RatherBeGolfing

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result of: • the individual having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19; • the individual’s spouse or a member of the individual’s household (as defined below) being quarantined,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childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or • closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the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.

Does notice 2020-50 change anyone's opinion?

So many issues beyond the actual special val if we take plaintiffs allegations at face value...

Still reading it lol

It isn't necessarily a matter of getting out of the obligation, but the details are going to be important. I had a similar discussion with a client not too long ago. "I cant afford the SH contribution" rarely means that they truly cannot get the money to make the contribution. If there is no income, no assets to liquidate, and no line of credit that can be used or established to fulfill the obligation, then it is a different conversation, but most of the time it is more of a cash flow issue. When I had this same conversation with my client, we got to a point where they could at least find the assets to fund the non-owner portion of the contribution. Why? Because the IRS and DOL will ultimately look at the best interest of the participants. If you truly cannot get the cash to fund the contribution, you will be in a much better negotiating position if you can show that you at least found a way to make the non-owners whole. In my case, after the non-owners were funded, the remaining obligation wasn't as impossible to fund when considering that all of the remainder would go to the owners.

How much of the $32K is going to non-owners?

irs.gov sort of addresses the Rev Rul 2014-9 and Form 5310 issue.

Dont forget about DOL...