RatherBeGolfing

Yep, that's the one. It was quite the outrage until they issued the revised FAB.

I don't have time to find a source, but I know the DOL has weighed in on as well. I don't think it is in the form of actual guidance, but part of the discussions they had when they released guidance on 404a-5 and the changes they made to the brokerage window part. Even though the participant picks the investment, plan fiduciaries are still supposed to make sure that any investments available are appropriate. I recall some heated discussions with the DOL and the industry when they said something along the lines of fiduciaries having to monitor ongoing investment elections in brokerage windows because if enough people invest in the same investment at any point in time, it has to be reviewed as a DIA.

This is very important point. There are limits on what the regulatory agencies can do, even if the do seem to color outside the lines sometimes. Industry groups have been pushing for more legislative relief, so it may be included in the next Covid bill (assuming they get their #$%^ together and reach a compromise).

Denise, you explained it very well in the article. I did make a note on the "to the extent the distribution is eligible for tax-free rollover treatment" part of the article that points to the continued use of the phrase in Notice 2020-50. I believe the context of that phrase in 2020-50 is unrelated to Roth IRAs, and is there because a distribution to a qualified individual as a beneficiary can be treated as a CRD for income inclusion purposes, but is not permitted to be recontributed. But even with that note, I think your argument in the article is solid.

I agree with this version of the hypo. Worst case scenario is that you have a tax deferred loan and miss out on the tax deferred earnings during the three years when you are sitting on the cash. I disagreed with prior version where the idea was that you might be able to repay in to the Roth after three years of income inclusion, and whether that would even need to be reported on the 8915. I think where we split is whether the IRS is required to address it, we clearly both agree that they should. I think I have understood your position as the statute permits (by referencing certain sections of the code), or at least does not prohibit, repayment of a pre-tax CRD to a Roth IRA. Further, if the IRS intends to prohibit a Roth conversion of a pre-tax CRD, it needs explicitly do so. The counter to that argument is that the code references are needed simply because Roth assets can be distributed and repaid as a CRD, and the IRS would only need to address it if its interpretation is that Roth conversions are in fact allowed. So if we agree that the statutory language does not explicitly permit CRD Roth conversions, I suppose it comes down to method of statutory interpretation. I cant get there using plain meaning, and would defer to agency interpretation. At least that is how I get to my conclusion.

Yes this will work. Payments made before the due date of the tax return will count for that taxable year, so the first payment could even be made in 2021 on behalf of 2020. We haven't seen 8915-E yet, but Notice 2020-50 details repayment with examples. CRDs are subject to voluntary withholding, so participant can waive the 10% withholding Notice 2020-50.pdf

The statutory language argument is that CARES does not prohibit it because the code sections referenced do not distinguish pre-tax and Roth accounts, correct? Since you can take a CRD from a Roth IRA or Roth 401(k), you can also repay that CRD to a Roth IRA or Roth 401(k). Wouldn't that also explain the why the statute would reference code sections including pre-tax and Roth? I don't think it is at all clear that the the statutory language was meant to allow conversion of a pre-tax asset to Roth. You cant just put money into the Roth, its either a contribution or a conversion. I think your argument is that repaying into the Roth is a conversion, but I'm still not sure I buy that. In order to repay a distribution, it has to be a CRD. In order to be a CRD repayment, it has to be reported on Form 8915. Notice 2020-50 is pretty clear on how recontributions work. While we haven't seen the 8915-E yet, there is no reason to think they would include a "don't reduce the amount included in income because you repaid to a Roth IRA" option without even mentioning it in 2020-50.

Loan default can NOT be treated a CRD. Loan offset CAN be treated as a CRD. If the participant is a qualified individual and the loan offset is treated as a CRD, 10% penalty is waived and the amount is eligible for 3 year income inclusion. Simple example $20,000 total balance (10k loan, 10k cash) Plan terminates and the loan is offset The $10,000 offset is not subject to the 10%, and can be taxed over 3 years and repaid over 3 years (1099 code 1M I think, also reported on Form 8915-E as a CRD) $10,000 can be rolled to an IRA (1099 code G)

Yep Yep. Yep

I just want to know just who this "pension broad" is...

The 10% waiver applies to a coronavirus-related distribution. The list of factors that make a distribution a CRD was expanded by Notice 2020-50, but it is still a bit more than "impacted in some way". Factors in CARES (ii) to an individual— (I) who is diagnosed with the virus SARS– CoV–2 or with coronavirus disease 2019 (COVID– 19) by a test approved by the Centers for Disease Control and Prevention, (II) whose spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) is diagnosed with such virus or disease by such a test, or (III) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate). Factors added in Notice 2020-50 an individual who experiences adverse financial consequences as a result of: • the individual having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19; • the individual’s spouse or a member of the individual’s household (as defined below) being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or • closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19. For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence. Whether the employer elects to offer CRDs does not impact the final tax treatment for the participant, but CAN impact withholding on a plan level. If plan sponsor does not elect to offer CRDs, John Hancock (and other platforms) will withhold 20% as usual. Participant will file Form 8915-E with the 2020 return. The 8915 is what tells the IRS that the distributed amount is subject to the waiver of the 10% penalty and 3 year taxation. Whether the 1099-R says code 1, 2, or 7 doesn't matter, the 8915 is what will be important for the taxpayer. Only if the participant is a qualified individual. 10% penalty waiver applies regardless. You will need to adopt CRDs and fill out a special form for the platform to withhold as a CRD.

n-20-52.pdf Hot off the IRS press....

Small business operating with the owner and a few part timers could run into this issue with some turnover among the part timers.

You have it covered. The US income means the "non-resident alien" exclusion won't apply, so for testing its like any other employee.

Because it very rarely happens (better chance of winning the lottery and being in a plane crash on the same day). Emergency legislation like CARES is often recycled with the exception of dates. The same sort of goes for agency guidance. The starting point for DOL & IRS "what guidance have we issued for similar situation in the past" and then "what is different this time, and what didnt work last time". What makes you think that this wasn't done? Guidance on legislation doesn't just happen in an IRS vacuum. Regulatory agencies ask stakeholders input all the time, and this is in addition to all the unsolicited input. Im sure they looked at plenty of scenarios, but the safe harbor is a very simple solution. I would probably call the guidance "not inconsistent" with the statutory language rather than consistent.

No problemo! Looked it up in a 6 year old 5500 answer book to confirm lol

Yes. I think reasonable professionals can disagree on the word by word interpretation of the statute, so I'm not convinced that the guidance is necessarily inconsistent with the statutory language, or the statutory intent.

I think the DOL has taken that position when an EZ was filed instead of a 5500/SF, but I dont think the same applies to SF rather than 5500. 2019 SF Instructions

Do you really need to file DFVCP? I think you can just amend. Im pretty sure the SF still counts as the "same form" for timely filing purposes.

this 100%!

There has got to be more to this...

More IRS guidance. And not on a Friday! Notice 2020-51

Reponding to @Belgaraths question here in an effort to keep discussion in one thread for simplicity Initial thoughts: I think some of the claims are non-starters, and others are troubling (though Im not sure if its enough move forward on). NEVER encourage former employees to keep their money in the plan! I mean why? It creates so much extra work and potential for mistakes. Once they gone, get them out. I dont know how nuanced the "if the market is up you can always keep the money in the plan" statement was, but that is a big no-no to me. It has to be communicated, but I would stay far away from anything that could be interpreted as a suggestion or advice. They screwed up by not providing paperwork when requested. Let them fill out the form! It cant be processed yet, but here ya go! Just not smart as it shows a failure to act on a participant request. Plaintiffs requested a special in 2019 when the market was up, but we don't know how the plan was invested or if plan the plans investments were up as much as the market. Similarly, we don't know if the assets in 2020 tracked the market losses. Stating that the market was up as much as 15% in 2019 and that at the time the special val was determined the Dow average was down 14% and the S&P 500 was down 9% isn't indicative of wrongdoing or inconsistent application of the special valuation. It might help them get past a motion for summary judgment though, as it is a question of fact. Obviously, I dont buy the claim that completing the year end valuation by March 24th is an unreasonable, unfair, arbitrary, capricious delay. Further, the allegation that the since the special val can be done in 30 days it is unreasonable to go beyond 30 days for the year end val is just ridiculous as we all know. Other allegations such as breach of fiduciary duty because of a conflict of interest when the trustee is also a participant should be defeated easily. Biggest issues I see are the "you can always keep the money in the plan" statement, and the refusal to provide distribution forms.

Agreed, I think this could have been avoided or at a minimum handled much better.

That isn't the context of the statement in 2020-50 though. The distinction is made throughout 2020-50 because it is possible to have a distribution that is not rollover eligible but also a CRD, like a distribution to a qualified individual who is a non-spouse beneficiary. The distribution would be eligible for the favorable tax treatment as a CRD, but cannot be repaid/recontribtued. IRS guidance says all distributions and repayments for a CRD must be reported using Form 8915. You don't have the option to not do it if you also want to claim the CRD benefits. If you simply decided to not report the year 3 repayment on the 8915, the IRS could just say that it wasn't proper CRD repayment, so the $100,000 is actually a quite significant excess contribution. I want more definite guidance from the IRS either way, but so far the IRS has not provided a mechanism that enables the the recontribution of a pretax CRD into Roth IRA.