Ananda

Thank-you for your response and analysis.

Thank-you for your responses. I understand that even if the prohibited transaction excise tax penalty of $80 is paid on the Form 5330, the DOL could still claim that there was an exclusive benefit violation requiring correction through VFC Program. However, I would contest the exclusive benefit violation claim since the delayed contribution to the plan was quickly corrected and the participant was made whole by being reimbursed for any lost earnings. Further, while the employer held on to the delayed contribution funds it was held in a non-interest bearing account and the employer obtained no financial or other benefit. Thus, this is clearly distinguishable from typical exclusive benefit violations where the employer obtains a finanila benefit through use of plan assets. Nonetheless, even if the DOL claimed an exclusive benefit violation occurred, what is the penalty. It seems that there are no penalties under ERISA Section 502, so for example the 20% applicable recovery amount penalty does not apply since there is no court ordered recovery amount returned to the plan and there is no Section 409 fiduciary breach since the plan has already been made whole. It would seem the IRS could try to argue disqualification but this could be corrected under SCP. Am I missing something here that definetly requires a VFC Program filing??

Thank-you for all of your excellent suggestions and research

A client of less than 100 participants made late plan contributions in 2020, meaning participant elected deferrals were deposited into the plan a few days after 7 business days. This was reported on Form 5500 and only involved around $10,000 in total late contributions with lost earnings and interest calculated to be around $80. The DOL sent the client a letter suggesting use of the DOL Voluntary Fiduciary Correction Program to correct the error. My understanding is that given the late plan deposits, the 4975 excise tax of 15% would be calculated on the lost earnings of $80 not on the $10,000. Therefore, if the excise tax is only around $14 why not just pay the excise tax on the Form 5330 and not bother with a VFCP application? The counter argument is that by filing VFCP the plan would avoid a DOL investigation over the matter and the VFCP filing and resolution would satisfy the IRS. Any thoughts or suggestions?

Thank-you Peter. Excellent summary of the rules.

To clarify my question above, the prenup requires each spouse after marriage to waive spousal benefits and thus sign spousal waiver of benefits. The plan participant is arguing that his spouse is contractually required to sign spousal waiver of benefits and if she does not he will go to court to enforce the prenup contract.

A couple signs a prenup foregoing all claims to each others qualified plan benefits. But IRC Reg. Section 1.401(a)(20) is clear that prenups or other agreements entered into before marriage do not satisfy spousal consent requirements and case law supports this. However, the prenup I am examining states that after marriage, each spouse agrees to waive spousal consent pursuant to the QJSA rules. Thus, it would seem to me that the plan participant could go to state court and based on the contractual provisions of the prenup get a judgement requiring the spouse to waive spousal benefits. However, my view is that ERISA would preempt the state law contractual decision because it impacts plan benefits and plan rights and thus, the state court order would be deemed preempted by ERISA. Further, the state court order is clearly not a QDRO and would not have to be followed by the plan. Any thoughts on this?

Thank-you for your responses. While I hear the QDRO concerns and impact on the QOSA calculation, I'm not hearing or aware of any plan qualification or any type of tax or ERISA violation resulting from a mandatory 100% QJSA plan amendment. Agreed?.

The requirement is that a QJSA must provide a spousal benefit of 50% to 100% of the participant's benefit. Most plans allow the participant to elect a 50% , 75% or 100% QJSA. A company wants to amend their plan to make the 100% QJSA mandatory unless spousal consent is obtained. While this clearly meets the IRC QJSA spousal consent requirements, doesn't this raise other plan concerns. For example, the plan participant by being forced to elect the 100% QJSA will be receiving a significantly reduced annual benefit. Is this problematic?

I am advising a TPA firm that unfortunately had an employee who helped backdate a plan amendment for a plan customer. This means that the plan client and TPA missed a plan amendment deadline but backdated the signature date to be within the deadline. This happened fairly recently. The question is how to correct this. My opinion is to reach out to the plan customer and draft a new plan amendment which rescinds the backdated plan amendment. After this is accomplished I will determine through EPCRS what additional steps need to be taken. Any thoughts on this as to whether rescinding the backdated plan amendment is the right first step here and then what additional steps need to be taken, other than using EPCRS?

Thank-you for the responses. Its interesting but I also found the Zack's article stating that IRA contributions can be reversed if done in the same taxable year, but I found no legal support in Code, regs, rulings etc., to support Zack's position.

OK Thank-you. I found the SIMPLE provision in the Code but no such provision exists for SEP'S. So if an employer has a SEP plan is there a prohibition for it to set up a qualified plan in the same year or does this only apply to SIMPLE plans which would become invalid if a qualified plan is established?

My client has a SEP IRA that received contributions for 2021. However, the client wants to set up a DB Plan by year end 2021. Does setting up a DB Plan automatically invalidate the SEP IRA resulting in "excess contributions" for the SEP per 408(d)(4), and thus a tax free distribution to participants if made before tax return is filed in 2022?

If an individual mistakenly makes a contribution to an IRA and wants to cancel the contribution can this be done by withdrawing the contribution by the due date of the individual's tax return without including in income and without penalty? I know IRC Section 408(d)(4) addresses and provides favorable tax treatment to withdrawals of excess contributions to IRA's (in excess of 219 limits) prior to the tax return filing date, but I'm not aware of any tax rules that provide favorable tax treatment to individuals who want to nullify and withdraw a mistaken IRA contribution that is not an excess contribution. Any opinions on this?

Thank-you for your responses. If I set up a fiscal year plan starting December 1, today, isn't there a 30 day advance participant notice requirement for safe harbor plans?

There is an October 1st deadline for setting up a safe harbor 401(k) plan. Is anyone aware of any exceptions to this deadline for setting up a safe harbor plan after October 1st?

Two Questions. A terminating DB Plan has excess assets and wants to transfer to a 401(k) Qualified Replacement Plan ("QRP"). The 401(k) plan has standard QRP language stating it will accept such transfers and the terminating DB plan has a termination amendment stating excess assets will be transferred to a QRP. Does the language have to specifically name the QRP and is there an amendment reflecting or documenting the actual transfer?. The second question is that for a different terminating plan, the excess assets were transferred to a 401(k) QRP but the excess assets are not being distributed rapidly enough for some participants. The plan sponsor has two other Profit Sharing Plans. Can he treat all 3 plans as QRP's and transfer excess assets from the original 401(k) QRP to the other 2 profit sharing plans and thus accelerate distributions?

Yes, you are correct. The distribution will be paid upon termination. The volume submitter plan document allows the plan to be terminated by the employer. So I would make our standard termination amendment to this volume submitter plan stating that all individuals who are employees at year will be eligible to participate in the plan and receive the maximum accrued benefit permissible under 415 which will be paid upon termination.

A client is the adopting employer of a cash balance volume submitter plan and wants to terminate the plan. The plan document allows the employer sponsor to terminate the plan. The issue is that the plan is vastly over-funded and the plan sponsor wants to amend the plan to add 30 new employees by lowering the plan participation requirement from 1 year to 0 years and then make the maximum 415 distribution to each of these participants prior to termination to avoid most of the excise tax. First, I have concerns that this is not a permissible amendment by the employer for a Volume Submitter plan pursuant to Rev Proc 2017-41. If its not a permissible amendment then it seem the plan losses the protection of the Volume Submitter opinion letter but what is the consequences of this if the plan is terminating anyway. Is there a problem with adding 30 new participants to distribute plan assets prior to termination to avoid the excise tax?

OK Thank-you for your responses. I agree.

A plan participant wants to purchase life insurance owned by his qualified 401(k) plan. The plan and the participant intend to follow the requirements of PTCE 92-6 and eliminate the PT concerns. However, the participant wants to use IBM stock to purchase the insurance. I could argue that as long as all the requirements of 92-6 are met an in-kind purchase of the insurance should be covered by PTCE 92-6. However, there is also a concern that the use of IBM stock to purchase the insurance will be deemed a separate prohibited sale or exchange between the plan and the participant party in interest and will not be covered by 92-6. Any thoughts on this?

Thank-you for your responses. This is a very large multi-national company and the sale of the affiliate resulted in the termination of less than 1% of plan participants. Since there is no partial termination I don't see how any of the employees of the affiliate can argue that they have to become 100% vested given the sale of the affiliate. They should be treated like any other employee who participates in the parent's plan and who have been terminated. I'll be speaking next week to the attorney representing these participants but I can't figure out how she can justify 100% vesting on the date of the sale.

A company is selling its affiliate. Currently, employees of the affiliate participate in the parent's 401(k) and Pension Plan. As of the date of sale they will no longer be plan participants. The buyer of the affiliate may or may not establish a plan to benefit the employees it acquires. Many of the employees of the affiliate participating in the parent plan are not vested and they are claiming that given the sale they must become 100% vested. As of the date of the sale they will no longer be participants in the parent 401(k) and DB plans but I'm not aware of a rule that says pursuant to these facts, the employees of the affiliate must become 100% vested. There is no partial termination of the parent plans given the sale.

A DB plan is being terminated and I'm filing the 5310 and Form 6088 for the plan. Pursuant to the Form 6088 instructions, the plan is deemed "underfunded" since the sum of the value of benefit liabilities exceeds the value of plan assets. Given these facts, the instructions to the Form 6088 state that if the DB Plan is underfunded, columns (g) of the form have to be filed out. Column (g) references ERISA Section 4044 which provides the priority ordering allocation of plan assets based on whether participants made contributions, elected annuities, etc. It seems that based on the 6088 instructions, column (g) requested allocations must be filled out. But does this only apply to PBGC governed plans or all underfunded DB Plan?

My argument is not premised solely on the fact that a prohibition is in the Code but not the regs. Rather, I and other ERISA lawyers have put forth multiple arguments supporting our position which only applies to nontaxable amounts rolled over or converted to a Roth IRA (e.g., see IRS Notice 2008-30). These arguments would not work for a regular IRA rollover. I do appreciate the views expressed by others and do acknowledge that there is some risk involved in our position but my view and the view of other ERISA lawyers I network with is that if challenged by the IRS "its more likely than not" that our view would prevail in court.