Gap Earnings

[Guest jvandyke]

We know that we are no longer required to figure Gap earnings on ADP/ACP failures, however, what about 402(g) and 415 refunds? Has anyone seen anything about this?

Thanks!

[Tom Poje]

well, I haven't had time to look at the latest technical correction bill (for the most part all anyone mentioned is the elimination of min distribution for 2009.) however

an article by Ascensus http://www.ascensus.com/news/news.aspx?ID=806 has the following:

It’s Official! Legislation With 2009 RMD Waiver, PPA Corrections, Is Enacted

President Bush signed into law the Worker, Retiree, and Employer Recovery Act of 2008 on December 23, 2008. This legislation waives 2009 required minimum distributions (RMDs), makes various technical corrections to the Pension Protection Act of 2006 (PPA), and addresses various defined benefit pension plan issues. All the provisions have varying effective dates.

Some of the key provisions included in the legislation are as follows.

Waives 2009 RMDs for IRA holders, retirement plan participants, and beneficiaries. RMDs for tax year 2008, including first year RMDs due by April 1, 2009, still must be distributed. IRS officials have responded to an Ascensus inquiry about RMD reporting, stating that RMD statements to IRA holders and RMD reporting on Form 5498 to the IRS will not be required for 2009. (See the article “IRS Says No 2009 RMD Statements Pending Enactment of H.R. 7327” at this Ascensus Latest News website.)

Provides for rollovers to Roth IRAs of settlements received in certain commercial airline bankruptcy situations.

Removes income and tax-filing status restrictions inadvertently created by the Pension Protection Act of 2006 for designated Roth account (Roth 401(k)/403(b) account) rollovers to Roth IRAs.

Requires retirement plans to offer direct rollovers to inherited IRAs for nonspouse beneficiaries, beginning with 2010 plan years.

Removes “gap period” income from calculations of IRC Sec. 402(g) excess deferrals.

Makes various changes to eligible automatic contribution arrangements (EACAs) in retirement plans, including eliminating the requirement that EACAs include qualified default investment alternatives, and extending EACAs to SIMPLE IRA plans and salary reduction SEP plans.

Revises rules for retirement plan reports of account balances and vesting, to align with certain PPA requirements for benefit statements.

Revises the definition of one-participant plan for blackout notices, to align with DOL regulations.

Revises the definition one-participant plan under rules associated with diversification of employer securities, to align with ERISA.

Clarifies other PPA provisions for defined benefit/defined contribution deduction limits, and for defined benefit/401(k) plans (which will be allowed beginning 2010 plan years).

[fiona1]

What about 415 refunds? I think the answer lies in the EPCRS. The Final 415 regulations say that 415 failures are now corrected through the EPCRS (Rev Proc 2008-50).

It's my understanding that corrections made via the EPCRS generally include earnings through the date of correction - which would mean that GAP would be included with 415 refunds.

Agree?

[Guest Pennysaver]

I'll add another question to the mix: What if the plan sponsor WANTS to include gap period income with a corrective distribution? May they do so if the plan so provides? Or does PPA Sec. 902(e)(3) override even the discretionary inclusion of gap period income in distributions, as well as the mandatory?

[Belgarath]

I haven't looked at the 415 aspect, but to follow up on Tom's comment, it is Section 109(b)(3) of the WRERA that fixes the gap period calculation for excess deferrals under 402(g) - this is only for excess deferrals in post-2007 years.

[fiona1]

I'll add another question to the mix: What if the plan sponsor WANTS to include gap period income with a corrective distribution? May they do so if the plan so provides? Or does PPA Sec. 902(e)(3) override even the discretionary inclusion of gap period income in distributions, as well as the mandatory?

There was a thread on this topic from 12/4. Consensus was gap cannot be included in corrective distributions - not even if provided in the plan.

http://benefitslink.com/boards/index.php?showtopic=40462