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August 13, 2020

Here are the most recently added topics on the BenefitsLink Message Boards:

RayJJohnsonJr created a topic in Defined Benefit Plans, Including Cash Balance

Does a DB Plan with 10/31/19 Plan Year-End Get to Use the Extension?

"Does a DB Plan with 10/31/19 YE get the extension?"

2 replies   |    56 views   |    Add Reply

Jakyasar created a topic in Distributions and Loans, Other than QDROs

RMD from a Terminating Profit Sharing Plan

"PS plan terminating now. Have a 75-year-old participant receiving RMDs (none withdrawn for 2020 yet). Because of the plan termination, does the participant need to receive the RMD, or can it be waived?"

3 replies   |    49 views   |    Add Reply

piquantbaron created a topic in Employee Stock Ownership Plans (ESOPs)

ESOP Distributions and 401(a)(14) Election

"I have an ESOP client that has adopted a distribution policy whereby distributions for a particular year will be made in Q4 after the latest annual valuation has been completed and the company has a good idea of what its cash flow for the year looks like. The company then uses this information to determine its capacity for making distributions (e.g. if the company is short on cash it will use the stretch provisions to make installment payments for all participants who have elected a distribution, otherwise it will have a mix of lump sum distributions (for lower account balances) and installments in a nondiscriminatory manner).

Is this distribution policy in violation of the distribution commencement rules of IRC 401(a)(14) when 65+ (Normal retirement age under the plan) former participants make distribution requests because it is making distributions in December instead of late February/early March?

I believe the requirement under 1.401(a)-14(a), which permits a plan to require a participant to file a claim for benefits before payment commences, and the retroactive payment rule in 1.401(a)-14(d), which allow distributions to be delayed until 60 days after the payment is able to be determined, can be used in conjunction to delay most distributions under the proposed timeline above, but I'm curious to hear what others think as I understand some plan sponsors seem to ignore this rule."

1 reply   |    25 views   |    Add Reply

Jakyasar created a topic in Distributions and Loans, Other than QDROs

20% Withholding Required in 2020 for Non-COVID/Non-Hardship Distributions?

"Cannot seem to find whether, for 2020, the 20% withholding is waived on distributions -- not hardship/COVID-related, just a regular distribution. It's still required, correct? I'm aware of the 10% waiver for 59-1/2."

1 reply   |    69 views   |    Add Reply

JustMe created a topic in Defined Benefit Plans, Including Cash Balance

Late Restatement of DB Plan -- SCP Eligible?

"We have a client that failed to sign their DB restatement prior to 7/31/2020 -- despite numerous requests from us to do so. Am I reading the IRS website correctly that, since this failure occurred after April 19, 2019 (EPCRS Rev. Proc. 2019-19 update) and will be corrected within the SCP 2-year timing, that correction for this failure is eligible under SCP?

An article I've read seem to interpret this expansion to exclude restatements because, due to the late restatement, the plan sponsor may no longer rely on the prior restatement period opinion letter, but that does not appear to be how the IRS is describing correction here.

Assuming the plan is eligible for SCP, should the document be dated as of the current date with a notation that the adoption is late but the plan is taking advantage of the correction method under SCP?

https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-you-havent-updated-your-plan-document-within-the-past-few-years-to-reflect-recent-law-changes

From that article (my bold-face added):

Correction programs available:

Self-Correction Program:

Some, plan document failures may be corrected on or after April 19, 2019 under SCP if certain conditions are met. The conditions are:

  • Plan document failures must be corrected within the two-year correction period specified in Rev. Proc. 2019-19, section 9. The failure begins in the plan year that includes the end of the applicable remedial amendment period.
  • Plan must have a favorable letter as defined in Rev. Proc. 2019-19, section 5.01.
  • SCP is not available to correct a failure to timely adopt an initial IRC 401(a) plan document.
  • Corrective amendments to resolve demographic failures that were not timely adopted are not eligible for SCP and must be resolved under VCP or Audit CAP.
  • The late adoption of discretionary amendments is not considered a plan document failure.
  • Refer to Rev. Proc. 2019-19, sections 4.01, 4.03, 4.04 and 4.05 for program eligibility requirements.

Example 1: The Carrot Stick Company has sponsored a 401(k) plan since 1997. They use a pre-approved plan document. On May 3, 2019 the plan sponsor realized that they failed to timely amend their plan for EGTRAA by the April 30, 2010 deadline and for PPA by the April 30, 2016 deadline respectively. The EGTRRA document was adopted on June 30, 2015 and the PPA document was adopted on December 5, 2018. Can these failures be considered resolved under SCP per Rev. Proc. 2019-19?

The answer is no. The failures can’t be resolved under SCP. The correction of the failures occurred before April 19, 2019, the effective date of the revenue procedure. Prior to 4/19/19 the correction of these failures needed to be accomplished via VCP or Audit CAP. Even if the failures had been uncorrected they would still be ineligible for SCP under Rev. Proc. 2019-19 because correction would be occurring after the end of the 2 year period for correcting significant failures under SCP. That period would have ended on 12/31/12 for the EGTRRA failure and 12/31/18 for the PPA failure."

0 replies   |    43 views   |    Add Reply

JDeans created a topic in Qualified Domestic Relations Orders (QDROs)

QDRO Not Filed; My Ex Retired and Didn't Tell Me

"Final Divorce Decree included QDRO. It was ordered that it be sent to VRS for implementation when either I or my ex retires. My ex retired August 31, 2019. Didn't tell anyone and didn't file the QDRO with VRS. I found out he retired several months later. I sent the Divorce Decree with QDRO to VRS. It was approved and implemented and I started receiving the regular amount calculated in February 2020. Question is, from the time he retired and started receiving payments to the time I finally started receiving payments, do I need to go to court to receive the payments that weren't sent to me, due to him failing to submit the QDRO when he retired? Any other information would be appreciated."

2 replies   |    56 views   |    Add Reply

Belgarath created a topic in Distributions and Loans, Other than QDROs

IRS Notice 2020-62 -- How Quickly to Use the New 402(f) Notices?

"Re the new 402(f) notices. How quickly do you think these (or similarly updated Notices) need to be utilized? For distributions as of today, or are we realistically OK for a couple of weeks, etc.? Doesn't take long to manually copy the IRS model into a Word document and do this manually, but takes a little time to update systems/procedures, etc. Curious as to how quickly folks are implementing this."

8 replies   |    124 views   |    Add Reply

austin3515 created a topic in Form 5500

Braggin About FT William Software

"We had to go back and amend a 2015 filing for a Plan. FT automatically: [1] Converted the filing to the 2019 form (per the DOL's requirements). [2] Converted the 2015 Schedule R to a PDF and added it as an attachment (again per the DOL's requirements). Myself and another consultant were absolutely in shock that they did that. We thought we were going to spend an hour re-keying everything. I'm telling you, FT William is one of my favorite companies to work with. OK, maybe other vendors' software would do the same thing, I don't know. If they do, then kudos to them as well."

2 replies   |    51 views   |    Add Reply

Chaz created a topic in Health Plans (Including ACA, COBRA, HIPAA)

Prohibited Transaction Arising from Improper Payments from Funded Health Plan

"For obscure reasons, an employer provides health insurance through a funded welfare plan arrangement (i.e., through an ERISA trust). The employer inadvertently used plan assets to pay non-health plan expenses and therefore engaged in a prohibited transaction. The employer repaid the amounts to the plan plus appropriate interest within the same plan year as the prohibited transaction. The employer disclosed the prohibited transaction on Schedule G to Form 5500. In addition to repaying the amounts, does the employer also owe an excise tax to the IRS for the prohibited transaction? If so, is the mechanism for paying the excise tax through Form 5330? Even if there is no excise tax to pay, should the employer file a Form 5330? The instructions to Form 5330 seem to indicate that the form is inapplicable to this situation and Schedule G's instructions provide that Form 5330 should be completed if the filer is a pension plan."

3 replies   |    22 views   |    Add Reply

pmacduff created a topic in Distributions and Loans, Other than QDROs

When Can COVID Distributions Be Ended?

"Manufacturing client added COVID withdrawals to their 401k plan but only up to $3,500 of the participant's vested balance. Employees have been back to work full-time for months. (Furloughs were very brief for this particular client.) Can the employer put an 'end date' on these withdrawals if participants are properly notified? They're seeing a dramatic increase in requests 'all of a sudden' and surmise that word is getting around from those who took distributions early on, and they now fear it's just being used to get funds out. I'm thinking the answer is 'no' and that they must keep this in place until 12/31/20."

0 replies   |    22 views   |    Add Reply

Gilmore created a topic in 401(k) Plans

Deadline for Staring a 3% Nonelective Safe Harbor Plan

"With the new SECURE Act provisions for 3% non-elective plans, is a new 3% safe harbor non-elective plan still required to be adopted by October 1 (assuming a calendar year end)? Could the plan be adopted for December 1, 2020 as a 3% non-elective? What if the plan was adopted on December 1, 2020 as a non-safe harbor plan with a calendar year end, but amended in 2021 to be a 4% safe harbor? I guess what I'm really asking is, if the plan is a non-elective safe harbor, must the first year still be at least 3 months long?"

0 replies   |    29 views   |    Add Reply

austin3515 created a topic in 401(k) Plans

Late Deposit During Blackout

"401k plan is going into blackout and cannot process a deposit until after blackout is over. Therefore one payroll will be a week late. Will that deposit be considered late, or is there a facts and circumstances component to this? My thought: late is late. But I've come across differing opinions out there, so I'm curious to see what others thing. I have a feeling the DOL would agree with me."

7 replies   |    70 views   |    Add Reply

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