Control group two plans

[SSRRS]

Two corps have the same owners and are a controlled group. 

Instead of opening one DB Plan to cover both corps, two DB plans were set up. 

One DB plan for each corp.

One owner was placed in plan A that covered him and the employees of corp 1 and the other owner was placed in the plan B that covered him and the employees of corp 2.

1. Owner 1 in plan A was supposed to take an RMD from plan A. Inadvertently took the RMD from plan B. 

Is this an issue, or since this is a control group, the plans technicly cover both entities?

2. What if owner 1 in plan A for a few years deposited his contributions into plan B, Inadvertently? 

 

Thank you for any insights into this!

[Effen]

It is ok that they have 2 plans, assuming both plans comply with the applicable non-discrimination rules.  Do they both cover at least 40% of the eligible workforce, or have at least 50 participants?

1) Definitely a problem.  They will need to reverse this.  Put the money back into Plan A, and take it from Plan B.

2) I know you think of contributions as "his" contributions, but they are corporate contributions.  "He" didn't really deposit "his" contributions into the wrong plan, the sponsor made the deposits, so that part is ok.  How were they reported on the SB?  Is plan A overfunded and plan B underfunded?  You cannot transfer money between plans, but you could merge the plans to equalize the improper contributions and avoid future MRD issues.    

[SSRRS]

Thank you Effen, as always.

You mention that If owner 1 of this controlled group, took his RMD from Plan B instead of from Plan A, it needs to be rectified. 

1. Can this be done by now taking his RMDs from Plan A for the past few years and then putting these RMDs into plan B, to.pay back the rmds inadvertently taken from plan B? He took the right amount the past few years just from the wrong plan.

2. Would the 5500s need to properly reflect the RMD from plan A, or is it enough that the 5500 for plan B shows the RMD each year, and the remedy  was done by taking from plan A and putting it back into plan B?

Meaning it is explainable why the plan B 5500 shows the annual RMD, as inadvertently it was tak taken from.plan B, and it was later rectified ?  Thank you!

[Effen]

These are separate and distinct plans. How he solves these problems is up to him, his attorney, his accountant.  The 5500 should reflect what actually happened in each plan.

Did he get a 1099?  Which plan reported the distribution? If Plan A reported the distribution, then he m/b ok on the personal side, but not on the plan side.

He should retain an ERISA attorney to help him sort all this out.  

 

[SSRRS]

Thank you Effen. He reported the RMDs on his annual personal  returns and paid the taxes. It is just that he took it from the wrong plan.

If he pays the plan back (since he was not suposed to take his RMD from this plan) can that be a remedy?

[Effen]

Thank you, but that wasn't the question.  Which plan issued the 1099?

[SSRRS]

Thank you. Effen.

1.The plan that he was meant to take his RMD issued the 1099R. The plan that he acctually inadvertently took the RMD from did not issue the 1099R.

2. Would things be better if the plan that he actually took the RMD, in error, had issued the 1099R?

[Effen]

Ok, I think you are saying Plan A issued the 1099, but plan B actually made the payment.  So, Plan A needs to re-imburse Plan B for the improper payment.  Since Plan A issued the 1099, I think Owner 1 taxes s/b correct, even though he received the money from the wrong trust. 

He will need an ERISA attorney and his accountant to help him sort all this out, but seems to me:

Plan B may have incurred a PT for improper payment to an HCE

Plan A needs to re-imburse Plan B.  This should include some interest adjustment so that Plan B is restored to where it would be if the improper payment was never made.

There are probably a myriad of other issues the IRS/DOL could pile on if they wanted. 

Check the Self-Correction Guidance and work with attorney and accountant on the best way forward.   

[SSRRS]

Thank you Effen!!!