AKowalski

That's a good point. The KETRA notice seems have taken the position that the main (or only?) legal effect of the KETRA recontribution provision was to extend the timeframe for making an indirect rollover from 60 days to 3 years, without making any distributions eligible for rollover that would not otherwise have been eligible. I did notice that the IRS did little more than point to the KETRA notice and say "We will probably say something like that--eventually". It will be interesting to see where they ultimately follow the KETRA guidance. On the loan deferral issue, the fact that the KETRA suspension period was greater than a year while the CARES suspension period is shorter than one year may ultimately require the IRS to come up with a slightly different set of rules. If the ultimate safe harbor is just that payments can be deferred until the end of the CARES suspension period and then the entire loan must be re-amortized, then that arguably doesn't really accomplish the Congress's expressed intent to provide a 1-year deferral for each payment. Of course, read literally, repayments on the old schedule would have to restart in January, and then there would be a re-amortization event in March--but that doesn't seem terribly administrable, and it is likely to feel kindof arbitrary to participants.

Hello Luke--The focus of the statutory provision that you quoted seems to be on whether a plan ordinarily accepts eligible rollover distributions, not on whether the distribution in question would ordinarily constitute an eligible rollover distribution--if that were the standard, then the CARES Act recontribution provision would be effectively meaningless, because any distribution that is already an eligible rollover distribution wouldn't need a special provision saying that it can be rolled over. I note that the new IRS Q&As indicate that the CARES distribution repayments will generally be treated as rollover contributions, and a qualified plan that does not ordinarily accept rollovers would not be required to accept recontributions. The converse--that a qualified plan that ordinarily does accept rollovers would be required to accept CARES distribution repayments--was not made explicit, but it was implied (I look forward to seeing further guidance on that point). But please let me know if I am missing something, and have a great day! Ian--The main question that I would focus on is whether any given payment constitutes a "coronavirus-related distribution". If it does, then the recontribution provision is triggered (presumably with respect to any plan that ordinarily would accept a rollover from that given participant--although there is some ambiguity). "Any individual who receives a coronavirus-related distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make 1 or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), of the Internal Revenue Code of 1986, as the case may be." Coronavirus-related distribution is defined as any distribution that is actually made (regardless of how categorized by the plan--see the new IRS Q&As) from an "eligible retirement plan" (which includes DB plans that are qualified under Section 401(a)) to a qualified individual during a specified timeframe (I note that only the first few annuity payments should be treated as fitting into the timeframe, unless the IRS issues specific guidance indicating that the entire annuity can be treated as distributed on Day 1, or except perhaps in the case of an actual annuity contract that is actually distributed from a plan within the applicable timeframe). Note, however, that the CARES Act does not give a plan permission to issue a distribution merely because the distribution would constitute a "coronavirus-related distribution" if distributed. Section 2202(a)(6)(B) gives that relief only to specific listed plan types which notably do not include ordinary section 401(a) DB plans: "For purposes of the Internal Revenue Code of 1986, a coronavirus-related distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 457(d)(1)(A) of such Code and section 8433(h)(1) of title 5, United States Code." Accordingly, if you maintain a DB plan, you have to continue following the terms of the plan, and you can only amend those terms to permit additional distribution options to the extent that you would have been permitted to pre-CARES Act. Best of luck.

You could actually call the Department of Labor or file a complaint if you think that your employer is failing to comply with its obligations: https://www.askebsa.dol.gov/WebIntake/?_ga=2.89553106.899451424.1584131768-1326969282.1564074320

Per the VFCP FAQs: Participant contributions to the plan were delinquent, but the dollar amount needed to correct is very small. Do I have to participate in the VFCP? No one is required to file an application under the VFCP to correct a violation. Participation is voluntary. Of course, you must take appropriate actions to correct the violation even if you don’t submit an application. However, if you don’t file an application with us, you can’t get the relief available under the Program. In addition, if we discover the violation during an investigation, and the correction was not complete, a civil penalty may be assessed on any additional amount required to fully correct the violation. Remember, too, that you aren’t eligible for the IRS excise tax relief unless you receive a no action letter. See the FAQs on the class exemption for more information. The DOL also states that the VFCP calculator is intentionally generous and may only be used to calculate earnings for use in a VFCP filing. In other words, if you self-correct, then the DOL may audit you later and question the calculations you performed and the assumptions you used. The DOL may take an aggressive stance about what you should have done to correct. Additionally, certain additional penalties may apply on top of the ultimate correction amount that the DOL determines. That said--if it is a $10 correction, I find it difficult to imagine the DOL coming down hard on your good faith self-correction attempt. As a practical matter, however, triggering an audit is quite expensive and very likely to turn up other errors that you didn't realize that you had made (and it will be too late to correct them under VFCP).

I would be wary. The question of whether the employer or the employee is eligible for a tax benefit under Title 26 is very different from the question of whether state laws are preempted under Title 29. MEWA is defined in 29 USC Section 1002(40): The term “multiple employer welfare arrangement” means an employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), which is established or maintained for the purpose of offering or providing any benefit described in paragraph (1) to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries, except . . . The Supreme Court has addressed the definition of "employee" for ERISA purposes, and said that we generally look to common law (and, as far as I know, has never said that we look to specific definitions of "employee" or "statutory employee" that only apply for limited purposes in specific statutes within the IRC). You might be able to argue that this federal statute in the tax code, which relates to whether an individual is treated as an employee for certain employee benefits issues, is relevant to the interpretation of federal common law of employee status under ERISA. I would suggest reviewing the main Supreme Court case that announced a definition of "employee" and searching the citing references (on Westlaw or Lexis, if you have access) to see if there are any subsequent cases which mention the statute you are concerned about, or that mention the term "statutory employee" (or "stat!" /4 "employ!"). If you don't otherwise have access, I note that premium legal research services may be available to the public at the library of your local courthouse or law school. If you have access, you could also try searching Checkpoint for regulatory or subregulatory guidance with: ("statutory employee" or "stat!" /4 "employ!") /30 ("mewa" or "multiple employer welfare arrangement" or "1002(40)") Let me know if you find a clear answer!

§ 1.411(d)-4, Q&A-2(b)(2)(v) provides: (v)Involuntary distributions. A plan may be amended to provide for the involuntary distribution of an employee's benefit to the extent such involuntary distribution is permitted under sections 411(a)(11) and 417(e). Thus, for example, an involuntary distribution provision may be amended to require that an employee who terminates from employment with the employer receive a single sum distribution in the event that the present value of the employee's benefit is not more than $3,500, by substituting the cash-out limit in effect under § 1.411(a)-11(c)(3)(ii) for $3,500, without violating section 411(d)(6). In addition, for example, the employer may amend the plan to reduce the involuntary distribution threshold from the cash-out limit in effect under § 1.411(a)-11(c)(3)(ii) to any lower amount and to eliminate the involuntary single sum option for employees with benefits between the cash-out limit in effect under § 1.411(a)-11(c)(3)(ii) and such lower amount without violating section 411(d)(6). This rule does not permit a plan provision permitting employer discretion with respect to optional forms of benefit for employees the present value of whose benefit is less than the cash-out limit in effect under § 1.411(a)-11(c)(3)(ii). Thus, generally a plan is permitted to add, delete, or modify provisions pertaining to automatic cash-outs without violating section 411(d)(6) so long as the end result is a provision that would otherwise comply with applicable law. If you are worried about the extent to which the above paragraph permits stand-alone modification, then just delete the provision (permissible) and then re-add the provision (permissible, so long as the terms selected are permissible).

The way a roth account works is that you pay taxes on the money when it goes in (because it is income when you earn it, and there is no deduction or exclusion to change that fact), and you don't have to pay taxes on the gain when it comes out. That's a big tax advantage. It's better than tax-deferral -- you never have to pay taxes at all on the subsequent income that you earn when your money grows in the stock market. By contrast, with a non-roth account, you get a tax deduction when the money goes in. Essentially, that money doesn't get taxed as income even though you earned it and have a right to it. Additionally, the further income from growth in the stock market is tax-deferred, which is an advantage because of the time-value of money. When you eventually get the money, you have to pay taxes on the growth. If the account were a non-roth account, then the participant would have to take the amounts distributed into account as income. Since it is a roth account, the participant doesn't. Certain penalty and withholding taxes may apply, given that the participant is taking an early distribution. Nothing contained herein is legal or professional advice, given that I am a stranger on the internet who has not discussed the details of the situation with you.

Everyone (Larry and Sal) at least agreed that crediting the service was a safe option, by my reading.

Did you ever find an answer to that question?

Kevin is correct. Read section 414(n) (it's short). Section 414(n)(4)(B) provides the rule: In the case of a person who is an employee of the recipient (whether by reason of this subsection or otherwise), for purposes of the requirements listed in paragraph (3), years of service for the recipient shall be determined by taking into account any period for which such employee would have been a leased employee but for the requirements of paragraph (2)(B). It references the requirements in section 414(n)(2): (2) Leased employee For purposes of paragraph (1), the term “leased employee” means any person who is not an employee of the recipient and who provides services to the recipient if— (A) such services are provided pursuant to an agreement between the recipient and any other person (in this subsection referred to as the “leasing organization”), (B) such person has performed such services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least 1 year, and (C) such services are performed under primary direction or control by the recipient. Thus, you have to count the temp service (for purposes of all of the requirements listed in 414(n)(3)) if 1) the temp is eventually an "employee", 2) the temp services were provided pursuant to an agreement between the eventual employer and the temp agency, and 3) the temp was performing services under "primary direction or control" by the eventual employer. I second the warning that none of this analysis is necessary if the temp was already a common law employee of the eventual employer while the temp was performing the temp services.

Larry, did you change your mind? What arguments were raised? On re-reading this thread, I don't see how this question could be unclear in light of section 414(n)(4)(B). By its terms, section 414(n)(4)(B) applies to someone who is an "employee" at some point in time, and who at some other point in time would have been a 414(n) leased employee but for failing the 1-year requirement. Section 414(n)(4) (A) In general In the case of any leased employee, paragraph (1) shall apply only for purposes of determining whether the requirements listed in paragraph (3) are met for periods after the close of the period referred to in paragraph (2)(B). (B) Years of service In the case of a person who is an employee of the recipient (whether by reason of this subsection or otherwise), for purposes of the requirements listed in paragraph (3), years of service for the recipient shall be determined by taking into account any period for which such employee would have been a leased employee but for the requirements of paragraph (2)(B). Section 414(n)(4)(A) operates on paragraph (1) -- which gives the rule that a 414(n) leased employee is treated as an employee of the service recipient -- and paragraph (1) operates with respect to the list of requirements in paragraph (3). By contrast, section 414(n)(4)(B) operates directly with respect to the list of requirements in paragraph (3). What is the legal effect of section 414(n)(4)(B) if it doesn't squarely address the question at issue?

Discretion is not the same thing as the power to negotiate. An example of discretion in this context would be a power to UNILATERALLY decide to pay the QDRO beneficiary less than the QDRO beneficiary is owed at a different time than the QDRO beneficiary is entitled to receive it. The power to negotiate, by contrast, is an intrinsic creature of common law (contract law) that exists unless some rule curtails it. Is there some general rule I am not aware of which generally curtails an ERISA plan's ability to enter into arm's length contracts, supported by fair consideration, with its creditors? The way I see it, a QDRO beneficiary has a fixed right to receive certain benefits at a certain time, not much different from the winner of a lawsuit or an unpaid service provider. The QDRO beneficiary has asked to receive those benefits at an earlier time. It is only fair that the plan agree to dispense those assets at such earlier time only if the beneficiary agrees to an appropriately reduced payment. In fact, if the plan pays out the full benefit early, then that is economically equivalent to giving the QDRO beneficiary an interest-free loan, thus depriving the participants in the plan of their expected investment gains on those plan assets for that period of time. Thus, the failure to account for the time value of money would arguably be a violation of the duty to invest plan assets prudently. Instead, the OP suggests discounting the payment in order to account for that short-term interest component. Such a solution seems eminently reasonable to me.

Even where all participants in the plan are getting the 6% return if/when the loan is actually paid back, I would expect there to be a provision in the 401(k) plan saying that if the loan is defaulted on, then the plan can recover by doing some kind of deemed distribution and offset against the loanee/participant's 401(k) balance. If the plan expects an 8% average return from its other investments, then it better not be investing in a 6% loan unless that loan is significantly lower-risk than the other assets that the plan invests in (e.g. because it is secured by that participant's 401(k) balance, which is literally under the control of the plan), otherwise it would be breaching its fiduciary duties to invest prudently. Separately, it seems to me that to the extent interest is being paid directly into a participant's individual 401(k) account, rates of return are all but meaningless (except for tax considerations), because a person is literally borrowing from themselves.

On a side note, I find it difficult to believe that ANY 401(k) plans are giving out loans to participants that are ultimately secured by anyone else's account balance. Even when you take a loan out of your own 401(k) account, the plan is supposed to first determine that you meet some baseline standard of credit-worthiness and then to charge a commercially-reasonable rate of interest. But if you have an ERISA plan giving out loans to a participant from communal assets, then my understanding is that the ERISA plan has a full fiduciary duty to ensure that that is the best available investment option for the plan (and it probably isn't, at least unless the participant has undergone a thorough, commercial credit check just like they would at a bank, and unless the participant is being charged an individualized interest rate that is clearly based on the results of that credit check). I also note that typically, 401(k) plans allow participants to choose where their funds are invested (at least within certain broad categories). It's a lot easier to deal with the situation where the participant is essentially directing that some of their money be invested in a loan to themselves than it is to think about the utter mess that would result from participants having access to loans secured by other participants' 401(k) balances. Am I missing something big?

Actually, from a tax perspective, the merits of the loan would depend partly on whether it is a roth or regular 401(k). Why? Because a higher rate of interest (i.e. a higher rate of return on 401(k) plan assets) means more money in the plan growing tax free. If it is a regular 401(k), there is a small tax deferral advantage that attaches to future earnings on the interest once paid back into the plan (even though the interest repayment is coming from after-tax dollars and the earnings on the interest will be fully taxable at retirement -- this is the same tax deferral advantage that the tax code gives people who just purchase stock or some other capital asset and hold it for a long time before ever recognizing the built in gain). If it is a roth 401(k), however, then earnings on the repaid interest will never be taxed. Thus, it actually may be in the interest of the participant to have a 401(k) plan charging them the highest permissible rate of interest that will satisfy the commercial reasonableness standard, so that the participant can maximize their tax-advantaged retirement savings. Of course, this is only really applicable to participants that can afford to try to maximize their tax-advantaged retirement savings.