Luke Bailey

I don't think we're saying it can't. Just fleshing out the concept that a new plan adopted after the end of its first year is different from an amendment of a plan actually in effect in prior year. Larry, not disagreeing.

That's probably the right answer, but perhaps gives too short shrift to what seems a legitimate concern. An employer with an ongoing plan that did not at 12/31/2019 have a last day of year rule could not now, in 2020, go back and amend the plan to put one in for 2019. I can see how one would think that that is sort of what is occurring here. However, the SECURE Act says that such a plan is treated "as if it had been adopted as of the last day of the [prior] taxable year," and does not further elaborate. Given that wording, it is hard to see any term contained in the initial plan document as an amendment, so inclusion of the last day rule would presumably be OK.

Ian, Section 2202(a)(2)(B) says that the rollback must be "to an eligible retirement plan...to which a rollover contribution of such distribution could be made...." I think that would preclude annuity payments from being rolled over. If they, or their spouse or dependent, had COVID, or they suffered a cut in hours or lost job, it would seem they're just as deserving as anyone else.

Interesting point, Peter. Thanks for the info.

msmith, first, you don't have to amend your plan until 2022 to implement CARES Act loans and distributions, just adopt a written policy that explains in carefully though-out plain English what you want to do and then do it. We have developed a pretty generic template to make it easy on plan sponsors and decisionmakers who do not already have from their platform vendor. And yes, you can adopt a subset of the maximum permitted under the CARES Act, but why would you want to? It will be easier to administer and roll with the technical advice eventually coming down from the agencies if you just adopt a policy of wanting to do all that the law permits, as interpreted by the agencies from time to time. The only downside to the CARES Act distribution and loan rules is that participants are undermining their long-term retirement savings. But foreclosure, eviction, not paying health insurance premiums, and poor nutrition have long-term economic consequences that could last into retirement as well.

Interesting.

403bear, it seems to me that there may be distinction to be made between (a) a prepayment that can only be reimbursed as services are provided and (b) paying for services that would be rendered now, if they could, but cannot and employee cannot stop requirement for payment. Probably worth researching.

OK, Mike. That's what I thought originally. But now, I don't really know. But I do feel we've plumbed the depths of this!

I guess another question that is begged here is whether the participant's certification just says the equivalent of, "Yeah. I read them and I satisfy one of them," or he or she must check a box specifying which one. The former would virtually eliminate the plan administrator's ever having knowledge that the representation was untrue. Oddly, the statute (2202(a)(4)(B)) would tend to support the former interpretation, because it says the participant must certify that he or she "satisfies the conditions [for getting a CARES Act distribution]," not that he or she satisfies one, or at least one, of them. But that support is weak because the most literal interpretation of the language would in effect turn the "or" at the end of 2202(a)(4)(A)(ii)(II) into "and," and that is clearly not right.

Well, maybe I know it, but it comes up so seldom I had not thought about it. So you are saying in the example only the $100k gets allocated comp to comp. The interest gets allocated in proportion to account size at some point in time. That does seem like the right answer, but shows how unusual the situation is. If it had been allocated when contributed, the interest in effect would be allocated in proportion to compensation, or some other nonaccount-balance-based algorithm, because that's how the underlying $100k was would be allocated. But as a result of waiting, the $100k gets allocated in proportion to account balance size, even though was not allocated to any accounts.

Austin, in the example you gave where the employee does not represent that either he or she or spouse or depending had COVID, so that the only grounds for being qualified is negative effect on employment, and the employer knows the employee has had no negative impact on his or her own employment on account of COVID, then presumably that would be the sort of thing the IRS had in mind as the exception when you could not rely on the certification. But as RatherBeGolfing noted, that is going to be a very rare situation. Actually, even there you might not know, because some folks work two jobs to make ends meet. The harder question for me is what if the participant's only grounds for being negatively affected is a 10% reduction in hours, which the employer know about, because the employer did it. I'm thinking that is adverse enough, but some might differ. Also, note that apparently until their is guidance otherwise from IRS, a 10% reduction in hours might be enough (because statute refers to reduction in hours), but a 10% pay cut would not be (because statute does not refer to pay cuts).

Isn't the issue of whether the "costs remain for the employee" a contractual issue between the employee and the care provider? If the employee demonstrates to the plan administrator that it is in a dispute as to whether the amounts are owed, at least arguably the plan should not pay to provider until the dispute has been resolved one way or the other.

OK. So it's admittedly a somewhat unrealistic hypothetical, although it seems like over time every unrealistic hypothetical is ultimately encountered at least once in actuality. So the point was, suppose that the employer, contemplating an "everybody in their own group" allocation as of December 31, 2020, to be calculated and allocated first quarter 2021, contributes the amount that it thinks will be approximately needed for the expected allocations, minus a year's worth of interest, in January, 2020, and the money is just parked in the plan. Plan has last day of year requirement for allocation. Employer RIFs 40% of its workforce in June, 2020. Does a participant who terminates in 2020 get a portion of what is allocated as of 12/31/2020, in first quarter 2021, notwithstanding the last day of year condition? Arguably, no, because participants affected by partial term only vest 100% in their account, and the 2020 discretionary should not be allocated to participant's account per terms of plan (last day of year requirement). But this is at least an example of why having amounts in the plan allocated to a suspense account can at least appear troubling to some.

You make a very good point, Mike, and that explanation inclines me to think that indeed that is the correct answer. But I do think it is hard in terms of the competing principles and the lack of guidance on the specific issue regarding the earnings not being annual additions. I guess your answer on the (highly hypothetical) partial termination issue would be that folks affected by a partial termination would not somehow "vest" in a portion of the amount in the "suspense account" (whether referred to as that in a plan instrument, or not), because they only vest in what is allocated and the amount was permissibly not allocated at the date of the partial termination?

It's a really tough issue. In practice, whenever a client has called with a problem that deals with money being in the plan that cannot immediately be allocated, typically on account of a mistake of some sort or other, unless this specifically contravenes the plan document I will tell them just suspense it and use it up as soon as you can. Occasionally a recordkeeper will push back and say, "the IRS hates suspense accounts." I've never been able to find the statutory or regulatory basis for that "hate," and I've never had to deal with the issue in an exam, but they do definitely present some difficult issues. I will remain agnostic on this subject. Maybe just avoid if possible, and deal with on a case by case basis when comes up.

Thank goodness. Two different payment amounts for the same loan would send a terrible message about the practicality of the federal government and its response to pandemic.

So maybe the following are good test hypotheticals to get even closer to issue? First case: Pure discretionary profit sharing plan, pooled account, comp to comp allocation with immediate (first day of next month) eligibility and last day of year requirement. Fairly large employer with lots of turnover puts $100k into trust on 1/1/2020. By end of year, obviously the folks who share in allocation of $105,000 ($100k contributed + $5k earnings) are a very different group from the folks there on day that amount contributed. But that's OK? Second case: 401(k) plan with individually directed accounts to which employer may make discretionary nonelective. Discretionary nonelective has last day of year requirement. No specific language addressing nonelective contributions that are contributed early in year and not allocated until after end of year, but not clear that this violates plan document. The unallocated discretionary contribution that is contributed early in the year, but not allocated until after end of year, is invested by trustee in money market, so there are some earnings, and the earnings get allocated along with the contribution after end of year. Is this the same as above? There is definitely something bothersome about the above examples, assuming the earnings are counted as earnings and not annual additions. Money is contributed to the trust, and yet many folks who are plan participants at the time of the contribution will not share in the allocation of those funds, because at the time of allocation they will not fulfill a condition of allocation. Furthermore, think about an employer who actually wants to contribute $105k, but figures he might as well earn $5k of that on a sheltered basis, rather than through taxable business. And what if, while the amount is unallocated, the employer lays off 40% of its workforce and calls a partial termination so that the affected group's vesting is accelerated. Do they not vest in the unallocated $100k, or $102k or whatever it is at the time of the partial termination? Troubling. However, the 415(c) regs, which follow the statute, seem to support the theory that in both cases the total annual additions are just the $100k, and do not include the $5k of earnings. "Annual addition" is defined not as the amount allocated to the account at the time it is actually allocated (which I think is maybe Mojo's position, that I was originally sympathetic to for the definitely determinable reason), but rather the employer contributions that are allocated to account, and it is hard to call the $5k of earnings "employer contributions." See Treas. reg. 1.415(c)-1(b). I guess if the IRS really didn't like the $5k in the example being treated as earnings, and not an annual addition, e.g. because of the definitely determinable issue, it could invoke its authority under 1.415(c)-1(b)(4) to call the employer's parking the $100k in the plan to "juice" it with tax-sheltered earnings a "transaction with the plan," but I am unaware (have not looked either) for any guidance doing that. I think this is a tough one.

Catch22PGM, I don't recall seeing any guidance or case specifically on point (if there is any, I'm sure someone will correct me), but it seems to me that since the amount did go into the trust, irrevocably, then in the case of both #1 and #2, the amount is deductible if within the 404 limit. And of course, the #1 amount would count towards the limit.

I have not read all the above, but I think I am siding with Mojo. You could draft a plan that was basically one with individual investments to say that the employer may also contribute amounts to be held temporarily in a suspense account that shall be invested for the benefit of all participants and that will be allocated to participants with the gain, but not counting the gain for 415(c), but if you are using compensation or other participant facts that are not in existence at the time of the contribution, so that the amount could not be allocated when it is contributed even if you wanted to take the time to do it, it seems like it violates definitely determinable. In other words, if you contributed $100k as discretionary nonelective on June 1, 2020 and said that it would be allocated, when you got around to it, based on January through May 31 comp, then it would seem like even if you didn't actually allocate it until early 2021 administration, then as long as you did allocate it based on January 1 through May 31 comp, and allocated to everyone employed on May 31, that would work, but no one would do it that way and I think not doing it that way does not work.

I still find it hard to believe that there will be two different loan payment amounts (original after end of suspension period, e.g. January, 2021, and new amount after end of "1 year" delay). Seems to me that whenever the loan restarts, and regardless of the amount of time tacked on to the end for the extension, it should be reamortized back to a single payment amount. Did Notice 2005-92 have two different payment amounts once the loan restarted, one for an initial period and then a higher amount after that? In the Q&A's issued today the IRS says to look at 2005-92, although also says it will eventually issue new guidance.

Totally, Degrand.

Right. Can do if you actually have separate plans. 414(l) regs define what is a "plan" for this purpose.

I think/hope that IRS will go with simplest Exactly, RatherBeGolfing. I think that in that case IRS will likely say loan restarts 3/31/2021.

So JRN, two things. First, no one is doing anything for real until 2021, because for now there are just no payments on a qualifying loan, period, Second, would you agree that if my loan would pre-COVID have termed out on 12/31/2020, and now it restarts on 1/1/2021 and it terms out on 9/30/2021, that seems inconsistent with the statute's command to extend each payment by one year?

Degrand, I don't know. We're getting into the weeds for sure, but take the worst case facts. I have deferred $18,000 by late December 2019 and I want to put in $1,000 more, so I elect that, say on a paper form that I hand to my payroll person at work. That person transcribes it incorrectly into Excel, and $2,000 is withheld. I don't notice immediately, but eventually the TPA catches the problem, and in the meantime because of investment loss the $1,000 is $800. The employee just eats the $200 error because "mistakes happen?"