Luke Bailey

bmore1147, again, not clear. Just looks like a concern, but no certainty that actually a problem, at least from what I can see. Good luck.

Vlad401k, you will notice that the 1099-R instructions are (still) very cryptic regarding Code 3. They really only reference the disability standard involved, not when you use Code 3. My guess is that you are supposed to use it only if the distribution event is disability, e.g. in a DB plan with an actual disability benefit (as opposed to a benefit, e.g. in a DC plan, which is permissible because of the participant's termination on account of disability). Presumably, you are trying to get the disability exception to pre-59-1/2 for having a qualified distribution for Roth and no 72(t) premature distribution tax (which would only apply if you didn't have a qualified distribution). Note that the last bullet in the instructions for Code 2 is inclusive of 72(t)(2)(A)(iii). I would probably go with 2B.

I think Larry's question as to whether the deferrals were for 2019 or 2020 is important. If for 2020, I would be willing to say that if the employee sings a contribution form now saying that he or she wants the amount to stay in plan as elective deferrals, that would be correction. If for 2019, you would need to distribute.

bmore1147, although it does not seem as important as in the case of safe harbor or QACA, where an employer commitment to making contributions is involved, and although the EACA provisions are only going to apply to a participant for 90 days, so that you might think you could amend mid-year effective for anyone hired after the date of the amendment or for whom the 90-day period has terminated, I think the IRS would probably interpret the Code's use of "plan year" in Code sec. 414(w)(4)(A) and Treas. reg. 1.414(w)-1(b)(1) as requiring that you not change for the year. Maybe someone else will have different thoughts.

jas55, ff the participant does not have 3 years of service, you should be able to amend vesting schedule for new contributions. See IRC sec. 411(a)(10).

Great. Glad to know it apparently worked out, ERISAGal.

AJC, I'll take a stab and reading between the lines a little. I will assume (but you should definitely check, because this could easily be missed) that your plan document adequately covers. Each S Corp would have to adopt and would be a plan sponsor, etc. I'm also going to assume that IRS would have no reason to disregard the corporations (there are a very limited set of circumstances where the would/could do that). Now, based on what you have described, the only relevant compensatory relationship for plan purposes is the W-2 relationship, if any, between the S corp owners and the S corp. So assuming the 401(k) elective deferrals are not Roth, they of course are not included in Box 1 FIT wages, but are included in FICA wages, would show up as deferrals in Box 12, etc. Employer contributions (match, nonelective) would not show up in W-2 at all, just like for any corporation. None of the complicated self-employment income rules (i.e., reduce self-employment income by half of SECA, and reduce plan compensation by contributions, but don't reduce SECA by retirement plan contributions) apply.

Note that if the owner NEVER had any eligible compensation (so that the plan was NEVER qualified and the owner NEVER had any account or benefit (under the plan's terms), you may be better off.

BenefitsBum, it really does seem like an overbearing question. Maybe others will have thoughts as well, but I recall that the IRS back in that time period was frustrated that plans were not readily permitting rollovers, and when it inquired at professional meetings what it could do to encourage rollovers, one of the things pointed out was that statement in 5310 instructions, which you will note date from 2013. Certainly, it implies a higher standard of proof regarding the qualification of the rollover than the regulations (1.401(a)(31)-1, Q&A-14(b)(2), Example 1), would seem to require. In 2014 IRS issued Rev. Rul. 2014-9 in an effort to get folks to lighten up. I think that if you have anything that would qualify as proof under 2014-9, you should be good. Essentially, proof that check was issued by an entity that plausibly would be a plan or conduit IRA, and the participant's certification. Here is a key quote from 2014-9, but you should read the whole thing on IRS website: In 2014, Employee A requests a distribution of her vested account balance in Plan O and elects that it be paid to Plan M in the form of a direct rollover. The trustee for Plan O distributes Employee A’s vested account balance in a direct rollover to Plan M by issuing a check payable to the trustee for Plan M for the benefit of Employee A, and provides the check to Employee A. Employee A provides the plan administrator for Plan M with the name of Employee A’s prior employer and delivers the check, with an attached check stub that identifies Plan O as the source of the funds, to the plan administrator. Employee A also certifies that the distribution from Plan O does not include after-tax contributions or amounts attributable to designated Roth contributions.

OK. Thanks, Gilmore.

But imposition of penalty is discretionary with DOL and also can be reduced by DOL. Best way to set yourself up in case of DOL investigation is to do an internal investigation first and take corrective action.

Treas. reg. 1.411(d)-4(b)(v) says you can lower the threshold (e.g., take it from $5,000 to $1,000), but does not specifically say you can remove it altogether, although that is probably implied.

If you contact a lawyer, JoJo, it should, as Alonzo Church implies, be a Florida attorney familiar with FRS.

I have only seen this design once before. Agree with others that it is permissible, but seems like it would be hard to pass ACP.

mjf06241972, you do not say when the blackout started and ended. The past 3 months have been a period of unusual market volatility. Your greatest exposure is to participants who may claim that they would have handled their investments differently, and avoided losses, had they known that there was going to be a blackout. Obviously, that is very fact-dependent and hindsight is 20-20, as they say. In similar situations I have typically counselled employers to analyze the time period involved and the participant losses that occurred to try to quantify the exposure. Some participants may complain. Luckily, the markets have recovered significantly (at least for the moment) from the late March low.

So RBG, let me say first that the OP probably did not have this in mind, but rather selling the shares fairly quickly, using the $70,000 cash in some way, and then buying back shares (for more ore less than $70k, or maybe just less) and rolling them over to IRA within 3 years, which of course won't work, because not the same shares. Also, have no idea why someone would want to do that, but I simply responded to the hypothetical assuming, for sake of argument, that not selling the shares was a possible scenario. So in your example, I think your distribution amount for 1099-R would be $70k, and you would include that in 1/3 chunks ($23,333) in 2020, 2021, and 2022. Assuming you never sell the shares, and then towards end of 3 years you roll them (i.e., the very shares) to an IRA, you could recoup the taxes you had paid on $70k. Note that if you did sell the shares for $105k, and then decided to roll over, under the ordinary 60-day rollover rules you would need to roll over the entire $105k to avoid tax, and I guess the same thing would apply to a CRD. Either way, there is no potential tax avoidance, and the whole idea is sort of pointless if that's what you do. Either way, you end up with stuff worth $105k in an IRA and no tax. But you could have accomplished the same thing by leaving the stock in whatever plan it was in. So the only point would be to take the stock as a hedge against future uncertainty, knowing that at least you had locked in an ordinary income cost of $70k and 3-year averaging, in case you do end up needing to sell the shares for living or other expenses, perhaps because of pandemic-related economic fallout. Unless I am way off base on my understanding of the Code, here, I think what this points up is that rules that make sense for a 60-day rollover make less sense for 3-year window. But this is a really unusual scenario anyway, because I think few plans even allow in-kind distributions any more.

RBG, under 402(c)(1)(C), if you roll over the actual 1,000 shares that you received (not replacement shares that are otherwise identical, but the same shares), you can roll them all back, regardless of value at the time of rollover. Of course, in the normal instance this is going to be either a direct rollover or a 60-day rollover, so the potential for a price-swing is not going to be as big a deal as it is with a CRD, where you have 3 years, but I don't see why the general rule would not be operable for a CRD. In fact, having looked at this a little more, I think my reticence in earlier response based on 2202's use of "amount" was misplaced, because 402(c)(1)(C) refers to "the amount so transferred['s] consist[ing] of the property distributed," thus confirming that "amount" as used in 2202 probably should not be thought of as just a dollar amount. Of course, this is an unlikely scenario. You have to imagine the COVID-affected participant sort of taking the in-kind distribution "just in case," not doing anything with the property (i.e., not selling it), and then deciding to roll it back to a plan (or more likely, IRA). In the interim, there may be dividends, and I'm not sure there is any guidance on that. Again, less of a problem with 60-days as maximum rollover period.

sb0282 and Ms. Martinez, probably no 72-month loans. Although as Lou S. says, we don't really know without IRS guidance (because the statutory language has, let's say, some gaps), one possible scenario would be that repayment would need to start January, 2021, as noted by Lou S., and then the July - Dec, 2020 payments get pushed to July-Dec, 2026. But again, no assurance. The good thing is that all you need to know for now, at least until later this year in preparation for starting payments in 2021, is that no payments are due until 2021.

ERISAGal, under 402(c)(1)(C), if you still have the property you can roll all of it back to an eligible retirement plan. But it has to be "the property," i.e. not shares that you repurchase after you sold the distributed shares. That's the general rule. CARES Act 2202 however refers to rolling back "an amount" not in excess of amount distributed, so CuseFan has a point. I don't know what Congress intended, or whether Congress knew what it intended. Since 2202 does not say "dollar amount," IRS should have leeway to interpret it favorably where participant takes the stock just in case, does not sell it, and then wants to roll back that stock. But again, seems unclear under the CARES Act wording, to me at least.

Ponderer33, if you don't have contributions from retirees, you would not be required to have a trust, because no plan assets. If you do have a trust, tax issues would arise. You would probably want to structure as VEBA under 501(c)(9).

Thanks, BG. I regret I am not personally plugged in politically, although I know a few folks who are.

If he can. As you will have noted, mming, opinions differ and everyone acknowledges some uncertainty because of lack of IRS guidance.

mming, I think what RBG was commenting on was the idea that you could avoid tax altogether, i.e., get $100k out of the plan, convert it to Roth, and then roll some other amount back into the plan to avoid tax on the Roth conversion, which was an idea that a participant had apparently raised with you. No.

Belgarath, I have to admit I may not have total clarity on the impact of Notice 2020-23, but when I reviewed the language to me it seemed unclear whether what was postponed until 7/15 was deeming the loan or the end of the cure period. There is no example or clarification, of course, in 2020-23, but it seemed to me that what it was postponing was the plan's required action under 72(p), which is the deeming. I guess you can look at it and say the IRS is intentionally conflating the end of the cure period with the act of deeming by the plan, and I will admit that that is the only way it makes much sense, since postponing the earliest date on which the 1099-R could be issued does not provide much relief to the employer or the participant. So you're probably right on the meaning and intent, but it seems to me the language in Notice 2020-23 is not a model of clarity as to what it is intended to accomplish regarding participant loans. I mean, it does not mention "cure period," if I recall correctly. The main problem I have is that the participant's obligation to repay the loan is not a required action regarding income tax payment or reporting, for which IRS can extend deadline. The only tax obligation that is implicated and that the IRS can extend the date for is the plan administrator's. But again, common sense says that your interpretation is probably correct.

Thanks, RBG. I think now we are at ultimate clarity, or reasonably close.