Luke Bailey

Not sure. Probably less about six months.

In any event, you can always go for a determination letter. IRS still provides those on plan termination. And the costs of the DL can be paid by the plan, further reducing the reversion.

So what Mike is referring to here, PS and rockenrolls2, is that the 401(a)(30) annual limit on an employee's elective contributions only applies to multiple plans IF those plans are maintained by the same employer or an employer in the same controlled group. So assuming that the employer in this case does not have another 401(k), and is not in a controlled group with another company with a 401(k), in either case into which a participant in the terminating plan would also need to be making elective deferrals for there to be a problem, the terminating plan gets the full 402(g) limit, e.g. in 2021 $19,500 + $6,500 for 50 and overs). As an aside, while I guess if you're going to err, it may be best to do so on the side of caution, one of the main justifications for the complexity and density of the U.S. Internal Revenue Code is that taxpayers are usually not put into a position of having to make educated guesses as to what they can and can't do. Doesn't always work out that way, but I think the 401(k) elective deferral limit is one area where it does.

Good to know, Peter. As an aside, let me say that although as far as I know the revised 401(a)(9) rules are ultimately coherent (although not without a few issues that will require clarification in regs), the sort of "backhanded" way they stuck in the new rules, only for DC plans, is, at least to me, confusing.

Peter, I hope this is not a trick question. Without having given this a lot of thought, I'll say the plan, assuming it's a DC plan, just needs to (a) know there is a designated beneficiary, and (b) pay within 10 years. The only consequence of being an eligible designated beneficiary is the ability to take over life expectancy, so if the plan does not permit that, it would seem it would not be necessary information for the plan to know that a designated beneficiary is an eligible designated beneficiary.

Nate S, not sure what you mean, exactly. Box 1 of W-2 and 3401(a) wages are gross, i.e., including the income and employee FICA that will be withheld. Also, by "SSDI," do you mean "FICA?"

Jakyasar, absent other bad facts and circumstances, I think you could probably get that correction in VCP. If you're under self-correction, I think Rev. Proc. 2021-30, Section 6.06(4), which as Belgarath previously pointed out, provides the rule for correction of overpayments, is somewhat ambiguous, or more accurately, confusing. On the one hand, 6.06(4)(c) says the plan administrator must take reasonable steps to get the money back from the distributee, with earnings at the plan's earnings rate. Two problems. First, generally, what is the plan's earnings rate if the overpayment was the entire balance of a self-directed account, as was probably the case here, although I am just guessing as to that fact? Second, specific to your case, if the plan distributed all of its accounts, it had no earnings rate, right? Anyway, to deepen the confusion, note that the second sentence of of 6.06(4)(b) seems to say that the requirement to get the money back, with earnings, has no teeth (i.e., the employer or a third party does not need to make up whatever the employee does not return) if the only problem was that the amount should not have been distributed. So I don't see why they would have to require the earnings if they don't even have to get the principal. I guess the point is per the IRS, the employer is supposed to take reasonable steps to get the principal and earnings. I would say that in a case where it goes from a self-directed account in a plan to an IRA, it would be unreasonable to try to get back from the employee more than the current balance of the IRA, again assuming 100% was rolled over. (Interesting question that does not seem to be addressed in 2021-30 as to what happens if the employee's IRA out-earned the plan. Will leave that for another day.) Switching subjects, Jakyasar, since the plan was only a profit sharing plan, not a 401(k), I would closely review the steps that were taken to terminate it. Could the employees take the position it actually was terminated, so they don't have to give the money back and the employer essentially started a new plan? Alternatively, should the employer maybe backfill the termination with paperwork and move on? Just things to consider. Of course, your facts will have details that will greatly affect the appropriate outcome for all of these issues, but you might want to examine them closely.

I agree with others above that would be better to spell out in the plan documents and SPD that the limit is 100% of what you have after taxes and other deductions (e.g., medical) are taken out, but think with every plan document I've ever reviewed you can get to the common sense interpretation advocated above by others through the plan administrator's authority to interpret the plan document, if you have to.

The 2005 Bankruptcy Act changes provide that funds rolled over to an IRA from an ERISA plan retain their ERISA creditor protection, and that IRA funds resulting from individual contributions to the IRA are protected up to $1 million. That's the basic rule. Of course, there are details.

BG5150, I'm not sure you would have a case. The fiduciary duties run to plan assets. While the funds were outside the plan, they were not a plan asset. I know they should have been in the plan, therefore should have been a plan asset, but I don't think that sort of "but for" causation analysis that sometimes works in state court would work in federal court under ERISA.

BG5150, see below for a different take. I think in substance there are two loans, but you can call them one. If the plan says (a) you can only have one loan, but (b) you can refinance, then I think the refinancing paperwork could, which would say "refinancing paperwork" (in effect) at the top of the document, or obviously could be electronic, would say the existing loan is being turned into a loan that will go out five years from the date of the refinance, and will be for an amount equal to the old loan plus some extra, but only the extra gets disbursed as new cash. As long as the new cash amount could have been done as a second loan, you should be OK. At least that's the way I read the reg.

Yes. So if you immediately pay off the old loan out of the proceeds of the money, which I think is how folks would typically do it, you should be good.

CuseFan, my guess is that the PBGC may have included a disclaimer that whatever action they took did not bind IRS or DOL or participants under ERISA, just like VCP compliance statements say they do not bind DOL or participants under ERISA. But after 13 years, the employer is probably safe.😀

Madison71, see Treas. Reg. 1.72(p)-1, Q&A-20(a). Generally, you can refinance, even if the plan only permits one loan to be outstanding at any time. However, the sum of the highest outstanding on the original loan, plus the amount (not just the net over the refinanced) cannot exceed the loan limit.

ErnieG, sure. Agreed, and I am aware of the GCA. But surely, for most cannabis businesses, a significant amount of what is contributed is going to be nondeductible. Of course, that same portion that is nondeductible would be nondeductible as salary, so you might say it's no big deal. Except for IRC sec. 4972. That is going to be a problem that will grow bigger over time, I think, as you keep contributing nondeductible amounts and do not remove them from the plan. That's what I'm focusing on.

Thanks, Peter. Had seen that article, and I agree that there may be a way to make some of the contributions, maybe a lot depending on the type of cannabis business, into CGS. But there is going to be some significant portion, I would think, that will be nondeductible, and I think that's going to get you into a 4972 briar patch that will snowball over time. I have seen no discussion of the 4972 issue in any of the materials I have found.

ERISA guy, you're saying that 1.07(a)(1)(A) says 100%, I take it? What does Subsection 5.03(a) (probably a reference to the BPD, not AA)?

Peter, in 20 words or less can you explain the pre-TEFRA minimum distribution rules that the 242(b) election must comply with? 😀

Thanks, Bill. Appreciate the candor. Not sure there's a good one. If not, the most surprising thing is that does not seem to be addressed in the articles promoting qualified plans for cannabis businesses.

I believe this may be a short-term deferral with SRF that would be a key factor in the analysis, kmhaab, but of course without knowing all your facts, examining documents, etc., I can't really comment on your actual case/situation, I can just try to point you down some areas to look at.

Several articles have been published to the effect that Cannabis businesses can sponsor 401(k) and other qualified retirement plans. The basic theme of these articles seems to be that IRC sec. 280E would only restrict the employer's deduction for contributions to the plan, possibly affecting only a portion of the contributions, and that the Section 280E does not jeopardize the employees' tax treatment or the trust's tax exemption. Those points seem generally sound to me, but what about the 10% excise tax on nondeductible contributions under IRC sec. 4972? Are folks taking the the position that 4972(c) only describes contributions not allowable under IRC sec. 404, and the amounts would, generally, be allowable under 404, but it is only 280E that knocks them out, so IRC sec. 4972 does not apply? That seems like a possible argument, but somewhat aggressive, and I'm surprised that the articles I've found advocating 401(k)'s for cannabis businesses don't seem to mention the IRC sec. 4972 problem. Anyone else run into this?

Santo Gold, in my experience the type of business, size of employer, and compensation levels will make a difference. If this is a successful small medical practice, you could be looking at a more significant number than, e.g., a hair salon, although I'm just guessing as to the latter, which probably tells you something in and of itself. My experience has been (maybe others will see it differently) that at least in a larger case you do have to negotiate and make a principled written argument, sometimes in a couple of back and forths, to get the number down, e.g. prove in writing how well the plan was run and that the law (not out of date plan document was followed), plead the equities, etc. The exam agent needs to have stuff in the file to justify the ultimate number to his/her boss. You might think that it would just save a lot of time to cut to the quick and throw out a reasonable number, on the low end, for the agent to grab so he/she can get the audit over, but while you can start with that, I don't think it's how you'll end up.

Leading Retirement Solutions and Bill Presson, understood that 280E is not going to knock out the employee's exclusion from income and rollover treatment, or the trust's tax exemption. But it will likely knock out a significant portion of the employer's deduction, i.e., the portion that you can't be attributed to Cost of Goods Sold. So there will be some portion of the money going into the plan that will be nondeductible. How do you then get around IRC sec. 4972?

Definitely do that, Ananda. Good luck!

9 to 12 months for non-model large case fairly recently.