Larry Starr

I'll bet anyone a dollar that this will not hold. Here's why: IRS is saying that you can't deduct your expenses that are paid with tax free PPP money. There is just no way the prohibition on deducting expenses paid with PPP money can stand. Congressional action or regulatory revision is needed. Here's the example of the math (for the simpletons in Congress to easily understand what this position means): I have a C corporation; we received $30,000 PPP money. We used it for permissible items and are eligible for 100% forgiveness. At the end of the year, our profit is $50,000 assuming normal deduction of expenses. If we can't deduct the expenses that were paid with the $30,000, our profit goes up to $80,000, which effectively makes the PPP money TAXABLE, even though Congress says it is not. This is an end run around Congressional intent, and it will not stand.

I'm sorry you have that issue; I understand it. We have much more "authority" with our clients (because they give it to us, not because we demand it). We are willing to sign off a client if what they "demand" is not what we believe STRONGLY is appropriate, but that is a rare circumstance. Here is a restatement of what I said above, but how I would tell the client: "I understand what you want; here's how we'll do it: You can just pay it out as normal (no change needs to be made to the plan) but the ex-employee (under the new law) can treat it on their own return as a CRD anyway. If the payee wants to avoid the 20% withholding, they can do a direct rollover to an IRA and then take it out the next day. No problem, and that gets you exactly what you want with no extra complexity on your part." Look, it's clearly part of being a good idea salesman; I've been a sales trainer for 100 years (even had formal courses in that in the '70's and early '80s) and I don't think I have one client who would push back and tell me they want to do it a different way after hearing this. FWIW.

Terminate the plan? ??

No, it's NOT optional to treat the distribution as an RMD. It's NOT semantics. That is the fact. Of course it is optional WITH THE EMPLOYEE to take money out of his IRA or not; but that was not the question posed. If a distribution is forced by plan language, it will not be an RMD in 2020.

Way too late to do that. Life's tough sometimes; of course it's "fair". If he terminated that's all it's worth. Why should it be any different here. If the employer "feels bad" about it, just give the employee a little bonus to make up. It can't be much money if it is only one extra payment (1/26 of the maximum or so on a bi weekly payroll).

You're not going to have to prove that it's needed. You're going to have to prove that, for forgiveness, you have spent the funds as provided in the rules. If you don't spend them that way, you owe the money back (2 year loan at 1% interest: gimme as much of that as I can get!!!). Your bank will tell you what proof they will be requiring to offer you the forgiveness that is potentially available to you.

Why on earth bother? They can be paid out anyway and treat it on their own return as a CRD. Just to avoid 20% withholding? Then do a rollover and THEN take the money out of the IRA. Their request makes no sense.

Seems to me everyone is missing the easy answer. You can do a PS plan allocation of, say, $100 (or anything else you want to allocate under the general terms of the plan). Then do a -11g amendment adding the amount you want for employee 2 (I assume Ee 2 is NOT an HCE, right?). QED.

Disagree in concept with your answer 1 because there are NO RMDs in 2020. If the plan language (which has been required for volume submitter and prototype) is explicit, then it mandates a distribution, but by law it WON'T be an RMD. The plan can stop making distributions of this sort this year, but it will have to eventually adopt an amendment that justifies such action. If she was supposed to take her first RMD on the delayed 4/1 date, then she doesn't have to take it assuming the plan is properly amended if needed.

We use prime plus 1%. Had a phone conversation on an audit today involving loan; auditor LOVED that we used prime plus one. It was nice to hear. I disagree with IRS that prime is not reasonable. We are talking about a 100% secured loan; and I can borrow from my bank on my line of credit today at less than the prime rate which is 3.25%. A loan issued today would be a 4.25%. NO PROBLEM. IRS (or DOL) could never make a claim stick that that number is not reasonable for a 100% secured loan (which is effectively a "passbook loan" type of transaction). Some commentary from Bankrate website on passbook loans (especially note highlighted item); you can find the link here: https://www.bankrate.com/loans/personal-loans/passbook-loans/ Terms and conditions vary widely. You’ll continue earning interest on the portion of savings that’s being borrowed, and as you repay the loan you’ll have access to those funds. Some banks lend 50% of the account balance; others let you borrow up to 100%. A common interest rate seems to be 3% above the interest rate being paid on the savings. “Typically they’re earning 1% on the deposit account. So, we’re loaning out at 4% and making 3% with no loss experience,” says Connie Cesario, vice president at Citizens-Union Savings Bank in Fall River, Mass. At Workers Federal Credit Union in Stafford Springs, Conn., there’s a tiered rate tied to the percentage of the loan that’s secured by savings. “If they use savings to back the whole loan, the rate is 3%,” says Betty Maurer, president and CEO. “If they secure just part of the loan with their shares they pay a higher rate. If they secure 25%, they’d pay 7% interest.”

I've not seen language ever that restricts rollovers as to where they can come from. But this is probably what you are looking for: IRC § 7701(j) states that the TSP is to be treated as a trust described in § 401(a) which is exempt from taxation under § 501(a). Here's the code: (j)Tax treatment of Federal Thrift Savings Fund (1)In general. For purposes of this title— (A) the Thrift Savings Fund shall be treated as a trust described in section 401(a) which is exempt from taxation under section 501(a); (B) any contribution to, or distribution from, the Thrift Savings Fund shall be treated in the same manner as contributions to or distributions from such a trust; and (C) subject to section 401(k)(4)(B) and any dollar limitation on the application of section 402(e)(3), contributions to the Thrift Savings Fund shall not be treated as distributed or made available to an employee or Member nor as a contribution made to the Fund by an employee or Member merely because the employee or Member has, under the provisions of subchapter III of chapter 84 of title 5, United States Code, and section 8351 of such title 5, an election whether the contribution will be made to the Thrift Savings Fund or received by the employee or Member in cash.

If you have the ability to search the JPB, I think the article was titled "The Poor Man's 401(k) Plan" (I think). Look under my byline and see if something like that shows up. I didn't have time to check today, but I will look tomorrow.

Ok, now let's see if we can tackle the original questions. First question: are they terminated or not. Nowadays, the phrase "furloughed" is used to reference an employee who is expected to come back; they are not terminated employees and sometimes benefits (such as health insurance) is continued. On the other hand, laid off is often a euphemism for "fired", but it sound nice. What is the situation with your client. Are they really terminated? There is no job being held for them to come back to? They are supposed to be looking for jobs elsewhere because it is not expected they are coming back here? The fact that they "want" their distributions immediately does not move me. Employees also want more money, more vacations, and more coffee (maybe!). It is ok for the employer to "just say no". So, if they are truly terminated and the plan says "as soon as administratively feasible", I would suggest that gives the employer a lot of latitude in the current situation. Are they in the office? If not, it is NOT administratively feasible right now to do a distribution. But let's say it can be done, now your question is about vesting and the possibility of a partial termination. Maybe it is, and maybe it's not. But that determination is made at the end of the year. So for now, if they are terminated and if it is administratively feasible to do the distribution now, then go ahead and pay the 40% of the current account balance. If it is determined that there is a partial term after year end, they their vesting gets bumped to 100% at that time and they are owed another distribution. And the value of the account at that time may be higher or lower than it was at the time of the initial distribution, and that is normal and justified and the way it is. If the $20k left went down to $10k, then they only have $10k to be paid out. And if it went from $20k to $30k, do you think any of them will complain?

And the Powers That Be got back to me (thanks Nevin; a GREAT GUY!). Here's the language (no surprise; it mirrors what I have said in this thread. I think I remember drafting it.....) B. When a Principal has given consent for a new or additional professional to consult with a Member with respect to a matter for which the Member is providing or has provided Professional Services, the Member shall cooperate in assembling and transmitting pertinent data and documents, subject to receiving reasonable compensation for the work required to do so. In accordance with Circular 230, the Member shall promptly, at the request of the Principal, return any and all records of the Principal that are necessary for the Principal to comply with federal tax Law, even if the Member is not subject to Circular 230. The existence of a fee dispute generally does not relieve the Member of this responsibility except to the extent permitted by applicable state Law. The Member need not provide any items of a proprietary nature or work product for which the Member has not been compensated.

I wrote about this idea many years ago in an article for The Journal of Pension Benefits. When I'm in the office (will be there tomorrow; sheesh!) I'll try to remember to find the article. I think I referenced the cite in the article.

Well, while I don't like that idea, it is easily accomplished for NHCEs. Just do -11g amendments after the year end to allocate specific additional dollar amounts to those individuals you desire to benefit. EASY route.

Seems to me it matters what the plan says about timing of distributions. My plans mostly provide that payout occurs in the year FOLLOWING the year of termination and after the year end work is done (trustee directed, balance forward plan). We are not planning on changing that and so far, in conversations with some clients, it has not been an issue. What does your plan say about timing of distributions?

I was involved in drafting ASPPAs original Code of Conduct (was on the Board of Directors at that time and co-chaired the membership committee) but I just searched for it and can't find it on the ASPPA website (have already reported it to the powers to be). Anyway, I remember dealing with this very issue since our philosophy on what are "client records" was well established before then. Ultimately, as written (and as I remember), they don't require anything that would conflict with my earlier comments. It can be a tricky area but we have found our approach works well. I should add that whenever we sign off a client, we tell them that they have everything they need but if they find they need anything else, there will be a file retrieval charge and a minimum research fee. We do store the files off site and our retrieval fees during the year are often enough to cover our annual storage bill; we think that's only fair that people who need things pay the cost of storing that stuff. FWIW.

Wow! That would be great if they allow it. And surprising.

They might be interested, but they are also screwed! Maybe they have a claim against the prior service provider for incompetence or malfeasance (but very difficult to make stick), but they can't make the top paid group election for a prior year when the plan didn't have that language in it. There's no correction to be made under the Rev Proc since the plan DID operate in accordance with the provisions; the client just doesn't like the results of what he adopted. I'm afraid he is SOL.

Peter, while true (I think in most states probably) for CPAs, the OP is a TPA and not a CPA and this is simply not applicable to him. But when you analyze the pieces discussed in your posting for CPA firms, items one and two are applicable but ONLY if requested in a "reasonable time" after originally being provided. I'm sure that gives plenty of wiggle room. Ask for it within 6 months after they are prepared, probably reasonable time. Ask for it 2 years after prepared, probably not reasonable time and they can charge for it. Slippery slope in between. But item 3 wouldn't apply (even if I was a licensed CPA firm) specifically because we NEVER keep original records of the client and item 4 wouldn't apply because nothing we prepare would ordinarily constitute part of the client's books or records. Therefore, if they want something from their "old TPA", they need to pay. In situations we are in like the OP, we tell the client he needs to pay the reasonable fees for "stuff" we might need from the prior servicer that the client doesn't provide to us. And it's amazing how when you tell the client they have to pay the fee to the old provider, most (if not all) of the "stuff" shows up once they have a financial incentive to look for it!!!!

I'm just full of it them! ?

No problem; the new numbers for the payments shouldn't be cast until the participant is ready to start repayments. And it can certainly be less than a year.

Yeah, but that probably would be subject to Circular 230 issues due to the nature of the work being done.

Yeah, what he said. But OP said it is a general tested plan. Maybe this participant is not entitled to a contribution cause he's not there at end of year and they need him in the test to pass? It was the general test comment that had me mention the -11g issue, just in case......