Luke Bailey

ajustice, I assume this was not a discretionary contribution, since you say the failure to contribute for 2018 has to be corrected. With a corrective contribution 415 is tested for the year in which the contribution was supposed to be made, so here 2018, not 2019 or 2020.

If you're past the April 15 deadline (which it appears you are), and these are two separate employers, which, again, it appears you are, then your client is simply taxed on the excess amount. If the system works as intended, the Roth and the non-Roth are added together by the IRS service center when W-2's are processed, and the excess (one entire deferral amount, on your facts, Jakyasar), will be added to her income. It doesn't matter whether you stack the Roth on top of the pre-tax, or other way around. The excess cannot be distributed until there is a regular distributable event with the plan. When the amount is distributed, it is includable in income, even to the extent it comes from Roth. See Treas. reg. 1.402(g)-1(e)(8)(iv). How the coordination between two separate plans of different employers is accomplished eludes me. Luckily, it appears that your client is in charge of her own plan, so presumably she can make sure it works as intended whenever she receives a distribution from the plan under her control.

MikeOD, to take a traditional "hardship" withdrawal, assuming your employer's plan has that feature, you have to have a specific need for the funds that is recognized as a "hardship." The plan will have a limited list of acceptable hardships, including medical expenses, imminent eviction or foreclosure, etc. Should be explained in the plan's Summary Plan Description, or "SPD." And then the amount of your withdrawal has to be matched to the amount you need to meet the specific hardship. If you previously took a traditional hardship withdrawal, that fact alone should not bar you from taking another one, unless your plan specifically limits the number of hardship distributions that you can take, which would be unusual. But you would need to go through your plan's traditional hardship withdrawal process of claiming to have a recognized hardship, representing that the amount you want to withdraw is the amount that you need for the hardship, etc. CARES Act/Covid-19 distributions are much more flexible and of limited duration (you must receive before December 31, 2020). For Cares Act Distributions ("CRDs," for "Corona virus related"), you or someone in your family/household must have been negatively affected economically by Covid, and it sounds like you meet that requirement. The amount you withdraw, is limited to a total of $100k, but is not required to be matched to any specific immediate need for funds. If your employer has amended its plan to permit in-service distributions under the CARES Act rules, then you should be able to get an additional distribution, as a CRD, subject to other detailed facts and circumstances. If your employer has not changed its plan to permit in-service CARES Act distributions, then you will need to have a distributable event, such as termination of employment or attaining an advanced age, in order to receive a distribution. Plans are not uniform regarding when the permit distributions, so I cannot predict whether you will be eligible under your plan. If you have no distributable event, then you will need to explore getting another distribution from your plan based on the traditional hardship rules, which are less flexible, as previously explained, and subject to less generous tax rules. The tax rules for both traditional hardship distributions and CRDs are explained on the IRS's website.

409A's rules are limited to three broad areas. It limits payment events and times of payment, and prohibits certain security devices. The feature of the plan that you describe, EBECatty, does not involve any of the three areas covered by 409A, so I do not think a 409A violation would occur based solely on that feature.

Totally agree. That would be the way to do it, I think.

Fully agree with you that that is what the reg says. But what I've always scratched my head over is whether they really intended that you could pay severance before the termination date and hey, you can include it for 415 then. Do you think it really works that way? I think most plans just say you don't include severance, like the IRM.

FYI, Lou S., the part of my answer above that follows your quote above was added an hour or so later. I was interrupted by call. I think my completed thought is more or less in line with yours.

So the idea here is that the participant can ask for a distribution of his undefaulted loan balance? I guess that would work, although I've never seen that in practice or in a loan policy. It's essentially the same as allowing the individual participant to waive the CARES Act extension, which should be permissible, although in theory you would want to include that in your CARES Act admin memo and later amendment.

RTM, take a look at 1.415(c)-3(iv).

Lou S., you raise an interesting point. It probably depends on the terms of the loan as set forth in the loan policy, promissory note, etc. The OP says that the company applied the CARES Act extension, so my response was based on the conclusion that there is no default, and therefore no basis to offset, based on delinquent payments, until after 12/30/2020. But I guess the loan (through loan policy, etc.) might provide that the rest of the account is security for the loan, such that if it is distributed the loan still defaults, for a reason other than on account of nonpayment. Or if the loan says that it defaults on termination of employment (not the cessation of repayment because of termination of employment, but merely on termination of employment), then also you could have a default on June 1. In other words, the CARES Act loan rules are optional. Employer can adopt or not. If the loan after whatever amendment or policy has been adopted by the employer to implement CARES Act loan rules has defaulted for some reason OTHER than delinquent payments (of which there have been none), then you're probably right there would be a loan offset.

The point I was trying to make in the last comment of my first post, gc@chimentowebb.com, is that while severance is excluded from 415(c) comp, and therefore from the specified employee (SE) determination, you determine your SE's as of 12/31 of Year 1, effective 4/1 of the next year, so an SE's separation from service (and presumably his or her severance payment) are going to be in a year after the year in which the SE's status as such, based in part on his/her compensation, was determined. Presumably this is why the issue is seldom or never mentioned as a potential trap for the unwary, as you indicate. Because it isn't, at least in most conceivable fact patterns.

I think plan of sole proprietorship or partnership is still an H.R. 10 "Keogh" plan for purposes of 144A. That would kick you out of 144A(1)(F), but that should only be a problem if you have no common law employees in the plan, otherwise you would have 144A(1)(E).

DJL, I'll vote for the "No's." There has to be a loan offset for there to be a distribution that can be treated as CRD. It sounds like that will not occur here until 2021. But perhaps not too bad an outcome? Participant would have until 2022 some time (2021 1040 due date, including extensions) to roll to IRA under the 2018 rules for rollovers of loan offsets. The rest of course qualifies for 3-year tax spread or 3-year rollover as CRD.

Oldtpa, if it's a CRD, 72(t) does not apply. To be a CRD the amount must be from a plan described in IRC sec. 402(c)(8), which in (B)(i) says "[IRA's] described in Section 408(a)," which of course means traditional IRA's. But 408A(a) says you treat Roth IRA's the same as other IRA's. So I would say no 10% tax, but I guess until the IRS issues guidance that connects the trail of bread crumbs (or doesn't), no one will know for sure.

The analysis in the ruling is that the employer is making the nonelective contributions based on the student loan repayments, not elective deferrals. The employees in the ruling did not have to defer to get the nonelective contributions, and in fact couldn't get both student loan repayment nonelectives and regular matching. You're doing something different than rewarding folks for deferring. It is similar to a professional firm cross-tested plan in terms of structure. You need to have a bare minimum of language (e.g., individual level discretion and each employee in own group), but you're exercising your employer/plan sponsor discretion to show love to (typically) younger folks repaying their overpriced higher education debts instead of, or in addition, to your older/higher income folk. With any luck, my son will get a job there.

you meant -(2)(c), I think. gc@chimentowebb.com, my copy of the reg (1.409A-1(i)(2)) says you apply without any of the elective special timing rules.That's all. Not counting severance is not elective for 415. Please note the 409A rules regarding specified employee determination and effective dates in 1.409A-1(i). It does not seem to me that you are.

If your plan document provides for discretionary contributions allocated in a discretionary manner based on criteria broad enough to include (e.g., "any basis acceptable to the employer,"), sure this is OK.

Disclaimers are pretty commonly accepted in a variety of circumstances, with a variety of plan provisions, but they have to comply with 2518 and the plan document or beneficiary designation has to be set up in such a way that had A predeceased B, A's share would go to B. A cannot direct the money to B.

Pre 1.401(k)-1(d)(5)(i), the new plan cannot be in existence within the 12-month period after the date of final distribution of assets. So it would seem that in your hypothetical the new plan could come into existence as early as 11/1/2020 without spoiling the prior termination, jmartinrps.

Good point. Which is the equivalent of an interest-free loan with a more flexible (but shorter, 3 years vs. 5) repayment period.

Agree. Sure you can. But as you said, C.B., it is a match. As to whether this makes sense, I guess it might, and it will pass ACP because only for NHCEs, but most folks think its kinder to their diverse workforce to have a long shallow ramp rather than a steep, short staircase. If it's an additional level of match added to a conventional match just for NHCEs, it might make more sense.

Right, cathyw. The 409A regs say it's OK to accelerate someone's vesting, but only if that does not have the consequence of accelerating payment. That's what my first point was getting at. It's hard to come up with a realistic example, but if you had a plan that said, "This vests three years from now, but only if you are still employed 3 years from now, and it pays 5 years from now, but only if it vests 3 years from now," and then you accelerated vesting so that the service provider would receive this payment even if he or she terminated before the 3 years was up, you would still be required to wait until the 5 years was up before you could pay without violating 409A.

khn, aside from the issue of the responsibility of the auditor, this sounds really bad they way you've stated it here. The annuities still exist? Who is going to get the money? Will the payments be tax-qualified?

Yes. And if you need to amend retroactively, this may fit the criteria in EPCRS for self-correction by amendment since applies to all NHCE's and provides higher benefits.

Jakyasar, how much time do "Y's people" spend working for X, what is the nature of that work, and how are they (or Y) compensated for what they do for X? As always, "Follow the money."