Artie M

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.

You have asked a bar question...spot the issues. That said, your threshold issue is whether there is a controlled group. You state that "Due to attribution rules, owner owns more than 50% of each business, making it a controlled group." That is not an accurate statement. In very simple terms (perhaps oversimplified), a controlled group can exist where one entity (a parent entity), either directly or indirectly, owns at least 80% of another entity (a subsidiary entity). It also can exist when 5 or fewer individuals own at least 80% of multiple businesses (possible brothers-sisters) and the overlapping ownership interests between the entities is at least 50%. Your facts don't reach the parent controlled group standard, and, though the overlapping interest in each entity appears to be at least 50%, it is uncertain if 5 or fewer individuals own at least 80% of each business. Even if there is no controlled group under the parent/brother-sister rules, it is still possible there could be an affiliated service group, which would require the entitles to be treated as a single employer. Also, note that there is no prohibition against non-controlled groups adopting and maintaining the same plan. In such a case, the testing would be separate but the number of filings would depend: if all plan assets are available for the benefit of all employees under the plan, only a single Form 5500 needs to be filed; but if the assets attributable to separate employers are available for the benefit of only that employer’s employees, each separate participating employer may have to file a separate Form 5500. Also, there is no prohibition against controlled group members adopting different plans. Again, this is a testing issue. If each group can satisfy 410(b) coverage testing on their own, they can have separate plans even though other nondiscrimination testing must be done on a collective controlled group basis. So, conceivably, they could have separate plans with separate 5500s. Of course, if they are in a controlled group it is likely they should not have filed a 5500SF but that depends on the number of employees in the controlled group. You have not provided that information. Bottom line is you need to know whether it is actual controlled group or not

I agree with the others about a future distribution, however, it seems you are asking if his prior distribution was compliant. ("Would he have been inelgiible [sic] to take his distribution?") If the distribution was taken prior to his rehire and at a time when there was no agreement that he would be rehired, whether on an as need basis or otherwise, the prior distribution should have been permissible.

You state that "His former spouse has a QDRO to receive survivor benefits when the "participant" (husband) dies." I hate to be the bearer of potentially bad news but you may have a problem if that is what the QDRO states. If a participant and his or her spouse become divorced before the participant's annuity starting date, the divorced spouse loses all right to the federally required survivor benefit protections. If the divorced participant remarries, the participant's new spouse may acquire a right to the required survivor benefits. A QDRO, however, can change that result, especially where the annuity starting date has already occurred. If a QDRO requires that a former spouse be treated as the participant's surviving spouse for all or any part of the survivor benefits payable after the death of the participant, any subsequent spouse of the participant cannot be treated as the participant's surviving spouse. E.g., if a QDRO awards all of the survivor benefit rights to a former spouse, and the participant remarries, the participant's new spouse will not receive any survivor benefit upon the participant's death. If such a QDRO requires that a defined benefit plan subject to the QJSA and QPSA requirements, treat a former spouse of a participant as the participant's surviving spouse, the plan must pay the participant's benefit in the form of a QJSA or QPSA unless the former spouse who was named as surviving spouse in the QDRO consents to the participant's election of a different form of payment. Note that the election for the lump sum was provided with regard to the stream of payments the participant was receiving (so the form of payment and the annuity starting date was locked in). Before the divorce, the participant was to get the annuity with a survivor benefit. Immediately prior to the divorce, the ex-spouse was entitled to that survivor benefit. It was already locked in based on his election for that form of benefit. So, let's say under the QDRO she got 50% of the benefit, which meant she got 50% of the current stream of benefits being paid to them plus the survivor's benefit (payable at the participant's death) on her assigned portion of the benefit. She made a lump sum election based on her assigned portion of the benefit; that election did not affect the participant's retained portion of the benefit. Based on the language you quoted, the ex-spouse also retained the survivor benefit under the participant's retained portion of the benefit (also payable at the participant's death), and upon his death, she is to be treated as the surviving spouse. (She likely argued that all of those benefits were earned during their marriage.) By virtue of the wording of the QDRO, he was not permitted to make a new beneficiary designation with regard to that benefit (i.e., by court order she was the beneficiary). He could have made a beneficiary designation on any other benefits he may have accrued after the divorce, but not on any benefit covered by the QDRO. Just my two cents based on the limited facts. That said, you may want to consider making a formal claim for the benefits. Under ERISA, all Plans must respond to a claim for benefits by making a decision on the claim and providing a letter that includes: the reasons for the denial (which should point to documents, sections of the Plan, provisions of the QDRO, etc. supporting their reasoning), a summary of appeal rights, and timelines to make the appeal (it does not appear that the Plan has done that from your facts). There is a statutory deadline by which to make a claim following the date of death (depends on which state you are in) but many plans shorten the deadline to like a year. If a claim is not made by that deadline, it is possible a court may determine that the claim is lost (by virtue of not "exhausting all administrative remedies"). It might get the administrator's attention more if you had an attorney file the claim (but you don't have to under ERISA). Though you don't have to have an attorney, your next steps really should include getting the advice of your own personal counsel who fully understands ERISA and QDROs. (The posters above have said it but I want to reiterate -- do not rely on this post or anything else on this message board when making your decisions). Good luck.

This is always an issue with tip income. First time I saw it was in the 90's. The only time I have seen it work well was where most of the tips were on credit cards and the employer kept the credit card tips and paid those out on the paycheck. I have seen a restaurant where bulk of tips in cash tried to get the waitstaff to pay them nightly an amount of cash that with any credit card tips would get them to the amounts reported as tips by the waiter/waitress (which was usually the minimum 8%). My recollection was that this didn't work that well. I don't know of any authority that really lays out what to do here. Note this is also problematic if welfare benefits are provided and paid through a 125 plan.