RatherBeGolfing

Ive been out of commission due to a virus (appears to not be Covid though :)), but I wanted to circle back and just wrap up from my perspective. I don't disagree with the policy argument(s), offering protections to both a possible spouse and plan sponsor. My concern is pretty simple, what is the legal basis for denying a distribution to a participant who is otherwise entitled to a distribution. The only reasoning I have seen before is that spouse has an interest because he/she is the 100% beneficiary absent a waiver, but I don't think that is enough. A sponsor could always elect to be subject to QJSA rules, which shouldn't be an undue burden since no one elects an annuity anyway... This is basically the same issue I have with plans that have vague or overly broad QDRO procedures, which can deprive a participant of distribution at the mere mention of a divorce, rather than the receipt of a DRO as required by statute.

Ok, same here, but what does that have to do with anything? QJSAs were primarily put in place because many families were single income with one spouse taking care of home and children. Mandating the survivor part was a way to protect the non working spouse by creating a right top a benefit that had to be waived. Obviously, that doesnt exist in a non-QJSA plan.... Legal reality? I get your point, but where does the legal authority to prevent Mr. or Mrs Dirtbag from blowing the money in vegas come from? Since more and more young people are NOT getting married, what about couples with kids, been together for 20 years, just not married? Same dire need of protection right? Same legal right to a benefit (none) in the non-QJSA plan. We all work with legal requirements right? The same thing that has us saying "sorry, the document is the document" would also apply to things like when someone can take a distribution. There are tons of stuff I would love to do to prevent people from making really stupid mistakes (like no participant directed plans....), but that doesn't mean I can just unilaterally do it.

The big development here was to default to electronic without consent. Part of the reasoning being that it is difficult/inconvenient to get an affirmative election from a large number of people. Presumably, you dont need to default to electronic delivery for a document that is available only by request.

Im sure there are, I have at least heard people talk about them, but what are they consenting to? In a plan where QJSA applies, you consent to a distribution other than the QJSA (where the survivor annuity benefits you directly rather than benefitting the particupant). In a non QJSA plan, what are you consenting to/waiving?

...insofar as such documents are consistent with ERISA

A couple thoughts on this.... When QJSA applies, spousal consent is needed for a form of payment other than qualified joint and survivor annuity, since part of that annuity is for the benefit of the spouse. When a plan is not subject to QJSA, spousal consent is not required since there is no survivor annuity benefit to waive. If the plan still requires spousal consent, what exactly is the spouse consenting to if he/she does not have a benefit to waive? What about the participant's right to a distribution? Can the plan prevent the participant from getting a distribution by requiring someone without a direct claim on the benefit to consent to it? Requiring a notary or plan admin to witness execution of the paperwork is a separate issue. This is to make sure that the person requesting the distribution is actually the participant, to prevent fraud. I don't see any issues there, even if it is inconvenient.

Typical year might vary depending on the number of participants. If you have 50 participants, there are notices and disclosures that will probably not be triggered every year, or even every other year. If you have 1,000 or more, those rare notices and disclosures for the 50 participant plan may happen at least once per year. SAR SPD SMM QDIA Annual 404a-5 disclosure and Investment Comparative Chart Changes in investment alternatives Changes in fees charged to participant accounts (404a-5) Changes in fees (408b-2) Quarterly 404a-5 QACA EACA Annual benefit statement 404(c) Promissory note for particpant loans Truth in lending disclosure (still applies to some loans right?) QDRO procedure upon request QDRO notice (DRO received is qualified or not qualified) Mapping notice black out notice AFN, accrued and vested benefits, 204h, failure to meet minimum funding, funding based limitations [Im sure there are more, I admit I rely heavily on the actuaries to handle the DB related stuff....]

@Luke Bailey if the account balance is $100,000, it will be a $50 fee plus a $99,950 distribution, with a 1099-R for $99,950. If the account balance is $100,050, it will be a $50 fee, $100,000 distribution, and $100,000 1099-R. The fee is paid by the participants account in the plan, not by the participant after the distribution has taken place. Although I have seen one TPA try to take the fee after the amount left the recordkeeper but before it got to the participant. It was a poor attempt to get around 404a-5 disclosed fees by not having the plan pay the fee... If the participants account (the plan) pays the fee, it is not part of the distribution, it is treated like any other fee in the account.

I pretty much agree. The one exception may be the rare participant that outright says "I dont qualify but I really need the cash...." But even then, circumstances can change.

We have a handful, all "elective procedure" type of practices who had to shut down. The last one dragged their feet but finally allowed it, and the flood gates have opened....

I wouldn't be surprised if they looked for it as a part of a larger PPP abuse initiative rather than a qualified plan issue

Id say qualified individual without hesitation.

I'll second Erisapedia, they put on lots of good free webinars. You should be able to get at least half of your CPE from them in a given year.

Yep HR 7010 passed Senate. If you want to talk fairness, why should taxpayers pay for an employer to sit on free cash while the employees cant pay their bills? I get the argument, but the forgiveness part wasn't intended to just benefit the employer. It was meant to keep paychecks flowing while the country was shutting down in a panic. The 8 weeks was too narrow, there is no doubt about that. Especially since the first wave of PPP loans was essentially over by the time we had some decent guidance. But even businesses that did keep payroll going had a hard time spending the bulk on payroll, so an extended window makes sense. Dont get me wrong, I dont oppose the fixes and extensions in the bill. I just dont care for the argument that an employer couldn't spend it on payroll while they were closed, when the intent was never to let employers sit on Payroll Protection cash until they could get a windfall from it.

It was never about fairness though. Different circumstances yield different outcomes. I wish it could have been more restrictive to prevent employers from just getting a windfall. At the same time, the employers did assume some risk since there were so many unknowns. Could it have been restricted to help only those who fit a narrow set of circumstances? Sure, but we would still be reviewing applications from March. My point is that if they miss out on forgiveness because they sat on the cash hoping to spend it when they opened up again, thats on them. The loan part made cash available for employers. While the forgiveness part has not been clear, we have known for months that if you don't spend on payroll, even if you paying your employees to pick their bellybutton and watch Netflix, you will lose out on forgiveness. It was up to the employer to decide what was more important, the loan or the forgiveness.

They could (and should) have paid their employees while they were closed.

Yes Yes The distributed amount is included as income in 2020 or over 3 years. If the withholding exceeds taxes due, it could be refunded or carried forward to the next year.

Right, thats an easy NO. The loan itself has to be limited to 5 years (except for a principal residence loan). The delay of repayment is a separate issue. You would have to issue the loan at 60 months, immediately suspend loan payments until [date pending guidance], and then extend the loan repayment period by [pending guidance]. In the end it may be 72 months, but more likely 67 months if the loan was issued today.

Thanks Luke. I'm still not sure how you square it with the requirements under CARES, and the special advantages it provides. For example, as a qualified individual, I take a distribution of 1,000 shares of Stock A at $70 per share. Stock A has taken significant losses during the first couple of months of Covid lockdowns. I get a 1099-R for $70,000 which is less than the $100,000 aggregate limit under CARES. In 2022, Stock A has benefited from global recovery efforts and has bounced back to $105 per share. I never sold the stock, and would now like to take advantage of the repayment provision in CARES, so I contribute the identical 1,000 shares to my IRA. The value of the shares at contribution is $105,000, which exceeds both the general aggregate dollar limitation of $100,000, and the requirement that "1 or more contributions in an aggregate amount not to exceed the amount of such distribution". 2202(a)(3)(A) I know you are arguing that "amount" should not be limited to just a dollar amount, but for tax purposes a dollar amount has to be assigned to both distribution and contribution, no? You need to get a 1099 for the distribution, and any amount included in year 1 and 2 would be credited when repaid in year 3. I guess Im still struggling with applying the general rule to the requirements in CARES.

Luke , you would still be limited to value at distribution though, right? If I distribute 1,000 shares at $70/share today, I cannot contribute 1,000 shares at $100/share next week.

No. How are you getting the CRD into the Roth IRA without a repayment/contribution? Put different accounts, rollovers, and conversions aside for a minute and make it super simple. $100K can move FROM your 401(k) or IRA once (the distribution). $100K can be repaid/contributed once (the contribution into the IRA). Thats it. You moved money out and you moved money in. For CARES purposes you done.

Luke, I'll concede that the statutory language does not seem to prohibit a pre-tax CRD from being repaid to a Roth IRA. I disagree with the assertion that it consistent with the spirit of the statute. The spirit of the law is that unless you repay over three years, you include the the CRD as income over three years. As I see it, the use of Form 8915 backs that up (assuming that Form 8915-E will not have some new feature). The 8915 seems clear that the amount NOT repaid is included in income, and any excess repaid in a carries forward or is refunded. Ive seen plenty of people on the investment side urge caution on the issue absent guidance, and I think that is the most sensible thing to do at this point. We know the IRS will issue more guidance, so hopefully they will help clear it up. Id be curious to hear what @Appleby has to say on this issue...

He is getting the most basic elements very wrong. You have to consider aggregate distributions and repayments, they don't cancel each other out. The limit is $100k. You cant repay $100k twice. To put it in very simple terms, if I withdraw $100k today and put it back tomorrow, then withdraw $100k again next week, the second $100k cannot be repaid and has to be included as income in 2020. If he "repaid" the CRD into a Roth (assuming that is permissible), he can't also repay it to the 401(k).

I would actually argue that it would be the opposite. The Roth conversion isn't a repayment, its another transaction triggering another taxable event. If they meant for the rule to include as backdoor Roth conversion with three years to include the amount in taxes, there would be some way to account for it, and there isn't. Repayment negates inclusion of that amount in income, and repayment of an amount already included triggers a refund.

Luke, the 8915 is pretty simple. You elect to include as income in year 1 or spread over years 1-3. If spread over years 1-3 and you repay less than 1/3, include difference in income. If you repay more than 1/3, excess can carry forward to year 2. In year 2, if you repay less than 1/3 (including any excess from year 1), include difference in income. If you repay more than 1/3, it can carry back to year 1 or forward to year 3. If you included any of the distribution in income in year 1, and repaid an excess in a subsequent year, you file for a refund. There is no option to repay and still recognize as income. Its either income or repaid. CARES and 8915 both address repayment or include in income. that to me suggests an apples for apples distribution and repayment.