Luke Bailey

I think actually under principles applicable to misappropriated trust funds it should be the greater of what would have actually earned in either plan.

Right. But you could adopt a 401(k)/PSP with only the profit sharing provision effective for 2020.

There is some logic here, but I would be wary of it. Assuming, as is the typical case, that the plan document says something like, "Forfeitures shall be allocated to participants as additional contributions unless, in the discretion or the plan administrator, they are used to pay expenses," then there is a strong argument they have (a) been allocated, and (b) not used to pay expenses. This is an administrative error, not a mistake of fact, and not an operational error of not following plan document. Bill Presson has described a way above that can probably recoup most of the money, and I would definitely explore that, as well as some of the other potential courses of action explained above.

JustMe, I think the answers you have already received from XTitan and FORMER ESQ. are completely correct, but may make it seem more complicated than it is. If your plan already complies with 409A, then all you are doing is stopping new participants from entering and stopping existing eligible participants from making new contributions. As XTitan points out, that is just "freezing" the plan, not terminating it. 409A does not even address freezing. You can just do it, although obviously you need to consult the plan document regarding notice and any other conditions it may contain regarding amendments to the plan. The complexity comes in if you want to also make distributions earlier and in a different form than they otherwise would have been made, e.g., distribute everything out as soon as you can as lump sums. In that case, then the somewhat complex termination requirements discussed by FORMER ESQ. would come into play.

C Williams, if I understand/guess your timeline correctly, the distribution and rollover were in 2019, and the excess was withdrawn by the IRA owner before his/her 2019 1040 filing deadline in 2020, right? In that case, see IRC sec. 408(d)(4) and the 1099-R instructions for Code P. I think what IRS wants the person to do is not claim the excess as a rollover on their 1040 (e.g., the individual should have shown on his/her 1040 a rollover of 30k, not 40k), which makes the excess taxable in the year of distribution. Then the distribution from the IRA is not included in income for the distribution year (here, 2020), so no 72(t) or 4973 penalty, or second federal income tax, would apply.

What gains would there be if the money was not yet deposited?

If the plan is fully insured (which based on the small assumed size of this employer, it must be), then currently there are no nondiscrimination rules applicable to it, so this would seem to not run afoul of any rule I am aware of.

Yes. If the insurers can get their prices to be competitive with small group plans, ICHRAs could truly due to employer plans what 401(k)'s did to pensions.

Actually, I think all of the documents I have written or otherwise encountered do specifically contain this or a similar statement, such that it is not left to subjective interpretation. I'm surprised by the other responses.

I will treat this as a hypothetical question, since there are very few facts here.] If they never change the percentages, some would say this is doable, because there is no transaction between the plan and the Husband, just a joint investment. There is a DOL Adv. Op. that generally says that coinvestment is not necessarily a PT. (The co-investors wanted to invest in Bernie Madoff 10 years before that was busted. Go figure.) Of course, if the investment makes more sense for the Husband than for the plan, e.g. for tax reasons, and the reason that the Husband wants to do it this way is that he does not have enough personal funds to do the deal, then that would appear to be a conflict of interest PT. Also, once they coinvest, even if it may be OK, their options are limited to some extent down the line, so it can lead to problems even if not immediately a PT.

Right. The PLR was just erroneous, and IRS Notice 2005-58 implies as much, but I don't think the IRS wants to do anything stronger than that (e.g., a Rev. Rul.) until they finally, someday, in some decade move forward with regulations defining what is a governmental plan. Right now there is just an ANPRM and they have been saying for several years that the proposed regs are close. There are some really tough issues defining what is a governmental plan, but figuring out that a federal credit union is not a governmental employer is not one of them.

Seems right to me, but of course I don't have all the facts, just your sketch of them.

MHANSON, everything has issues, but there are no nondiscrimination rules applicable at the current time to fully insured plans. For brother-sister controlled group you need five or fewer individuals estates or trusts that own 80%, then at least 50% looking to lowest percentage. (I know that's incomprehensible, but the only way to explain is with a table and I don't think I can do that in this box.) You've got 2 individuals that together own 100%, but looking at lowest percentage he owns in your separate business is 0, and vice versa, so does not look like a problem. I am only addressing your brief hypothetical, not your actual facts. You should research "ICHRA" arrangements. Might work here, since could also reimburse for Medicare. But everyone with insurance must be in the ICHRA.

austin3515, for what it's worht, I think the IRS's logic is that you want to take things back to where they would have been, thus the adjustment, generally, for gains or losses. But in the case of an undercontribution, the amount was not in the account, so arguably there is no harm not adjusting for a loss that, in fact, did not occur. In fact, the employer had the benefit of the funds for the period before correction. So I think it does make logical sense, even if it does not seem in all cases practical.

Belgarath, we are now in agreement.

Belgarath, 1402(a)(10) deals with trailing nonqualified retirement benefits to inactive partners. Sure, that does not count for 415(c). I was talking active partners who receive guaranteed payments for services they perform during the year.

MarZDoates, you never explained what your interest in this is. In any event, e.g. if you are doing due diligence, the burden would appear to be on the filer to show you that they did file under DFVCP, but failed to check the DFVCP box, in which case they can amend the filing with the box checked.

Another demonstration of the legal maxim that truth is stranger than fiction.

SKIERFA, this is a complex set of facts and would need to be reviewed in detail by your ERISA attorney or consultant who will provide the documents and establish the plans. A CPA should also be consulted.

In-house attorney, that is probably what the intent is. Without reviewing the documents, facts, etc., I can't really give you specific legal advice. This forum is not really designed for that. Good luck!

Presumably the recordkeeper/trustee will show it on 1099-R as a 2020 distribution if the check was mailed by it on 12/31/2020, so the participant is probably safe going by that. But I am not an R/'er, so query you guys, would that be the pracitce? I suspect that if you wanted to argue, the participant, a cash basis taxpayer, is not taxable until the check hits their mailbox, so there is a little bit of a mismatch. I also suspect that checks get mailed very late in December every year, are not cashed until the next year, but in filing his/her taxes the participant just goes by the year on the 1099-R.

BG5150, I don't think that settles it at all. I think the reg phrases it that way because there is no reason to be interested in an individual's 415 comp if he or she is not a participant. The problem is this person is not a plarticipant, but was allowed to defer. Ergo the violation is not following plan doc, not 415 violation. IMHO.

You may be right, Belgarath, but so I can understand can you provide an example? FORMER ESQ. provided the cite to guidance that the GP's are NESE. So what is going to reduce that?

Holliday, I don't know whether you need a QDRO, but you need an attorney familiar with QDROs who is qualified to practice in your state.

BG5150, what you are saying, I think, is that, e.g., if the plan doc says that "a participant's 415(c) comp is his/her Box 1 W-2," that the Box 1 W-2 of someone who should not have participated is not good 415(c) comp, because "participant" is not to be read as merely descriptive of the folks you are probably interested in, but as a requirement, i.e., 415(c) comp = "participant" and "W-2." I don't think that is correct, but I can see the basis for it. Could depend on plan document, but I really just don't think it's correct.