C. B. Zeller

They have until the deadline of their 2019 tax return to make deductible contributions for 2019. Even if they already filed, they can make a contribution now as long as the deadline to file hasn't passed. Of course, if they filed based on a different contribution amount they will have to amend their return.

I think what AdKu is trying to ask is, is an allocation from the suspense account in a QRP considered an annual addition? The answer is yes. If the sole proprietor's net earned income for the year is 0, then their annual additions limit is 0, and they may not receive an allocation from the suspense account.

SCP is available to correct operational failures and certain plan document failures. An operational failure is a failure that arises when the plan does not follow the terms of its plan document. If the plan is making hardship distributions available in accordance with its document, then there is not an operational failure to self-correct. Violation of the nondiscrimination rules of 401(a)(4) results in a demographic failure, which can not be corrected by SCP. That is as far as I am willing to go with any degree of certainty. Wild speculation follows.... Considering that VCP is a voluntary submission, and the plan sponsor's submission to the IRS must include a proposed method of correction, I think the question is less "What would the IRS ask for" in terms of a correction, but more "What proposal might the IRS find acceptable?" If there were any demonstrable harm resulting from the failure, that would be a good starting point. For example, if an NHCE terminated employment in a prior year in order to gain access to their retirement funds, but might have remained employed if a hardship withdrawal option had been available to them at the time, then maybe the plan could propose making additional contributions to this employee to make up for the plan years that the employee missed out on. It's harder if there are no specific events to look to. The plan sponsor might say that there were no requests for distributions, therefore it is reasonable to conclude that no one would have taken one even if they had been available, therefore there was no actual harm done by the non-availability of hardship distributions, therefore no correction is needed. However this discounts the possibility that the NHCEs might have made 401(k) contributions at a greater rate if they knew they would have access to their contributions in the event of a pre-retirement financial hardship. Therefore the sponsor might be justified in proposing to make additional contributions to each NHCE's account for the period which the failure occurred, to make up for the lost deferral incentive (a term I just made up). Maybe, and this is a real stretch, the plan would consider "invalidating" the hardship withdrawal provision for any years that 401(a)(4) was not satisfied. This might involve requiring any HCEs who received hardship withdrawals during that time to repay those withdrawals to the plan, with earnings. I think this is unlikely to be acceptable since plan correction principles are generally not in favor of cutting back participants' rights under the plan, even HCEs' rights. This an interesting question. Thanks for asking!

Here is the text of CARES 3608(a): It says the amount is increased for interest from the original due date using the effective interest rate for the plan year containing the payment date. I understand this to mean: (1) X = MRC calculated as of the val date 1/1/2019 (2) Y = minimum due as of normal minimum funding deadline of 9/15/2020 = X * (1 + 2019 EIR) ^ (20.5/12) (3) Z = minimum due as of 12/31/2020 using CARES extension = Y * (1 + 2020 EIR) ^ (3.5/12) or, alternatively (4) Z = minimum due as of 1/1/2021 using CARES extension = Y * (1 + 2021 EIR) ^ (3.5/12) 4 seems highly impractical for a calendar year plan, as it would require you to have calculated the 2021 EIR by the first day of the plan year! Theoretically possible though, if your 2020 accruals are flat dollar amounts since the segment rates for 2021 will be published in September 2020.

CARES Act sec. 3608(a) extended the due date for any contribution due during 2020 to 1/1/2021. It has to be adjusted for interest to the date actually contributed, using the effective interest rate for the year in which the actual deposit occurs, not the 2019 effective interest rate.

Thanks, Larry, for Googling PRN for the rest of us ASPPA has this article on its home page right now: https://www.asppa.org/news/correcting-plan-loan-failures-qa-sporadic-loan-repayments This only applies if the employee continues to be an employee, as opposed to an independent contractor. If they are no longer an employee then it is like any other termination of employment; generally (but not always, read your loan program) the outstanding balance of the loan becomes due immediately and if not repaid, would be offset. If the participant is a qualified individual under the CARES Act then they could presumably postpone their loan payments.

Any contributions made must be first applied to the prior year's funding deficiency. The sponsor has until 1/1/2021 to satisfy the MRC for 2019, however no contributions can be applied to the 2019 MRC until the 2018 deficiency is eliminated. So they have to come up with both the amount for the 2018 deficiency, plus the 2019 minimum by 1/1/2021, or they will have a deficiency for 2019.

I doubt this would be acceptable. It probably fails to be a definite written document. If this were acceptable, why limit it to disaster distributions? Could a plan document include language which says that all future required amendments are automatically incorporated into this document?

I don't think that works. Even if you are doing daily testing, you still determine whether or not the employee is benefiting based on whether or not they satisfied the conditions to receive a contribution for the year. There is not a lot to go on, but here is what it says in 1.410(b)-8: (a) Testing methods—(1) In general. A plan must satisfy section 410(b) for a plan year using one of the testing options in paragraphs (a)(2) through (a)(4) of this section. Whichever testing option is used for the plan year must also be used for purposes of applying section 401(a)(4) to the plan for the plan year. The annual testing option in paragraph (a)(4) of this section must be used in applying section 410(b) to a section 401(k) plan or a section 401(m) plan, and in applying the average benefit percentage test of §1.410(b)-5. For purposes of this paragraph (a), the plan provisions and other relevant facts as of the last day of the plan year regarding which employees benefit under the plan for the plan year are applied to the employees taken into account under the testing option used for the plan year. For this purpose, amendments retroactively correcting a plan in accordance with §1.401(a)(4)-11(g) are taken into account as plan provisions in effect as of the last day of the plan year. (2) Daily testing option. A plan satisfies section 410(b) for a plan year if it satisfies §1.410(b)-2 on each day of the plan year, taking into account only those employees (or former employees) who are employees (or former employees) on that day. (3) Quarterly testing option. A plan is deemed to satisfy section 410(b) for a plan year if the plan satisfies §1.410(b)-2 on at least one day in each quarter of the plan year, taking into account for each of those days only those employees (or former employees) who are employees (or former employees) on that day. The preceding sentence does not apply if the plan's eligibility rules or benefit formula operate to cause the four quarterly testing days selected by the employer not to be reasonably representative of the coverage of the plan over the entire plan year. (4) Annual testing option. A plan satisfies section 410(b) for a plan year if it satisfies §1.410(b)-2 as of the last day of the plan year, taking into account all employees (or former employees) who were employees (or former employees) on any day during the plan year. (5) Example. The following example illustrates this paragraph (a). Example. Plan A is a defined contribution plan that is not a section 401(k) plan or a section 401(m) plan, and that conditions allocations on an employee's employment on the last day of the plan year. Plan A is being tested for the 1995 calendar plan year using the daily testing option in paragraph (a)(2) of this section. In testing the plan for compliance with section 410(b) on March 11, 1995, Employee X is taken into account because he was an employee on that day and was not an excludable employee with respect to Plan A on that day. Employee X was a participant in Plan A on March 11, 1995, was employed on December 31, 1995, and received an allocation under Plan A for the 1995 plan year. Under these facts, Employee X is treated as benefiting under Plan A on March 11, 1995, even though Employee X had not satisfied all of the conditions for receiving an allocation on that day, because Employee X satisfied all of those conditions as of the last day of the plan year.

In this case, I think the $5k would be taxable gains, and the business would get a deduction when they contribute it to the plan.

Credit for the comic goes to Ryan North of Dinosaur Comics. Hope I can bring a little levity to everyone's Friday

Life annuity payments are already exempt from the excise tax under 72(t) and 20% mandatory tax withholding. Presumably, if the participant is a qualified individual, they would be able to treat up to $100,000 of their benefit payments received during 2020 as a coronavirus-related distribution, and would be able to recognize the income over 3 years, and/or repay it to an IRA or qualified plan.

I would remind this client that, while they would be within their rights as Plan Administrator to deny the request if they believe the participant is not eligible, remember that plan benefits, including availability and timing of distributions, must be definitely determinable and not subject to administrator discretion. If they are going to deny the request, they better have a damn good reason, and, preferably, documentation supporting their decision. Given that the law explicitly allows the Plan Administrator to rely on the participant's certification, it seems like a very aggressive position to deny that certification. I would be concerned that a Plan Administrator taking this position would be exposing themselves to unnecessary liability.

Coronavirus-related distributions are exempt from the requirement to allow direct rollover. Most of the provider forms I have seen so far don't even have a spot to enter rollover info. What is the participant trying to accomplish in this case? Rollovers are already exempt from the excise tax under 72(t), and not includable in income, so why bother with the qualified individual certification?

Could the sponsor restrict the availability of loans solely to qualified individuals (within the meaning of the CARES Act)?

Correct. The text of CARES sec. 3608(a) provides a delay in any minimum required contribution amount determined under IRC sec. 430. Required contributions for money purchase plans are determined under the plan's formula, not IRC 430.

I don't think there's anything saying you have to do it one way or the other. But if you're doing it one way and you wanted to change, that would be a change in funding method which would have to be approved by the IRS.

If the site will give you single life APRs and a 100% J&S APR, you could use those to calculate the 50% APR. Just let me dust off my life contingencies notes here ... Ax = Single life APR for life aged x Ay = Single life APR for life aged y Axy = Joint life APR for lives aged x and y 100J&S = Ax + Ay - Axy Axy = Ax + Ay - 100J&S 50J&S = Ax + 0.5*(Ay - Axy) = Ax + 0.5*Ay - 0.5*[Ax + Ay - 100J&S] = Ax + 0.5*Ay - 0.5*Ax - 0.5*Ay + 0.5*100J&S = 0.5*Ax + 0.5*100J&S = 0.5*(Ax + 100J&S) So, take your primary annuitant's single life APR, add the 100% J&S APR, and divide that by 2 and you should get the 50% J&S APR. I spot checked this with a few randomly selected ages and mortality/interest assumptions from my software.

I don't think the quoted section necessarily applies to an EACA, it comes from the QACA regs. Uniformity for EACA is defined in 1.414(w)-1(b)(2), which references only 1.401(k)-3(j)(2)(iii). What about 1.401(k)-3(j)(2)(iii)(B), which says that the default percentage may not reduce the contribution rate for any employee?

Possibly, although taking that line of thought a step farther, what would prevent any employer, controlled group or not, from spinning off a portion of their plan and terminating its safe harbor mid-year? If you could do this, wouldn't it make that section of 2016-16 meaningless?

Safe harbor match requires a notice to be given before the beginning of the plan year. Therefore it is impossible to add SH match mid-year. Thanks to the SECURE Act it is now possible to add SH nonelective mid-year or even retroactively after the end of the year.

Yes. CARES increased the limits of 72(p) and DB plans are permitted to allow loans under 72(p).

The difference is that, if it were 2 plans, you could terminate the safe harbor for one of them (assuming the conditions MWeddell specified are met) and retain it for the other. The plan that terminated its safe harbor would be subject to the ADP test for the year, but the other plan could continue its safe harbor status. Assuming they both pass coverage, of course.

Yes, that's it. The regulation referenced there contains rules for aggregating DB and DC plans for testing, including the 7.5% combo gateway. So under the plan document, each participant who received any profit sharing was required to get at least the gateway, and if they didn't then you have an operational failure which can be self-corrected.