EFTPS and Plan Withholdings

[Guest Dell]

I realize this has been discussed here before but I haven't seen anything that really convinces me on the proper handling of taxes witheld from plan distributions when the plan has only a brokerage account and no checking account.

Many simply deposit to the employers bank account and pay the taxes from there, but as raised by posters before, I just worry about plan assets reverting to the employer's bank account.

In the past we could handle this with the 8109 forms, but that option is now gone. Assuming a situation over the limit allowing payment directly with the 945, what are you doing? Does anyone have a cite that it is ok to transfer to employers bank account? Only thing I find related is discussion regarding paying the distributionis in an ASPPA IRS Q&A where IRS said it was "legally incorrect and should not be done." On the other hand, I seem to recall there is a PT exemption for employer loans to the plan in limited circumstances with repayment within 3 days, could this be used if employer payment was treated as a loan to the plan with plan reimbursement to employer?

Opening a checking account just for a few distributions seems to be a waste of funds,, but I'm leery of transfering to employer account.

[Bill Presson]

We're using Penchecks for all of our balance forward plan distributions now. We charge the same distribution fee we always have and we pay the Penchecks fee. Works great.

[Bird]

I was told eons ago, and saw or found a citation, that it was definitely ok to run withholding through the sponsor's own account (but not the participants' net cash, although we've been more-or-less forced to sometimes and at the end of the day, I think it is "just" a self-corrected prohibited transaction). I don't have the citation for you now, sorry.

We're setting up EFTPS batch processing where we process the withholding for the client through our own account (well, a separate account from our main business checking account). Yeah, that sets off some alarm bells and we're really pretty small for doing such stuff but I think it can be managed. I like the idea of being able to tell the client "just write a check to us and we'll take care of it." That's what they want and expect.

Penchecks is an option, as noted. I've used them and the cost is pretty small, but I dunno, it just seems like an extra step and I felt like we were doing all the work anyway. But if you are only going to be doing a tiny handful then that's probably the way to go.

The only other option is to get the client to somehow handle it on their own through EFTPS and I would not be optimistic about success there, to understate the case.

[Übernerd]

I'm looking into a similar question (an employer paying 990T taxes on behalf of its VEBA, which has no checking account). It seems to me that PTE 80-26 ought to cover that payment. As amended (most recently in 2006), that exemption allows loans or extensions of credit from a party in interest to a benefit plan if all of the following are true:

1. The party in interest doesn't charge the plan interest or a fee, and no discount is relinquished by the plan, in connection with the loan or extension of credit ("loan");

2. The proceeds of the loan are used only for ordinary operating expenses or for a purpose incidental to the plan's operation;

3. The loan is unsecured;

4. The loan isn't made by another benefit plan;

5. The loan isn't made to a certain kind of ESOP; and

6. If the loan term is more than 60 days, there must be a written loan agreement.

These requirements all seem satisfied if all the employer is doing is extending unsecured, interest-free credit to the plan for the purpose of paying taxes that are incidental to the plan's operation. Anybody reason why the PTE shouldn't apply?