Luke Bailey

OK. I'm glad we had this discussion. I misread the OP (oops). Agree with you that since plan had no ldy provision, it would be aggressive to change the allocation method now. But I would still say the TAM does not completely settle the matter (even assuming that you want to follow the TAM, because don't want to have a battle with IRS), because in the TAM the amendment was both after the end of the plan year and after the money had already been contributed.

MWeddell, just to make sure I understand your position, if the plan in question had a last day of the year requirement, would that make a difference to you?

Agree with everyone else, Cindy701. Get a lawyer.

Whoa. The only thing that is clear is that the IRS thinks you can't do it after the end of the plan year, or maybe even after (1) the end of the plan year, plus (2) the contribution of the total amount to be allocated was already made. You are inferring that the TAM is broader than that, and I don't think that is justified.

Bird, as evidence that other practitioners may view the question as open, you and any others interested may want to check out the following article: https://www.mintz.com/insights-center/viewpoints/2226/2020-04-03-covid-19-considerations-midyear-reductions-or

Bird, thanks. The TAM must post-date the reg, since it cites it, right? I don't think the TAM really settles the question, though, because the facts are different. In the TAM, the employer sought to change the plan's allocation formula after the end of the plan year. The contribution had even been made in January of the year following the allocation year, before the amendment to the plan's allocation formula, which was in March of the plan year following the allocation plan year. Also, the TAM bases its analysis in part (in addition to the cited reg) on case law that said that a participant's accrued benefit was to be determined as of the date he or she separated from service. Because of the strong "pull" of annual accounting in the qualified plan area and the tax law generally, I think there is a decent case that the allocation formula could be changed under the circumstances described in the OP. The very regulation you sight says that allocation and contribution dates are not protected benefits. So I add November 1 as an allocation date. Congratulations, the contribution for that allocation rate is determined in my discretion to be $0. At the same time, I change the allocation formula for the next allocation date, December 31. This is essentially the same in spirit as Bill Presson's "two plan" workaround, but within one plan. Just another way to think about it. This is a close question, both technically and from a policy perspective. Under your conclusion about what the rule is, the rights of the participants who have been working away almost 10 months now with an expectation (though not a right) to an allocation for the year are protected. But the result might be that the employer exercises its discretion to contribute nothing, or a lower amount, than it otherwise would if it were able to change the allocation formula.

MWeddell, thanks. That does support Bill Presson's position, and could well be cited by an IRS agent. I don't think it's airtight, however. Intuitively, if the employer has no obligation to contribute at all, what the employees who have fulfilled the existing allocations have as of any date before the employer makes its decision is the right to share in $0, and so arguably can be changed. You have proved that there is a regulation supporting the position, which I must have read several times over the years, but it did not come readily to mind. But wasn't this issue hotly disputed before a TAM dealing even more specifically with it was released by IRS? Did the TAM pre-date the reg? I don't recall offhand. And didn't the TAM say that you couldn't change the allocation method after the year was over? I'm sure there are other Benefitslink devotees who have the cite to the TAM more readily at hand than I do. I have seen it referred to in Benefitslink exchanges many times.

M Norton, that is definitely a possibility. Note that the Code says the obligation is on the "payor," but then shifts it to the "plan administrator" in the case of a 401(a) plan unless the plan administrator has both directed the payor to withhold and provided it with information needed to withhold. See Section 3405(d)(1). You would need to review the agreements and course of conduct between the parties.

The "eligible rollover distribution" requirement to be able to roll over a distribution from a qualified plan to an IRA does not apply to a rollover from one IRA to another, so in theory, if not an RMD, I suppose you could roll over one annuity payment per year. In fact, IRC sec. 408(d)(3) specifically refers to rolling over distributions from individual retirement annuities. But the other 11 payments, if made monthly, would presumably be barred by the one rollover per year rule. I will withhold comment on whether there would be a way to characterize a payment under an annuity contract as a trustee-to-trustee transfer if the payment went directly from one IRA to the other. It would seem to me that based on the nature of an annuity and the contract terms, including nonassignability, a payment from one custodian to another might still be characterized as a constructive 60-day rollover if the IRS wanted to get picky. Be careful.

Section 6651 imposes a penalty on the payor or plan administrator of 5% per month until tax that should have been withheld is paid, capping out at 25% at 5 months, of amount of tax that should have been withheld. Additionally, the payor or plan administrator is liable if the distributee ultimately does not pay. As to how they catch you, Form 3405, unlike 3401, does not require that you show the total amount of distributions paid, just the tax you withheld. It may be that they would first need to go after the payee based on the computer check of the 1099-R, and then work back from there. I have not dealt with this for retirement plans, but in somewhat similar situations with stock options (employer treated non-ISOs as ISOs), it can be a mess to fix. The only simple way is to have the distributee voluntarily return the funds to you and then file a corrected 945 or a 945-X. I believe there is a way to claim credit if the distributee pays, but it's complicated.

Probably the most practical risk is IRS. They're playing audit lottery. Probably won't be the end of the world if they're caught out in an exam, but profess good faith (which what they are doing now sort of evidences), but they will likely pay a higher price (in the event of an exam) than if they dealt with it now proactively. As for IRA custodian, I don't think the rollover in itself is bad, just that it may be coming from a disqualified plan. If the IRA custodian has all the facts, it would probably decline, but it may not get all the facts or ask.

I have no experience with OFAC, but I'm sure it does make it much worse. It likely has criminal sanctions for trying to evade, like FBAR.

I was able in a similar situation to get a proposed $55,000 DOL penalty reduced to $5,000. The legal fees exceeded $5,000, let alone $2,000.

It could get very...interesting.

Sure.

For purposes of 415 the threshold for controlled group (but only for parent-sub controlled groups) is reduced to "more than 50%" from 80%. See IRC sec. 415(h). You can't use compensation from an employer that is not a plan sponsor in determining compliance with 415 limit. Also, the benefit that the individual receives is a larger percentage of the compensation that you can actually use, effectively giving him or her a larger benefit than similarly situated person without proportionate compensation from other entity, so you may have a 401(a)(4) problem. It is likely also inconsistent with your plan document, i.e., was just a naïve interpretation of plan provisions. Consider EPCRS.

It's 45 days. See DOL Reg. sec. 2560.502-1(b)(3). As far as I know, omission of the audit if the only material omission that has a grace period. If you are REALLY confident you will have the audit within 45 days, then conceivably you will be OK filing without and then filing amended with audit within 45 days. Otherwise, I think a lot of filers will take their chances and wait to file under DFVCP when they have the missing audit, hoping they do not get contacted by DOL regarding late 5500. If you file with material omission, then the DOL's response to your filing telling you it is incomplete disqualifies your for DFVCP. Usually a 5500 with a material omission is more likely to get a quick bounce back from DOL than failure to file when your prior was not marked final.

Unless some of the deferrals were Roth, I cannot think of any tax difference if it is going to be either distributed in cash or rolled over. For example, distribution will cleanse the deferral dollars from the pre-59-1/2 distribution restriction.

There's no extension. Nancy and Mitch would have to come to agreement on that. I'm not even sure it is in any of the proposed bills. Maybe someone who knows will chime in.

This is an unusual case because the AP left the money in the plan. It would seem to me that if a family lawyer can convince a domestic relations court to modify the existing QDRO to award less to the AP, even $0, then that is not a QDRO against an alternate payee, but just restores to the participant his benefit. I don't see it as a problem under ERISA or the Code, but a family law problem.

Opinions may differ. I believe that the IRS has indicated it believes it would be too late to change now, but that the only thing in writing on this is a TAM. I don't think the answer under the Code and regulations is clear.

The rule for separation from service is that the change not take effect for 12 months. So in the hypothetical, Jill should make her deferral election and then hope that she does not terminate within the next six months. If she does, there is no 409A violation, but the attempted deferral would be ineffective.

If the employer is a corporation, then only a duly adopted board resolution can amend the plan, unless the board has delegated that authority either in the plan document that it adopted, or in a separate delegation resolutions. That would preclude an employment agreement from being a plan amendment unless the board approved the employment contract, e.g. for the CEO.

That's a great quote and applicable to some extent, I think, to EB professionals (including lawyers...especially lawyers) in and out of government, but in their defense I would say EBSA has an awfully small staff for a really big job.

Bill, I take it that the bank that extends the line is not the same bank as the plan trustee? When was the contribution eventually made? You can still deposit it "for" 2019, but may need to take the deduction in 2020. However, the particular facts and circumstances, and how your return prepare sees them, will govern.