Luke Bailey

alexa, generally a lump sum vacation pay cashout is "good" compensation (for deferral and matching, and other contribution purposes) under the Code and regs, as long as paid within the later of the end of the plan year in which the employee terminated or 2-1/2 months after termination. See Treas. reg. sec. 1.415(c)-2(e)(3)(iii)(A). As for whether it is compensation for purposes of your particular plan, that will depend on the plan document. If it was compensation for deferral purposes under your plan, it was probably supposed to be match, but that could only be determined for sure by reviewing your plan document.

Right. Seems like 402(g) excess. Whether you distribute Roth or pre-tax (plan document should tell you which), she will pay tax twice on this amount.

And if you review them you will see they are very liberal. Basically, unless the only group that benefits is almost exclusively HCEs, you should not have a problem.

Me 4. Free and open markets are the best mechanism for matching needs and resources.

thepensionmaven, what do you mean by "net deferrals from Box 5?" Elective deferrals (Roth and pre-tax), as well as after-tax employee contributions, are included in Medicare wages. Box 5 is just like Box 3, but does not cut off at OASDI wage base.

They definitely are. But plans either still provide ordering rule or maybe I'm just remembering how they used to read before the correction was moved to EPCRS. If low comp/high deferrers are routinely having 415 issues in a K plan because of generous employer contributions, you probably would at least want to have a written policy describing the correction hierarchy, so that you could follow it consistently. I want to take a second shot at answering the original post. Section 4.04 of Rev. Proc. 2019-50 states: A plan that provides for elective deferrals and nonelective employer contributions that are not matching contributions is not treated as failing to have established practices and procedures to prevent the occurrence of a § 415(c) violation in the case of a plan under which excess annual additions under § 415(c) are regularly corrected by return of elective deferrals to the affected employee within 9½ months after the end of the plan’s limitation year. (Emphasis supplied.) So clearly if you have elective deferral and nonelective, you can distribute elective deferral to correct the 415(c) violation. The above quote raises a question regarding matching, however. If you have a situation where every bit of the individual's elective deferral is matched, then obviously distributing some of the elective deferral will also result in a reduction of match. But where only a portion of an individual's deferrals were matched, you would hope that the IRS would be OK with distributing only deferrals. I didn't see anything addressing that directly in 2019-50. Maybe IRS is suggesting that in that situation you should stop matching when 415 would be exceeded? Seems unrealistic.

Totally agree. canadianlink, this is not a pension issue but a transnational domestic relations law issue.

Almost every plan document I have seen specifies you distribute elective before match.

As long as the language in the plan provides that the plan administrator can witness instead of a notary and the individuals are properly determined to be representatives of the plan administrator for the purpose of witnessing signatures, I don't see why you can't do this.

Pammie57, I'll be interested to see the thoughts of others on this, but I think to some extent it might depend on the paperwork. I assume that the contribution is discretionary and that the owner actually earned compensation for the period through May 31, 2020. If that is the case, then if the resolution terminating the plan had said that a final contribution would be made based on compensation through May 31, 2020, to be determined later, I would think that would be possible and you could do it. If there is nothing like that in the paperwork, and especially if on the contrary you have paperwork that says the equivalent of the plan is terminated as of 5/31 and is there after null and void, etc., you probably can still do it, but I suppose someone might argue that the employer cannot now exercise discretion to make a contribution to a plan when that plan no longer exists, especially if the trust has now disappeared because no more assets.

Lucky32, another thing I should have pointed out is that since > 25% of the investment in the LLC will be from a retirement plan, you may have "plan assets" at the LLC level, which would create another area of concern for PTs.

No. Would potentially apply if the plan fiduciary has ANY ulterior motive for the investment. She's investing OPM (other people's money). If has no ulterior motive, and is simply doing it because she thinks it will make the most money for her and the other participants at reasonable risk, then maybe no PT, but is the investment prudent? Anyway, the fact that this is a 50/50 investment with a friend suggests that there may in fact be an ulterior motive/judgement clouding interest that would result in a PT under 4975(c)(1)(E) and parallel ERISA provision.

When the reg says that, it assumes that distributions commenced by the RBD. That's a facts and circumstances determination; not enough info. I don't know, but in this case I would suspect VCP. My guess is that the service center is pretty well set up to approve most first time offenders, but here you are going to be filing for multiple years with a complex explanation. Overall, seems to me you're on right track, Plan Doc.

5500Nerd, maybe I'm missing something but it sounds to me like you have, and still have, just one plan, that is, the "mega-wrap ERISA Plan," and the change in funding source is not going to change that or the plan year. You're probably 100 or over, so will still need a CPA audit for 2020 for portion of year had the trust. Hey, there is going to be a December 31 this year, right? You're making me nervous.

Swanson case could (depending on facts; JOH's conclusion seems reasonable, but of course the description of facts given is greatly summarized in the OP) could get you out of a 4975(c)(1)(A) sale or exchange PT, but would need to fully investigate a lot more facts to make sure not a 4975(c)(1)(E) self-dealing transaction. Is this going to be a self-directed account or pooled investment? Have they considered prudence, UBTI? Does the form of the investment limit the trust's liability if there is a lawsuit? Also, under Swanson the initial purchase from an entity being formed may not be a 4975(c)(1)(A) PT, but exiting the same investment may be a PT if the percentage at that time is 50% or more.

Agree totally with EBECatty, but would add that it was not exactly amended returns that IRS stopped accepting, but rather returns outside the 941-X amended return period under a closing agreement. Generally, a 941-X if within the current calendar year.

It looks like the corporation has not been dissolved, so it should have authority to do everything needed. But not being able to find assets is not an authority issue, of course. Truth serum?

I think this is compensation both under 415 and under most plans' definition of allocation comp.

Dennis G., generally paid leave is W-2 wages and will be countable for purposes of Section 415 and also included in compensation in the plan's definition of compensation.

Belgarath, you mean these are private companies that are receiving the grants to pay higher wages, right?

Document would say something like the employer determines the contribution for each year, and the contribution so determined is then contributed and allocated in a certain way. The issue would be that whether the employer had determined it. If so, then it became an enforceable obligation by the plan and participants against employer if not made. Of course if the contribution were discretionary and there is a credible case that the discretion was never exercised, then it would likely not be an obligation. But the questioner in later post said there was an "Employer Declaration."

So obviously can only speculate without seeing document and knowing a lot of other facts, but arguably a participant who would have received an allocation for 2018 and who, for example, termed in 2019 might (I just said might) have an argument under ERISA (not Code) that was entitled to the allocation, and in that case you would be in the area of correction under EPCRS.

RBG, I think you can get it out of the statute. A loan taken out, say, on 4/1/2020 would be a loan outstanding on or after the date of enactment under 2202(b)(2)(C), and therefore the period described in 2202(b)(2)(A) (date of enactment through 12/31/2020) would be ignored for purposes of the 5-year level amortization requirement of 72(p). But there might not be a "due date" for such loan before 1/1/2021, and thus 2202(b)(2)(A) would not apply. It arguably could depend on the loan paperwork/electrons. If you just used your regular paperwork/electrons and they said you had a payment due in 2020, but then you had overrides to that, that loan would seem at least superficially not to have the problem. But if the loan literally provided for the first payment to be made 1/31/2021, then there arguably would be no 2020 payment to extend by one year. All you would have is the delay in the first payment until 2021 under 2202(b)(2)(C). Note that in the example in Notice 2020-50 they assume a 4/1/2020 loan that has payments due in 2020 that are not suspended until 7/1/2020. I think the above falls into the category of "additional...more complex...ways to administer section 2202(b)" as referenced in Notice 2020-50. Unclear whether it would also fall into the category of "additional reasonable...more complex" (emphasis supplied) ways.

If there was no resolution or other action of binding legal force in 2018 or 2019 committing to make the contribution for 2018, there is nothing to correct. You could not allocate a contribution, then, in 2020 to someone who had no compensation in 2019 or 2020.

8/30/2026, not 8/31/26? 8/31/26, not 8/30/26? I think the argument for 12/31/2025 as opposed to 8/30 or 8/31/2026 is perhaps that because this is a loan taken out during the CARES Act suspension period, no payment was actually due until 2021, and thus there was never a payment due during the March 27, 2020 - December 31, 2020 to get the add-on 1 year suspension. Is that what Congress intended in the legislation or IRS in 2020-50? Probably not.