Artie M

My recollection is that you are to report amounts that would be used to pay for benefits that Medicare might pay to ensure that Medicare is not paying for benefits it should not otherwise pay. That is, if providing payments or benefits for which Medicare should be the Secondary Payer (or perhaps have a subrogation right) as opposed to being the primary payer. A settlement payment to pay for COBRA premiums, whether used or not, under a severance agreement does not appear to be the sort of amounts that are intended to be reported under these rules. If, on the other hand, the amounts were being paid for medical benefits received by or medical benefits were being provided to the Medicare eligible individual in settlement of some claim like a work injury, then those amounts likely would be reportable. Just my thoughts...

I just added some info regarding this topic on another thread on the board that discusses the pre-approved plan notice requirement (which may or may not still be needed depending on how you read it). Here's a link

Out of curiosity I ran a quick search and found the following on the IRS website, which implies the IRS no longer considers the notice requirement as adequate in addressing the definitely determinable issue. I also found this dealing with 403(b) standardized plan restatements: Q11: Are you taking the same positions relating to discretionary matching contributions and definitely determinable benefits as you took with the Cycle 3 DC plans? A11: The basis for our position on discretionary matching contributions contained in a Cycle 3 Section 401(a) defined contribution plan can be found in Treasury Regulation 1.401-1(b)(1)(ii). This regulation states that a 401(a) profit-sharing plan must provide a definite predetermined formula for allocating contributions made to the plan. Our application of the written defined contribution plan requirement (Treas. Reg. 1.403(b)-3(b)(3)) to the 403(b) Pre-approved Plans Program for Cycle 2 expects any allocation formula for an employer matching contribution to satisfy the concept of a definite predetermined formula. We will not permit the plan language for a discretionary matching contribution formula which represented a compromise on this issue in June of 2020 between the IRS and the practitioner community for the Cycle 3 401(a) defined contribution plans program. For a discretionary matching contribution formula to satisfy the definite predetermined requirement, the following aspects must be addressed in the plan document: The matching computation period, such as payroll period or plan year, must be identified; this will eliminate ambiguity over the need for a true-up. There must be a note regarding the possible need for a true-up at year end where the employer contributes more often than the computation period There must be a definite allocation formula for the discretionary match, such as “a discretionary match shall be allocated to each participant as a uniform rate, for example 100%, of deferrals up to a uniform deferral percentage The employer can have discretion over the matching contribution amount, the rate at which deferrals are matched, and any limit on the deferrals that are matched. The rate and limit are both factors in the determination of the amount of the contribution. The above sample discretionary matching contribution allocation formula retains this discretion but allows someone to know how it will be allocated. Regretfully, I did not find any IRS guidance on the original notice requirements though there I did see some commentary discussing it. See examples. New IRS Requirements for 401(k) Plan Discretionary Matching Contributions – Sequoia. Annual Notice of Discretionary Match in ‘Pre-Approved’ 401(k) Plans May Be Required Soon! - Ogletree New Requirements for Discretionary 401(k) Plan Matching Contributions | Foley & Lardner LLP

I just responded to another message on the board for something similar. I may be wrong here but my recollection is that in 2020 (or so, Cycle 3) the IRS began requiring pre-approved plans that have certain discretionary formulas to include annual notices with required information triggered to the funding date (not certain). I do not work with pre-approved plans and am not aware of this being expanded to individually designed plans. I also do not know if this is still the rule. If still in place not sure why it would not have been expanded to individually designed plans (other than perhaps the change in the determination letter process for individually designed plans) but if it was, please put the authority in a response!

I agree, unless the participants had been notified there would be a match provided for that year (or if the language in the SPD contains some kind of language, statement or implication that a match will be provided unless the company determines otherwise). I thought about this over lunch and I recall there being an issue with pre-approved plans that have certain discretionary formulas and that during one of the recent amendment and restatement cycle periods (2020ish) the IRS required that the pre-approved plans have notice requirements with certain discretionary match formulas. My recollection is that there may be an annual notice triggered to the funding date (not certain). I do not work with pre-approved plans but if you are on one you may want to check with your plan sponsor. I don't recall this being added for individually designed plans. If it was ,please let me know!

EBECatty. This is the rule for termination following a CIC (§ 1.409A-3(j)(4)(ix)(B)). They could also utilize the termination of all similar plans as set forth in -3(j)(4)(ix)(C). The requirements to use that would be that the termination does not occur proximate to a downturn in the company's financial health, all similar nonqual plans terminated, no payments within 12 months of when company takes all necessary action to irrevocably terminate the plan (other than payments otherwise payable if no termination), all payments within 24 months of that date, and no new similar nonqual plans for 3 years. That said, not sure you can really permit participants to "stretch" things out... a. I have not researched this but I would think the IRS would frown on permitting a participant to elect when they could receive their payments when the payments could overlap even just one year. For e.g., if a plan provides for payment upon a CIC then it could specify payment in the calendar year (or shorter period within the calendar year, including a particular day, like the closing of the CIC transaction) in which the payment will be made or a period in which the payment may be made that is no longer than 90 days, whether or not it begins and ends in different calendar years (so long as the employee does not have discretion to determine the year of payment) § 1.409A-3(b)(i)(1)(vi). Usually, if the second alternative is used the plan will say something to the effect of if the 90 day period overlaps two years then it will be paid in the later year. So the conservative view may be that everyone one is paid later with no elections, but that may not be beneficial to ALL participants. David. Not sure if "stretched" is right here... seems like it should be "any accelerated vesting" instead.. depends on the type of plan, etc. Just my thoughts so DO NOT take my ramblings as advice...

Like Lou S. noted, to be eligible to file under the DFVCP, Form 5500 annual reporting must be required under Title I of ERISA. The DFVCP program does not apply to plans covering only self-employed individuals or sole owners (including spouses). Reporting for these plans is only required by the Internal Revenue Code and are not subject to Title I of ERISA. These types of plans may be able to file with the IRS under Rev. Proc. 2015-32. Because you know the amount of the penalty that may be assessed, presumably you received a Notice of Intent to Assess a Penalty (that is, a CP 283 Notice), which will disqualify the Plan from using the DFVCP or the IRS Rev. Proce 2015-32 program. If, on the other hand, you simply received a Notice of Failure to File without the assessment (that is, a CP 403 or CP 406 Notice), you could still use the programs. If you don't qualify for either of the Programs, like Dare S. states, you should contact an attorney (or your CPA advisor)) and seek an abatement of the penalty. You should make sure to do this before the time for a response that is contained in the notice runs out. Generally, a full waiver is only granted if one of the reasonable cause requirements are met; (fire, casualty, natural disaster, etc.; inability to obtain records, death, serious illness, incapacity, etc., or some other reasons establishing that the plan sponsor used all ordinary business care and prudence to meet its filing obligations but, despite its best efforts, failed to meet the file standards). Not sure where miscommunication comes in but in recent years, the IRS has become less accepting of other reasons (for 2022, COVID would be another potential reasonable cause). Hopefully, your attorney (or CPA advisor) knows how to couch your specific facts. Just my thoughts so DO NOT take my ramblings as advice.

Hmmm... seems like you should be withholding 20%. Technically, the distribution qualifies as an eligible rollover distribution and is not being rolled over to a plan as a direct rollover. As such, there is mandatory 20% withholding. It would bea Code 7 with no M (normal distribution' no loan offset because the plan is not terminating and the distribution is not due to severance of employment). Just my thoughts so DO NOT take my ramblings as advice...

I agree with QDROphile. There is a Plan operational failure because the Plan did not carry out the participant's election as they requested (presumably the election was in accordance with plan terms, etc.). The contributed amounts, though the same dollars in the Plan, should be characterized as pre-tax and not as Roth. It is not up to the plan to make that decision. The participant did not "designate" those contributions as Roth contributions and so they should not be characterized as Roth contributions. I agree that from a practical and personal tax standpoint grossing the participant up for the taxes sounds great (biggest "mess" to me is that with the amended W-2 comes an amended 1040 and potential penalties on the participant) but, again, this does not resolve the Plan compliance issue. If this was VCP mayyybeee this correction would be okay if floated to the IRS, but this appears to be a non-correction/self-correction that does not comport with the self-correction guidelines. Also, not sure what's the "issue with payroll caused" but could this have happened with anyone else??

To me as plan administrator, you only have 2 questions: (1) Under the terms of the Plan, does he have a right to a withdrawal/distribution? (2) Under the terms of the plan, loan program and promissory note, does he have a right to prepay the loan? Sounds like the answer to those two questions are yes. If so, you handle the distribution and the loan payoff as you normally would. The liquidation of investments, tax consequences, etc. are his problems to figure out. Just my thought so DO NOT take my ramblings as advice...

I don't know the authority but it is generally understood when you use this it is the fifth anniversary of the time the plan participant commenced participation in the plan if employed at that time.

Q1. I have no experience with this as I have only worked on QRPs that allocated all amounts (including earnings on those amounts, see Q3) by the end of the 7th year. I could see that the taxation on any remaining amounts would be in the 7th year since it was not allocated. No authority for that. Q2. Form 5330. Q3. I believe the earnings should be allocated ratably over the 7-year period just like the principal amount originally transferred. I think there is a PLR out there that shows the allocation. The facts include a proposal that there will be an allocation of the earnings prorated just like the original amounts transferred and the IRS ruled it as meeting 4980. It doesn't state you have to allocate those earnings but we looked at it conservatively and allocated a prorated portion of the earnings annually. If a pro-rata amount of the earnings are not allocated annually, there could be a chance that at least 1/7th was not allocated in one or more of the 7 years as required under 4980. Just my thoughts so DO NOT take my ramblings as advice.

I essentially agree with Peter but with a twist. It seems that the plan administrator/fiduciary would make a decision as to the "beneficiaries" under the terms of the Plan, and memorialize its reasoning. I have seen where, though ERISA preempts state law, the plan would apply state law where a beneficiary has predeceased the participant and the plan does not have any controlling provisions. That is, what would state law require if a will named the 3 children as beneficiaries and 1 predeceased the testator without any other designations (e.g., per stirpes or per capita)? The ability to do this fell under the committee's interpretive discretion (that the plan provided for). The plan would then provide this decision to the parties, including anyone who might be a contesting party. The plan should provide all of the parties (including any contesting parties) with the plan's claims procedures and let the parties know that if anyone disagrees with the decision they can pursue the claim through the plan’s administrative claims procedures. After a decision is rendered on any contesting appeal by the plan fiduciary, if one or more of the contesting parties want to appeal the decision further, then the plan can file an interpleader action. Be careful in the way the interpleader is styled because my recollection is that one way may be more difficult than another (I think you want to interplead the parties and not the funds, but you should consult a litigator on which method may be better given your circumstances. Although, if the funds are interpleaded, the court likely will dismiss the plan from the case). The interpleader may be the way to go especially if there are significant funds at issue. If interpleaded, the court would then determine the entitlement of the competing claimants. Because the administrative process would have been exhausted, a court could apply the deferential abuse of discretion standard of review to the plan's decision. This could allow a quicker resolution if the parties see that the court likely will defer to the plan's decision or simply because there is a possibility of an interpleader. Note that a settlement can be entered into between the competing claimants that may be different from what the plan determined. If the plan agrees to the settlement, it needs to make sure it gets a release from all the competing claimants. Hopefully, your plan says how these expenses are handled but if the funds are interpleaded, I think the costs should come from the funds (confirm). Just my thoughts so DO NOT take my ramblings as advice....

I have no issue with disagreement.... part of this life. Quoting FSA 20047022 (though essentially "dicta"): "In fact, the introductory language of Treas. Reg. section 1.72(p)-1 specifies that the examples in the regulations are based on the assumption that a bona fide loan is made to a participant." The language quoted in the prior post describes what is needed for a bona fide loan (including a commercially reasonable interest rate). Read it as you will but neither the IRS nor the Plan's internal auditor will likely agree with your reading. As a corollary, perhaps look to ERISA, which would also govern the issuance of a plan loan and which is more explicit. ERISA §406(a)(1) states: "A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such a transaction constitutes a direct or indirect-- ... lending of money or other extension of credit between the plan and a party in interest ...." DOL Reg. §2550.408b-1 states: "Section 408(b)(1) of [ERISA] exempts from the prohibitions of section 406(a) ... loans by a plan to parties in interest who are participants or beneficiaries of the plan provided that such loans: .... bear a reasonable rate of interest." Granted, this language applies to ERISA prohibited transactions but it seems informative as most plan documents blend the requirements of the Code and ERISA when structuring the terms of the qualified plan loan programs.

I have not looked at this lately so I could be completely off base here. I thought when you roll a Roth 401(k) into a Roth IRA, the holding period of the Roth IRA determines whether the 5-year rule has been met. So, if you roll an old and cold Roth 401k into a new Roth IRA that you open up to receive the rollover (and you have no other Roth IRAs), the 5-year holding period restarts because the Roth 401k holding period is irrelevant. However, if you roll the same old and cold Roth 401k into a Roth IRA that you first contributed $1 to 6 years ago (and nothing since), the holding period would be based on the Roth IRA and thus the 5-year holding period would be met. (I thought there's a rule about aggregating all your Roth IRAs and using the oldest holding period but that might not apply in this instance (since there are so many five-year holding rules).) I guess I was wondering when they ask about the first year of Roth, are they asking about the 401k or the IRA account(s)? Sorry if I am completely off base here.

72(p)(1)(A) states a loan from a plan is a distribution: "If during any taxable year a participant or beneficiary receives (directly or indirectly) any amount as a loan from a qualified employer plan, such amount shall be treated as having been received by such individual as a distribution under such plan." Then 72(p)(2) provides an exception. Treas. Reg. §1.72(p) initially states the exception is for bona fide loans "with adequate security and with an interest rate and repayment terms that are commercially reasonable." I assume your unreasonable interest rate is not "commercially reasonable" and, thus, for purposes of the Regulations, would not be a bona fide loan that meets the exception. Just my thoughts so DO NOT take these ramblings as advice...

Right, look to the statute. §4980(d)(2)(C) states: (C) Allocation requirements (i) In general. In the case of any defined contribution plan, the portion of the amount transferred to the replacement plan under subparagraph (B)(i) is (I) allocated under the plan to the accounts of participants in the plan year in which the transfer occurs, or (II) credited to a suspense account and allocated from such account to accounts of participants no less rapidly than ratably over the 7-plan-year period beginning with the year of the transfer.

OP: I assume you are saying that the accountant wants to add Roth contributions to the plan and permit participants, such as him/her, to elect a Roth conversion. If that's the case, this is permissible and most plan recordkeepers should be able to administer Roth conversions (but you should confirm that they can). The Roth in-plan conversion was added by ATRA 2012 and is codified in IRC §402A. Adding the Roth contributions and a Roth conversion feature requires a discretionary amendment to the plan that must be adopted by the end of the year in which the provision is first effective. I used the "I assume" because it almost sounds like the accountant wants to unilaterally recharacterize all contributions for all participants as Roth. That is not permissible. A person has to have a right to elect the conversion because such a conversion may not be advantageous for them. The big question for a participant considering a conversion (or partial conversion) usually is whether a participant has enough cash on hand to handle the tax hit when the converted pre-tax contributions (including earnings) are taxed as ordinary income in the year of conversion. Note that no income taxes are withheld at the time of conversion. Also there are some holding rules that would have to be met. The other thing that we've run into in the past... and I think, but am not positive, this is the case... is that participants should know that once they make a Roth conversion it cannot be unwound later (unlike Roth IRAs). Just my thoughts so DO NOT take my ramblings as advice.

Where the company is going to amend vesting to accelerate everything to 100%, the vesting should be able to be amended either prospectively or retroactively. Most of the issues regarding amending vesting come up when vesting is simply changed (e.g., 6-year graded to 3-year cliff, then have to give the better of to certain folks). But these issues do not come up when you accelerate to full vesting. Of course, this is assuming there aren't any shenanigans like firing all the NHCEs and then vesting all the retained HCEs. Just my thoughts so DO NOT take my ramblings as advice.

Peter, I agreed with your response. The OP asks about "Sch C #5 date of correction"....

As far as when corrected I agree with the posters. However, from your facts a more basic question ... why do you have to complete Schedule C line 5? Maybe I am missing something but I thought you only completed line 5 when there are multiple disqualified persons involved. Here, it seems that only the company is involved so only Schedule C lines 1-4 should be completed. Just my thoughts so DO NOT construe my ramblings as advice

The regulations simply state: "on or before the later of: (1) The date which is 90 days after the employee becomes a participant . . . ." I am not aware of any relevant guidance that states a "no earlier than" date. The key phrase in the reg is "on or before". So, any time earlier than the date the employee becomes a participant technically fits within the literal words of the regulations; however, there is probably a strong likelihood the DOL would consider providing an SPD a year prior to the date the employee becomes a participant as unreasonable. I could see a DOL agent arguing that the period for giving the SPD commences on the date the employee becomes a participant (key term here is "after") and ends on the 90th date after that. However, I could see another DOL saying that a period of 30-60 days prior notice would not be unreasonable (see, e.g., the blackout notice rules). As noted by someone above, prior notice and information should be helpful to a participant. It seems like giving the SPD say within 30 days prior to becoming eligible should be useful and reasonable and shouldn't be challenged by the DOL ... especially, if you can show that it was actually given to the employee at that time, that the employee was informed of the importance of the SPD and that they become eligible to participate within 30 days. If you give it early (i.e., 30 days prior to eligibility), when the employee actually becomes eligible my thoughts would be to have company send them a communication stating they were previously provided an SPD upon hire (i.e., within 30 days) and that if they need another one it can be accessed at intranet site address or call HR. Note... these are just my thoughts so DO NOT construe these ramblings as advice.

For income tax purposes, the amounts paid to the beneficiaries would be reported on a 1099-Misc using the beneficiaries' tax information and listing it as other income issued to beneficiary (I think Box 3 but confirm). But a W-2 may also need to be issued depending on when the amounts are paid. If the amounts are paid in the employee's year of death, a W-2 needs to be issued using the employee's SSN to report the FICA due. Since not income to the employee don't fill out Box 1, but you need to fill out Box 3-6 for FICA and Medicare wage and tax informaiton. If the amounts are paid in year following the year of the employee's death, the W-2 is not required. This is my recollection but I have some notes indicating the authorities as Rev. Ruls 71-146, 86-109 and, if I read my writing correctly, 64-150... so confirm.

Not saying it is right or wrong (since no guidance) but one of our clients used "Defined contribution plan adopted by multiple employers with common ownership" while another simply used "Defined contribution plan adopted by multiple employers"

Right, expanding on MoJo’s response… Unless the Plan administrator can determine the amount of the benefit that is to be paid by the Plan to an alternate payee under the terms of the order, the Plan administrator will not determine that the order meets the requirements of a QDRO under federal law. ERISA and the Code require that a QDRO that it “clearly specifies… the amount or percentage of the participants to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined.” Simply providing a method of determining the amount or percentage of the assigned amount is not sufficient if the Plan administrator cannot apply the method (e.g., because missing information). In such a case, the order must be reformed. It seems like the parties are trying to focus on assigning a portion of the plan or IRA account balance that accrued after their marriage was entered into. Many QDROs use language relating to the “marital portion,” “marital fraction” or “coverture fraction”, which all relate to benefit accruals during the marriage; however, most of the QDROs that use this type of language relate to assignments under defined benefit plan (i.e., the traditional pension type plans). This concept generally has little added benefit when used in relation to defined contribution plans (e.g., 401(k)s) or IRAs. It is likely the order at hand is trying to split the “marital portion” 50/50 between the parties—but that is not required. If the information regarding what amount accrued after the marriage was entered into cannot be found, it would be easier for the parties to determine the current account balance and determine how much of it should go to the alternate payee and how much should be retained by the participant. That is, as MoJo states, they should “otherwise agree on a dollar amount for the split.” Also, the split is not required to be 50/50. For instance, the order could simply state that 25% of the account balance on some specific date is to be assigned to the alternate payee and the participant would retain the remaining 75%, or even vice a versa depending on the other elements of the property settlement. Or, perhaps the order could state that the alternate payee is to receive $x of the account balance as of some specific date and the remainder is to be retained by the participant (in a dollar split order you just want to make sure that the account balance has $x in it as of the date specified). The order can (and likely should) just state the split in clear and easy terms. One more item for the parties to pound out.