Luke Bailey

In-house Attorney, I don't have all the facts, have not reviewed documents, etc., so just really addressing a briefly-described hypothetical. Generally, if you ask the participants individually, one might say no, and also the line becomes blurred as between a rollover and spin-off merger. So my prior comment addressed the situation where you would not have to ask the participants. If they all say yes, then the IRS might be OK with that at a practical level, not being as picky as we private practitioners about the esoterica.

Thanks, FORMER ESQ. Belgarath, I see what's going on, I think. You are actually addressing partner "draws," not guaranteed payments. "Draws" are advances by the partnership to its partners of what they think will be income by the end of the year. They are not guaranteed, and usually partners that get guaranteed payments don't get draws. If you are a partner who gets a draw and after the end of the year it turns out that your draws exceed your share of income, then yes, the excess if a distribution of capital, not self-employment income, and the capital amount would be nontaxable and not Section 415 comp.

Not necessarily disagreeing, shERPA. I think I actually covered this in my original response to you: "However, if you are just the TPA and the plan trustee/named fiduciary wants to do it some other way, just make sure he/she indeminifies you, e.g. has already done so in your service-provider agreement, and make sure he/she takes responsibility for the 1099-R and withholding if not rolled over to an IRA."

On the first page, Part I, Section D, wouldn't you be able to see if the DFVCP box be checked?

...but have a built-in conflict of interest, so a third-party appraisal should be required. However, if you are just the TPA and the plan trustee/named fiduciary wants to do it some other way, just make sure he/she indeminifies you, e.g. has already done so in your service-provider agreement, and make sure he/she takes responsibility for the 1099-R and withholding if not rolled over to an IRA.

The terms of the beneficiary designation and trust need to be followed and I would leave these decisions to the trustee. Assuming that at age 40 the beneficiary has the right to completely take all of the trust principal allocable to him or her, the trustee should be able to provide you with paperwork telling you that the plan beneficiary is now the grandchild directly, for that grandchild's portion, and no longer the trust. This would involve the trustee's distributing the trust's interest in that portion of the plan account to the beneficiary. I assume that the arrangement qualified for establishing separate shares of the plan account for each beneficiary.

1) I am not sure that a state government could fund a plan that was not a governmental plan. Of course, there are still no regs on what is a governmental plan, so it may fall into a gray area. I would check the plan document. Also, see if the plan has filed 5500's. If not, they are likely claiming to be a governmental plan. 2) Of course, governmental plan are not subject to 411 vesting, but just "pre-ERISA" vesting rules. Having said that, I have never seen vesting provisions of the sort described in a governmental plan. You would need to research old pre-1975 rulings, or maybe also check if the plan has a DL and what it represented in the 5300 application.

The advisor would need to be an RIA and appointed as an investment manager for that participant's account.

Right.

I think it's a great question.

I don't think I agree with this. If a partner is getting guaranteed payments, they are his/her share of the partnership's self-employment income, and therefore would be handled under the typical terms of a plan that has the proper wording (which is commonplace) to deal with partner participation in the plan, e.g. the definition of comp including self-employment income. I guess there is the theoretical issue of where a partnership has a net loss for the year, so the guaranteed payments are financed by debt or from capital, but that is probably handled somewhere in Subchapter K and my guess is the partner is still taxable on it, but maybe not.

Or make someone at the employer a co-trustee just of the assets occasionally transferred to it, with the trust addendum describing the arrangement, the scope of the trustee's responsibilities, the segregation of assets in an account in the trustee's name, etc.?

Right. It's both. It is a new plan, but since you are merging a spinoff of the MEP into your new individual employer plan it is a continuation for purposes of counting service, vesting, no cut-back, etc.

Actually, she did have 415 comp. I think it is a failure to follow plan document, which probably qualifies for self-correction under EPCRS as "insignificant" issue, and anyways is likely being caught within the two-year period for correction of significant operational errors. The correction is as described in the question.

I agree with Former Esq's first comment, but not fully with second. First, query why this was done this way. If the target had adopted resolutions unadopting the plan, then the acquisition would have pulled that company and its employees out of the controlled group that sponsored the plan, and so the employees would have been former employees entitled to distributions. Same consequence that target company employees get distributions (and they could have been fully vested by amendment prior to closing, if that was an issue), without the remaining two companies having to deal with this. If the plan is terminated as to the remaining 2 companies as well, then you will probably have to distribute to them and won't be able to have a new 401(k) for a year before starting new from scratch, as explained by Former Esq. It depends on timing and to-date paperwork, but if you can't stop the termination you might be able to spin off the portion of the plan for the 2 remaining companies into a new 401(k), without offering the employees of the two remaining companies distributions. Again, depends on plan provisions, what the existing resolutions say, what comms with employees have been, etc.

OK, Former ESQ. I agree. I think we have gotten as close to the bottom of this as we can. Even if I am right (and I think I am), the solution is so "custom" that no one, or close to no one, will use it. Agree on that. Lou S.'s solution is more practical, I just wanted to press the intellectual case that it could be done the other way if for some reason you wanted to do that.

FORMER ESQ., for good or ill current federal jurisprudence favors "textualism" over search for statutory intent. All I'm saying.

I don't recall any guidance on this. The employees never got paid the money, and they are cash basis taxpayers, so it's not obvious to me why they would be taxable in 2019. The custodian is probably correct that since there is no guidance, the IRS could view the 2019 contributions contributed now as having to be counted against 2020 limits, which is why they won't do it. The alternative would be to view the employer as the custodian's agent, and they would not want to go there for a variety of reasons. Presumably the 2019 5498-SA's did not show the contributions. I think if the contributions had been made by the employee's tax return filing deadline for 2019, the custodian would have accepted them. Anyway, my guess is the backed up amounts are includible on W-2 when paid, but will be interested if anyone else has different thought.

I agree that access to cash was the main intent, but I think it is irrelevant. The law says what it says. And anyway, the overriding rationale was to help participants affected negatively by C-19. The economic effects of C-19 will be continuing. If you could distribute just the loan as a C-19 distribution, then the participant would get out of the 10% tax (assuming he or she is not 59-1/2), would no longer need to make payments on the loan, and could roll money into an IRA over the next three years to wipe out the tax, if things improve. If it's a small enough loan that the participant could pay the tax, or would go on installment agreement with IRS, it might help him or her.

Based on my experience in VCP, the IRS would not allow you to not correct for former employees.

Federal gov't Thrift Savings Plan, most likely, david rigby.

FORMER ESQ., why not? You have a 401(k), it allows COVID distributions, you can take from any of your accounts. There was nothing in the legislation that said it had to be pro rata across all your accounts, and also when you take a distribution some plans permit you to say which investments you want to liquidate for the distribution. So seems to me you probably could ask for your loan to be distributed, if the plan permitted. Nothing says you can do it, but nothing says you can't either.

OK. I guess that would work for sure, Former E. But do you think they could distribute the loan?

Just to clarify, if he did terminate and so had a loan offset on or before 12/30/2020, then it could be Covid distribution no matter what plan says. And a deemed distribution will not work for Covid period, right? So you're saying if the plan permitted Covid distributions he could elect to take a distribution of his loan?

What do you mean "supposed to vest?" Unless there is more going on in your facts, kmhaab, I would assume it did vest. It was supposed to be paid in 2020, so that would be year of failure. But check out 1.409A-3(d), which may allow you to still pay in 2020 and be OK.