RatherBeGolfing

Rev Proc 2013-12 6.07© I know you can self correct loans from a plan that didn't allow for loans, but only if the loans were within the limits of 72(p). Since there is an exception under 72(p) for principal residence loans, I think you could do SCP if you wanted to amend the plan to make the 15 year loan allowable under the terms of the plan document. Following that same reasoning, I think you are stuck with VCP if you want to correct in a way other than expanding what loans are allowed under the plan...

I agree, try to get something in writing from the IRS to be pro-active, or at the very least get the issue on record with IRS. They can log it under your firm's EIN, this way they can reference it if an issue comes. We had this done last year when many 5558's of a batch weren't processed by IRS. Are you a member of ASPPA? If so, I would also check with Craig Hoffman to see if they have had reports of similar issues. J

The assets in the account are not actually security in that sense. The 50% comes in to play only for calculating and issuing the loan. The loan is considered adequately secured when issued, subsequent changes to the account balance does not change that. From the ERISA Outline Book / Chapter 7

You are correct. If otherwise eligible, a participant can withdraw his/her remaining account balance. The 50% is used when calculating the available loan, but does not have to remain in the account after the loan has been issued. J

I'm not sure why you are treating the employer as having implemented the 0% deferral just because the employee left. The employer never actually implemented deferrals for the employee, period. An employee can't elect to have deferrals taken out of pay he/she doesn't get (or elect to have 0% deferred for that matter), so how does it make sense to call that a 0% deferral implemented by the employer?

So to sum up 1. The distribution of the excess would be permitted even after 4/15 if the deferrals were made to one plan (under Rev proc 2013-12 Appendix A .04) Otherwise, it is distributed upon a distributable event and taxed in the year of distribution. 2. The distribution is subject to the 10% additional tax under IRC 72(t) unless another exception applies (like attainment of age 59 1/2) We are having the same 10% discussion in my office this week so this was a timely thread for me to jump in on

I agree, and this is why I am examining my own firm's written procedures to see if they should be revised. Would you agree then that law is pretty clear that the duty to segregate assets is not triggered until you have a DRO (not a draft or notice thereof, but an actual order, decree or judgment made pursuant to state law etc.)?

That part is addressed in §206(d)(3)(H) During any period in which the issue of whether a domestic relations order is a qualified domestic relations order is being determined (by the plan administrator, by a court of competent jurisdiction, or otherwise), the plan administrator shall separately account for the amounts (hereinafter in this subparagraph referred to as the “segregated amounts”) which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order. Basically, you freeze the account upon receipt of the DRO, qualified status doesn't matter at that point because what you have is an ORDER telling you that the alternate payee is entitled to the participants benefit. Whether you actually pay it out depends on the qualified status of the DRO. I don't think your position is unreasonable, it may even be the most common approach. I'm just (personally) struggling with the legal justification of suspending a participants rights to a distribution absent an actual DRO.

For what it is worth, I agree with you. It absolutely comes down to where you draw the line, and I want as little discretion as possible for the PA to stay consistent. Luckily, 99% of the DRO's that hit my desk are relatively simple because the parties just want it over with at that point. There is always that one percent though. That pretty much sums up my position as well. However, I have heard the argument from other practitioners that once the plan has been put on notice that a DRO is forthcoming, a hold on distributions is justified for a reasonable period of time. Thanks, J

How do you define receipt of a DRO? I have seen some interesting questions here and on other sites lately, which caused me to take a closer look at my firm’s QDRO procedures. One thing that I am a little stuck on and that I’m hoping for some good input from the benefitslink community on, is at what point do you consider the Plan Administrator being in receipt of a DRO for a QDRO determination? And more specifically, what triggers the Plan Administrator’s duty to segregate and separately account for the assets subject to the QDRO. Our current QDRO procedures states: “Upon receipt of a written notice of a domestic relations order, the Plan Administrator will…” If I (the Plan Administrator) get a request from an alternate payee’s attorney asking for certain information to assist them in drafting a DRO, am I in receipt of a DRO that would require me to not process distribution requests from the participant? Technically, I would say no, I’m not yet in receipt of a DRO. However, processing a participant’s distribution request after you know that a DRO is in the process of being drafted seems to go against the spirit of the law. I have not seen any advisory opinions or other guidance on what is considered receipt of a DRO. Would anyone here argue that there is such a thing as constructive receipt of a DRO? Thanks in advance for any input and (hopefully) spirited discussion J

The argument, as I have seen it before, is that the earnings portion is deposited as a QNEC contribution. We do them as earnings, and I have never had an issue with the DOL, IRS, or an auditor (for large plans) doing it that way. I have taken over plans where earnings and contributions due to lost deferral opportunity was deposited as QNEC.

Short answer is that it should't matter. I have had something similar happen and when I spoke to the EFAST helpline they said to not worry about it. Of course, you never know... Since you have the signed form without the X for 5558 and time hasn't run out yet, is there a reason why you can't "uncheck" the 5558 on your end? You aren't actually filing under the extension so you don't need the box checked on the 5500. In my system, I would simply delete the 5558 and uncheck the box on the 5500 and everything would line up just fine.

Thanks Bill, I'll shoot you an email later this afternoon. J

80-120 rule does not apply because since it is the first year, the plan has never been eligible to file a small plan. 80-120 rule allows you to elect to continue to file as a small plan if you were eligible in the past. But that doesn't really matter since your example had 0 participants on the first day of the plan year. Therefore, no audit required for the first year. But like Mike said, be prepared to prove that the plan had no participants at the beginning of the year.

Thank you for that explanation. Derrin was going to be my next stop in researching this issue so I can definitely see the merits of your argument. It should be noted that my second post was quoted from the current edition of Sal Tripodi's ERISA Outline Book, so I cannot take credit for the IRC §1563(a)(3) interpretation, the position on the SCOTUS holding in the Vogel Fertilizer case, or the informal positions taken by the IRS at industry conferences. I will say that I am a bit surprised to see Derrin and Sal take come to such opposite positions on the matter. I can certainly see merit in your argument that they should be treated as a single employer. I think reasonable people can agree to disagree on this issue as there is logic to both positions. I did go back and read Derrins thoughts on the issue in Who is the Employer, and I found his short answer very interesting Under Derrin's reading of the Code, §414(b) would cause all members of the overlapping groups to be treated as a single employer because... (http://benefitslink.com/m/qa.cgi?n=31&db=qa_who_is_employer) Derrin also brings up a case from the 1970's where the IRS threatened an adverse letter. Two very different outcomes from two very reliable sources in our industry. To further complicate things, I think I will see if I can get this question submitted for the IRS Q&A at ASPPA Annual. I know it is only the opinion of the presenter, but it would be interesting to see where the IRS are on this in 2016. Cheers! J

Would you mind explaining what part of the regs make you reach that conclusion? I'm not trying to be argumentative, I'm genuinely interested in seeing the application and solution. From Sal's ERISA Outline Book Thanks. J

I agree, should't be an issue. I have had the same situation on quite a few plans and it has never been questioned. On the other hand, if you end up with only owner+spouse again and go back to EZ, they might ask where your 5500 is if you decide to not file because you are under $250,000. It is still a one letter explanation though...

I'm pretty sure that you cannot have a single CG simply by having a common member. The group as a whole A/B/C/D does not satisfy the CG test. Instead, what you have are 2 CGs, A/B/C and A/D. If you are doing admin for A, you would need to look at both A/B/C and A/D for any CG issues.

By sending the client the corrected 1099-R that is precisely what I am doing. I do not have to advise them of the consequences of not doing what I ask. I presume they will do what I instruct. "Dear client - the 1099 was inaccurate or no 1099 was filed. Please file the attached [corrected] 1099-R and prepare your amended tax returns accordingly oh and by the way enjoy the rest of your summer!" I've met Circular 230, have I not? In the example I gave I have zero obligation to find out if they complied with my instructions. Yes, I think you have met your obligation under 230 10:21 when it comes to the 1099. The bigger question is the 5500, since you under-reported distributions. I think you need to amend and file the 5500 (or have the client do it) to reflect the correct distribution. I'm not sure how much cross checking they do between the 1096 and 5500, but I have seen it come up in audits before.

That's quite brilliant actually. I think what it comes down to is at that end of the day I am a THIRD PARTY. If a client doesn;t want to file the 1099 I prepare, then that is on them. I have fulfilled my responsibility. It seems inappropriate for me to do something without my client's express permission because I serve at their direction. Thoughts? Well that puts it in a different light. I assumed you were talking about the obligation to the client, not the government. You are correct, you are a third party/paid preparer, you do not have an obligation to file a correction with the IRS (the client does...) You DO have an obligation under Circular 230 to tell the client that they may be violating the law by not reporting the now apparent distribution, and to explain the consequences Under ASPPAs code of ethics, it is proabably at least questionable to continue to provide services for a client who is refusing to report income from the plan... In this case I don't think it matters whether your service agreement references 1099's, since you know of the clients omission.

Correct me if I am wrong, but part a) of the original question involved a distribution that the service provider was unaware of and NO 1099 was prepared. The question at hand is whether the service provider is obligated to prepare a Form 1099. Part b) of the question then asks if the answer is different if there were two distributions (one for which a 1099 was prepared) and a corrected 1099-R is now needed. Their service agreement is silent on 1099's Under part a) are you obligated to prepare 1099's for client simply because you are the service provider that prepared the 5500? I don't think so. I think most of us DO provide that service but I know some who do not. Under part b) they prepared a 1099 but with the wrong amount since they did not know of the second distribution. In this case, since they prepared the original 1099, I think an argument can be made that they did accept the obligation and should probably prepare the corrected 1099. As far as being a practitioner under circular 230 or a member of ASPPA, I don't see a reason why a practitioner would be obligated to perform a service they did not contract for As stated in the original question

The responsibility lies with the Plan Administrator. If you you establish the trust with the financial institution that has the brokerage window I'm sure they would do a 1099 for you though. But for an unrelated plan and trust (the only connection to the financial institution being the brokerage window), I don't think they are under any obligation to prepare/file a 1099. I have a lot of brokerage window plans and I can probably count on one hand the times a financial institution prepared Form 1099's for the plan. I should add that all my plans use my plan document which includes the plan trust.

Is the policy an investment of the principal with the loan only, or is this an "investment" for other participants?

I believe it is also used when you can claim the audit exemption but still don't have 100% of your assets in qualifying plan assets. You can be exempt from the audit if at least 95% of plan assets are qualifying plan assets (or less if you have the proper bond) The SF requires 100% of plan assets to be qualifying at all times. So if you invest in something like a joint venture or partnership, you can still claim audit exemption and file a 5500 with a schedule I, but you couldn't file a 5500-SF. Edit: Yes, if you are eligible to file the 5500-SF, switch away.

Correct. They are individual credentials.