Q: Employer A maintains Plan A for its employees. Employer B maintains Plan B for its employees. Employer A purchased a division of Employer B in an asset sale and allowed participants in Plan B to rollover their Plan B accounts to Plan A. The assets were deposited into Plan A. The Plan Administrator for Plan A has discovered that Plan B does not have an IRS Determination Letter and is afraid that Plan B may not have been a qualified plan. The Plan Administrator now wants to remove the assets rolled over from Plan B from Plan A.
Is it permissible to remove the rollovers from Plan B to Plan A at this time? If so, how would Plan A go about doing this?
A: Specific guidance is lacking, but I think not. The Plan Administrator for Plan A could have refused a rollover contribution from Plan B, but there is nothing in the regulations that would allow the Plan Administrator to remove the rollovers from Plan A, unless the Plan Administrator determines that the contribution was an invalid rollover contribution. See §1.401(a)(31)-1, A-14.
Q: Participant has terminated and has loan balance. He has requested a cash distribution. Should 20% federal withholding be taken for the remaining loan balance?
A: Generally yes. §1.72(p)-1, A-15 provides that "If a...loan repayment by benefit offset results in income at a date after the date the loan is made, withholding is required only if a transfer of cash or property (excluding employer securities) is made to the participant or beneficiary from the plan at the same time”
Q: 403(b) Plan was formerly non-ERISA and with the adoption of their restated document for 2012 and some other changes, is now an ERISA 403(b) Plan. There are still several accounts held at TIAA-CREF (annuity contracts) and many of them belong to terminated participants who have been gone for some time.
Regarding the required 404(a)(5) disclosures, is the sponsor required to distribute this disclosure to terminated participants whose accounts (annuity contracts set up when non-ERISA Plan) were established prior to 1/1/09 and have not received any additional contributions since that time?
A: No. Field Assistance Bulletin No. 2012-02 provides that "the Department will not take enforcement action against any plan administrator who reasonably determines it would be impracticable, or impossible, to obtain the information necessary to meet the disclosure requirements under paragraph (d) of the regulation with respect to any designated investment alternative that is an annuity contract or custodial account described in section 403(b) of the Internal Revenue Code if:
- The contract or account was issued to a current or former employee before January 1, 2009;
- The employer ceased to have any obligation to make contributions (including employee salary reduction contributions), and in fact ceased making contributions to the contract or account for periods before January 1, 2009;
- All of the rights and benefits under the contract or account are legally enforceable against the insurer or custodian by the individual owner of the contract or account without any involvement by the employer; and
- The individual owner is fully vested in the contract or account".
Q: We have a calendar year 401k Safe Harbor Plan using the basic matching formula. They notified us the employer might be purchased through an asset sale in the next few months.
The purchasing employer will not be merging the existing plan into their current one.
If the plan terminates due to the asset sale mid year, how does that affect the safe harbor provisions of the plan?
A: It does not. Regulation section 1.401(k)-3(e)(4)(ii) provides that if a safe harbor "plan termination is in connection with a transaction described in section 410(b)(6)(C)", the safe harbor provisions continue to apply through the date of plan termination. Regulation section 1.410(b)-2(f) provides that "For purposes of section 410(b)(6)(C) and this paragraph (f), the terms "acquisition” and "disposition” refer to an asset or stock acquisition, merger, or other similar transaction...”.
Q: Client A has a traditional IRA and a Simple IRA. Less than 60 days ago client A took a distribution from the traditional IRA. At this time client A does not have the available cash to pay back the traditional IRA, but will within 60 days from now (which would be beyond the 60 days allowed for the current rollover/loan outstanding). Therefore, client A would like to take a distribution from his Simple IRA and use those funds to pay back his traditional IRA. Then in 60 days he will use the cash he will be receiving to pay back his Simple IRA.
Is this all allowed and if a distribution is taken from the Simple IRA to pay back the traditional IRA can cash be rolled back into the same Simple IRA or would it have to be another IRA?
A: No, this is not allowed. An individual is only allowed one IRA to IRA rollover within a 12 month period. Under the scenario we are considering, there would be two IRA to IRA rollovers within a 12 month period. See section 408(d)(3)(B).
Q: Company A purchased Company B assets. Company B employees are now employed with Company A. The ownership in Company B plans will remain the same and there is no relation in ownership between Company A and Company B. Both companies have separate plans.
My question is can Company B's plan continue with only the remaining owners participating?
A: Yes. However for 2013 the terminated employees will be included in the 410(b) test if they have worked 500 hours for Company B in 2013 or if they benefit under the plan in 2013. If it is a 401(k) plan, they benefit for 2013 even if they did not defer anything.
Q: Do you include the outstanding loan balance as of the end of the year to calculate the RMD or do you ignore when calculating the RMD?
A: Include the outstanding loan balance as of the end of the year to calculate the RMD. The loan is a directed investment.
Q: Have an existing 401k plan (with a 12/31 pye) that one of their divisions created their own 401k plan effective as of 1/1/13. At the end of December 2012 the balances for the terminated employees of this division transferred out of the existing plan and into the new 401k plan, the remaining balances transferred in January 2013. When creating the 5500-SF for the original plan we listed the amount transferred to the new plan under Part III item 8j and listed the new plan name, EIN and plan number under Part VII item 13c(1). Because the new plan is not effective until 1/1/13 we did not do a 2012 5500-SF for this plan.
Does a 2012 5500-SF for the new plan need to be completed to show the transfer in of the assets that left the original plan? Or would the complete transfer be shown on the 2013 5500-SF since the plan is not effective until 1/1/13?
A: I assume the terminated participants who were entitled to distributions did not elect distribution prior to the transfer.
If the new plan is effective on 1/1/13, a transfer from the existing plan to the new plan could not have been made on 12/31/12. Either the transfer should be reflected on a 2013 Form 5500 for both plans, or the new plan is effective on 12/31/12 (and a 2012 Form 5500 is filed for the new plan). The initial Form 5500 for the new plan should reflect assets equal to zero as of the beginning of the plan year (whether it be 2012 or 2013).
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