Jump to content

5500 counts terminated 0% vested but still has an account


ESOP Guy

Recommended Posts

We have a plan that doesn't forfeit until you have been fully paid or have 5 BIS. It has no deemed distribution language.

There are a group of people who have a DOT are 0% vested and have an ending balance.

Are these people in the beg count?

It is the difference between needing an audit and not needing an audit.

Link to comment
Share on other sites

^which can be deemed to happen when they terminate unless they are entitled to an allocation of this year's contributions,

but that doesn't delete them from the count of participants for the year, as far as I can tell.

Link to comment
Share on other sites

but what category do you list them under?

they aren't

1. active

2. retired/separated receiving benefits (though the instruction don't say it these would be annuity or min distrib folks)

3. other retired or separated ENTITLED to future benefits (i.e. any individual who separated and who are entitled to begin receiving benefits under the plan in the future)

4. deceased

since they currently fit none of the categories just where are you including them?

item 3 because they MIGHT(e.g. if the plan terminated and they vest them at 100%?) nothing in the instructions say MIGHT be entitled to future benefits

if that was true, then if your document allowed for immediate forfeiture of 0% vested people, you would have to count those people because they might come back and have their forfeitures restored, or someone who was partially paid out might return and pay back their distribution and have their forfeitures restored,

as a side note, and it doesn't necessarily mean it how you are supposed to handle it, but I believe Relius treats 0% vested terminees (who have a balance) as not included in the count

Link to comment
Share on other sites

Which proves all documents are NOT created equal. Time to go back to the one who drafted the document for an explanation of both why deemed distribution is not in the document, and how to count these people on the 5500.

Oh, and get it in writing so you can either:

1. defend having to get an audit, or

2. defend against an IRS or DoL inquiry on an incorrect 5500 participant count.

Link to comment
Share on other sites

but what category do you list them under?

they aren't

1. active

2. retired/separated receiving benefits (though the instruction don't say it these would be annuity or min distrib folks)

3. other retired or separated ENTITLED to future benefits (i.e. any individual who separated and who are entitled to begin receiving benefits under the plan in the future)

4. deceased

since they currently fit none of the categories just where are you including them?

item 3 because they MIGHT(e.g. if the plan terminated and they vest them at 100%?) nothing in the instructions say MIGHT be entitled to future benefits

if that was true, then if your document allowed for immediate forfeiture of 0% vested people, you would have to count those people because they might come back and have their forfeitures restored, or someone who was partially paid out might return and pay back their distribution and have their forfeitures restored,

as a side note, and it doesn't necessarily mean it how you are supposed to handle it, but I believe Relius treats 0% vested terminees (who have a balance) as not included in the count

Strangly the answer I am most often getting is they would be listed under Activies as they don't meet any of the other groups:

Here are the instructions for 2013 for Actives:

1. Active participants (i.e., any individuals who are currently

in employment covered by the plan and who are earning or

retaining credited service under the plan). This includes any

individuals who are eligible to elect to have the employer make

payments under a Code section 401(k) qualified cash or

deferred arrangement. Active participants also include any

nonvested individuals who are earning or retaining credited

service under the plan. This does not include (a) nonvested

former employees who have incurred the break in service

period specified in the plan or (b) former employees who have

received a “cash-out” distribution or deemed distribution of

their entire nonforfeitable accrued benefit.

You will note it also includes any nonvested individuals who are retaining credited service. These people don't seem to meet any of the exception in the following (a) and (b).

Link to comment
Share on other sites

Which proves all documents are NOT created equal. Time to go back to the one who drafted the document for an explanation of both why deemed distribution is not in the document, and how to count these people on the 5500.

Oh, and get it in writing so you can either:

1. defend having to get an audit, or

2. defend against an IRS or DoL inquiry on an incorrect 5500 participant count.

Deemed has been added starting in 2014. For many reasons we can't go back to the document writer but I agree not all documents are created equal. There are other flaws in this document related to this whole count thing. For example everyone enters 1/1 so every new entrant is in your count the year they enter the plan. You could have gotten what they wanted by just using full year comp and a 1/1 and 7/1 entry date. Having a 1/1 and 7/1 entry date would have done it as they are only over 120 by a few people.

Although in the end they are a growing firm so they would have hit the audit mark at some point. The prior TPA doesn't appear to have done a good job of warning them about getting close.

So I agree not all plan documents are created equal.

Link to comment
Share on other sites

We have been doing more digging. The ERISA Outline book in section 13A seems to suggest you could interpret the DOL regulations as to mean people who meet the eligibility after 1/1 but are given a retroactive DOE of 1/1 don't count for the 1/1 count purposes.

Does anyone have any experience with this idea?

Anyone have an opinion on ignoring someone who met the eligibility say on 8/14 and was given a retroactive DOE to 1/1 from the beg of year count?

Link to comment
Share on other sites

I agree with Sall (the EOB). Standing on January 1 and looking around at the data on that very day, you can't see the future to know if they will actually enter, thus they are not really participants in the plan yet on January 1. They become participants only AFTER they meet the eligibility requirement. The retroactive nature of their entry date is only operational for plan provision purposes, but not for the beginning of year participant count on Form 5500.

Link to comment
Share on other sites

  • 10 months later...

What about a terminated participant with a zero balance on the plan's recordkeeping system and an accrued contribution (fully vested) for the plan year? The daily recordkeeping balance on 12/31/2014 was $0.00. The 2014 profit sharing was deposited into the trust in January 2015, which is when the terminated participant first had a balance on the daily recordkeeping system. I believe the terminated participant should be included in the 12/31/2014 5500 count because he does have a balance in the plan. Net assets reported in the 5500 include the accrued contribution. The recordkeeper disagrees with me.

Link to comment
Share on other sites

I see no doubt about it, the terminated participant is...a terminated participant and should be counted. Why is the recordkeeper involved in such decisions, do they have administrative responsibilities as well?

Ed Snyder

Link to comment
Share on other sites

It doesn't matter if the person has a cash balance. I don't see how they aren't a participant under the terms of the plan document. They are due a benefit under the plan's terms regardless if the cash is in the trust or not as of 1/1.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...