Luke Bailey

The HCE would have had to make an election to defer, using any means permissible under the plan (clicks on a website, filling out a paper form, scrawling instructions on a piece of paper, email, or even orally) to a responsible person for the plan by 12/31/2019. If he or she did that, but the company did mot implement, then we can move on to other issues, but if he or she did not do it, there was no deferral for 2019.

Pri, I sort of agree with Larry that you have provided insufficient information, but this is probably the date as of which the alternate payee's interest is created, e.g. if he or she is given a percentage of the participant's account, then what that percentage is in dollars may be determined as of the referenced date. After that it will be in his/her own account and invested at his/her risk, unless it is distributed immediately. But there must be more detail in the QDRO.

Good luck, JMP. Read the regs I cited carefully.

Having reviewed the bill text again several times in light of all of the posts that have occurred on this topic, it seems to me now that the right answer is as follows. Unfortunately, part of the right answer is that there is no one "right answer": Except in the case of loans that were near the end of their original term when the were suspended, payments restart on the first payment date that would otherwise have been a payment date for the loan on or after 1/1/2021, because 2202(b)(2)(A) says that the one-year delay is only for payments that would otherwise have been required before 1/1/2021. However, if, for example, the original loan term would have ended 3/31/2020, so that the only suspended payment is the 3/31/2020 payment, then that payment is not due until 3/31/2021, so in that case the loan would restart 3/31/2021. So if IRS wants to stick close to the statutory language and goes with 1/1/2021 as the basic rule for re-start date, it will need to make an exception for loans that were near the end of their term when they were suspended. But this is actually consistent with the statutory language, not a workaround for bad language. Section 2202(b)(2)(A) says you suspend payments due during the last 9 months and change of 2020 by one year, not that you restart after the 9-month and change period. In the case of a loan whose pre-Corona term would have ended 3/31/2020 and the last payment for which is now on 3/31/2021, no payments are due under the extension on or after 1/1/2021 until the loan's extended 3/31/2021 payment, because no payments were due on or after 1/1/2021 under the pre-Coronal loan. It's undecidable on the text of 2202(b)(2)(C) whether you add one year (the one-year period by which payments are delayed) or the 9-month and change suspension period to the end of the loan, because 2202(b)(2)(C) refers to the "period" described in (A) and both the one-year and the 9 month and change periods are "described" in (A). Since payments are suspended only during the 9-month period, probably the stronger argument textually is that you add only 9 months. But either way you go (9 months or 12 months), you will need to make exceptions. For example, the last payment on a loan the 5-year term of which would, pre-Corona, have ended 12/31/2020, will need to be deferred to 12/31/2021, so in that case the loan will need to be extended by a full 12 months, even if you (i.e., the IRS) decides that the basic rule is going to be that terms are extended 9 months. And if you say that the basic extension is 12 months, then if the last pre-Corona payment for the loan would have been, say, 8/31/2020, then presumably the new loan term should end 8/31/2021. This is where you can start to get into really confusing territory, though, and I think is part of the confusion. Say, for example, the loan had 3 years to go as of 3/27/2020. If I only add 9 months to the loan term when it restarts on 1/1/2021, can I really say that I have delayed the remaining payments falling due in 2020 by 12 months? Probably, but it's confusing. Almost certainly when payments start back up (whether in January, 2021, or later), the payments are the level amount that will pay off the loan during the period from the date of the first post-2020 payment through the end of the extended period, so you won't have a different payment amount for the first 3 months of 2021 than for the rest of the extended loan term. This is because 2202(b)(2)(B) says you adjust "any subsequent payments" with respect to the loan, not just the delayed payments, to take into account the delay. And of course, a single repayment amount whenever the loan restarts is much more sensible, so here the text of the statute and simplicity are in harmony. You don't need to know the answers to these questions now, because the loan is simply suspended through at least 12/31/2020. $0 payments through the end of 2020 in all cases is simple.

OK. Good to know. Thanks, RatherBeGolfing.

I agree that you have to follow your plan document, but what principle of law says that you cannot use funds forfeited in 2020 to fund whatever employer wants/needs to contribute (other than elective deferrals) for 2019? I'm unaware of it. The plans I have drafted say that the forfeiture occurs as soon as the employee takes a lump sum of the vested portion of his/her balance (i.e., the forfeiture occurs immediately, not as of end of plan year or any later date), and funds can be used to pay plan expenses or offset employer contributions, without any more specificity than that.

No. I made the same mistake you did initially regarding the year being referenced in the OP, so have edited my response. Thanks for pointing out.

Seems like it would be a tough sell in VCP since would be a reduction in accrued benefit, but maybe IRS would do. I've never asked for that in VCP.

As explained in thread referenced above by RatherBeGolfing, there is an argument that it may be permissible for current year safe harbor contributions for HCEs, at least in some circumstances depending on plan language. Would seem too late if you are talking 2019 plan year. With any luck IRS will address the issue of suspending safe harbor for HCEs in current year, since a hot topic right now.

Larry, if you go that route then you still (in theory) must demonstrate that the U.S. trustees have the authority to control all substantial decisions. See 301.7701-7(a)(ii) and (d)(i), (ii), and (iii). That requires multiple trustees and will require special provisions in trust document. It's always seemed to me that actual compliance with the regs, and demonstrating it, was so cumbersome that appointing a U.S. corporate, directed, trustee was the more practical solution.

Under ERISA, the assets have to be sited in U.S. That's pretty easy to do, but important. The more complex thing is having a domestic trust, which is necessary for the plan to be qualified under 401(a). There's a "court test" and a "control test," both of which must be satisfied. See Treas. Reg. sec. 301.7701-7. The control test is pretty easy if the assets are sited in U.S. as required by ERISA, but the control test is complex and not easily satisfied if the individual who will in fact call the shots is not a U.S. person under IRC sec. 7701(a)(30). In these situations I have found that usually the only practical solution is to have a U.S. bank or trust company as trustee, even if it is a completely directed trustee, and even if the plan administrator who will direct the trustee is dominated by foreign persons. See Treas. reg. 301.7701-7(d)(1)(iv) and (v), especially Example 5 of 301.7701-7(d)(1)(v).

Pay the bonuses on 1/1/2021.

Agree that's the way will work in reality, but the law puts the responsibility on the "administrator," which recordkeeper is typically not and plan documents will say is "employer." So administrator is following advice/contractual requirement of recordkeeper in that case.

ESOP Guy, the obligee on the note is the plan and it has the right to renegotiate it at any time and to any extent, the only guardrails being IRC sec. 72(p) if you want to avoid taxable distribution, which was amended for this as part of CARES Act, and DOL regs, which of course need adjustment for CARES loan rules, and presumably will get that needed adjustment. The only other conceivable restraint on renegotiation would be the trustee's or plan administrator's fiduciary duty, but since it is the participant's self-directed (presumably) account that serves as loan collateral, there should be no fiduciary issue either.

So are there three situations? The plan adopts the CARES Act distribution rules, receives a certification, makes a distribution attributable to its CARES Act rules, and does not withhold. Right. The plan does not adopt the CARES Act rules, but an individual has a right to a distribution and the plan accepts a certification from the individual and does not withhold? Seems right, but not as clear as 1. Same as 2, but plan does not accept a certification. How does plan not withhold in this case?

And for sure it's too late to contribute in 2020 using 2019 income, which I think is what you were asking! You have what's left of the $50k after taxes. Use that for living expenses and jack your 2020 401(k) election as high as you want (or not). (Not a perfect solution if missed some 2019 match, though; I understand that). Also, consider that if it had been contributed last year, a significant percentage might have been lost in first quarter, depending on your investment style. Good luck.

Although plan documents and the amendments you ultimately adopt are/will be an important part of this, and require attention before you take any action, the law may permit either a suspension or a loan offset. Most likely the loan offset would be more favorable to the participant for a variety of reasons, assuming the loan offset could be treated as a COVID-19-related distribution eligible for the no pre-59-1/2/three-year income spread/rollover rule. But if the pareticipant's total account balance (including loan) exceeds $100,000 and he or she will need more than $100k in the crisis, or perceives need to do so, would need to think through his/her decision. A lot of this is subject to uncertainty because of CARES Act language and lack (as of today) of guidance, but you likely have options and will need to decide on them. Note that if your plan only provides for a single distribution to terminated participant, the participant might have to take that to get the loan offset. A full discussion of the CARES Act loan provision uncertainties and the relationship of the loan rules with CARES Act distribution rules (both of which require the participant to be affected by the COVID-19 crisis in a defined way) is here:

I agree with EBECatty. The beneficiary's benefit is determined under the plan as a survivor benefit if DB, the account if DC. This is an amount that cannot be part of the benefit or stay in account. It belongs to the estate, just like an unpaid wage check or bonus. Also, just Code E. You are not paying it on account of death. You would pay the same amount at same time if participant were alive.

mming, there is a fuller discussion of this topic, along with related issues, here:

I think if your plan document does not permit loans, you will need to amend if you want to make CARES Act loans, but the amendment does not need to be made until 2022 plan year. In the interim, you can just have/administer loans, but a guiding document of some sort, even if not a formal plan amendment, is HIGHLY advisable. The IRS and/or DOL will presumably clarify the above in guidance.

52626, see the discussion here that includes this issue: The consensus seems to be (a) a regular loan repayment date, or something close to it, not the end of a cure period, must fall within the CARES Act period to get the extension, and (b) nothing is certain on this or many other CARES Act loan questions until the IRS provides guidance.

My guess is that the OP was regarding suspending 2020 matching contributions. I don't think so under current law, but I suppose it is possible that there will be relief in a future bill. Of course, you can reduce for 2021. See https://www.irs.gov/retirement-plans/simple-ira-plan-faqs-contributions Termination would not get you out of requirement under current law either: https://www.irs.gov/retirement-plans/terminating-a-simple-ira-plan

Coming in late on these posts, but agree of course with those who say that the basic abstract legal principle under Kennedy is that unless surviving spouse has consented otherwise in a notarized or properly witnessed signed writing provided to the plan administrator, she or he is the person the plan must pay, regardless of agreements or statutory provisions outside the plan. Kennedy would not permit a plan to pay someone other than the surviving spouse if the surviving spouse had not properly consented before the participant's death, and did not disclaim. My recollection of the case law under the quoted Kennedy dicta is that the cases where the a person who was not the designated beneficiary under the plan has prevailed in state court or federal district court (not against the plan, but against the recipient of the plan payment) all involve a marital dissolution where there was no QDRO. The classic fact pattern is where a participant's ex-spouse agreed in a divorce settlement to give up all rights in participant's retirement benefits, but there was no QDRO, because ex-spouse was not getting anything. Deceased participant unfortunately leaves a pre-divorce beneficiary designation naming ex-spouse in force at time of death (a problem easily avoided, of course, by a plan provision that would automatically revoke a beneficiary designation of spouse, redundant in first place, if person ceases to be spouse). I recently reviewed many of these cases in connection with a case with very different facts from them and from the case in the OP. In these cases the lower courts are usually willing to look at whether the ex-spouse who received payment from the plan, as in Kennedy, should relinquish the payment to another party because the agreement in the divorce, while not a QDRO that is enforceable against plan, is nevertheless a state contract enforceable against ex-spouse by estate or another party. So in those cases, the plan can safely pay the ex-spouse, but in litigation where the plan is not a party, the ex-spouse may need to give up all or a portion of the benefit. The case in the OP does not seem to fit this fact pattern, but as always a thorough inventory and analysis of relevant facts is probably called for. I don't recall that any of the cases I describe above deal with a pre-nup or similar agreement, outside a divorce settlement, but my research did not need to be, and therefore was not, exhaustive.

Thanks very much for the info, Gilmore. If I had to, I would do more research, in particular to make sure that there is no definition of safe harbor contributions in regs that would clearly be based on how they are calculated, rather than whom they would go to. I would also carefully check plan document and SPD and SH notice, because it is possible that there would be some foot shooting in one of those. But in the right circumstances, I would bet on my argument. And certainly, as CBZ pointed out, you can draft around it in a completely superficial way if you're clever enough.

Well, at least now I understand the position and why some are seeing such great complexity. 2202(b)(2)(A) has two time periods in it, and (C) can point back to either. To me the policy weighs in favor of giving a full year, because of the simplicity and the likelihood of a long recovery. Will be interesting to see what happens.