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C. B. Zeller

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Everything posted by C. B. Zeller

  1. Is there anything in this particular plan document that says a loan becomes payable in full immediately upon the employee becoming a union member (or more generally, transferring to an excluded class of employees)? Usually I would only see that kind of provision apply upon termination of employment, but I suppose it could happen. Absent that, I don't think so. The employee continues to repay it through payroll deduction (assuming that's what the loan policy says). Transferring to an excluded class means you are not entitled to future contributions. Loan repayments are not contributions.
  2. Yes. Safe harbor non-elective is considered to be the same as profit sharing for 410(b) and 401(a)(4) purposes.
  3. No they don't need to become vested. The language will be in your plan document regarding the timing of forfeitures. It will (should) say that a participant incurs a forfeiture immediately when they take a distribution of their vested benefit. For participants who don't take a distribution, they will (should) incur a forfeiture after 5 consecutive 1-year breaks in service. The termination requires that all participants become 100% vested as of the date of the termination. The people who took their distributions don't have any unvested balance as of the date of the termination, so they don't get the 100% vesting. This is typical language, but read your plan document carefully. It might differ.
  4. I don't think it's a coincidence that your set of roles for this hypothetical adviser matches with the list of persons described in Circular 230. With regards to providing written advice to a taxpayer, Circular 230 § 10.37(a)(2)(vi) instructs that a practitioner must "Not, in evaluating a Federal tax matter, take into account the possibility that a tax return will not be audited or that a matter will not be raised on audit." I read this, perhaps expansively, to mean that a practitioner may not discuss the subject of "getting away" with questionable transactions. Under that guideline, I would find it inappropriate to discuss the capabilities (or the lack thereof) of the IRS to detect this issue. Even were I not myself subject to Circular 230, I would still not discuss it, as the only possible result of bringing it up would be to serve to encourage them to illegally treat the distribution of excess deferrals and earnings thereon as a qualified Roth distribution. My job is to help my clients get the tax results they desire, within the bounds of law and regulation.
  5. Agreed. EPCRS can let you correct a qualification failure, and 401(a)(30) is a qualification requirement, but neither plan violated 401(a)(30) so there is nothing to correct under EPCRS. Also agreed.
  6. IRC 402(g)(2)(A)(ii) and treas. reg. 1.402(g)-1(e)(2)(ii)
  7. Sure, they could take an in-service distribution in 2024 (assuming there is a distributable event) but it would be taxable in 2024. Presumably BG is looking for a way to help the participant avoid being double-taxed on the excess, but at this point, it's too late.
  8. IRS just published a fact sheet about Qualified Disaster Recovery Distributions: https://www.irs.gov/newsroom/disaster-relief-frequent-asked-questions-retirement-plans-and-iras-under-the-secure-20-act-of-2022 (Thanks to the BenefitsLink bulletin for the timely notification!) Under Q9, "May an individual repay a qualified disaster recovery distribution?," the guidance given states I realize this guidance is in relation to QDRDs and not QBADs, but the statute under 72(t)(I)(vi) says that rules for repayments of QDRDs shall be "similar to" those for QBADs. So it seems reasonable that the same guidance would apply.
  9. Yes, it's too late; the deadline is April 15, as per 1.402(g)-1(e)(2). It's probably also in the plan document. I assume this person isn't eligible for catch-up?
  10. Section 414(k) is still in the law but my understanding is that IRS does not approve any plans permitting those accounts in DB plans.
  11. Does the plan use the rule to switch the eligibility computation period to the plan year?
  12. 2024 is a distribution calendar year. He will have to take his RMD before he can do a rollover. Sounds like the accountant was thinking ahead on this one! Now when the IRS disqualifies the plan, it will only be the one dentist who gets hit with it.
  13. There is no change to the question asking about the number of active participants. There is a new line item (6g(1) on the 5500, 5c(1) on the 5500-SF) which asks about the number of participants with account balances at the beginning of the year, and that new item is the one used to determine whether the plan is required to have an audit.
  14. Assuming that B's federal income tax filing for 2023 is on extension, how about having them adopt the plan retroactively under 401(b)(2)? Of course, if this is a 401(k) plan and B's employees are deferring then you have a problem since deferrals can't be effective before the employer adopts the plan. I think this would be an easy VCP, just get the IRS's blessing to adopt the plan retroactively and let the contributions stay in the plan.
  15. EPCRS is used to correct plan qualification failures. Typically those are operational failures, which means a failure to follow the plan document. Most profit sharing plans these days will say that the contribution is totally discretionary, but not all. Does your plan document actually say that the contribution is discretionary? If the 10% contribution is required under the terms of the plan, then not making it would have been an operational failure that could be corrected (probably self-corrected) under EPCRS. Failing that, did the employer make a corporate resolution, or notify the plan administrator, or otherwise memorialize their intention to make the 10% contribution for 2022? If so you may have something to lean on to call it an operational failure.
  16. Whether it is an employee or an employer contribution has no bearing on whether or not the employee can have basis in the account. An employee can have basis in employer contributions. For example, if they took a loan which was deemed and later repaid. The employee would not be taxed on the amount of basis upon distribution. Again, this is true regardless of whether it was employee or employer contributions.
  17. The average benefit test is only satisfied if the plan satisfies both a) the nondiscriminatory classification test, and b) the average benefit percentage test. The nondiscriminatory classification test looks at the ratio percentage for the plan, and compares it to either the safe harbor or unsafe harbor ratio (depending whether you are using the safe harbor test or the facts-and-circumstances test). Only the employees benefiting under the plan being tested are treated as benefiting when performing this test. The average benefit percentage test is performed for the entire testing group; in other words, all benefits under all plans of the employer are aggregated and there is only a single average benefit percentage for all plans in the group.
  18. Does the plan permit hardship distributions? If so, from what sources? What is the amount of the financial need? Does the plan use the safe harbor definition of financial hardship, or does it use the facts-and-circumstances definition? If it uses the safe harbor definition, under which reason does the participant purport to qualify? No. Suspending deferrals after a hardship distribution has not been required (and has been illegal, actually) since 2019. A hardship distribution is not an eligible rollover distribution so the automatic withholding rate for federal income tax is 10%. The participant could waive that, or elect a different amount. If the participant is under age 59½ and does not meet any of the exceptions under IRC 72(t), then the distribution would be subject to the 10% penalty tax, in addition to income tax at the participant's normal tax rate.
  19. Sure, as long as they don't mind disqualifying their CODA. Think of it like a participant who made a deferral election, then got their paycheck but decided they contributed too much to the 401(k), and wanted some of it back after the fact. What would you tell them?
  20. There was a bill proposed last year that would have required automatic re-enrollment of participants who opted out or who enrolled at a lower percentage than the auto-enrollment default. If a new law would be needed to require auto re-enrollment, then it stands to reason that auto re-enrollment is not required under current law.
  21. The section you quoted is about the requirement that the safe harbor provision be in effect for the entire plan year. A participant is considered benefiting under a 401(k) plan if they have the option to make a deferral election, regardless of whether they actually make one. If the plan terminated in a prior year and no participant had the option to make a 401(k) election in the current year, then no one was benefiting, and I would check the N/A box.
  22. Yes, it is only the election that has to be made before the end of the year. The actual deposit of the contribution might take place some time later. Since exact comp is unknown, instead of a percentage election, they might want to make an election for a dollar amount. For example they might elect to defer the amount of the 401(k) limit (plus catch-up if applicable) for the year in question.
  23. I don't see an issue with this design necessarily, although it is a little unusual. What is the goal of using this design? If it's to pass nondiscrimination testing by including short-service employees who will never become vested, that is generally frowned upon even if the numeric tests are all satisfied.
  24. Even though the individual's compensation may not be known until after the end of the year, it is deemed to be available to them on the last day of the tax year. That is why the election has to be in place before the end of the tax year (SECURE 2 exception for first-year sole props aside). See 1.401(k)-1(a)(6)(iii).
  25. Yes. https://www.federalregister.gov/documents/2019/09/23/2019-20511/hardship-distributions-of-elective-contributions-qualified-matching-contributions-qualified
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