Larry Starr

I suggest the employer help set up payroll deduction IRAs with their own bank for any new employee who wants to defer before the one year eligibility is met. There is a rule that if an employer has reason to believe that the IRA contribution will be deductible for the employee, he doesn't have to subject that amount to withholding so it operates much like 401(k) deferrals. Most new employees won't go over the IRA cap anyway.

I disagree with your gut. If you have NOT filed a 5500 since the name change, but the plan is the same plan (it doesn't sound like a new plan so it can't be the first 5500), file your 5558 with the old name. Change it when you file the FIRST 5500 for the new sponsor and indicate the change at that time. I assume you are filing now because you know you will need it even though you have plenty of time right now, and we probably will get automatic extensions soon because of the virus so you may not need it anyway. We are holding off thinking of filing extensions until mid May. We file extension IN BULK for every one of our plans, whether we will use them or not. We ship them all off in a big box.

"Financial advisor trying to set up a 401(k) plan" is often like the butcher at the supermarket deciding to do brain surgery. Both of them cut meat so how difficult can it be!?

While I agree that I also do not like split eligibility, I disagree that 6 months for everyone is the answer. I suggest one year for everyone is the answer because split eligibility can give some serious unintended results. I don't like six months because then you CAN'T require a year of service and every part time employee who works 1 hour a week will enter the plan. That's a bigger PIA than split eligibility. If you don't have a subscription to the Erisa Outline Book (from ASPPA), you need to get it. If you do have it, read up on "otherwise excludable" for all your answers on testing.

Huh? That's nonsensical (from the brokerage company). How do they know it's not 7.75 if they don't know what it is? Does that make any sense to anyone. And yes, I could not find anything other than the 7.75% number for MD. Ask them to document their reason for rejecting the distribution; they might even be interfering with ERISA rights by not doing as requested.

No; but everyone should remember that if you do a -11g amendment giving money to a participant like this, there needs to be some vesting on it (we usually add 10% for that first year as part of the -11g).

Sorry, but none of that makes sense to me. Where does your quoted words come from? The plan doc? The QDRO? How is the distribution being made (why do you talk about an Alternate Payee account; are the funds NOT being paid out right away to the alternate payee)? Why are you "segregating" and on what basis? What does the order say about the amount of the payout? Lot's of information needed to have a rational response.

Just want to clarify how this should be thought of. He doesn't have $80,000 in his 401(k), he apparently has $120,000, which consists of various assets, including a loan receivable. Just want folks to think of this from the accounting standpoint when they address these kinds of issues. I think the other responses you got are fine and I expect we will get guidance before the 1099s are due next year, but I would tend to code 1 as well. The participant is going to have to justify on his personal return.

You can't confirm it because you are looking for something that is not there. The numbers are done for the plan year; doesn't matter when the discretionary match was made.

I have difficulty understanding your situation. I think you are asking the wrong question; if you are saying that he wants to defer in 2020 and have it count for 2019, you should already know that is not possible. Has nothing to do with being outside of "regular payroll". If the "irregular" payroll was on 12/31/19 to pay a bonus, he certainly could have deferred from THAT payroll for 2019, but not in 2020.

Yes, charging a fee is itself reasonable, but not a Circular 30 issue in this case.

It's a reasonable question, and until we have guidance, we won't know if the IRS adopts a reasonable position. But I vote for the first method because of how the payback is being treated. Since the taxable distribution amount is going to be reported as $100,000 (the 1099R for the first year) and the payback is considered a rollover not a reduction on the payout, I'm guessing he reports $100k as the distribution, includes 1/3 in income, and then reduces his income by the amount of the payback that year (and future years if it is not all used up). But this is just my guess. So, he reports $33k, reduces that to taxable amount of $0 in each of the first two years, and reduces the third year amount by the balance for a $25k taxable amount. If he can come up with the extra $25k in year three, he would be able to reduce his income by that $25k so that his taxable distribution over the 3 years is now zero.

It is NOT prohibited, which is why you can't find it. Your post alludes to the fact that the client had the documents but now can't find their documents and would like copies. When a client leaves us, we send them a formal letter that includes the information that all items necessary for the new servicer have previously been provided to the client and if anything is needed from our files, there will be storage retrieval costs and copying costs (with a minimum of something less than $100). All the documents we have are OUR documents and records, not the client's. Any documents provided by the client (for example, when we take on the client) are copied for our files and the originals given to us are returned. The fees do need to be reasonable FOR MATTERS BEFORE THE INTERNAL REVENUE SERVICE, but it you are not involved in that (because you no longer work for that client), even that section of the Circular is not applicable.

Who notified you and DIDN'T include the new rates and where that comes from (if indeed it is true). "A little birdie told me"??

Luke, like I said, we need more info. We know nothing about the business. What does it do? Does it have corporate officers who could be the trustees and would be in control and be US citizens? Once we have all the info, a solution will probably present itself. Nowhere was it said that this non-citizen wants or needs to be in charge of the trust.

While I do believe that my interpretation is going to be the rule ("if the money is spent, it counts!") and that is what we are expecting to be the rule, it will be nice to see guidance that DOESN'T conflict (I am guessing it won't actually deal with the issue: it will just count contributions to the plan during the 8 weeks). But as noted, I am suggesting that clients wait (if they otherwise would not have contributed during that time period) until we have guidance or until 6 weeks into the 8 weeks if we don't have guidance (which pray will NOT be the situation). In the calculation of the average monthly payroll, we have recommended that all clients add the full annual contribution for 2019 (divided by 12) for the amount of money they are applying for. Worse case scenario: they will have to give back some of what they got. Best case, they get free money that is not taxable. No downside that we can see on the input side.

No is the answer to your question; you are using language that says "add it to the employer contribution" and allocate, but the forfeiture (in your case) is not available until 2020 so it can't be used for 2019. If the participant terminated in 2019, no problem using it. We always have forfeitures treated as an employer contribution (added to employer contribution and allocated); no other option. The result of that is the EMPLOYER actually gets 100% of the forfeiture because we work backwards and reduce the amount the employer needs to put in to meet the objectives by the amount of forfeiture. I don't know a client who isn't in favor of that methodology. And since our plans don't pay people out until the year AFTER they terminate, there is never a forfeiture in the year of termination. So a guy who is not fully vested who terminates in 2020 would be paid out in 2021 and that is the year the forfeiture would occur and be used for funding in 2021. So in our plans, the forfeiture in this case would occur in 2021 and wouldn't be allocated until that year. And in pooled plans, all expenses can be paid out of the assets and there is no worry about what source it is coming from; it comes from the trust and is simply an expense.

Folks, I am well aware of the issue of indicia and while that may be the issue, I asked the poster to explain in more detail the particulars as I would rather hear from the person what THEY think is the problem and not make assumptions ( you know what happens when you "assume"). As to the trustees, I have never had a situation where we can't find someone else in the business to also be a trustee if that is what the issue is. No corporate trustee (and the added expense) has ever been necessary in my career to solve this problem. But the poster needs to give us some more details so we can better advise. I'm going to bet we can find an easy solution once we know the details.

I disagree, but not with your stated opinion but with your assumption. In fact, there appears to be nothing that requires a pro rata calculation as you seem to imply. It appears that whatever is contributed during the 8 weeks will count without any additional justification as to why those numbers should be ok. Thus, if they know their annual contribution will be, say, $100k, it appears they can contribute the full amount of (or any part of) the $100k at this point and take credit for it. Now, we don't have official guidance yet on this, so the recommendation right now is to hold off on making this contribution with the expectation that we will get more specific guidance shortly (hoping within the next week or so, but we shall see...). If no guidance by say, six weeks into the 8 week recovery period, I would go ahead and make the contribution (if they have the cash) of whatever magnitude they can afford without regard to any pro rata calculation. There does not appear to be any downside to that as long as they know they will make the contribution ultimately anyway.

Ummm..... isn't that what I said earlier? Separately, my bank issued the loan documents to me earlier today; I signed them via docu sign and the money was in our account less than 10 minutes later!!!!!

OK; now we need to know who you are and what is your role in employee benefits. This question reveals that your understanding of the issue you are raising is extremely limited. It would help to know why you are asking this question and what your involvement and role is. Then, we might be able to help you.

Your data needs refining. You have a US business, right? It is paying US employees, right? It has an EIN for that US business, right? If that is all true, then who cares about Australia? They have to be a US employer to have US employees. So, what is the type of entity that the US business operates as? A corp? A sole prop? etc. Sounds like a 2 man 401(k) plan; what's the problem? Set it up. Use the employer ID number for the business; get a trust ID number for the trust and use that for the trust. I guess I just don't understand what the problem is. Larry.

Confused; you start off talking about DISTRIBUTIONS, but then you ask about loans? They are not the same of course. I'm referring to CRDs as a special, temporary category of Hardship Distributions. That makes it (IMHO) much easier to talk with clients about. That is not a loan. And since all our hardship distributions are limited to ONLY from the deferral account, that's what we are still going to limit them to. Maybe that last sentence you meant to say "Limiting DISTRIBUTIONS to $50k...."?

Hmmmm... obviously, not a problem I have to deal with in the vast majority of our clients, but just thinking..... Do we have an unallocated account in the name of the plan on the platform? If not, do we set up a checking account in the name of the plan and make the unallocated contribution there within the 8 weeks for ultimate allocation on the platform? Does anyone think that wouldn't work?

I just don't see option 2 being implemented in any of my plans. We either allow CRD distributions (and appropriately amend to adopt those provisions eventually) or we don't. If we don't, it's 20% withholding, but the participant will be able to treat it as a CRD on his own tax return and split the taxes over 3 years. The withholding is the withholding and he has to live with that.