The court awarded my client a percentage share of her ex-husband's 401(k) account.  It turns out that abut 90% of his 401(k) are in a Roth funds.  

She plans to take a taxable distribution since she needs the money now.  If the distribution was coming from a traditional pre-tax 401(k) it would be income taxable to her and the Plan would withhold 20% for Federal taxes, and there would be no 10% premature withdrawal penalty under IRC 72(t)(2)(C).  

Since it's a Roth account, will she have to pay income taxes on a direct distribution, or will it be tax free? 

72(t)(C) provides that an exception to the imposition of the 10% penalty under 72(t)(1) includes:

"(C)Payments to alternate payees pursuant to qualified domestic relations orders: Any distribution to an alternate payee pursuant to a qualified domestic relations order (within the meaning of section 414(p)(1))."

So one would surmise that the 10% penalty will not apply to the Roth distribution.  

I guess she could take a loan or make a hardship withdrawals if she is disabled, or she can just wait until age 59-1/2. 

What do you think?  Any creative ideas? 

David

Does anyone know whether this guidance is still reliable?  I thought there was a sunset on this, but looks like it may still be applicable.  Specifically, I am wondering if a governmental employee may take an in-service distribution before age 59 1/2 since the plan allows for earlier retirement age (age 53). (See Q&A #2). TIA

https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers#:~:text=Q2%3A May a qualified pension,the plan's normal retirement age  

Hi. We have a Cash Balance Plan. A participant has asked about in-service distribution (rollover). Specifically, he is asking if he makes a contribution in 2023, and reaches age 59 1/2 in 2024, can he rollover the funds into a traditional IRA as an in-service distribution and continue to participate in the plan. 

My understanding is that this is not permissible. This seems like it would directly go against the concept of a cash balance plan and almost treat it like a 401k. But my understanding of cash balance plans is definitely lacking. The participant says he has been told by others that this is allowed. Can anyone help?

Hi

The way I have been doing every year, I prepare the AFN and also provide a mini-SAR (software does it this way).

Taking over a plan where the other TPA insists that AFN is sufficient i.e. no SAR is required and they have never provided to the plan sponsor.

Am I missing something here?

Original 1099R completed and filed and then corrected one filed, only issue is that corrected box didn't get marked.  Any idea how to fix this?  Now both are showing as income for him.  This was a complicated in kind rollover and the original amount rolled over was overstated.

Just a curiosity question from a budding actuary

In ASOP 27 under "3.9.2 COST-OF-LIVING ADJUSTMENTS" it states that an actuary, for qualified pension plan funding valuations, "may be precluded by applicable laws or regulations from anticipating future plan amendments or future cost-of-living adjustments in IRC limits."

This is consistent with what I have always seen done for valuations I work on, which include two plans that provide automatic COLA increases to benefits and have plenty of participants with benefits limited by section 415. When calculating the Funding Target we project the COLA increases in the expected benefit streams for current retirees, actives, and TVs, but constrained to the current plan year limits. 

I am just curious what "laws or regulations" the ASOP is referring to that prevents us from projecting the limits for funding purposses? 

In the Gray Book's response to question 1995-11, which asked if future changes in Section 415 limits and compensation limits due to indexing should be treated as plan amendments. The IRS response was "The current position is that all changes in actuarial liabilities due to the section 401(a)(17) and 415 limits are to be treated as plan amendments, even the increases that automatically occur under a plan’s terms."

Is this somehow maybe tied to the answer? I primarily work on single employer plans, which are required to use an accrued benefit cost method. So I thought maybe this tied to the definition of an accrued benefit. But I think ASOP 27 covers multi plans too right? And they are not restricted to a specific cost method? So is there perhaps a definition or discussion somewhere around the provisions for calculating liabilities for funding purposes under the applicable parts of the code (430/431?)?

I appreciate any insight anyone can offer. I have already spent a long, but fruitful amount of time going down regulation rabbit holes this last week. While I very much enjoy my time descending into them I could use a little help with this one. Thanks!

background

Controlled Group -

Company A - Non Safe Harbor

Company B - Safe Harbor

Plans do not pass coverage on their own.  Can't aggregate since one is Safe Harbor. Understand need to get coverage corrected before moving the ADP/ACP Testing.

When the ADP/ACP Test is done, doesn't company B need to be included in the ADP/ACP Test? The ACP test would be the match they received under the SH while the match for Company A is their discretionary match. Somewhere I recall the Safe Harbor status is "lost" when the plans are combined for testing purposes.

I have a cross-tested profit sharing plan whereby the company is owned by 3 siblings who inherited the stock after their father became deceased.  2 of the owners earn W-2 pay but do not work for the company.  The PS formula requires 1000 hours to receive a contribution.  Since they do not work any hours, can they be legally disqualified from receiving a contribution?  This plan does not include a 401k component and is not safe-harbor.

Hi Everyone,

Here is the situation. Alternate payee Ms. M does not want the fund distributed to her, because it will affect her Medicaid benefits. She requested that the fund to be returned to her ex-spouse. She will send in the documents to cancel the QDRO. 

Is it possible to?

I would like to find out what are the steps or things that need to be watched out for.   Are there guidelines that we need to follow? This is something that I have never encountered before.

Thanks in advance for everyone's info. 

I was asked a basic question but not working with Davis Bacon contributions I was not sure:  Are Davis Bacon contributions considered employer contributions to a plan and if so, would they count towards the 25% deductible employer contribution limit?  I assume they count towards an employee's 415 limit.

Thank  you

Hi everyone,

Any thoughts on if it is permissible to change the definition of disability in a DC plan, or would the definition of disability be considered a protected benefit subject to the anti-cutback rules?  Does the answer change if the definition of disability is used as a distribution trigger or to provide for immediate vesting?

I am aware that it's not uncommon for DC plans to be amended to change the definition of disability (ex. back in 2018 when the DOL issued the claims procedure regs requiring retirement plans to require adding disability claims procedures if the disability definition included some discretion) but have not been able to iron out whether this type of change is subject to the cutback rules.

Thanks for the community's help!

For any of you TPAs who also do in-house recordkeeping, what software do you use to manage client onboarding? I am currently researching project management systems that include a client portal (for the new client to complete and return forms, for the advisor to upload their investment menu, etc.). Any ideas? Thanks.

Do the plan sponsors who adopt a PEP also need to carry their own ERISA Bond ?

Hi -- I have a client that has failed to implement participant deferrals into a state 457(b) plan that the employer participates in. My understanding is that, since there is limited opportunity to submit corrections to the IRS under Section 4.09 of EPCRS, and Reg 1.457-9 provides that governmental entities have until the first day of the plan year that begins more than 180 days after the IRS notifies them of the failure to correct their plan failures, practitioners interpret that to mean that corrections for 457(b) plans can generally follow those prescribed under EPCRS for qualified plans. So in this case we would corrective contributions for the participant's missed opportunity to make a contribution/invest (e.g., 50% of missed deferral) as under EPCRS. 

Is that understanding correct?

Thanks!

I have the following excerpt from an old write-up. Can't recall the name of the firm that posted it. Maybe "Plan Sponsor" ? Any opinions as to whether this is still accurate?

The final 403(b) regulations do not state conditions under which an entire 403(b) plan would lose its tax-qualified status and thus fail to be a 403(b) plan. However, the final regulations do list  three situations where all of the contracts in a 403(b) plan would not be section 403(b) contracts, as follows: 

a)      If the employer fails to have a written plan which, in form, satisfies 403(b) (plan document requirement); 

b)      If the employer is not an employer eligible to sponsor a 403(b) plan; and
c)      If a plan fails to satisfy the nondiscrimination rules (including the universal availability requirement for elective deferrals).

Well, if they are not section 403(b) contracts, what are they? They become nonqualified annuity contracts under Section 403(c), where the contributions (but interestingly, not the earnings), would become taxable to employees. Note that, though it is not entirely clear, it is presumed that custodial accounts would be treated the same as annuity contracts for this purpose, since 403(b)(7)(A) of the Code treats contributions to a custodial account as amounts contributed to an annuity contract.

Not the most important question - but sometimes plans come across my desk where the plan name seems to be exactly the company name, as confirmed not just on the 5500 but on the plan document.

One I just saw has simply '401k' after the company name without 'plan'.

I guess there's no requirement that the word 'plan' be in a plan name, but it does seem odd to me.

According to a report from the Pension Benefit Guaranty Corporation’s Office of Inspector General, the US overpaid the Central States teamsters pension plan about $127 million because an application for special financial assistance reported 3,479 participants who had died.

“While the [PBGC]’s review process required Central States to provide a list of all Plan participants and proof of a search for deceased participants (death audit), the [PBGC] did not cross-check the information against the Social Security Administration’s (SSA) Full Death Master File (DMF)—the source recommended by the U.S. Government Accountability Office for reducing improper payments to deceased people. (The Full DMF is more accurate than any database private pension plans have access to[,] and is used by the [PBGC] in its other insurance programs to ensure proper payments of pension benefits to plan participants).”

Deceased Participants in the Central States' Special Financial Assistance Calculation.pdf

Had an account call me this morning. They have a client with a partnership inside retirement plan that is subject to UBTI.

In the past, the partnership has generated Net Operating Losses (NOL) so no UBTI was owed so they did not file a 990-T.

This year they are going to have a substantial gain and will owe UBTI taxes.

It looks like they can offset gains by Net Operating Loss carry forwards, Which seem to have different rules pre and post 2018 but can be used to offset some or all of the gain, in perpetuity.

The question is do they have to file past 990-Ts claiming NOL to use these NOLs? And if yes how far can they go back with filings?

If the question is too complicated for a post here on benefits link and you know a CPA who deals with these issues in the California Bay Area, I'd be happy to have my CPA contact that CPA directly as this is a bit out of my area of expertise. I know just enough about UBTI to be dangerous.

If a 403(b) plan excludes EEs who work <20 hours a week, are they excluded from the 410(b) coverage test by default?

How are other TPA firms dealing with increasing their prices, and communicating this to their clients?

We have not raised our rates for almost 10 years, but believe it may be necessary now.

Wondering what other firms are doing in this regard. If you have had to raise your rates, how did you communicate this to your clients? What was the impact, if any?

Can anyone share?

Thank you!