C. B. Zeller

About 2 months after this thread happened, the IRS released Notice 2020-50 which explained how they want loans that were suspended under the CARES Act to be handled. The notice provided a safe harbor which was to have repayments commence on 1/1/2021 and re-amortize the loan over the original term plus 1 year. They acknowledged in the notice that there may be other reasonable methods of handling it as well.

Just a note that while this company would file 5500-EZ, they are still subject to all the other requirements of Title I - bonding, SARs, etc.

I don't think you're going to find it in black and white anywhere, but it comes from the definition of deferrals. Only deferrals can be classified as catchup. In order to be a deferral, the amount has to have been payable to the employee as cash, if not for the deferral election. If the amount exceeds your earned income, then it wouldn't have been payable to you in cash, hence it couldn't be a deferral.

The loan is the investment. When I take a loan from my plan, the money does not leave the plan; I am just liquidating $50k from ABC Mutual Fund and moving it into a different investment. Instead of moving it into XYZ Mutual Fund, I am moving it into a note that promises 4% interest per year. Repayments are transfers from the loan investment back into ABC Mutual Fund. I hope that makes some sense. Although, it sounds like this individual is struggling with some basic concepts about what a loan is. If I borrow your car for the weekend, can you go for a drive on Saturday night? No, because I have your car. Does the car still belong to you? Of course it does.

Successor plan issues aside, there may be a nondiscrimination issue if the timing of the plan termination was such that the NHCE would not benefit. See the rules under 1.401(a)(4)-5.

If you can get all of the participants to repay their distributions back to the plan, it could probably be undone. You would treat it as an overpayment and correct under EPCRS, since the distributions were made in the absence of a distributable event. However it might be simpler for the new employer just to start up their own 401(k) plan, and have the participants roll over their loans into the new plan. Since it was an asset sale there should be no successor plan issue.

I am not aware of anything that says you have to take other plans of the employer into account in determining if a partial termination occurred in a given plan. That said, the fact that a partial termination was determined to have occurred in another plan of the employer that covered one or more of the employees in this plan might be a circumstance that would suggest a partial termination has occurred in this plan as well. If the single affected participant's unvested benefit is not large, the employer might consider making them vested anyway, just to be on the safe side. It is probably cheaper than hiring an attorney.

1 / 6 = 16.667%, so there is no presumption of a partial plan termination on the CB plan. However, whether a partial plan termination occurred is a facts and circumstances determination. The reduction in active participants is not determinative. Does the partial plan termination relief from last year's Consolidated Appropriations Act apply?

You would use the 2020 form because the 2021 form is not available yet. If you wait a month or so, the 2021 5500-EZ will probably be available and then you would need to use that. Speaking of the 2021 5500-EZ, I seem to remember that the IRS actually did publish it a couple of months ago, but it seems to have disappeared from the internet.

I don't think it's entirely clear either way. The document we use actually has a checkbox for whether or not a participant who terminates employment on the last day of the year will be considered to be actively employed on the last day of the year for purposes of satisfying allocation conditions.

I would replace "by law" with "to obtain a favorable determination letter." The IRS has been known to impose requirements on authors of pre-approved documents that are more stringent than what exists in the text of the law or regulations. For what it's worth, the document we use does say that the match will be forfeited in this situation. But you would need to examine the documents of the two plans in question to be sure.

The proposed rules regarding Defined Contribution Groups actually require that all plans in the group have the same trust. However any small plans within the group are not considered to be large plans merely because they are a member of the group, and would not require an audit merely because they are a member of the group. I think this rule suggests that the DOL contemplates separate plans being in the same trust.

$237,500 is the maximum that the employer can take as a deduction for all plan contributions (other than elective deferrals). All employer sources count. If the employer is carrying forward an undeducted contribution from a prior year, that reduces the deduction limit for the current year.

Does the plan document address what happens to the match when excess deferrals are refunded?

Funding is due 9/15 after the plan year. AFTAP must be certified by 10/1 of the current plan year. For example: plan adopted 12/1/2021, effective 1/1/2021. The 2021 AFTAP has to be certified by 10/1/2021, but 2021 minimum funding isn't due until 9/15/2022. If restrictions applied in the first year, you would have to say that the 2021 AFTAP wasn't certified timely and therefore no benefit was allowed to accrue for the 2021 plan year. Which is clearly ridiculous. Even more so if you consider a plan adopted in the following calendar year, under the SECURE Act. No, I am saying that 436(e) (and (b) and (c), for that matter) does not apply in the first 5 years of a plan.

These links might be of some interest: https://www.irs.gov/retirement-plans/cumulative-list-of-changes-in-retirement-plan-qualification-requirements https://www.irs.gov/retirement-plans/list-of-preapproved-plans

The transferred assets have to be allocated no less rapidly than ratably over 7 years. So you have to do at least 1/7th in the first year, then 1/6th of what remains in the second year, and so on. 415 limits permitting. You can use a non-safe harbor method to allocate, as long as it is permitted by the plan document and satisfies all applicable testing. I don't know that the IRS has ever actually come out and said that the 20% excise tax applies on any amounts that remain unallocated after 7 years. However, to be on the safe side, I would suggest not leaving any unallocated assets if at all possible, meaning get everyone to their 415 limit rather than leave unallocated assets. No. It's not a forfeiture account. However if the plan generally pays certain expenses, I don't see any reason why those expenses couldn't be charged against the QRP account the same as any other account.

I think they can't technically call it a match, because there weren't actually any deferrals. So calculate what the match would have been, and make that as a nonelective contribution.

If you are saying that 436(e) does apply in the first 5 years if the AFTAP is not certified timely, then how are you handling new plans adopted retroactively after October 1?

It doesn't matter whether the AFTAP was actually certified less than 60% or merely deemed less than 60%, 436(e) does not apply in the first 5 years of a plan.

You didn't say how old the plan is, but I'm assuming more than 5 years. The restriction limiting benefit accruals does not apply for the first 5 years of the plan. I'm also assuming there have never been any distributions from the plan or amendments increasing liabilities, so the only concern is the restriction on benefit accruals. What you might do is certify the AFTAP now, then amend the plan to reinstate the prior years' benefit accruals. If you are already restricted for 2021 because no AFTAP was certified before October 1, then wait until January to amend. If you feel this constitutes a significant qualification failure, and it has been more than 3 years since the restrictions should have first applied, then have the client file VCP.

Because the employer set a precedent for the date that the contributions can be segregated from their general assets by always depositing on Wednesday. It is not late until the time established by their usual process and procedure has passed.

I think there is a discussion about in in the EOB. If you are worried about it, put in a limit of $1 instead.

If payday is Monday, and they usually make the contribution on Wednesday, then I would start the clock on 1/6.

The rule is that you use the balance on the last valuation date in the calendar year immediately preceding the distribution calendar year, with adjustments. For the 2021 distribution calendar year, you would use the account balance as of the 9/30/2020 valuation date. Increase it by the amount of any contributions allocated to the participant's account, or decrease it by the amount of any distributions made from the participant's account between 10/1/2020 and 12/31/2020.