Luke Bailey

The cite for anyone who wants it is 1.401(k)-3(c)(5)(ii). You have until end of following quarter.

Good point, Mike. I was just saying that the plan language could interpret "ratably" in 4980(d)(2)(C)(II) as 1/7th of the original suspense account each year, as adjusted for earnings. But then you have to do the math, whereas 1/7th, 1/6th, etc. already does the math for you. For that reason it's better, even though it apparently was not transparent to VeryOldMan. Probably saying 1/7th, 1/6th, etc., rather than the percentages they equate to, would have made it transparent.

I meant 1/7th of the original amount each year, Mike. ( 1/7 )* 7 = 1.

It seems like Rev. Proc. 2019-19 is incomplete and not completely consistent on some of the loan self-correction guidance. The prior guidance was clear that you couldn't self-correct loans, and that if you corrected under VCP and you did not want to issue the 1099-R, or wanted to issue it in a different year than the deemed distribution would otherwise have been reportable, you had to ask for that specifically in your VCP request. Now, in 2019-19, IRS says you can self-correct a defaulted loan, and doesn't seem to distinguish between situations where the default occurred because the employee did not meet his/her obligations (e.g. in a plan that permits repayment by check after termination of employment, the employee stopped paying, but now has come into some money and wants to bring the loan up to date outside the default period), or because the plan failed to meet its obligation, e.g. a payroll error in not withholding loan repayments. The second sentence of Section 6.07(3)(a) of Rev. Proc. 2019-19 says, "the IRS reserves the right to limit the use of these correction methods [including 6.07(3)(d) for correcting defaulted loans] to situations that it considers appropriate, for example, if the loan failure is caused by employer action," but how can they do that if they permit defaulted loans to be corrected in SCP? My guess is that what IRS may have intended is that if the default was the employer's fault, then you can self-correct (within the two-year SCP period) by reamortizing, and then you could issue a corrected 1099-R showing zero, but that is just speculation on my part. If the participant simply did not pay as required through no fault of the employer's, and the loan is timely deemed, then like RatherBeGolfing, I don't think there is anything to correct.

Same answer as david rigby, but to my mind more understandable: 100/7 = 14.286 (year 1); 100 - 14.286 = 85.714, and 85.714 * 16.67 = 14.288 (year 2); 100 - (14.286 + 14.288) = 71.426, and 71.426 * .2 = 14.286 (year 3).... 14.286 * 1.0 = 14.286 (year 7). They could have just said, 1/7th per year, of course.

They just keep the same plan. Employer not changing, then. Of course, if as likely this is LLC taxable as partnership, the members/partners won't be able to participate in Section 125.

Belgarath, while I don't recall there being any guidance on this from IRS, I think what QDROPhile describes is the way this is typically handled, e.g. in asset acquisitions, and I have not seen it questioned by IRS.

survivoroh, depending on type of plan, e.g. defined benefit pension, there may not be any survivor benefits. Or their could be. You will really need to hire a lawyer competent in pension matters. Anything anyone else tells you here may be helpful speculation, but your issues are fact- and document-specific.

austin3515, I think the underlying legal issue is probably the legal effect of the participant's election. If he had the right to the in-service distribution and requested that, I think IRS would say that is what he needed to get, even if, had he known about the ACP refund, he probably would have elected a smaller in-service. However, if the participant ratifies your treatment, then the legal issue becomes pretty subtle.

galakelady, you need to hire your own attorney.

In theory, austin3515, had their been time, you could have communicated directly with participant or indirectly through plan sponsor and asked him/her whether he/she wanted to reduce amount of in-service request in light of information that was going to receive $X on account of ACP failure.

Charles, if RatherBeGolfing is correct in his description of what you have in mind, there may be cases, but I am unaware of them. Actually, I vaguely recall that there may have been one in the last two or three years, but not sure. I have routinely put those provisions in plan documents and beneficiary designation forms for 30 years, so I hope they work. Why wouldn't they work? We know from SCOTUS that ERISA generally trumps state family law as to who takes a deceased participant's account. We also know that the form and content of beneficiary designations are not specified by the Code or ERISA, except for provisions related to spousal consent. So if a plan is going to permit someone to name someone as beneficiary, on a form that it provides, why wouldn't it be able to set reasonable conditions on that if they are consistent with the spousal consent requirements of ERISA and Code? A rule that autorevokes a beneficiary designation naming the spouse, in the case of the participant's subsequent divorce from that spouse, seems eminently reasonable. I am sure that in over 90% of cases, participants who proactively name their spouse as beneficiary do so not understanding that they would have the same result by doing nothing, which would simply trigger the plan's provision for default beneficiaries, which generally, as required by ERISA and Code would have the surviving spouse as default.

Chippy, under 1563(a), an 80% or greater parent-subsidiary ownership link creates a parent-subsidiary controlled group. You say that A will own 80% of B, so on its face this would seem to create a parent-sub controlled group. It can get complicated if there are multiple classes of stock, special provisions in shareholder agreement, etc., so I cannot provide a definitive answer to your question here, but it would seem that you would have a parent-sub controlled group, barring special circumstances that you have not disclosed.

Patricia Neal Jensen, that explains the first part of the sentence, but not the latter part, "in the event that it would be made." I'm still puzzling over what Towanda may have meant there. What I'm trying to get at is whether there is any reasonable argument that the employer's intent was clear that the match was discretionary, and perhaps the Adoption Agreement was not clear or was interpreted by the employer in an unusual, but permissible, way. That could lead you down a better correction path if all the stars line up.

Towanda, I'm having difficulty understanding what the above sentence means.

So 401(k)athryn, the employer is a nongovernmental 501(c)(3)?

Doc Ument, I was going to also include the argument in your second paragraph, which I think is sound, but in light of the clarity of Notice 2016-16, which is directly on point, I figured didn't need to. Note that Treas. reg. 1.401(k)-3(e)(1) specifically provides that IRS may expand in "guidance of general applicability published in the Internal Revenue Bulletin" the types of amendments that can be made to safe harbor plans beyond the exceptions contained in the regs, so I think we're ok relying on Notice 2016-16.

rblum50, Kevin C's comment is well taken. Make sure plan document permits the rollover, and if not amend plan to do so. I think most plans allow participants who still have accounts, but who are no longer active, to roll in, but there are probably many that don't as well.

EBECatty, I'm sticking by my immediately prior. I think if you're trying to determine whether S Corp 2 and LLC are in parent sub relationship, you look at excluded stock with respect to S Corp 2, which there is none, I think, not with respect to S Corp 1. S Corp 1 and S Corp 2 are simultaneous owners each of 50% of the LLC, but the application of 1563(c)(2) to each of the possible parent-sub chains that you need to analyze (the potential S Corp 1 -> LLC chain, and the potential S Corp 2 -> LLC chain) are independent, and the fact that maybe S Corp 1's ownership of LLC is disregarded is irrelevant to the determination of whether S Corp 2 is in a parent sub relationship with LLC. And I said " the fact that maybe S Corp 1's ownership of LLC is disregarded," because I'm also sticking by my other point, namely that if, for sake of analyzing the S Corp 1 relationship with LLC, you exclude stock owned by an employee subject to restrictions only if the putative parent owns 50% means that you can't end up saying that the putative parent owns 0% because of the stock you end up excluding, because then your gating condition for excluding the stock (i.e., that the putative parent must own 50%) is not met. The above is either right or I'm too dense to understand. Is what it is.

I see what you're saying, EBECatty. I have to say I find this very confusing. First, it seems to me that perhaps the S corp 1 and S Corp 2 analyses should be run separately. I.e., analyzing the S corp 1 chain, I guess you could (but see next point) argue that S corp has no interest in the LLC, because it's 50% interest is "excluded," but it's not clear to me under 1563(c)(2) that you then carry that result over when analyzing the S corp 2 chain. Maybe when analyzing that chain you are only interested in stock that would otherwise cause it to own 80%, and you are not finding any reason to attribute or exclude as to it, so you just have 50%. But also, perhaps when 1563(c)(2) talks about excluding stock, it means stock other than the stock owned directly by the parent. Maybe I'm missing your argument a second time, but I think the problem otherwise is not just the result you are getting in your first post, which I agree does not seem right, but wouldn't it also become circular, i.e. the premise for excluding the stock that S corp 1 owns is that S corp 1 owns 50%, the owner is married to the employee, etc., but then if you follow that chain of reason to its end and exclude S corp 1's 50% ownership of the LLC because of attribution to the employee spouse, doesn't it then dissolve the original premise that the parent owned 50%, required to have excluded stock? 1563(c)(1) says "for purposes of this part," which would include the 50% ownership condition of 1563(c)(2)(A). Another argument for universal IRAs/tax simplification, for sure.

JY36, if you were not 59-1/2 when you received the distribution, make sure that when you file your 1040 for the year of distribution you check whether the IRC sec. 72(t)(2)(B) is available to get you out of the 10% premature distribution penalty.

rblum50, couldn't this be done as a distribution to the surviving spouse (with all applicable paperwork for that) and a direct rollover by her to her account (with all applicable paperwork for that)?

EBECatty, is it possible that the answer is that because 1563(e)(5) is not listed in 1563(d)(1)(B), you would not treat individual 1's stock as owned by spouse for purposes of 1563(a)(1)?

If memory serves me correctly, pjb 1835, the reg provision that I cited was adopted well after the GCM that you cite, and is specific to k plans. I think you have to apply its general principles regarding definition of "employer." Good luck.

PensionPrisoner, if you are trying to do a direct rollover by placing a check in the possession of the distributee participant, Treas. reg. 1.401(a)(31)-1, Q&A's -3 and -4 provide guidance regarding to whom the check should be made out. The last sentence of Q&A-4 specifically provides for the use of "FBO John Smith" in some circumstances involving a rollover to a qualified plan, but as you will see if you read it, a different way of completing the payee is suggested for IRAs. I think the IRA custodian you are dealing with is probably trying to closely follow this reg, even though it is probably not necessary to do so. But doesn't hurt.