Luke Bailey

Bird is correct, this has been hotly debated. All we know from the statute (i.e., what seems to be so clear in the statutory language that the IRS likely cannot gloss over it) is that for a pre-COVID loan that would have had a payment coming due in January of 2021, the loan will have to restart in January of 2021, because the payment suspension period will then be over. The span of time by which the loan gets extended is the harder part, because one part of the statute talks about suspended payments being delayed for 12 months, and another part talks about adding a period to the end of the loan that could be either the 9-month suspension period or the 12-month payment extension period. It seems to me that if, for example, a loan had a payment that would have been due 12/31/2020, and that was the last pre-COVID scheduled payment, then the loan would have to be extended by 12 months to honor the statutory language that the payments suspended during the period from enactment through the end of 2020 are extended by one year. But suppose the loan's last scheduled payment was 12/31/2022. The 12/31/2020 payment is arguably (although it seems to me a weak argument) delayed by a year even if you only extend the loan's term by 9 months, because the date when the 12/31/2020 payment is ultimately made gets lost in the reamortized payments. And what do you do with a loan that pre-COVID would have termed out 9/30/2020, in other words, a loan where the statute's statement that the loan is suspended only through the end of 2020 comes into direct conflict with the command that the suspended payments are delayed for one year. My guess is, it probably restarts on the anniversary of the first suspnded payment (e.g., 3/31/2021) and is extended to 9/30/2021. But it's not really apparent on face of statute what you do in these cases.

Broad restructuring a la 401(a)(4) testing is prohibited for ADP. See 1.401(k)-1(b)(4)(iv)(B). It was big in the 90's before the regs prohibited.

MWeddell, I am not optimistic. Just thought without researching that perhaps was not an amendment for A, only for B. If there is no explicit language addressing in reg (and I don't recall there being), or example, I think it's arguable that if B, a separate legal entity, decides to start its own plan and spin off the part of the current plan for its employees, that is not an "amendment" as to A. But again, just saying its possible without researching.

AndyH, I don't think you can restructure a SH plan into two notional plans. I assume the two companies are "related" in that they are in the same controlled group. I think B needs to form its own plan, assuming the two plans can pass coverage separately. B's plan would need to run ADP and ACP. That would have lots of ramifications that would need to be thought through. Pulling out mid-year would be a plan amendment, at least for B, and so that too would need to be analyzed for impact.

austin3515, you are right that cash and noncash fringe benefits is listed as a permissible exclusion in 1.414(s)-1(c)(3). I was addressing the plan document issue, i.e. whether, if the plan document in some form says you don't include taxable "fringe benefits" in compensation, an employer that consistently and in good faith has treated the bonus you described as an excluded fringe benefit could exclude it. However, because I think it is a stretch to say that this is what the IRS had in mind when it wrote the reg, and because it would have a potential for systematic discrimination if the persons who got the bonus were disproportionately highly compensated, if the amount is significant I would backstop the analysis with the (d)(3) test. The plan document you are dealing with may or may not permit this analysis. I would guess that the group that gets the length of service bonus is not disproportionately highly comped, but that is just a guess.

Whoa! If, as seems likely from the OP, the over-deferral was the result of the employer's administrative error, it seems like on the tax side this needs to be corrected under EPCRS and on the fiduciary side there may need to be remedy for loss. Would of course need to know all of the facts, but it does seem to me like this alternative analysis is more likely correct.

austin3515, I had to research this for a client once. Adoption agreement had a box to check to exclude "taxable fringe benefits" from comp for purposes of allocations, and noted that if box was checked 414(s) ratio test needed to be run. 414(s) ratio test was run and passed. Research concluded there was no Code or reg definition of "fringe benefits." Rather, "fringe benefits" is a business term. (Of course, Section 132 fringe benefits that qualify for exclusion from income are just a subset of all "fringe benefits"). IRS publications tend to be expansive on what is a fringe benefit, because the point is that they are taxable under Section 61 unless some exclusion applies. Bottom line, almost anything other than regular pay can arguably be considered by the employer as a "fringe benefit" in interpreting its plan language, if language ambiguous. And there is good case law regarding the employer's interpretive authority over the issue.

Stash026, AKconsult makes a really good point. If the participant is not economically affected by COVID, he or she should not have a problem taking a regular plan loan, assuming plan contains provisions for that. Also, as AKconsult points out, if the funeral expenses are an economic hardship for the participant, and the plan has the standard, pre-COVID hardship rules, funeral expenses should qualify.

EBSA Disaster Relief Notice 2020-01 published 4/29/2020 suspended "no more than 50% of account balance" rule in DOL adequate security regs for CARES Act loans, so as far as DOL is concerned you can do lesser of $100k or 100% of account balance to qualifying participants during CARES Act loan period.

Stash026, the rules for when a parent is a dependent of taxpayer are written up in an IRS pub, but the "source code" is Section 152 of the Code, especially 152(d), so I would check that.

pmacduff, the language of 2202(a)(4)(A)(ii)(III) requires on its face that if the COVID effect is economic adversity attributable to pandemic (as opposed to participant or spouse or dependent being diagnosed, which is in subclauses I and II), then the economic ill effect has to be the participant's loss of work, etc., not spouse's, although it does invite IRS to expand (which they have not so far done). So I think in your facts it would appear participant is not qualified, but stay tuned for IRS guidance to expand.

The relief would need to be from Congress.

Dougsbpc, I think if your plan document says (as most of mine do) that the forfeiture occurs as soon as the ex-employee receives his/her lump sum distribution of his or her otherwise vested amount, and you are laying off 35% all at once, it's probably going to be difficult to not call that a partial termination. Sure, the person may come back, but are they really going to be able to buy back the forfeiture, even if they come back, say, in August, 2020? No, most of them will forfeit, even if they come back and have a multi-year opportunity to buy back the forfeited amount, and it seems wrong for them to forfeit in that fact pattern. If your plan says that the forfeiture is as of the end of the year, or the following year, or even better if you have a 5-year suspense account instead of the cashout and buyback, you may have some leeway. The IRS's rules on what is a partial termination are not completely a bright line, and use the word "generally." Where you don't forfeit folks immediately and you bring most of them back before they haved a forfeiture, so that the number of employees who experience forfeiture as a result of the furlough is significantly below 20%, it would seem to me that in many situations you would be able to argue no partial termination. But each factual situation (including plan documents) will need careful examination in determining what to do, and with a cash-out and buyback plan you'd probably need to amend to in effect be a suspense account plan during the pandemic, because it will really not make sense to say there is no partial termination because they folks were only laid off for a short-time, but then when they come back they forfeit if they don't have the money to buy back in.

gregburst, you mean a plan merger, i.e., A purchased B and has already taken legal action to "merge" B's plan into A's? If that is the case, then it would seem to me they have the Roth money. I may be missing a clever solution, but it seems to me that the only way they can get rid of it is if the participants with Roth accounts qualify for and take distributions of their Roth accounts. Of course, then can just grandfather the accounts that come over and not otherwise provide for more Roth money, i.e., this does not force them to add Roth for other amounts.

I don't. It's only a problem if you see the contributions that are for HCEs that are calculated in the same way as SH's as "provisions that satisfy the rules of this section," but clearly they're not that, because if when you drafted your plan or filled out your adoption agreement you had said "no" to SH contributions for HCEs, your SH plan would still have all the "provisions that satisfy the rules of this section" and be a SH plan. Right. That's one way of articulating the difference between our positions. I don't see them as that, and since you didn't need to make SH applicable to HCEs in the first place, I think my position is more consistent with reg language. Sure. Ill-considered plan language could make it more of an uphill battle than it otherwise would be. Would need to review actual plan language to assess risk, with IRS or court. I would think an EP exams agent would be pretty sympathetic, given that it only impacts HCEs and is for business survival, and I also think Appeals and higher would agree with my (and MWeddell's) position on the legal issue. It would seem to me the greater risk would probably come from the disgruntled physician, investment banker, or lawyer (god help us from those!) who terminates employment after SH-like contributions are stopped for HCEs.

Agree with MWeddell, apply prospectively. Will of course need to tailor solution based on plan language. Going forward, plan language should be sensitive to issue and better interpretation of regulation.

Yeah, I think that's right, MWeddell. Thanks.

The separate testing requirement pointed out by Mr. Bagwell in his first post is in Treas. reg. 1.401(k)-3(h)(3). Look at that and follow the cites to the 1.401(k)-1 and -2 regs and example. The preapproved plans I have reviewed for this have all included the rule in detail, parroting the regs.

You need to file under DFVCP before the DOL contacts you. The fact that the IRS has contacted you does not disqualify you from DFVCP, only being contacted by DOL can do that. And IRS will typically not assess penalties if you file through DFVCP with DOL. No guarantee that this will work, but I would strongly consider filing amended 5500's right away checking the DFVCP box on page 1 and then go online and pay the DFVCP fee and hope that DOL does not contact you first.

Hayden Taylor, interesting question, and opinions may vary, but I would think that if the match is discretionary and no discretion has yet been exercised, such that if the plan were not amended the employer could get to the end of the year and say the match is $0 for this year, that amending it now to start a payroll-based match would not be an impermissible cutback, or even a cutback.

JTWeave, the controlling code section seems to be 404(h). Take a look at it. The answers to your questions are not readily apparent. If it were me, I would think about fixing with a VCP submission. I can't recall ever needing to include deductibility as an issue in VCP, but seems like this might be a case where you would want to try that. The years are outside the 2-year self-correction period for significant errors, so you really need to submit through VCP anyway to maintain the SEP's qualification.

Agree it's not typically the case, but it is legally possible and sometimes is the case for both private and governmental DB's to take rollovers.

If the balances are 50/50, doesn't the distributive property mean that you have the same result if you just charge it to the plan as a whole?

Most or perhaps all states' financial codes prohibit legal business entities such as corporations or LLCs from acting as trustee unless they have applied for and been granted trust powers under state law, which requires meeting certain regulatory requirements including solvency and experience. I am not sure, but suspect that even an individual (who generally can act as trustee under state law), e.g. a TPA that who was a sole proprietor, might also violate state law if he or she carried on a trust business.

I just looked at this for a somewhat different purpose, and there does not seem to be any procedure or interest on part of IRS for a taxpayer to notify it that an EIN is dead, and IRS will never reassign. There is some info here:https://www.irs.gov/businesses/small-businesses-self-employed/canceling-an-ein-closing-your-account