RatherBeGolfing

A code 1 would indicate a distribution prior to attaining age 59 1/2. If it was a deemed distribution, it would have said 1L. You may be dealing with a loan offset.

What does it say in box 7 of your 2014 Form 1099-R?

Look for documentation that was provided when you took the loan. It should be in your loan procedures which was probably part of your loan application. Good luck!

It depends on the plan document. The MAXIMUM cure period is by the end of the calendar year quarter following the calendar year quarter where the payment was missed. As ETA says, a missed payment in the quarter ending September 30 would need to be cured by December 31. Practically speaking, I think most companies would default AFTER confirmation of no payment on December 31, which in this case would be in 2014. I think you can argue that it could be defaulted on December 31 because no payment was made on or before December 31, but I don't think either is necessarily wrong, it just comes down to procedure. Now, a plan document could specify a shorter cure period as well, like your example with a November 30 cure date for a August 31 missed payment with a 3 month cure period (which is less than the maximum cure period)

That is at least an argument you could make. I would probably consider the same argument if it was my client... What if loans weren't allowed at all, but the plan issues a loan amortized over 5 years. The Sponsor does not want to amend to allow loans. What is your correction? It is essentially the same question. You have a failure to follow the terms of the plan. The loan does not exceed the 5 years under 72(p)(2)(B). Without a correction, it is a deemed distribution to the participant. Simply repaying the loan isn't a correction of the failure since the failure occurred when the loan was issued. The simple answer is amend under SCP to allow for loans. I think what you are suggesting (at least in the OP) is that you can: apply the VCP method of correcting a loan in violation of 72(p)using SCP because the loan did not actually violate 72(p), it violated the terms of the plan document. Rev Proc 2013-12 6.02 allows for more than one way to correct a failure, as long as it is reasonable and appropriate under the facts and circumstances.

It is one of those "it depends" answers... In order to use the DOL calculator, you also have to file under VFCP. Otherwise, your lost earnings should be the 1) actual return participant would have earned, or 2) highest rate of return during the period, allocated to all affected participants. Basically, if you use the VFCP calculator and and dont file under VFCP, DOL can come in and say that your correction was insufficient. I believe it is still OK for IRS purposes though. There was a really good article in the Journal of Pension Benefits a few years back that detailed the different steps per the regs. (EDIT: it was the October 2012 issue. "How Much Goes Into Correcting Late Deposits?" by Frank Castrofilippo) The calculator is the easiest step, you just have to go the extra mile with VFCP.

Well, mine was after the merger with Screwem, Goode, and Hart I had a law school professor who was a genius when it came to funny aptonyms on exams. My favorite example was the dentist office of Hurt, Pullem and Yankum.

You do not need to keep 7 years of returned mail (or one year for that matter). Scan and shred away.

Just curious, is that 33 pages in addition to the employee data like Name, SSN, DOB, DOH, etc? Our year end collection is more limited, and is meant to supplement the data we already have for example Our records show that you have an ERISA bond in the amount of $10,000 issued by Dewey, Screwem & Howe SuretyCompany, is this still correct Yes [ ] No [ ]

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