RatherBeGolfing

It is always a possibility that they will "stick it to you", but I think it is a very remote one. The whole point of EPCRS correcting mistakes. You bring it to their attention and correct it when discovered rather than having them find it on audit. A miscommunication is still an honest mistake, and it happens all the time. Hitting you with a penalty for trying to correct a mistake would discourage you from correcting in the future and instead just hope you don't get audited. I would be interested in hearing from others if they have or know of anyone getting slapped with a penalty in this situation?

Wouldn't it be a current year distribution under VCP?

IRS Loses $175 Million Class Action Lawsuit The basics: IRS made PTINs mandatory IRS justifies annual PTIN fee with 31 U.S.C. § 9701, which allows agencies to charge for a service or value provided Two CPAs sue the IRS claiming that the IRS was not allowed to require PTINs and was not allowed to charge PTIN fees Court held that the IRS can require PTINs, but that the PTIN is not a service or of value to the preparer, so the IRS cannot charge PTIN fees Furthermore, the IRS must refund PTIN fees to the class (which includes many of us)

How about option three? 1. Issue the 1099-R from the plan 2. If it is participant directed, move the plan assets to a suspense account and use to offset future contributions. If a pooled account, the assets stay in the account. 3. The payment from the employer is a "contribution" to the plan for 2016. The end result is a 1099-R from the plan, the participant received the correct amount, and since we count it as a contribution, the plan is in the same position it would have been in had a distribution and contribution taken place

I have had a hard time finding a good explanation that isn't tainted by opinion (both left and right), but from a policy standpoint it looks similar to Obamas payroll tax cuts (2011-2012?) that cut 2% from the employee side with the goal of putting more money in peoples pockets to spend and help the economy. As I recall, the 2% cut under Obama was up to the TWB rather than the 28K that is referenced here, and it was offset somehow so that SS got the 2% from somewhere else in order to not make matters worse. I would assume there is a similar provision built in to this proposal as well.

In theory, yes. Realistically, you won't end up with a different provider for each participant. I have plans that will consider the participants choice, but the PA will still make the call on whether the provider is acceptable. Those plans run between 40-100 participants and at most 10 different providers (which is still a PITA) I will also note that while I work with plans like this I do not recommend them. The are expensive, labor intensive, and full of potential issues. It is NOT an easy out for a sponsor who does not want to be troubled with 404a-5, duty to monitor, etc. If anything, the duties and responsibilities increase exponentially.

While you can allow participants to make that choice, you cannot pass on the responsibility of making sure that it is an appropriate choice with reasonable fees, etc.

This thread may be of interest

All good points, though I think those issues are there regardless of the position that the expense is all you need for the hardship.

I would limit the application to the safe harbor definition since just about anything could be a hardship in a plan that does not limit hardships to the IRS safe harbor. The whole reason I ventured into this was because the medical expense became a consumer debt which would not be covered under the SH definition if we applied the "paid by other means" approach. My example of the family budget was just to illustrate that a hardship / need still exists even though the bill was paid, I'm not suggesting that a PA (using the SH definition) would need to look beyond expense to justify the hardship. Why do you think that the IRS creates more questions for us since you also stipulate that the SH definition "*only* requires a covered reason and no alternatives from the "plans" of the sponsor"? To me that sounds like the buck stops at the covered reason.

100% this. If you are going to get into this space, you will need to hire people with experience. What is the biggest motivator here? A new revenue stream or offering more services to your clients because that's what the competition does? If you want to offer more services to your clients to keep up with competition, you can always partner with an existing TPA to do the work for you. We have this arrangement with several CPA firms, as do most of my TPA competitors. If you just want to add a new revenue stream, this isn't an area you can just dip your toes in. If you are going to do it, you will need to hire experienced staff who understands the ins and outs of design, testing, etc. There are too many traps to fall into while learning to not have that safety net of experienced people backing you up.

I use the 2017 online version and it is till there.

I dug up the Q&A to see what the written answer was. It was part of the 2013 ASPPA Annual IRS Q&A.

The fact that the hardship distribution "reimburses" an expense that has been paid does not necessarily mean that the hardship is no longer there or that the participant should not be able to utilize a plan feature. For example, I have 2,000 disposable income until my next paycheck, of which I need at least $1,500 to cover expenses. I end up with a medical emergency and I need to pay the hospital $1,000. Knowing that my 401(k) plan allows for hardship distributions, I pay the $1,000 from my checking account and apply for the hardship to "reimburse" myself for the expense. The medical bill has been paid, but without the hardship distribution, I can no longer cover my expenses. Do I not have a hardship because I used the money in my checking account to pay for the bill? I asked a similar question a few years back at the ASPPA annual IRS Q&A. The issue was that most of the hospitals in my area are requiring payment for services before you leave the hospital instead of the old approach of a payment plan. If you cannot pay your bill, they will set you up with something like MedMax, Care Credit, or some other type of financing. In the end, the hospital is paid in full, and the patient walks out with an open line of credit that will take you to court and destroy your credit if payments are not made. Long story short, we started seeing a lot of hardship applications to pay off these medical credit lines. The question then becomes is it still a hardship if the bill has been paid through other means, in this case a medical credit line or a credit card. The answer from the both the ASPPA panel and the IRS was that what triggered the eligibility for a hardship was the medical expense. Whether the debt was already paid doesn't matter because it is the expense that is the hardship. So, since costs related to the purchase of a primary residence is an eligible hardship under the safe harbor definition, does it matter that those costs first came out of the participants checking account if those costs could have been paid with the hardship distribution? It will probably depend on the facts and circumstances, but I would not disqualify a participant just because they are looking to recover a payment they already made.

I'm normally very conservative when it comes to gray areas, but in this case I agree with Austin that she could qualify even though the mortgage is not in her name. As mentioned above, people live in places they don't own all the time, and that shouldn't prevent them from getting a hardship distribution. If she is not on the mortgage, what address is listed on her drivers license? Her tax return? Voter registration? does she receive mail there? Are any utilities in her name? I think any of the above could be used to show that it is the participants principal residence for hardship purposes.

HA! Not for this TPA!

Yep, that is exactly how I would do it. You know it is coming back, so at the end of the year it is a receivable.

I think we are actually saying the same thing, but the order in which things occur is the key (I think) 1. Plan has an operational failure when the SH contribution is not deposited within the 12 month deadline. 2. Uncorrected, the plan loses SH status for the year in question. But we don't have the option of not correcting, so we go to step 3. 3. Failure is corrected through EPCRS. Plan no longer has an operational failure and plan keeps the SH status for the year in question. So uncorrected you have a loss of SH status, but since you have to correct the failure, you end up with the SH status protected.

This has to do with the required procedures for the auditor rather than the plan requirements that we work with. I am not intimately familiar with the ever changing requirements of the auditing process, but I do work with many different auditing firms so my "knowledge" here comes from what they have explained to me. As I understand it, the auditor must take steps to be reasonably certain that the numbers they use are accurate. For example, I just had a plan that is 15 years old go through a first audit last year. They went back three years to establish the beginning balances. The most I had ever seen before that was two years. I asked around and the answer I was given by this firm (and other firms) was that three years was good sample for this plan and barring any issues, they can use those three years to establish the beginning balances. They found no issues in the past three years and were fine with relying on my numbers to establish the beginning balances. It seems reasonable that they cannot use those numbers if they have reason to believe that the numbers are inaccurate. In your case, they have found a lot of issues in the current year and the past three years. The auditor therefore cannot rely on those numbers without going further back. What sticks to me here is that from your original post, it does not sound like the auditor is requiring the correction process to play out before issuing the audit, rather they insist on the errors/failures being quantified. To me this is a big difference.

No. Per the document, you have committed to making a SH contribution in lieu of ADP testing. Not making the SH contribution is an operational failure.

I probably shouldn't have included the self correction part of my answer even with my may qualifier. Self correction can be available in cases of late SH contributions. In this particular case, I would agree with Tom that it is probably not insignificant and therefore VCP would be the way to correct. A correction has to be made. Whether corrected under SCP or VCP, safe harbor status is protected and no testing would apply for that year. For this particular case, I agree that VCP is probably necessary.

I disagree with the conclusion that there is no issue as long as the contribution is made. You have two primary issues here. 1) deductions 2) deposits 1) In order to be deducted for a particular year, the contribution has to be made by the due date of the employers tax return. While they could be fine for 2016 if the corporate return was extended (assuming a calendar year plan), they certainly have an issue with the 2015 deduction since they haven't made the 2015 contribution. 2) On the deposit side, you have an operational failure. SH contributions must be made no later than 12 months after the close of the plan year. Setting aside the deduction issue discussed above, you would be fine for 2016 but 2015 was due no later than 12/31/16 if this is a calendar year plan. The primary correction method here would be to make the participants whole (credit lost earnings on the late contribution). You may be able to self correct.

EDIT Ugh responded to the wrong thread...

Yep, code G is correct. And for extra credit, if you are reporting both a conversion and non-conversion rollover (Code G for both), you report them on separate Form 1099-R's.

This report Mr IRS agent, should you choose to accept it, will self destruct in 5 seconds....