Luke Bailey

Just out of curiosity, is anyone familiar with a plan that has ever made any type of distribution of an unvested amount on purpose?

cbadmin123, I cast my vote "yes" that that is acceptable correction.

Larry, I did not say anything about certification or review of same. I was just pointing out that it is not a CRD unless the guy qualifies, even if, maybe, in a lot of circumstances, it will be the honor system.

But only if the guy or his spouse had COVID (pretty dicey at his age), or suffered income decline due to layoff or reduction in hours (again, seems like a long shot), right? So Peter, in plain English: (1) Because a nonperiodic distribution (assuming that it is not part of an elected periodic amount that was designed to satisfy 401(a)(9)), not subject to 20% withholding, but subject to 10% withholding, although can elect zero withholding; (2) amount can be rolled over; (3) no 402(f) notice required (although some sort of explanation for participant would be nice); (4) plan cannot be disqualified if does not offer direct rollover for distribution. Agree?

Good point. I have clarified my post on that point. Thanks, TPABob.

It seems to me that Notices 2020-23 and 2018-58 cannot be interpreted as a direction to plan sponsors to alter any facts (including an agreement to withhold from pay) about the loan. They just say that a participant's failure to make a loan payment during the April 1, 2020 through July 14, 2020 period that would otherwise (under 72(p) and its regulations, and under the plan's loan documents and procedures) cause a deemed or loan offset distribution (whichever would apply) on a date during that period will not result in a deemed or loan offset distribution until July 15, 2020. Although not clear from the text of the two notices, this probably, means that a cure period that would otherwise end on June 30, 2020 is extended to July 15, 2020. (I say probably because it seems to me that you could interpret 2020-23 and 2018-58 as saying that only the time when the loan must be deemed or offset is extended, not the end of the cure period for causing the loan not to be deemed or offset.) But yes, putting aside, for a moment, the CARES Act, under 2020-23 and 2018-58 a loan whose cure period would have ended on June 30 would be deemed or offset on July 15, 2020, unless (maybe) the individual brings it current on July 15 (14?), 2020. But of course, for qualifying individuals the CARES Act date suspends loan repayment obligations for loans outstanding on March 27, 2020 until the beginning of 2021. If the CARES Act is treated as suspending not only scheduled loan repayments, but also delinquent payments, which I think is still an open question awaiting guidance from IRS, then for individuals qualifying for relief under the CARES Act that relief would include all cases of relief under 2020-23.

Gilmore, I think it depends on what the plan's loan policy provides and how early in the 4th quarter the individual is laid off. Many plans' loan policies will provide that if the loan is no longer being paid by payroll withholding, it will come due in a balloon payment, e.g. 30 days after the individual terminates. Where that is the case, the loan offset distribution would occur at the end of the thirty days and the loan offset distribution would fall within the Cares Act period unless the individual terminated on or after December 1, 2020. In your example you are positing that under the plan's loan policy the loan does not default until the end of the longest permitted grace period under the loan regs. In the case of a plan that did have such a loan policy, as expressed in its loan documents, I think your analysis would be correct and an individual who was laid off after June 30, 2020 would not qualify. I suppose the IRS could change this result in guidance, e.g. say that because it is aware that plans do not have a uniform policy as to when a default occurs, it will treat any loan offset distribution that occurs in 2020 as a CRD. It probably should do that.

If it was effective 11/1/2007 it probably (would need to check document) was fully compliant with EGTRRA from the get-go. (EGTRRA was enacted in 2001.) 436 was PPA 2006, so look to see if the other PPA requirements (e.g., qualified optional survivor annuities), rollover changes, etc. were included. If were not, probably need to submit VCP as nonamender.

Can someone point out the language in Notice 2020-23 that affects participant loan due dates? I'm not seeing it.

Certainly agree with all other responses that say a solo K or other one participant plan for a one-owner business can be trusteed by the individual owner. Also, in the right circumstances a safe deposit box at a bank that is properly titled in the name of the plan could be proper safe-keeping by the plan's trustee for precious metals. But the OP specifically mentioned Canadian coins, which are not on the permitted list for IRAs and self-directed accounts. See IRC sec. 408(m). So I think that whether this investment works (i.e., not treated as a distribution, which might or might not also disqualify plan depending on other facts) depends on whether the investment is a general investment of the plan, or an individually directed investment. Obviously, as long as the plan has only one participant who is also the trustee, the question is somewhat artificial, but there is always the theoretical possibility that there would be other participants and if the plan document specifies individually directed investments, the Maple Leafs are a problem. Need to stick to U.S.-minted coins or bullion, then OK.

Peter, I think if the type of declaration is stated with adequate specificity (e.g., "federally declared natural disaster," "national healthcare emergency"), you would not have a problem with definitely determinable.

If the plan is daily valued, valuation is not an issue, but if it is not, e.g. has illiquid assets subject to annual valuations, I would think that is the biggest issue.

austin3515, if you are talking about an EACA under Code sec. 414(w) (and not just an ACA), your annual increases have to be based on the number of years the participant has been subject to the arrangement (see Treas. reg. 1.414(w)-1(b)(2)(ii)), but the step minimums and 15% cap that apply to QACAs are not applicable, so yes, you could get to 20% ultimately.

Bill, I agree, which is why I said one of two legal issues would be not following your plan document. I guess the question is, if this answer is obvious to just about everyone (and it did not seem to me to be so in the early stages of this thread, but I may have misinterpreted some posts), then that's it. If there is a significant minority of folks who do it the other way, then there may be a need for guidance.

I with these conclusions, but it's odd that there does not seem to be any guidance specifically on this issue. My guess is that in the absence of guidance or high visibility for the issue, it is done both ways without incident in actual plan administration, and maybe if there is any further discussion, that is where it should be concentrated, i.e., what folks' experience is as to what is done in practice. I think the legal arguments against allocating the $5k earnings based on compensation are that (a) it is likely contrary to the plan document, although the document is unlikely to cover the transaction with specificity and (b) allocating the $5k as a contribution is a prohibited transaction as a use of plan assets for the benefit of an interested party/disqualified person.

I will double down on my earlier analysis that if there is anything untoward here, it is under the wage and hour provisions of the labor and employment code of the state in which Curious Employee works.

Ultimately, the plan sponsor is in control of its document, and in theory an employer could change its policy over time, as conditions on the ground emerge, as long as the changes are not discriminatory. That's the beauty of adopting a policy, not a plan amendment. However, ultimately the plan sponsor's amendment (generally by the end of 2022) should track what it did, so if that was not uniform over time, it needs to keep a record of what it did at various times.

Wow, C.B. Zeller, pure greatness!

Yes. And for the Aristotelian usage that you advocate, Larry, one might better say "Assume the premise." But anyway, I will live and let live on both since they are in the vernacular.

sanchezmikea, what CuseFan describes would be spelled out in a "suspension of benefits notice" that you would be required to receive if you went back to work in a union job that was covered by the union pension plan. But if you went back to work in noncovered employment, you would not get one. In any event, the terms of the suspension should be contained in your pension plan's Summary Plan Description. You should get a copy of that and review it carefully.

The ABA has a handbook on "of counsel" relationships. Last edition I saw said they could be IC or employee, and there were ramifcations of either, mostly in the areas of professional responsibility (e..g., fee-splitting issues, malpractice liability). The simplest is employee. If were purely a tax issue, easy to justify either status, but it's mostly not a tax issue. I am not an employment lawyer, but (a) I don't think ERISA preempts the application of state wage & hour laws, here, (b) most states have restrictive rules on what can be deducted from an employee's wages, and (c) there is a difference between an employer's negotiating a lower salary because of the benefits it provides apart from salary, as contrasted with an employer's deducting things from an employee's salary, even with consent. I think Curious Employee, as a lawyer, should be able to analyze the state employment law issue, now that they know that is where his most significant issues lie, probably, as opposed to the qualified plan tax and ERISA rules. I'd be curious to know what they conclude.

AKowalski, I did note that when the Q&A's came out. My guess is that IRS included "generally" in its statement to avoid giving the impression that there was no type of distribution that would not be eligible for rollover, since DB annuity payments likely are not, or at least they wanted to think more about it. (You may have noticed that the Q&A's shed little light on any but the most obvious questions regarding the CARES Act distribution and loan rules, other than to confirm that 2005-92 was a place to look for guidance in interim.) Literally, since the plans listed, which of course are those that can generally take rollovers, could not in fact take a rollover "of such distribution" in the case of a DB annuity payment that otherwise happened to fit the CARES Act requirements, I think the statute supports the conclusion that such amounts cannot be rolled over, although of course they will generally qualify for the three-year tax spread. Maybe the statutory language does not compel that conclusion. You can certainly make a policy argument that the participant should be able to roll the amounts, if started to take his or her benefit early because of pandemic, but I can see countervailing considerations as well. Note also that Notice 2005-92 did not permit rollover of periodic distributions under KETRA.

Completely agree with MoJo on amount. The CARES Act distribution rules have no "limited to the amount needed to meet the hardship" component. The odd thing is that until IRS says otherwise, if an employer is unwilling to go beyond the explicit words of the statute, an employee whose hours are reduced qualifies, but one who has taken a pay cut arguably does not.

BTW Larry, yesterday evening I Googled this. If you are interested in a more inclusive, contemporary take, you can check this out: https://www.merriam-webster.com/words-at-play/beg-the-question

Maybe like me he thinks the subject was deeper than first appeared, but the depths have been adequately plumbed, at least for now?