bzorc Posted May 21, 2015 Posted May 21, 2015 A 401(k) Plan that we are the TPA for does not consult is when issuing hardship withdrawals. The auditors for the plan, during their fieldwork, found a hardship withdrawal being granted to pay high school expenses for a student; and have flagged this as an impermissible hardship withdrawal, which is correct. Two questions: First, at a recent seminar it was mentioned that there is new (possibly proposed) legislation that deals with this; in essence, if the withdrawal was for a proper amount had the withdrawal been permissible, there is no corrective action or VCP filing required; the auditor should reference this internal control deficiency in their communications to the plan sponsor. Does anybody have a cite for this legislation? Second, is there a good "template" for submitting this VCP, assuming it comes to that? Thanks for any replies.
Kevin C Posted May 21, 2015 Posted May 21, 2015 The latest revision for EPCRS correction of overpayments was in Rev. Proc. 2015-27. http://www.irs.gov/irb/2015-16_IRB/ar06.html
bzorc Posted June 1, 2015 Author Posted June 1, 2015 The answer to this was also in Rev. Proc 2013-12; the participant cannot pay back the impermissible withdrawal; however, there is no "make whole" remittance required from the Plan Sponsor. To further this discussion, the impermissible withdrawal was found by the plan auditor (the plan sponsor does not utilize us as the TPA to review hardship withdrawals; they do it themselves and send the request straight into the plan trustee for processing ) during their fieldwork (plan has greater than 100 participants). They initially insisted on a VCP filing; however, Rev Proc 2013-12 changed their mind on this. However, they wish to classify this transaction as a "prohibited transaction", and are asking us as the TPA to prepare Schedule G to form 5500. Any thoughts on their position?
Tom Poje Posted June 2, 2015 Posted June 2, 2015 I am not so sure on the comment "the participant cannot pay back the impermissible withdrawal"the IRS 401k fix it guide, dated 1/23/2015(less than 5 months old) item 10 implies it can be donehttp://www.irs.gov/Retirement-Plans/401(k)-Plan-Fix-It-Guide
bzorc Posted June 8, 2015 Author Posted June 8, 2015 True, the participant could pay back the impermissible withdrawal (based on the fix it guide), but does not have the financial capability to do so. This is where 2003-12 comes into play.
ESOP Guy Posted June 8, 2015 Posted June 8, 2015 How is this a PT? I don't see that line of thought at all.
bzorc Posted June 10, 2015 Author Posted June 10, 2015 I don't see that it is either. Can't convince the auditor of this.
K2retire Posted June 10, 2015 Posted June 10, 2015 How is this a PT? I don't see that line of thought at all. Distribution of salary deferrals before age 59 1/2 without a distributable event?
My 2 cents Posted June 10, 2015 Posted June 10, 2015 How is this a PT? I don't see that line of thought at all. Distribution of salary deferrals before age 59 1/2 without a distributable event? Payment to a plan participant not required under the plan provisions? Always check with your actuary first!
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