Luke Bailey

Seems to me like Bri has the answer.

austin3515 I think you are correct. Typically I see "directed trustee" used only where there will be a financial institution that is trustee and that won't even select the funds, e.g. a committee selects. If you have a small company and the owner will be trustee and select the fund menu, but the employees will choose among the funds for their own account, the trust agreement should just say that and the plan and SPD should have the obligatory 404(c) language out of the 404(c) regs to make it clear that the trustee is not responsible for the consequences of the employees choices among the funds (i.e., the trustee may be responsible for the quality, cost-effectiveness, and diversity of the funds, but not for the employees' asset allocation decisions among those funds).

khn, my guess is that this is something that would create a problem with service providers, but that's just a guess and of course I don't have all facts. You say you are looking for board resolutions/minutes. From a legal standpoint, if they exist and reflect board action before the end of 2016, I think you'd be in much better shape. If there are no board resolutions or other record of board action in 2016, then you may find the issue of whether you can correct this in VCP or with a non-VCP voluntary closing agreement controversial among practitioners. I seem to have recalled seeing statements from IRS that the one thing you can't correct in VCP is failure to adopt, or at least failure to adopt a 401(k) where you have a CODA. My guess, nevertheless, is that you could fix in VCP or with a non-VCP voluntary closing agreement, but that is only a guess, because I've never had exactly that case. Maybe folks who have dealt with this situation in VCP will let us know their experience. The reason I think the IRS at least should allow this to be fixed in VCP (besides just general principles of kindness and practicality) is that where you have an ineligible employer (e.g., a for-profit, separately incorporated bookstore on the campus of a university that adopts a 403(b), or a 100+ employer that adopts a SIMPLE), the IRS allows you to "correct" in VCP by just stopping the sponsorship of the wrong plan and starting the right plan. While that is different from not having signed your paperwork timely for the right plan, it's not a whole lot different. I think there was a recent discussion about this issue on this message board and several practitioners say they had handled in the past, under the old periodic determination letter system, by submitting new documents and calling them late amenders. That seems to me to have a number of issues and I am not recommending it (and based on experiences I have had with IRS DL folks, I frankly am surprised that it worked for anyone), but I mention it just as an example of what is out there.

justanotheradmin, you raise a really good point. I think it probably depends on what Gruegen means when says that the employer would write the plan "in such a way as to "exclude 'Employees Participating in a Student Loan Repayment Program." If you assume that all of the employees who qualify for the student loan assistance get that and are then excluded from the match, or choose to take it without knowledge that the result will be that they will be excluded from the match, then it would seem not to be a CODA. But if on the other hand you assume that the way this is done is to essentially give each employee with student loan debt a choice between either (a) $1,200 in student loan assistance, if they can show they have student loan debt, or (b) matching contributions in the 401(k) plan, then it would appear to be a cash or deferred election under Section 1.401(k)-1(a)(3)(I). Of course, for new employees you could construct this to conform to the one-time irrevocable election rules. Good catch.

So Gruegen, you're saying that the plan in question is either not a safe harbor, or that the exclusion from matching for matching in excess of the safe harbor match? Seems like it would probably be OK, although to my mind too complicated.

Patricia, this is the new system. There has always been a tension between the policy goal of having the plan administered in accordance with its terms, and (b) giving employers time to amend their plan documents after changes in legislation. Under the prior system, which put greater emphasis on timely amendment, we had to make "good faith" amendments in the absence of guidance, which had its own issues. In Rev. Proc. 2016-37, perhaps in part because the IRS was largely abandoning the process of issuing individual determination letters, it decided to provide a very generous and simple system for amendments. After the effective date of a change in law, you have to comply in operation with what's on the Operational Compliance List. You have to amend only after IRS has put the new requirement on the Required Amendments List, which generally will be only after the IRS has issued regulations, a model amendment, or other guidance. Simple and generous, because you can find the current OCL or RAL pretty readily on internet. Actually, for this specific issue (6-month suspension of elective deferrals after hardship), you can do either (i.e., apply the suspension that's in your plan document, or not) for 2019, but must do so on a consistent basis. No longer applying the suspension is mandatory for 2020. So says the proposed regs issued at end of last year. https://www.federalregister.gov/documents/2018/11/14/2018-24812/hardship-distributions-of-elective-contributions-qualified-matching-contributions-qualified

Eventually, hch4cpa, sure, but not yet. It is on the Operational Compliance List (OCL), but not the Required Amendments List (RAL). See https://www.irs.gov/retirement-plans/operational-compliance-list, and https://www.irs.gov/retirement-plans/required-amendments-list.

I think Bird is correct. See the general rules described in Section III.B of IRS Notice 2016-16. However, the IRS should probably have done a better job in Notice 2016-16 of saying that they were specifically removing the expired time period for making this change that was previously contained in Rev. Proc. 2013-74.

I agree with justanotheradmin's agreement with MoJo.

Megandps, whatever your client decides to do, make sure you get written approval of your form and procedures from the group insurer before you implement. You should probably talk to them before investing much time in the project. I suspect there could be a problem with using non-insurance company forms. Even beside the fact that you're dealing with, you know, AN INSURANCE COMPANY, ERISA does not preempt state insurance laws and the policy (and possibly related forms) are approved by state insurance department.

khn, is the plan sponsor a corporation, sole proprietorship, partnership, LLC?

You only need one trustee, so most likely the legal conclusion is that the trust was formed before end of year. To show the plan was adopted in 2016 you need to have the adoption agreement signed by Dec 31, 2016, or would be to have some other record of adoption in 2016, e.g. board resolutions.

austin3515, my guess is you're overthinking this. The IRS cover letter says they'll only use for research, and Westat is an independent research organization. Having said that, it doesn't seem to promise that the answers will be confidential and not shared by Weststat with IRS. It might behoove you or your client to call Weststat at number provided and seek reassurance as to use of data. Years ago there was a much more intrusive survey that was sent around, as you may recall, and my clients did not seem to have audits as a result.

ERISA-Bubs, usually the sorts of plans you are describing have provisions for vesting and payment within a span of a few years, while the covered employee stands a good chance of still being employed, and therefore are not ERISA-covered plans. See the requirement in Section 3(2) of ERISA that to be covered as a "pension plan," the plan must provide retirement income or defer comp to termination of employment. Again, these sorts of plans usually don't do that and are considered non-ERISA arrangements for incentive pay or bonuses over a multi-year period. Of course, each situation is unique. If one component of the plan, e.g. the phantom stock portion, did provide for payment only at termination of employment, then you could have ERISA filing requirements, most likely just for that part of the plan, and could have considerable legal difficulties if you don't restrict to a good top-hat group.

LIBERTYKID, you don't provide enough facts, but if I am correct in inferring that the minor children have some ownership in one of the companies and the question is whether dad is treated as owning all of their stock, there is no child-by-child sequential rule such as that which you are sort of describing. Because they are minors, dad would be treated as owning all of their stock, in a single step. See IRC sec. 1563(e)(6). The kids might also be attributed their dad's stock if necessary to form a controlled group, which is in the same section. It gets tricky if they are not minors, because then the stock is attributed to dad only if dad otherwise (i.e., without attribution from kids) owns more than 50%. Also have to deal with multiple classes of ownership, etc. If you want to post the Derrin Watson Q&A that you think has a bearing here, I'll try to parse it.

pixmax, would it be fairer if none of the companies in the controlled group had a plan, so no NHCEs or HCEs covered? Our current system does not require employers to sponsor plans, and the result you are encountering is consistent with that basic premise.

pixmax, based on your information, I'm not seeing that Owners 1 and 2 hold options on 3's stock. In all honesty, these situations are very complicated. What you are thinking of, I think are call options, but it sounds like 3 has a put, maybe company has right of first refusal. Would really need to examine documents closely, so I'm just going to say, "It's complicated," and if I were you I would just make sure it was clear that company is relying on its legal counsel, not you, for this determination.

Bird, I think so. You can always use the "facts and circumstances" test in preceding paragraph (2) instead of the 5-year safe harbor in paragraph (3), and would presumably always or always satisfy "facts and circumstances" if all beneficiaries of amendment NHCEs.

pixmax, in your third to last paragraph, when you say "Company 4" you mean "Company D?" And the 35% "owned" by Owner 4 is subject now to a substantial risk of forfeiture? Did Owner 4 make an 83(b) election? In your second to last paragraph is the "option" that you are referring to in favor or Owners 1 and 2 the company's obligation to purchase the stock from Owner 4 if Owner 4 puts it to them? I am not seeing an "option" here.

52626, you may well be able to amend the plan to give these folks as much service as you want, up to 5 years, assuming the group is nondiscriminatory. Check out the 1.401(a)(4)-5 regs regarding imputed, past, etc. service.

B21, the latter, if I understand your question. Assuming the IRA is the original (and, it sounds like) only investor in the LLC, which it sounds like will hold plan assets under DOL reg, that (i.e., the IRA's formation of brand new LLC and capitalizing it) is not a PT. It is what the LLC (i.e., really, the IRA, since the LLC will hold plan assets) does with it's capital that could be a PT, the same as if the transaction engaged in by the LLC were engaged in by the IRA directly, since the LLC will hold plan assets.

I would have thought EPCRS would be clearer on this, but I think the provision of 2019-19 that is applicable here is 6.07(2), which says: (2) Plan loan failures treated as deemed distributions under § 72(p). Unless correction is made in accordance with section 6.07(3) (to the extent applicable), a deemed distribution under § 72(p)(1) in connection with a failure relating to a plan loan to a participant must be reported on Form 1099-R with respect to the affected participant, and any applicable income tax withholding amount that was required to be paid in connection with the failure (see §1.72(p)-1, Q&A-15) must be paid by the employer. In this case, the deemed distribution may be reported on Form 1099-R with respect to the affected participant for the year of correction (instead of the year of the failure). I think that you have two separate things here, 401(k)athryn, i.e. the deemed distribution that occurred under the 72(p) regs in 2018 and should have been reported as 2018 income, and the plan loan offset that will occur at some point (presumably, soon) when you actually report the defaulted loan as distributed and take it off the plan's books. The way I read 6.07(2) above, although it is in EPCRS, you're not really correcting, but merely dealing with a reporting issue. Section 6.07(2) seems to be saying that if you missed it for the right year, 2018, you can report the deemed distribution in current year (i.e., 2019), but the plan would need to pay "any applicable income tax withholding" (which is probably $0). As I recall, the 72(p) regs simply provide that interest accruing after the date a loan is deemed is not taxable to the participant (either as additional deemed distributions or at the time of the loan offset), even though it continues to accrue until the date of the loan offset for purposes of blocking additional loans). The 72(p) regs also say, of course, that the loan is deemed distributed as of the end of the calendar quarter following the calendar quarter of the first missed payment (if the default is not cured). There does not seem to be a rule either in the 72(p) regs or Rev. Proc. 2019-19 that changes this result (i.e., requires the accrual of additional taxable interest) on a deemed loan that was not timely reported, from the deemed date to the date of reporting. It might make sense to keep accruing taxable interest until the date as of which you report the deemed amount, but since that is not provided for in the 72(p) regs and 2019-19 does not specifically address, seems to me at least an open issue. Just saying. Others may have different view.

You mean out on a short-term disability, right, Stash026. If so, I would tend to agree with CuseFan.

My guess is that the question is whether the QDRO is still valid. If it is, you follow it. If not, you don't. Assessing validity of QDRO probably starts with consulting a lawyer familiar with family law matters in state where H&W lived.

To confirm, I had one of these five or six years ago. Related companies with SIMPLE IRAs were acquired, and acquirer due diligence turned up that were a controlled group and had exceeded 100 employees for several years. Was surprised when I worked through whatever was the then-current EPCRS Rev. Proc. that the fix was simply to stop contributing. Had to do VCP, though, but was a simple filing. No bad tax results, no penalties. Etc. Employees just kept their IRAs.