Artie M

A--Code 2 (Early distribution, exception applies), G (Direct Rollover) B--Code 2 (Early distribution, exception applies), G (Direct Rollover) C--Code 7 (Normal distribution), G (Direct Rollover) Box 1--$10,000 Box 2a--$10,000 Box 4--$0

We still give the notice even using the Brief Exclusion rule. I did not go back and look for authority...not time right now... perhaps it is just a best practice principle. I mean how does a plan sponsor provide an excluded participant an "opportunity" to make up the missed contributions without providing them notice that something happened.

After seeing the follow up posts, I reread the OP and have a couple other items to note. The prior recordkeeper is doing what is required under the Regulations. I don't believe they have a choice "to change their mind." As previously noted, the defaulted loan must be taking into account in determining the limits on any new loan but I omitted the requirement that "phantom interest" also must be taken into account for those purposes. See Treas. Reg. §1.72(p)-1 Q&A 19 ("A loan that is deemed distributed under section 72(p) and that has not been repaid...").

Since you do not have HCEs this should be doable. The Plan docs would have to be amended to provide for this. Usually, this would be a BRF as loans should be available to all participants on a reasonably equivalent basis and, as such, offering one to some and two to others would need to be tested. But if NO HCEs this difference would satisfy BRF testing (not sure "if no HCEs in that situation" means something else). Just have this rule set forth as an objective rule. The outstanding loan is still count for maximum loan purposes. (Just note that some commentators have stated that any loans after a deemed distributed defaulted loan is also considered a deemed distribution, but I have never seen authority for that statement. Plus that never made sense to me... just say if have deemed distributed defaults loan can't give another loan... but that isn't said anywhere either.)

Just to be sure, any reduced correction requires a notice (0% or 25%)

Right, this is not an advice column. I responded once above and have not read all the various posts since (I am confident the responses contain a wealth of good information but I am not reading through all of them) because this appears to be a situation of one spouse being taken advantage of (or fearful of being taken advantage of) by another spouse. I did read the OPs posts for the facts and lingering questions. Staying in the lines (addressing QDRO question), the key facts seem to be Divorced May 2021, 50% split with valuation date in May 2021, daily valuation, assets not segregated (yet... I think... only quick read of facts). The only real questions you need answered are what was the value of the account on May __, 2021, the date of the divorce (presumably the date the 50% is assigned). So, you want a copy of the P's account statement for that month to ensure that the value you have been given is in the ballpark and you want Ascensus to give you something stating that the amount assigned to you is the amount in the account on May __, 2021, the daily valuation amount. Ascensus is not going to collude with the P and give you bad info. They have no stake in this and are too big to worry about the ex-spouse. Then since this was almost 5 years ago hopefully the QDRO contains language that the assigned value should include earnings and losses from the date of assignment to the date of actual segregation (i.e., the funds are put into an account in AP's name). AP wants the earnings clause since the market has experienced substantial growth since May 2021 (even with recent dips). Otherwise, AP doesn't get those earnings. It sounds like the amounts have never been segregated which may be good because AP has not been able to direct the investments, etc. If the QDRO contains all this language, then seems like AP's next questions should be why hasn't the amount been segregated and why haven't the distribution and/or investment forms been provided? Wanting the language from the Plan, etc. is just window dressing ... AP: just get your 50% and move on. The Plan is not going to have any language that affects your split. The Procedures will just lay out what ERISA requires, etc. Daily valuation is daily valuation. Move on with life....

First, implicitly this issue appears to be a question arising only under a plan using elapsed time. As someone stated above, under the applicable rules, the employment commencement date is the date on which the employee first performs an hour of service. This is the date that the rules require that service begins. That is, a plan cannot credit less time than what this rule requires. I believe a plan could use a more generous standard to determine the date on which service has to begin. Like someone said above, since it is the first year, it should not be discriminatory. § 1.410(a)-7(a)(2) provides in parts relevant to my thoughts: (2)(i) ...Under this alternative method of crediting service, an employee's service is required to be taken into account for purposes of eligibility to participate and vesting as of the date he or she first performs an hour of service within the meaning of 29 CFR 2530.200b-2 (a) (1) for the employer or employers maintaining the plan. Service is required to be taken into account for the period of time from the date the employee first performs such an hour of service until the date he or she severs from service with the employer or employers maintaining the plan. (3) Overview of certain concepts relating to the elapsed time method--.... (ii) Employment commencement date.... (B) In order to credit accurately an employee's total service with an employer or employers maintaining the plan, a plan also may provide for an "adjusted" employment commencement date (i.e., a recalculation of the employment commencement date to reflect noncreditable periods of severance) or a reemployment commencement date as defined in paragraph (b) (3) of this section. Fundamentally, all three concepts rely upon the performance of an hour of service to provide a starting point for crediting service. One purpose of these three concepts is to enable plans to satisfy the requirements of this section in a variety of ways. (C) The fundamental rule with respect to these concepts is that any plan provision is permissible so long as it satisfies the minimum standards. Thus, for example, although the rules of this section provide that credit must begin on the employment commencement date, a plan is permitted to "adjust" the employment commencement date to reflect periods of time for which service is not required to be credited. Similarly, a plan may wish to credit service under the elapsed time method as discrete periods of service and provide for a reemployment commencement date. Certain plans may wish to provide for both concepts, although it is not a requirement of this section that plans so provide.

The rule for QDROs and RMDs is odd. See https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR6f8c3724b50e44d/section-1.401(a)(9)-8#p-1.401(a)(9)-8(d)(2). YOu would think that once in a separate account it would be treated as the alternative payee's, but for RMD purposes it isn't. don't know why but that is what the Reg says. The alternate payee should consider @fmsinc's suggestion and roll the account balance into an IRA or she may be subject to this same RMD treatment next year, etc. That said, probably won't help with this year as the amount that is required to be an RMD this year normally cannot be rolled over. So, there likely would be two 1099-Rs issued, one with the RMD non-eligible rollover amount and one with the remaining eligible rollover amount.

I did not read all of the posts in the thread but the OP states that payments are "in pay status". Maybe one of the posts stated that benefits are not in pay status... if so, disregard my post. This is because I view a coverture fraction only helpful when benefits are not "in pay status", i.e., benefits are going to start at a later date. Like you said, it is used because you know the numerator but do not know the denominator. The fraction allows for adjustments for the participant's additional service time post-divorce for which the alternate payee should not receive a benefit. For example, QDRO issued in YR 1 awards 50% of the coverture fraction. QDRO states at divorce the participant has 10 years of service and the alternate payee and participant were married for all of those years. When the participant retires in YR 21, they would have an additional 20 years of service. Benefits begin to be paid, so the alternate payee's portion of the monthly benefit payment would be 50% x 10/30 of the monthly benefit. The coverture fraction is needed to ensure the alternate payee does not benefit from the additional service when the payment start. If, as stated in the OP, payments are already started, I don't see a problem with amending the QDRO to do the math... using the example... the QDRO would simply state that the alternate payee should receive 16.67% of the monthly benefit. I am not saying the plan administrator is correct, I am just saying, practically speaking, amending the QDRO would be easier than arguing with the plan administrator or taking them to court.

The delinquent filing of a 5500 form would be under the DFVCP, an operational failure (i.e., an IRS issue) would be under the VCP as contained in EPCRS, and if there is a fiduciary breach regarding the real estate held in an ERISA-governed plan that would be under the VFCP (it the breach is eligible for correction under that program). Alphabet soup.... If your fear is a potential fiduciary breach or prohibited transaction regarding the purchase or sale of real estate using plan assets, your client should at some point contact an ERISA attorney. If you are not an attorney, you should not engage in the practice of law.

Hmmm... interesting. I thought DRG claims were considered incurred at discharge.... as that is when the relative-weighted DRG pricing is charged because they take multiple factors that come up after initial diagnosis into account. However, I can see where an initial DRG could be set upon initial assessment. Upon admission, they bill the entire DRG amount and then perhaps make an adjustment based on objective factors if necessary (though the adjustment seems to go against the DRG concept). I think this is done in some forms of Bundled Payments. This timing does seem like an "end run" around normal timing rules for when a claim is incurred (i.e., when services rendered). Sorry, this isn't helpful... just replying in hopes someone responds with an authoritative answer. This should be coming up more often as this pricing has moved out of just Medicare/Medicaid environments.

You should really read or re-read the proposed regs. Federal Register :: Long-Term, Part-Time Employee Rules for Cash or Deferred Arrangements Under Section 401(k) They generally permit an employer to elect to exclude LTPT employees from the application of the nondiscrimination requirements of section 401(a)(4), the ADP test, the ADP safe harbor provisions of section 401(k)(12) and (13), the ACP test, the ACP safe harbor provisions of section 401(m)(11) and (12), and the 410(b) minimum coverage requirements. So, generally they can be excluded when determining whether a plan satisfies those nondiscrimination and minimum coverage requirements. They basically say that if you exclude LTPTs from nondiscrimination, they must be excluded from all nondiscrimination testing. In fact, the plan could exclude them from testing and still give them additional benefits (e.g., matches). Note that if your plan is not intended to satisfy the ADP or ACP safe harbors, the proposed regulation would not require an election to be set forth in the plan. However, the regs state that the plan would need to provide “enabling language.” It say in this case if the plan document doesn’t include enabling language, or an election under the proposed reg, then LTPT employees would not be excluded for purposes of determining whether the plan satisfies 401(a)(4), the ADP test, the ACP test, or the 410(b) minimum coverage requirements (to the extent those provisions would otherwise apply to the plan). If the plan is a safe harbor plan, it must specify in the document whether the safe harbor provisions will apply to the LTPTs. Apparently, this exclusion from testing seems like it would allow the owner the ability to get "creative" since these potential HCEs, i.e., the spouse and children of HCE, can escape testing.

Don't know of anything that can help. To repeat, it is my understanding that once the money is in the Roth IRA, it is not coming back.

Perhaps I didn't read your post closely enough, but when I read "to be paid, from plan assets" my focus was on the plan restoring the amounts.

Usually, I would not add anything to the responses of the wise folks on this thread but I have to commend the OP for questioning the response they received from "AI". While AI may give one a starting point, AI responses can be flat out wrong so, in my view, AI responses should always be viewed extremely critically. I fully agree with @Peter Gulia and @austin3515. I would like to add a couple of thoughts. OP notes that their initial query is in response to IRS Notice CP1348. The IRS's purview does not cover the entire universe of whether plan amounts can be used to pay penalties. So what occurs in an IRS Notice regarding prohibited transactions may not be the end of the story. Their purview only covers whether there is a prohibited transaction under 4975 and the consequences under the tax code. @austin3515 and, ultimately, @Peter Gulia look at the entire universe in bringing up the views of the DOL under ERISA. Also note that the concept of "plan assets" is an ERISA concept monitored by the DOL. In my experience, under ERISA, civil penalties assessed against fiduciaries, plan sponsors, or other parties for some sort of legal violations or prohibited transaction cannot be paid using plan assets. Plan assets must be used exclusively to provide benefits to participants and beneficiaries and to defray "reasonable administrative expenses." I have not researched this recently but my understanding is the DOL maintains that paying penalties from plan assets is not a reasonable expense and is strictly prohibited. DOL has stated that penalties under ERISA 502(i) must be paid by the party in interest involved in the transaction not the plan, and using plan assets to pay penalties is likely a breach of fiduciary duty. Also, regarding restoration or disgorgement as @Peter Gulia brings up, I have colleagues who distinguish between restoration/disgorgement, which are remedial in nature, as opposed to penalties, which are punitive in nature. They seem to imply that plan assets could be used for restoration or disgorgement but I must be thick-headed because I don't see it. How can you use plan assets to restore something to the plan? disgorge from plan? There may be circumstances that I am just not thinking of but it seems like a zero sum game.