension plan as of the end of 2021), the 4 children must continue to receive life expectancy based RMDs each year (starting in the year of the participant's death if the participant didn't satisfy his RMD before death, or otherwise starting the next year) in addition to exhausting the entire balance at the end of the 10-year period. (This assumes that none of the kids are disabled or chronically ill individuals who would be permitted to continue receiving life expectancy based minimum distributions for a period of time beyond 10 years). They can take out more than the minimum for a year from their inherited IRA if that's to their advantage. I think you really need to ask about the tax brackets expected for each of the beneficiaries over the 10 year period, and whether including an additional amount in income may increase the taxation of their social security benefits. (For example, it may be better sometimes to include an amount in income earlier if their marginal bracket tax bracket in that year is lower. In doing projections, keep in mind that the 2017 tax cuts are ending in 2025).

I have a plan sponsor that bought a small company that participated in a multiple employer plan, and whose 401(k) plan is going to be accepting a spin/off transfer of assets/liabilities from a multiple-employer plan that offered QBADs. Notice 20-68 says that a plan that issued a QBAD must accept repayment of one. However, it doesn't address what happens if the participant is no longer a participant in the same "plan" that issued the QBAD (such as when a plan spin-off or transfer of assets and liabilities occurs after the QBAD is taken that causes the participant to no longer be part of the original plan that distributed it). When the account is spun off/transferred to another plan, does the requirement to accept the repayment move with the transferred assets? My thoughts are as follows: it appears that the right to take a QBAD is a protected benefit under 411(d)(6) with respect to the assets transferred (and it is not excepted from 411(d)(6) anti-cutback rules like hardship withdrawals are). Therefore my client's plan will need to add QBADs, and will need to accept repayment of QBADs (even if they were taken from the multiple employer plan before the spin-off/transfer). Do you agree? Or, do you think repayment of QBADs made to the prior plan would not need to be accepted by the plan accepting the spin-off/transfer (since the prior multiple employer plan still exists, the person who received the QBAD is no longer a participant in it and that plan wouldn't accept a rollover from a former participant)?

It's possible that even if there was a taxable distribution to the participant, the estate could be permitted to roll it over on behalf of the decedent. See the following case (kind of old but maybe still valid). https://cite.case.law/pdf/5871695/Gunther v. United States, 573 F. Supp. 126 (1982).pdf

So, since employer contributions are not usually includible in FICA wages, doesn't this mean that the Roth employer contributions will be includible in gross income for income tax purposes, but will not be includible as wages for FICA?

As far as correcting it, you would ask him for the money back (with earnings). If he pays it back, put it back in his account; if he doesn't, (assuming the money came out of his account and not someone else's by mistake) the plan sponsor doesn't have to put the overpayment back in. If it's an insignificant failure and it was inadvertent (not on purpose), you can self-correct it (even if under examination). Not sure if IRS will believe it's inadvertent if the plan administrator himself got the extra cash (in which case an audit cap sanction may be assessed).

Interesting question. If you look at IRS publication 6391, the model plan document language the IRS is looking for has both notary and plan representative in it, so they may give you a hard time if you omit either one. https://www.irs.gov/pub/irs-pdf/p6391.pdf Not sure why anyone would want the spousal consent rule for a plan to be more restrictive than permitted. Is it that you are worried that if the plan sponsor's employee (either as plan representative or a notary) screws up in witnessing the acknowledgement that the employer could be liable for the error of their employee? I don't think you can restrict the notaries the plan accepts to those who don't work for the plan sponsor, unless it is due to some concern about a particular notary's commission being expired or something like that. For example, what if an employee lives in a remote "company town" and goes to several notaries to get consent and you keep rejecting them from the only notaries the employee has reasonable access to? At some point you will be preventing them from electing the benefits they are legally entitled to. Here are a couple articles about issues that can arise for someone who notarizes on the job (and some state laws in this regard - which were in effect when the article was written): https://www.nationalnotary.org/notary-bulletin/blog/2014/08/notarizing-on-the-job-boss https://www.nationalnotary.org/notary-bulletin/blog/2013/04/what-you-need-to-know-about-e-o If you don't want employees notarizing stuff on the job (and not just related to the plan), you may be able to make that your company policy (as long as it is not illegal to do so under state law), but I don't think you can tell them that they can't notarize off the job - outside the scope of their employment. It is arguable that a plan could require notarized spousal consent (without allowing a plan representative to witness spousal consents) since I don't know of any requirement that says a plan MUST provide a plan representative for witnessing spousal consents (or that you have to make the plan representative available at the participant's beck and call), but it would seem impractical, and perhaps impermissibly restrictive, to require consent to be witnessed by a plan representative and not a notary. For example, let's say that the plan representative is located on one coast and the participant is located on the other coast. Would it be fair to require the participant to fly a spouse cross-country to obtain their spousal consent? This may not be so bad if remote witnessing by a plan representative is permanently allowed, but what if the plan representative fails to make himself or herself reasonably available for this purpose, and this results in participants losing their ability to access their benefits? Or, what if the employee is technologically challenged or doesn't have access to a computer that offers the necessary remote witnessing software the plan representative uses? Could that cause some optional forms of benefit to be not effectively available under the benefits, rights and features rules? I think it could.

I agree you wouldn't need a VCP for this and that the plan's fix is just to fix the 1099-R and notify the participant that the rollover of the RMD was made in error. As far as the assertion that the plan did nothing wrong, I think the distributing plan should have known that a portion was an RMD and provided a tax withholding notice and election for non-periodic payments (e.g., W4-R) on the portion that was not eligible for rollover. I would not expect a participant to know these things. There is a penalty for not providing that withholding election notice. There is also the fact that they didn't withhold at the default rate of 10% on the RMD - so the employer could be held to accountable for that amount if the participant doesn't pay the tax. (In practice, IRS rarely catches plans and assesses these penalties). I am not absolutely sure it is going to be an excess IRA contribution for 2022 (and there is still time to remove it before the end of the year, if necessary). It is certainly not a rollover contribution for 2022 - but if the RMD amount is less than $7,000 ,it is at least conceivable that all or a portion of the RMD could be recharacterized by the participant from a rollover contribution to a regular IRA contribution if the participant didn't already contribute the $7,000 max to an IRA (including the RMD amount) and had the 2022 earned income necessary to support that regular IRA contribution. The participant would probably need to contact the IRA provider to find out how they could recharacterize the RMD portion of the contribution and how they can get the RMD removed from their account (either to avoid an excess contribution, or if they didn't want to make the regular IRA contribution to that account).

When an employee retires from the employer maintaining the plan is determined based on all the facts and circumstances at the time the determination is made. If this person is re-employed within the same calendar year before any distributions were required, then no RMD would be due for that distribution calendar year. I don't think that paying a distribution is necessarily "safer" if the plan wouldn't allow in-service distribution if the participant is still employed.

If you are self-correcting, which requires a plan to have established practices and procedures, look out for this rule in Rev. Proc 2021-30: "A plan that provides for elective deferrals and nonelective employer contributions that are not matching contributions is not treated as failing to have established practices and procedures to prevent the occurrence of a § 415(c) violation in the case of a plan under which excess annual additions under § 415(c) are regularly corrected by return of elective deferrals to the affected employee within 9½ months after the end of the plan’s limitation year." If you are going to self-correct now for a plan with a calendar year limitation year in the manner you suggest, you may have to take the position that you had established practices and procedures to pay out the excess deferrals by 10/15, but failed to follow them. Make sure you are comfortable with that before proceeding.