Luke Bailey

Santo Gold, you are still in the year of death. The decedent's RMD, or whatever portion of it has not been paid already, should be distributed to his beneficiary, not as beneficiary's RMD, but decedent's.

Renafesq, although the IRS put the Q&A you cite under the rubric of Coronavirus assistance, the Q&A has nothing to do with the Covid statutory and regulatory relief. The IRS was merely trying to be helpful by pointing out that the Code, as amended by SECURE Act, permits in-service distributions at 59-1/2, independent of Covid relief. In the same Q&A it also points out that the regulations cited in the Q&A permit in-service distribution even earlier if the plan has an earlier normal retirement age. Whether 53 is a permissible NRA would require analysis of the actual employer. Generally, the final regulations would permit an NRA of less than 55 only for public safety employees fitting the definition of such under the applicable regulations.

There are rules for determining whether an age younger than 59-1/2 qualifies as an acceptable normal retirement age in a governmental plan. Your post, Renafesq, does not provide any facts to determine whether that is the case, here. Q&A-2 has nothing to do with the Coronavirus distribution rules, btw, which have lapsed.

If the definition is really bad and the employer really wants it out of the plan long term, I think you could change it effective for contributions and earnings on those contributions after the date of the amendment. Eventually, everyone would fall under the new rule. However, at the other extreme, changing it for a currently disabled person would be asking for trouble, I think.

pcbenefits007, I'm not really sure what your question is, but ERISA does have a controlled group rule that is basically the same as the Code's, but does not have an affiliated service group rule.

OK, gotcha, QDROphile. I think you're referring to the ability enacted in TCJA 2017 to roll over a loan offset if the offset occurred because you terminated employment and you get the cash together to roll over into an IRA by the due date of your return for the year of offset. Totally a policy decision by Congress to give folks more time to accomplish what they would have been able to do if they had had the cash to pay off the remaining loan balance when they terminated employment.

QDROphile, I think the way this has to be structured is as a direct transfer. The participant must identify the transferee plan to the transferor plan and then the transferor plan endorses the note to the transferee plan, substituting the transferee plan for itself as the loan's obligee.

Yes.

Right. That's the only reason to do the certification. And it's very significant. Sure this is complicated and has some delicate (or indelicate) aspects, but think of the alternative? Someone with, say, a $200,000 balance facing a long illness that will likely end in death, and in financial straits (e.g., no LTD) gets their account (which they won't need for retirement) without the $20,000 penalty that would otherwise apply. Seems like a worthwhile provision to me. If it was set up for the employee to administer (i.e., by checking a box on return) (a) there would be a higher rate of false claims, (b) they would have to wait for a refund from IRS, and (c) there would be a lot more work for IRS. Regarding repayment within 3 years, in my experience IRA custodians will let the account holder self-certify that the money qualifies, e.g. as a Covid distribution rollover. The taxpayer of course must claim the refund available in connection with the rollover on their 1040.

401 Chaos, there is uncertainty on this issue generally, in my experience, but I would point out that IRC Section 102(c) says that an employer cannot make a gift to an employee, i.e., it's always compensation if payment is from employer to employee. So it's complicated and depends in part on who is making the payment. Your client should definitely discuss this with its CPA and if they need further help, get legal advice for specific situation.

As explanation for John Feldt's answer, Section 416 specifically says to determine 5% owner for each separate entity, not by applying controlled group rules.

First, make sure the buyer is OK with this and it doesn't violate the sales agreement. Second, speaking to only the general situation, since the actual facts will be much more complex than you can describe in so short a space, 401 Chaos, I have been involved in similar situations. There is usually a good case to be made in this sort of situation that this is deductible compensation if structured correctly. There is also usually a case that deductibility is at least questionably, because the payments are gifts. Depends on facts and how handled. Usually a gray area.

I just want to point out that I don't think there's any formal guidance on the 5500 issue, but I believe that most practitioners do take the position that if the pre- or same-day merger resolution says 12/31, then the fact that the actual consolidation of assets occurs after that date does not prevent the conclusion that there was only one plan as of 1/1.

Paul I, maybe you're right, but don't you think an employee could voluntarily set up revocable withholding of their student loan payment with employer's payroll provider? For long-term employees with stable loan servicing and only a few loans with long maturities could be a convenience I would think.

From a tax perspective, sure. But the payment would be taxable income (FITW and FICA) to the participant, same as if the employee used after tax income to make their loan payment. Federal and state labor laws might or might not be an issue. Not my area(s) of expertise.

khn, CuseFan's advice is spot on, but he leaves out the more modest and simpler alternative, which would be a SIMPLE IRA. I would take a look at that as well.

TPApril, I agree. But you'd think that some of the student loan servicers would link up with payroll providers to make the whole thing automatic. Maybe some are doing that.

david rigby, take a look at Treas. Reg. sec. 1.414(l)-1(e). Basically, if both plans are adequately funded to pay all benefit liabilities on a termination basis before the merger, you're home free because obviously the merged plan will also be able to do that. However, if either or both plans are not fully funded, then, absent some special measure as required by 401(a)(12) and 414(l) the participants of the pre-merger better-funded plan would receive a smaller benefit on termination after the merger than they otherwise would have received had the plans not been merged, and correspondingly the participants in the pre-merger worse-funded plan would be better off on termination than they otherwise would have been. To correct for this, the merged plan must contain a provision that modifies the ERISA Section 4044 schedule to compensate for that and you have to provide a statement that shows how that would actually work out on a termination immediately after the merger for each individual participant, showing what their funded benefit was before and after the merger (must be at least the same). That's basically it, but there are of course details.

thepensionmaven it's going to depend on whether there is a disruption to a participant's ability to take a distribution or loan while the change is going on behind the scenes. In this case, which seems fairly unique, determining whether there is any such disruption may require some exercise of judgement.

Belgarath, I have not had this case, but I vaguely remember someone describing a VCP they did and the IRS was pretty flexible. My guess is that they might not even require that amounts rolled to IRAs be rolled to the successor 401(k), although as Lou S. states, that would be logical. I recommend giving the IRS's new presubmission conference procedure a try.

You can usually find someone who is winding up the decedent's affairs, even if there is no will or formal estate, e.g. under state's small estate provisions.

Peter, I think it is often advisable to put an attorney in charge of the correction and have the attorney hire the non-attorney service providers that will be involved in the VCP investigation and submission, pursuant to a Kovel agreement. The purposes of doing this is to shield all of the pre-submission fact-finding, advice, and decision-making behind attorney-client privilege, which can be important in situations where it is not clear from the outset, prior to completion of the factual investigation and review of possible correction costs, that the plan sponsor will be willing to bare its qualified plan soul to IRS and accept any correction required by it, but instead wants to explore possible correction alternatives both with a practitioner and with the IRS through a pre-submission conference, Attorney-client privilege can also be valuable in large cases where the employer may be considering requesting indemnification from a third party.

Hi Jakyasar, Denominator is at least 7 by my count (5 CB participants + 2 categorically excluded), but still more than 40% it would seem (although I am speaking only hypothetically, since have not examined plan's actual facts). To determine whether DB plan is top-heavy you look at present value of accrued benefits, which would include for frozen plan.

Jakyasar, to satisfy prior benefit structure, the plan has to have meaningful accrued benefits (you say you have, but this is a "facts and circumstances" determination with many data points, none of which you have provided) to 40% of the employer's employees and former employees. See 1.401(a)-26-3(c). You've given us the numerator (5), but not denominator. If the CB plan is top-heavy and you are not providing top-heavy minimum in it, I believe you will need to keep making top-heavy in DC.

If your company is a corporation and you respected its form such that the IRS cannot say it was your alter ego, and assuming your corporation was the "plan administrator," then the penalty liability belongs to the corporation, and I would certainly claim that as a defense if it comes to that. But I would use that only as a fallback and would pursue first, and immediately, paying the $500 penalty and filing for 5500EZ Delinquent Filing Penalty Relief. If that fails you can use both reasonable cause and the corporate shield as backup defenses.