Luke Bailey

Well, they were, once. The absence of the word "currently" could have been intentional. If you want further input, you might want to provide citations to these cases. Well, they are retired now and getting their benefits would seem pretty important. If the cases say what you imply, EBspecialist, it would presumably be based on the notion that ERISA protects an employee's right to get what they've earned, and here the employees didn't earn it, so who cares. That policy-based argument would seem to me not the only one that could be made.

Great, austin3515.

bito'money, in your analysis above would the election to treat it as her own have had to happen in 2021 to get the result you say might apply? Appleby, sure. Appleby, assuming the distribution occurred in 2022, how does that square with the statement in 1.401(a)(9)-7, Q&A-2 that the receiving plan/IRA's balance is not increased by the amount in question until the following year for RMD purposes? BTW, if I ever change to a pseudonym for these posts, I think I will use "Stuff's too complicated" if it's not already taken .

austin3515, you would be correcting an "Operational Failure," which under the most recent incarnations of EPCRS rev procs can generally be done by a retroactive plan amendment. Here's the definition of "Operational Failure" in Rev. Proc. 2021-20. It fits, right? (b) Operational Failure. The term “Operational Failure” means a Qualification Failure (other than an Employer Eligibility Failure) that arises solely from the failure to follow plan provisions.

Yes. You're right, 30Rock. Thank you.

austin3515, here's the section I was thinking of. 4.05(2)(a) of Rev. Proc. 2021-30: (a) Correction of Operational Failure by plan amendment for a Qualified Plan or § 403(b) Plan. A Plan Sponsor of a Qualified Plan or § 403(b) Plan may correct an Operational Failure by plan amendment in order to conform the terms of the plan to the plan’s prior operations only if the following conditions are satisfied: (i) The plan amendment would result in an increase of a benefit, right, or feature. (ii) The provision of the increase in the benefit, right, or feature to participants is permitted under the Code (including the requirements of §§ 401(a)(4), 410(b), 411(d)(6), and 403(b)(12), as applicable), and satisfies the correction principles of section 6.02 and any other applicable rules of this revenue procedure. Increase of BRF? Check. Satisfies the various Code sections? Yes, as long as the < 12 months group satisfies 410(b). Satisfies general correction principes? Don't see why not. If you intentionally do it wrong, you may not qualify for self-correction because you do not have a good procedure. However, what about strikes you as "intentional?" Catching the error on your own <> committing the error intentionally.

This should qualify for the two-year window. The qualification defect is operational error of not following plan document.

katdmin, I participated in that prior discussion and my main takeaway was surprise that this problem has not received more attention. I think a lot of restaurant 401(k)'s exclude wait staff for this reason, with attendant 410(b) issues, of course.

Dobber, the "transfer" was a direct rollover. See Treas. reg. 1.402c)-2, Q&A-1. It is treated as a 2022 distribution from the deceased's IRA, so oversatisfied the 2022 RMD requirement for deceased's IRA. See Treas. Reg. 1.401(a)(9)-7, Q&A-1 and 1.408-8, Q&A-7. The RMD for the deceased's IRA is determined under the post-death rules, and, as RMD, was not eligible for rollover. Because the remaining amount of the distribution, which was eligible for rollover, was not in the widow's IRA until after 12/31/2021, it will not affect her 2022 RMD from that IRA.

Austin3515, why doesn't this qualify for self-correction by amendment under the latest EPCRS Rev. Proc.? Have you looked at that and determined it does not apply for some reason?

The above is, at least to me, deeply confusing. But if the $20,000 was intended and accepted as a prepayment for 2021, since there was not going to be reliable withholding in 2021, then you're probably right, i.e., no default. Would need to review the actual timeline and documents.

The $20k is probably enough to bring the loan up to schedule, and then some, but it may have been too late to prevent a default in earlier quarter, so need to apply EPCRS.

sbuck, is the underpayment determination based on a legal analysis, e.g. wage and hour violation regarding overtime or the like, or other misclassification? Or because of a mistaken calculation of a formula bonus or the like? If so, then this is back pay and although the usual caveats apply (i.e., review your plan document, you are not giving me all of the facts, etc.) I think the wages will count for 401(k) as if they had been paid when they were supposed to be. See, e.g. 1.415(c)-2(g)(8). There's a DOL reg that really governs, but I forgot the section #. Maybe someone else will provide it. The alternative is that after the guy died they though, "Gee, he really was a great employee and we should have paid him more, even though we did not have to." If they are doing it for a reason like that, I think the treatment would be different. Get's complicated.

Re the DB distribution, see Rev. Rul. 2002-84. The repayor of the mistaken payment is generally entitled to a deduction in the year of the repayment using the special rules of Section 1341, provided the amount exceeds $3,000. For amounts < $3,000, you're supposed to get a miscellaneous itemized deduction subject to the 2% floor, but the TCJA of 2017 of course suspended miscellaneous itemized deductions through the end of 2025.

M Norton, these are two different things, right, and you're OK if either applies? You can apply whatever cash came in (the one payment per quarter that you mention) to the first missed payment, so depending on when during the quarter the first missed payment occurred you may kick the default down the road a quarter, but I think you would have had a default at some point, i.e. a missed payment in a quarter that is not corrected by the end of the next quarter. But then you correct that under EPCRS.

There are a lot of plans out there like this. If it only pays out on a c-in-c or other "liquidity event," then, although facts and circumstances, and opinions, may differ (a) it is probably not an ERISA plan because defers compensation until a liquidity event, not the end of employment, and (b) if the payout is a lump sum, it would probably (depending on how drafted) qualify for the short-term deferral exception the the application of Section 409A's other rules (i.e., its rules other than for determining what is a short-term deferral). Again, there are a lot of plans like that out there, in various forms. The chief problem with them in my view is figuring out what to do if someone makes a real contribution to an increase in the company's value, and stays long enough to be vested, but leaves, other than for cause, before there is a liquidity event, including on account of retirement, disability, or death. Do you cash that person out for their vested interest to the point of termination, based on an appraisal or formula? Do they keep the interest in retirement until there is a liquidity event? Does it go to their estate if they die before a liquidity event? Does it go away if, for example, there is no c-in-c within 5 years? But again, there a lot of plans like this out there, so those questions have not stopped folks from doing these, and usually a liquidity event comes along before the issue comes up.

I agree with BG5150 on fixing the income tax issue under 72(p). Take a look at Section 6.07(d) of Rev. Proc. 2021-30, page 45.

The requirements under Rev. Proc. 2021-30 for a retroactive amendment to correct an operational failure are in 4.05(a): Correction of Operational Failure by plan amendment for a Qualified Plan or § 403(b) Plan. A Plan Sponsor of a Qualified Plan or § 403(b) Plan may correct an Operational Failure by plan amendment in order to conform the terms of the plan to the plan’s prior operations only if the following conditions are satisfied: (i) The plan amendment would result in an increase of a benefit, right, or feature. (ii) The provision of the increase in the benefit, right, or feature to participants is permitted under the Code (including the requirements of §§ 401(a)(4), 410(b), 411(d)(6), and 403(b)(12), as applicable), and satisfies the correction principles of section 6.02 and any other applicable rules of this revenue procedure. I think your main issue is going to be 401(a)(4). Under Treas. Reg. 1.401(a)(4)-5, whether the retro amendment is discriminatory is a facts and circumstances determination. The individual in question is the owner, which doesn't help. But assuming the amendment to permit in-service distributions at NRA is not temporary and their are other employees who could qualify, it seems like you should be OK. Seems silly to think you can fix only by doing essentially the same thing with extra steps (repayment followed by amendment followed by redistribution). Presumably, if a retro amendment to permit an in-service distribution has an (a)(4) problem under EPCRS it should also have the same problem outside EPCRS, as just a discretionary amendment, but the history highlights the issue in a way that it would not be if the plan had been amended first.

Yes, Mike, but that's because you have the benefit of being an actuary.

Yeah, you're right. Because neither H nor W own more than 50% of corporation A, the sons' stock is not attributed to them. Was late last night when I wrote otherwise.

Under IRC sec. 1563(e)(5) you would generally have attribution between the spouses, so each spouse could be deemed to own 100% of company B. Then because parent would own more than 50%, could have attribution from adult children. So could be a controlled group. Your actual facts could be more complex or nuanced than you have described, but check out the Code sections I have cited and see how they might apply, Ahuntingus.

Owen Meany I think "interest" for purposes of 512(b)(1) pretty much means what it says. Loan origination and servicing fees and similar revenue items that a commercial lender might typically receive in addition to interest would probably not be excluded, however.

Peter, I'm just spitballin' this. 1. Yes. At death, the money belonged to beneficiary, not Jack. 2. If the money is still in the account, very strong. The funds were paid in error. If the bank paid to the executor without notice that were paid by plan in error, then I think weak, because the bank had no notice and the plan should seek to recover the fund from the estate. 3. That's a tough one. I don't even know if the beneficiary's claim is for a benefit or for fiduciary breach. If fiduciary breach, then not clear there was a breach. A. Have the deceased notify the plan promptly after death. Just kidding. I believe that the governmental plans get computerized death records periodically from SSA, but I don't think that is available for private employers. A Google search indicates that death records are available locally, but I don't know how comprehensive or periodicity. Would be worth researching. I can't think of any other way of avoiding this situation other than periodically running a check of participants in pay status against a database of recent deaths. B. I don's see how. Typical definition of beneficiary is the person entitled to account after participant dies. I guess you could change that to say the beneficiary in the case of installment payments is the deceased's estate until you have notice of death, and then becomes designated beneficiary or some other default beneficiary. That seems like it will have unintended consequences. Would seem to violate law if the participant leaves a surviving spouse but cut them out of estate. C. I guess you could have a provision that would state that the plan is not liable for errors of this sort if it had no notice of death. Might work with the right judge.

1. Plans are required to satisfy 410(b) each day in plan year or on one day in each quarter, or on last day of plan year (1.410(b)-8). Per your facts, Catch22PGM, they would not pass for periods before 12/1 without aggregation, so I think you will want to aggregate for period before 12/1/2021. After 12/1 they can't be aggregated, since different employers. 2. If the plans satisfied coverage on 12/1/2021, including by aggregation, they should be good through 12/31/2022 as long as coverage not significantly changed. 410(b)(6)(C).

Ananda, I like the steps you have suggested and in addition would recommend counselling/training for the employee on the issue and documenting the training in the file.