Luke Bailey

PainPA, although your facts are a little light on detail, I tend to agree with Bri. Although not completely clear, it sounds like, after the cajoling, the employee intended to do pre-tax, so leaving the Roth box checked was just a clerical error and the employee got what he or she ultimately intended, i.e. pre-tax. However, the administrator's telling the employee that he or she could not do Roth when the plan provided for it was a failure to follow plan terms, so probably does need correction under EPCRS. If it's within 2 years, you may be able to creatively self-correct. I would not do a retro amendment because it would not appear to fit within the retro amendment guidelines of 2019-19 and therefore would just add to your problems.

I concur with all the other comments that these sorts of investments can create myriad practical difficulties. Re BRF testing, it is my view that if the plan terms and communications tell the participants they can invest in anything, including private assets, that they can find and meet minimum for, and that doesn't risk prohibited transaction, or maybe UBIT, that satisfies BRF. The fact that the the rank and file will not have as great an investment selection, e.g. will not meet Reg D accredited requirements, is not, I think, a 401(a)(4) problem. Maybe others will differ or have experience of IRS raising issue in exam. I have not seen a problem.

What he said.

ATM, sorry. You didn't identify as 403(b). I was assuming 401(a)/(k). The "fewer than 20 hours per week" rule is specifically for 403(b) universal availability of elective deferrals. See Treas. reg. 1.403(b)-5(b)(4).

If you don't change the eligibility/participation and meet the other requirements of 410(b)(6)(C), you should be able to test separately through end of 2020. You can always have separate plans, but after 2020 would need to separately pass 410(b) on basis of aggregate data.

Per 1.411(b)-1(b)(2)(ii)(A), a plan amendment in effect for current year is treated as having been in effect for all years, so you should be OK.

I don't know the answer. I'm sympathetic to Belgarath's position, but it may be worth your or someone else's doing some basic research into how clear (if it's clear at all) it is that a sole proprietor's business activities (i.e., sponsoring and contributing to plan) are separate from his individual activities (being a participant in plan). There may be some uncertainty in this regard. After all, Schedule C is just a form that's part of the 1040, not a separate taxpayer.

ATM, I think your premise is incorrect. The plan cannot contain a service-based exclusion other than 1,000 hours/year of service. A plan may have immediate eligibility for individuals classified as full-time and a one-year wait for non-full-time.

I have only the following to add to what Peter says above: I researched this once and concluded that there was no interpretive gloss, anywhere, on 59-1/2, e.g., there are no regs even proposed for 72(t). So I think 59-1/2 is probably your birthday plus 182-1/2 (or 183 if a leap year). Peter's practical points are more important though, i.e. it is what is going to be in the eye of the beholder of the 1099-R.

greg, as CEB50 points out, they have to have that in the plan document and/or their separate "loan policy" document, and it should also be stated in SPD, although plan document and loan policy are more important.

Would really need to see the plan language, but it sounds like the RMD for year is $0, so if they take the in-service, maybe they are taking the RMD.

Right. After the merger, you have one plan . The regs require that all NHCEs get the same safe harbor contribution, and you probably can't reduce one group to match the other.

austin3515, in Scenario B was your idea that after the merger you would run the merged plan with the 4% dollar for dollar for all participants through end of year?

547(b) in my earlier post was the wrong reference. Apologies. If the plan interest is not covered by ERISA, it may be in the debtor's bankruptcy estate, as Mike Preston states. Section 541 of the Bankruptcy Code, which provides for what is included in the estate. Actually, even if the plan is covered by ERISA, I don't see an exemption in 541 for a debtor's interest in a plan, only for an contributions made to the plan. But the 2005 Bankruptcy Reform Act modified prior law and provides an exemption (so, not excluded from the state, but exempt from the debtor's creditors if the debtor is using the federal, not state, exemption list) as set forth below. The gist of it is that the bankruptcy exemption for retirement assets after 2005 is very strong and is keyed to tax qualification under 401(a), 403, 408, etc., not ERISA coverage. I believe most states now have similar exemptions: ----------------------------------------------- Section 522 .... (b) (1) Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection.... (2) Property listed in this paragraph is property that is specified under subsection (d), unless the State law that is applicable to the debtor under paragraph (3)(A) specifically does not so authorize. (3) Property listed in this paragraph is— .... (C) retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986. (4) For purposes of paragraph (3)(C) and subsection (d)(12), the following shall apply: (A) If the retirement funds are in a retirement fund that has received a favorable determination under section 7805 of the Internal Revenue Code of 1986, and that determination is in effect as of the date of the filing of the petition in a case under this title, those funds shall be presumed to be exempt from the estate. (B) If the retirement funds are in a retirement fund that has not received a favorable determination under such section 7805, those funds are exempt from the estate if the debtor demonstrates that— (i) no prior determination to the contrary has been made by a court or the Internal Revenue Service; and (ii)(I) the retirement fund is in substantial compliance with the applicable requirements of the Internal Revenue Code of 1986; or (II) the retirement fund fails to be in substantial compliance with the applicable requirements of the Internal Revenue Code of 1986 and the debtor is not materially responsible for that failure. (C) A direct transfer of retirement funds from 1 fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986, under section 401(a)(31) of the Internal Revenue Code of 1986, or otherwise, shall not cease to qualify for exemption under paragraph (3)(C) or subsection (d)(12) by reason of such direct transfer. (D)(i) Any distribution that qualifies as an eligible rollover distribution within the meaning of section 402(c) of the Internal Revenue Code of 1986 or that is described in clause (ii) shall not cease to qualify for exemption under paragraph (3)(C) or subsection (d)(12) by reason of such distribution. (ii) A distribution described in this clause is an amount that— (I) has been distributed from a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986; and (II) to the extent allowed by law, is deposited in such a fund or account not later than 60 days after the distribution of such amount. .... (d) The following property may be exempted under subsection (b)(2) of this section: .... (12) Retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.

Well, coleboy, your question is very general, but I think what your talking about is the change to the qualified transportation fringe benefit rules (IRC sec. 132(f)), which was part of TCJA 2017 enacted in 2017 and (this portion) effective 1/1/2018. Generally, tax-exempts and public universities will have a 21% UBI tax, even if they have no other UBTI, for these fringes, unless they include them as taxable in employees' W-2's, which gets complicated. IRS published generous valuation rules at end of 2018 for some that will help limit tax exposure, but does not eliminated. Movement afoot in Congress to repeal this very unpopular provision.

I think probably for IRS there is nothing to do but move on and effectively treat the overwithholding as advance payment of tax, as stated above, which you credit on 1040. But as jpod points out, it does seem like the participant was put in a bad place, since did not have the funds to rollover, or may not have understand how to fix immediately. Perhaps the IRS would exercise waiver authority for the 60-day rollover period, or look to fiduciary who potentially made error to compensate. Just commenting on hypothetical fact situation.

ErnieG, if the plan only covers the owner, it is not a "plan" for purposes of ERISA, therefore not covered at all. See 29 CFR 2510.3-3(b). ConnieStorer, sure it can be qualified under 401(a), but whether it is depends on the plan document and its operation through time. Note that under Section 547(b) of the Bankruptcy Act after the BRA of 2005, protection from creditors is based on IRC qualification, not ERISA coverage.

Totally agree with C.B. Zeller.

Yes. Either way there is the practical problem that client will change the CBA without informing lawyer/plan drafter. We keep detailed tabular summaries including CBA expiration dates and ask client to update as necessary. But it can be a struggle.

I think this is done a lot, but I have some concern over not having the terms of coverage actually in the plan document. I am not aware of any guidance, formal or informal, from IRS on the issue, but maybe someone out there will know of some.

My view is that if the individual's status is not clearly within the 4 corners of the policy (fully insured group or stop loss, which will wrap the SPD), you have a potential for claims to be denied if they are large, and for employer to be stuck in the middle, having promised something to the "employee" that an insurer won't pay for. Usually I tell client that they need to disclose in a letter to the insurer how they are interpreting "employee" to include this person.

Concur in the above helpful responses. Probably doable, depending on all facts, but need plan amendment.

I believe that QP_Guy has identified the regulation that the IRS mostly bases its argument on. As others have pointed out above, the IRS has been upheld in the courts several times on the issue. Where the departure from the terms of the plan document is inadvertent (because the employer doesn't know that what they are doing is inconsistent with the document), consistently done, and favors participants in all cases, without violating any Code provision, the doctrine that the failure to follow the plan document nevertheless is a qualification lapse has always been troubling. Rev. Proc. 2019-19 is a welcome admission of that from IRS. The ERISA issues are separate, and you are into Verizon and a handful of other cases. Participant should be able to enforce lawful terms of plan if they favor him or her, as long as not clearly an error.

There's some old guidance that is still in effect that says that nonelective/profit sharing in a DC plan can be distributed after as little as two years. A little bit more complicated than that. As Molly the cat points out, most money types would be restricted and could not be distributed before 59-1/2, and money purchase money not before separation from service. Of course, the plan document must allow in-service distribution, many do not.

Talk to the insurer, for sure, whether fully insured or stop loss. You have to make sure the additional period is covered by your policy. But if the insurer is OK with it (and they might be, since the group likely has good health risk), you can do it, but it's not COBRA, it's just extended group coverage under your plan. If self-insured so 105(h) is an issue, you have to make the benefit post-tax rather than pre-tax. Make sure that the rest of the plan isn't subsidizing the premium for these folks, otherwise you have fiduciary/prohibited transaction issues if there are any employee contributions.