Luke Bailey

OK, so I think the professional corporation must get the $4,000 into the K plan, since it was deferred, and the brokerage needs to refund the $4,000 out of the IRA as a mistaken deposit. Assuming the check for $4,000 was written on an account of the professional corporation, and not the individual shareholder, it is just a correction of an error and would not require a 1099-R, since the money would be going back to the professional corporation. 1099-R reporting is required only for distributions to the IRA owner.

Is there a record (e.g., an elective deferral election form for 2016, or an electronic record) of the individual's having elected a 401(k) deferral with the plan administrator? If so, then, although this is somewhat sensitive to the issue that jpod is raising as to whether the employer is a sole proprietor vs. entity, the employer is probably required to follow through and make the contribution. The IRA is a separate issue. If he was entitled to make the contribution as deducitble, nondeductible, Roth, or whatever it was, then that is what it is, and the money should come out subject to the IRA withdrawal rules and tax regime. If it was an overcontribution, then it should come out as that.

ERISAAPPLE, My 2 cents has given you the same answer that I would have. If a DC plan contains a provision under which the participant can elect an annuity distributions (e.g., a life annuity) from the plan, and the plan document permits (as it should, since it would almost never be in a position to bear the risk) the plan to accomplish this via an annuity contract (either held by the plan as its asset or, I think, as a noncancellable, nontransferable annuity issued by the insurer to the participant), the participant is taxable only as annuity payments are received, and the distribution is not an eligible rollover distribution.

Yes, in the case of participants who choose the life annuity. See Treas. reg. 1.401(a)-20, Q&A-3(a)(2). The fact that the plan purchases an annuity rather than making the distributions itself makes no difference.

You mean you have a combination of a plan document and/or employer resolution pursuant to which a discretionary contribution was committed to as of a particular date (so that employer lost discretion as to both amount and timing), but the actual contribution was delayed and the employer believes it has to provide earnings attributable to the delay? I think that for the reason you mention (not plan assets until contributed)you probably don't have a fiduciary duty issue. But if not making the (formerly discretionary) contribution on time was a "failure to follow plan documents" under ERISA and Code, then using forfeitures to pay the earnings make-up would likely be a "use of plan assets in own interest or for own account" PT under ERISA and Code, since the forfeitures are plan assets.

Not sure the relevance of 267(c)(1) when no rule in 267 would attribute A's ownership of Z stock to the partnership and 267(c)(3) makes B and C 100% owners of Z stock along with A. Note that for 4975 purposes the (c)(3) attribution among partners is not applied. See. 4975(e)(5)

Madison71, in the bulleted list in Section 2.04 of Rev. Proc. 2016-51 of the differences between Rev. Proc. 2016-51 and Rev. Proc. 2013-12, the IRS notes as one of the changes: "* Deleting rules (previously in § 9.03 of Rev. Proc. 2013-12) relating to submitting a determination letter application when correcting by plan amendment under SCP." Elsewhere, the IRS notes that the above change and several others were required by the changes to the DL submission program under Rev. Proc. 2016-37. So I think that the IRS's leaving in the reference to the DL submission requirement in the example in Appendix B, Section 2.07 of Rev. Proc, 2016-51 is a typo. The basic rules for SCP by plan amendment are in Section 4.05(2) of Rev. Proc. 2016-51, below. You will note that there is no mention of a DL submission requirement: "(2) Availability of correction by plan amendment in SCP. A Plan Sponsor may use SCP for a Qualified Plan or 403(b) Plan to correct an Operational Failure by a plan amendment in order to conform the terms of the plan to the plan’s prior operations only with respect to Operational Failures listed in section 2.07 of Appendix B. These failures must be corrected in accordance with the correction methods set forth in section 2.07 of Appendix B. Any plan amendment must comply with the requirements of § 401(a), including the requirements of §§ 401(a)(4), 410(b), and 411(d)(6), to the extent applicable to the plan. If a Plan Sponsor corrects an Operational Failure in accordance with the approved correction methods under Appendix B, it may amend the plan to reflect the corrective action. For example, if the plan failed to satisfy the ADP test required under § 401(k)(3) and the Plan Sponsor makes qualified nonelective contributions not already provided for under the plan, the plan may be amended to provide for qualified nonelective contributions. SCP is not otherwise available for a Plan Sponsor to correct an Operational Failure by a plan amendment."

Sure, but fiduciary standards (loyalty, prudence, diligence) are very different from the PT rules. The PT rules impose strict liability for certain transactions, and have pre-set penalties under ERISA (to some extent) and Code. The fiduciary rules are only in ERISA, whether they have been violated is based on facts and circumstances, and liability is based on the damage to the offended plan.

Sure, but fiduciary standards (loyalty, prudence, diligence) are very different from the PT rules. The PT rules impose strict liability for certain transactions, and have pre-set penalties under ERISA (to some extent) and Code. The fiduciary rules are only in ERISA, whether they have been violated is based on facts and circumstances, and liability is based on the damage to the offended plan.

It's probably OK, but would depend on a very detailed factual analysis. Suppose X is being paid from plan assets for the insurance services you describe, and X is charging an above-market rate. Then, in order to keep that business, it undercharges for the fiduciary services. Arguably, the employer is using assets of one plan to subsidize the other, for some reason, which could be a PT. But the above is very unlikely to be the case. First, the employer may be paying for the insurance services out of employer assets. Second, both rates may be reasonable, and the 15% discount is just marketing BS. Again, would take a very detailed knowledge an analysis of facts to know whether there is any PT potential.

Generally not an operational or other 401(a) failure absent plan language requiring contribution by certain date. These DOL corrections happen all the time. Usually within 2-year self-correction period, or "insignificant," anyway.

Agree, jpod, but the RMD wrinkles will affect how much must be distributed, i.e. whether use participant's remaining life or beneficiary's (ies'). But yes, the trust document will initially determine who the underlying recipient(s) will be. E.g., the trust beneficiaries are probably the children, but it they are not, they would be cut out. If much money, they would like contest. Of course, this assumes a valid trust, executed, etc.

I don't understand. The grant date is 3 months after the expiration date. Do you mean the grant date was 12/31/2007? Also, is the FMV higher or lower now than grant date value?

If the trust meets the requirements of Treas. reg. 1.401(a)(9)-4, Q&A-5, and it may, you may be able to look through to the trust's individual beneficiaries, either shortest life or, if the plan permits division of the account into separate shares, all of them. Unless you're unlucky, the beneficiaries will all be individual human beings and have unrestricted interests, otherwise your analysis is only beginning. If you can't look through to the trust's beneficiaries under the reg cited in preceding paragraph, you have no designated beneficiary and must proceed accordingly.

The shared employee proposed regs for qualified plans under IRC sec. 414(o) were withdrawn in 1993 and nothing has been reproposed to replace them. Your situation presents a host of issues, such as who is the common law employer, whether one physician has bee properly appointeds withholding agent, and how you will prove anything to IRS or anyone else in the event of a problem if you have no written leasing agreement between the physicians. Check out Chapter 7 of Derrin Watson's "Who's the Employer," 6th edition. (Maybe there's a later edition, in which case check that.) Good luck.

Agree that bank can use its EIN under an agency agreement. Don't think there is any reg on this, but somewhat oblique references in instructions to IRS forms to permissibility of this, as I recall. Would have to find the research. In any event, it is very commonly done by the State Streets and BNY Mellons of this world. If the plan is not institutionally trusteed, e.g. small plan and business owner is the trustee, I think you might use the employer's EIN, and just use the trust's EIN for investments (e.g., the 1099-INTs and -DIVs, etc., received by trust). Doesn't the employer deposit its wage withholding and plan withholding (e.g., 20% on lump sums where no direct rollover) on one 941 and one 945?

So first, the statute itself is not self-evident on this, and we are only under proposed regs. The proposed regs (REG-148326-05, proposing Treas. reg. 1.409A-4), both in the preamble and the text of the proposed reg itself, state forthrightly, albeit generally, that a 409A violation in one year does not taint future years if the same violation does not occur in later years. The preamble even acknowledges that this may mean that the year of the error will become a closed year under the 3- or 6-year statute, depending on the amount involved, and says that while the amount would then escape 409A penalties, it would not escape regular income tax, because the "duty of consistency" would prohibit the taxpayer from claiming 409A basis for the 409A inclusion he/she did not take into account within the period open under the statute. There's not a lot of detail beyond the above, and neither the preamble nor the proposed regs themselves seem to make a clear distinction between operational errors and plan document errors. My own conclusion is that even plan document errors can be limited to the years before correction. Say, for example, you have a new plan in 2016 and participant P defers $10,000. Plan provides for payment only at separation from service, and everything is good with plan document and operation except plan says that plan says P can elect to receive 90% of his/her account balance at any time (so-called "haircut" provision, which I am using for example since it is uncorrectable under Notice 2010-6). Employer discovers error in January, 2017 and amends the plan to take away the haircut. P then defers $10,000 in each of 2018, 2019, etc. It seems likely under the proposed regs that the amounts deferred in 2018, 2019, etc., and their attributable earnings, are not subject to 409A penalties based on the haircut that was in effect in 2016 and 2017. Some might argue that you have to "purge" the plan of the 2016 and 2017 money, e.g. by distributing it, but I don't think so, although I do think it is the case that the future earnings on the 2016 and 2017 money remain subject to 409A early inclusion in penalties, even if the employer Code Z's the 2016 and 2017 amounts. It's also not clear to me whether you can leave the haircut in for the 2016 and 2017 amounts, or should amend it out for them as well. Obviously, it would seem better to amend it out, although that will never cure the error, so, as previously stated, earnings on the 2016 and 2017 accumulations would continue to be subject to 409A until distributed, even if you include the original accumulations properly in income for 2016 and 2017 (or any later year when the statute is still open and you discover the problem). The issue is not uncontroversial. Bloomberg Law carried an article dealing with some of the issues, by Jeffrey Kroh and William Fogleman of Groom, which you should be able to find just by Googling "409A statute of limitations." The article deals with operational violations of 409A, but as I stated earlier, the same issues appear to exist for plan document failures as well.

First, the merger will not be effective 1/1/2017 if it is only occurring now. Do you mean, 1/1/2018? Second, under 411(a)(10, anyone with 3 years of vesting service can choose to retain old vesting schedule. Additionally, you cannot reduce any existing participant's vested percent, even as to new money. So let's assume that your merger will be effective 12/31/2017, aka 1/1/2018. So if you 100% vest the existing B participants first, they will permanently be 100% vested in old and new money. If you don't want to do that, then you could first amend the schedule to 5-year and then (I) grandfather everyone with 3 or more years of vesting service in their 4-year schedule, and (b) grandfather everyone in B with less than 3 yos in the greater of (A) their existing percentage or (B) the new schedule's %-age. E.g., a B person with 1 yos would have 25 instead of 20, until the A schedule got to 40 for him/her, and the B person with 2 yos would have 50 until at 3 yos he/she had 20 under the A schedule.

FYI, the basis for austin3515's conclusions is Treas. reg. 1.413-2(a)(3).

I agree with Tom Poje. If aggregated, no, if pass 410(b) separately (and probably also associates plan not used for 401(a)(4) rate group testing), then yes.

I am going to think out loud here, i.e., no research or review of the guidance. I would think that if the make-up contributions are truly and completely nonelective (I.e., the municipal ordinance does not give the employee the option whether he/she wants the retroactive coverage or not, or how far it goes back, and the employee had no role in negotiating the change), then these could be pre-tax pickups.

I agree Derrin's book is great. I didn't need it for the above question, but I have used it a lot. FYI, had Derrin gone into the clergy instead of law, I think he could actually have figured out how many angels there were dancing on the head of a pin.

I assume Dave is not a minor. On the limited info you've provided, A and B should not be a controlled group (because no one other than Dave owns equity in A and no one other than Dad owns equity in B, so there is no crossover ownership), but under 1563(e)(6)(A) and (B), depending on who the other family members are with the 35% in C other than Dad and Dave, B and C could be members of a controlled group, e.g. if the "various family members" who own 35% include spouse or minor child, because if does that would put Dad at 50+%, and once he has that he would attract Dave's 15%, so if attracted at least 15% from the 35% based, would get to 80%. Read 1563(e) a few times and you'll see.

I agree with you both that that should satisfy the IRC requirements, but if the participant reasonably relied on the plan administrator to determine the amount he/she could receive as a loan, and now objects to having the excess treated as a taxable distribution, the employer might have an obligation under ERISA (at least in theory) to go the VCP route, with self-correction potentially being available. Also, this might qualify for the discretionary extension of 60-day rollover period if the employer or employee applied for such to IRS.

I don't recall any guidance specifically on point. I think the TPA's position is probably based on the notion that the error for the 2 individuals in question effectively shows that the plan did not enforce the HDHP, so no one is eligible. While this is subject to facts and circumstances, my guess is that a review would show that the plan actually was a good HDHP and merely had some isolated errors that do not affect the plan as a whole. I am sure that many other participants have had to pay up to the stated out of pocket before having the deductibles as stated in the plan waived. These are not qualified retirement plans under 401(a), of course, so the requirement of perfection in form and operation does not apply.