RatherBeGolfing

Informally (conference panels) the IRS has said you can do it. I think it is a gray area, but like you said, everybody does it.

But there isn't a need to prevent eviction anymore because you already made the payment. It kind of brings you full circle if you want to approve the second hardship since you are either 1) approving it based on the same bill twice , or 2) approving it for a bill that has already been paid which means there is no actual need anymore.

I agree with Lou. They missed their chance at making a match contribution, which means they are top-heavy for 2015 and 2016. As for them timing of the TH contribution, it gets a little tricky. We discussed the timing of the TH contribution in this thread earlier this year. Some highlights from the EOB (Ch. 3B - Part 2 - Section IV - Part A - Item 5): There is not a specified due date for top heavy contributions In order for the contribution to be deductible for a particular tax year of the employer, IRC §404(a)(6) requires that the contribution be made no later than the due date (including extensions) for filing the federal income tax return for such tax year. Under the IRC §415 regulations, an employer contribution is generally treated as an annual addition for a particular limitation year if it is actually made no later than 30 days following the due date (including extensions) of the federal income tax return for the employer’s taxable year in which the limitation year ends. See Treas. Reg. §1.415-6(b)(7). Use deduction deadline or IRC §415 deadline as informal deadline. If the two deadlines discussed above are used as an informal deadline, then top heavy contributions made after such dates should include an adjustment for lost earnings. A reasonable approach is to use the IRC §415 deadline if the employer has not made the contribution for any non-key employees and to use the deduction deadline if the employer has missed one or more, but not all, non-key employees in making the top heavy contribution. This approach also would be consistent with a reasonable approach for making employees “whole” through the self-correction mechanisms under the EPCRS program. In the latter case, the earlier deadline is used because other non-key employees had the benefit of the contribution by such deadline for earnings purposes. So yes, they need to make the TH contribution for 2015 and 2016 plus lost earnings at this point.

In the first example, the distribution was correct because at the time, there was a legitimate hardship. The fact that the purchase fell through doesn't matter, and you can't return a hardship that was correctly distributed. There is no error to correct and you can't just return a legitimate hardship because you no longer need the money. In the second example (this thread) the hardship was approved in error, and the participant was never actually entitled to the distribution. What Luke and Peter has pointed out is that the distribution would be an operational defect that can be corrected by reversing the error, or in other words, returning the money.

What about the participant that is unable to return the money to the plan?

It is only different for me when I go to my bookmark which defaults on the main message board page. Once I click on my custom stream it all looks pretty much the same. I don't mind the new look, it is just a little different.

Sure! When you end up saying it often enough people stop jumping the gun because they just don't want to hear you say "I told you so!". Or my personal favorite "I informed you thusly!"

Why the assumption that self-dealing & excessive fees is a trustee directed plan issue? Often, those types of claims arise because the investment options provided to the participants are proprietary funds with higher fees than other available alternatives. Or that a fund menu is stacked with share classes paying higher fees or revenue sharing rather than low cost or no revenue sharing funds. The plans targeted tend to be large plans with many participants, and they are statistically unlikely to be trustee directed...

Not really. Participant direction comes with a minefield of requirements and disclosures. Participant directed plans are an easy target for Schlichter and company because you can almost always find plausible issues with fund lineups, fund choices, share classes, disclosures that you need a PhD to navigate, failures to disclose , etc. There is risk involved with trustee direction as well, but I actually think you have more risk in a participant directed plan.

If you go to page 51, it uses 401(k) type plans rather than all DC plans. The percentages here are probably more in line with what is expected 8.7% (46,696 / 533,769) are trustee directed 2.7% (14,403 / 533,769) offer limited participant direction (probably on the 401(k) portion) 88.6% (472,669 / 533,769) are participant directed 79% of the trustee directed 401(k) plans have less than 25 participant

I have a lot of 401(k) plans that are trustee directed. Most of them are 20 participants or less, and all of the non-owner participants have done much better than non-owner participants in my other plans that are participant directed. Another interesting characteristic of these plans (at least my plans) is that they have very little leakage because the plan sponsor wants to make sure that his/her employees actually have assets left when they retire. Very few of them offer loans, hardships, or in-service distributions.

The DOL actually publishes statistics based on Form 5500 data. Go to https://www.dol.gov/agencies/ebsa/researchers/statistics/retirement-bulletins/private-pension-plan The most recent statistics were published in September of 2016 and uses the 2014 data so it is slightly dated but it takes time to compile and put together the report. Look on page 49 of the report (pdf page 53) and it will give you the stats for participant direction

FWIW, I agree 100% with MoJo. When errors happen we fix them and change the process to make sure they don't happen again. We don't continue with the same flawed process because it is cost effective. I would go as far as saying that a fiduciary who contracts with a service provider knowing that the process will produce errors and that the process will not be revised to prevent those errors in order to cut down cost is in breach before the error even happens. An agreement with that flawed service provider is certainly not in the best interest of the participants, and the fiduciary's responsibility is to find a a service provider who will perform accurate work (and fix flawed processes) at a reasonable and necessary cost.

I'm not sure if EFAST2 will accept the form marked amended and DFVC. If it does, then we are all good. If it does not, then file as amended and move on. Until the IRS says otherwise, I would say that the original filing date is still good. If and when the IRS sends you a notice that they are considering the amended date as the filing date, you would be eligible to go through DFVC to correct.

Can a fee be reasonable if there is an expectation that the work may not be accurate?

Nope. As long as they timely deposit them when actually withheld, the are deposited timely.

You could be fine as is, but the IRS could also take the position that the 5500 was never technically filed until it was filed with the audit and therefore late by almost a year. Either way, DFVC should still be available. On a related note, the IRS recently did a webcast on practicing before the IRS and the topic of filing incomplete returns or responses for the purpose of meeting deadlines or as a stalling procedure during audit could lead to an OPR review if the practitioner is subject to Circular 230. Unlikely that our 5500 example would lead to anything but I wanted to mention it since it was discussed during the webcast.

No. If you file your 5500 late you will get a notice telling you that your late filing penalty is a certain amount but that you can go through DFVC and pay the user fee instead. So DFVC is still available after filing the 5500

Hardship distributions are not rollover eligible though. § 402(c)(4)

It would probably only get caught if the participant complains or as a byproduct of an unrelated investigation. More damning if it isn't an isolated incident which is beyond the fact pattern, but where there is smoke there is usually fire...

2015 ASPPA Annual IRS Q&A Q#18 Can a participant could return a hardship distribution to the plan if the reason for the hardship was no longer valid? Example – I contract to buy a house, request a hardship distribution that is granted to me. After I get the money the house sale falls through. ASPPA Proposed Answer There is no mechanism for returning an unused hardship distribution to the plan. A deposit of those funds back to the plan would constitute an after-tax employee contribution. The fact that the reason for the hardship was valid at the time it was made is sufficient for the hardship distribution to be permissible, so there is no qualification problem with the fact that the house purchase ultimately fell through. The participant should likely bank the proceeds of the distribution in anticipation of ultimately buying a different house. IRS Panel Response To be discussed from the podium My Notes on IRS Answer From Podium The hardship is permissible because it was valid at the time of distribution. There is no procedure to allow the return of a valid hardship distribution to the plan. The money stays with the participant. *Edited for formatting

FWIW, this was the IRS answer to this question last year or the year before at ASPPA Annual. Of course, this is only the panelist's opinion, but it makes sense. I'll see if I can find the written answer (if any), or my notes on the answer.

Absolutely. The PA's problems do not end with the participants failure to bring an actionable claim... We can only hope this PA is nowhere near any of our plans

I agree that a court would (and should) most likely dismiss the participant's claim.

No I haven't seen it in practice, and there really is no reason for a 5558 filing to trigger an audit. A 5500 filing that indicates that the plan should have had past filings will probably trigger a response asking why prior years were not filed. I see no benefit in filing anything for the current year until you have the past years ready to file (or already filed) with the proper correction.