What are the conditions that trigger the requirement to surrender or distribute an individual life insurance policy held on behalf of a participant from a qualified plan after a participant terminates?

How does terminating before or after NRA impact whether a life insurance policy held in a participant’s account needs to be surrendered or distributed?

Our ASC BPD Section 10.08(d) says, “Life insurance policies under the Plan, which are held on behalf of a Participant, must be distributed to the Participant or converted to cash upon the later of the Participant’s Annuity Starting Date (as defined in Section 1.12) or termination of employment.”

And then Section 1.12 says in part, “Annuity Starting Date. The date an Employee commences distribution from the Plan.”  Do partial lumps, installments or RMDs trigger this requirement?

I’m also looking at the ERISA Outline Book which says, “Life insurance can't continue beyond retirement. Rev. Rul. 54-51 includes a requirement that for life insurance to be incidental, the policy must be converted to retirement income or distributed to the participant no later than the normal retirement date under the plan. Rev. Rul. 57-213 clarifies that the life insurance policy may be continued beyond retirement age, if the participant does not elect to retire. The IRS’ Listing of Required Modifications published for prototype plans provides that conversion or distribution of the policy is not required until the “annuity starting date” (i.e., the date distributions commence). Although not addressed by the IRS, it should be reasonable to allow insurance coverage to continue beyond the required beginning date under IRC §401(a)(9), if the participant has not terminated employment.”

Any guidance on this would be appreciated.

Hi

Here is another new one for me (the day is not going well with the firsts). This might be a ridiculous question but never dealt with before.

Looking at a DB plan - one lifer. AFTAP was never done so AB frozen a few years back. The plan never officially frozen - just AFTAP freeze.

Did a quick run and 401a26 fails, both annual and accrued-to-date. The software program is not providing an option for accrued to date at all.

I am thinking an 11-g amendment to provide meaningful benefit. I would not ask this question if the plan was hard-frozen but here the freeze is due to lack of AFTAP.

Can one do an 11-g amendment and increase the AB and overwrite the AFTAP freeze? Any other thoughts/comments?

I hope my question makes sense.

Thanks

A 403(b) plan’s definition of a Year of Service (YOS) is 1,000 hours in Eligibility Computation Period, and it switches to the Plan Year after that.

 The Plan Entry Date is “Immediate”

 So, if during an Employee’s initial year, they don’t get 1,000 hours, it shifts to the Plan Year.

 And, then, if they do get 1,000 hours in that next Plan Year, when is the entry date?  They satisfy the YOS on 12/31 (it’s a calendar year plan).

 So, are they eligible on 12/31?  The plan has participation comp.  Do they have just one day of comp for the Employer contribution?  Or do they get a contribution for the payroll that includes 12/31. That is the next year?

 Or do they simply enter on 1/1?

Hi

This is a first for me. Need to see what others did in this situation and if any permissible correction is available.

Frozen DB plan, one lifer. Do not know if married but to complicate, let's assume married.

Plan was underfunded under 417e so no excess issues and no 415 issues.

In December decides to roll over the assets into an existing SEP IRA without even hinting to me. Rollover happened on 12/15/2022 so termination resolution and distribution forms had to be executed before 12/15/2022 - neither of which is done.

DB account is still open with a few dollars.

What to do to correct all this?

Any expert opinion/comments appreciated (other than run away - seriously thinking about it).

Thanks

I'm trying to confirm if the new new law changes the RBD for a non owner participant in a qualified plan that turned 72 in 2022, and retired in 2023.

Is his RBD 4/1/2024 for a 2023 RMD under the old rules?

Or since he retired in 2023 his RBD 4/1/2025 for for a 2024 RMD?

Thanks

Let's say an employee makes $10,000 a year. He is not catch up eligible and he decides to contribute $9,000 as Roth in the 401(k) plan. He also would like to contribute $6,000 to a Roth IRA.

Since the 401k and Roth IRA contribution limits are separate, I believe this scenario is fine (even though he's contributing more than his total income for the year into the 401(k) and Roth IRA combined).

Do you agree?

Prior to SECURE 2.0 there was the 3-year credit of 50% of plan admin costs up to $5,000 for small employers.  I understand now that credit rate is 100%.  PLUS there is now a new credit of 100% or an employer contribution up to $1000 per employee (phased down after year 2.)

So a small employer starting a new plan gets both credits?  That seems to be what I am reading.  Is it really that good?  

Revenue Procedure 2021-30, Appendix B, Section .05(9) provides a special safe harbor correction method for plans that did not necessarily contain a automatic enrollment/increase feature. An "Employee Elective Deferral Failure" is defined for these purposes in Section .05(10), which includes a failure to implement elective deferrals correctly, "...including elective deferrals pursuant to an affirmative election or..." and then goes on to list the Automatic Contribution feature and the improperly excluded employee situation.

Section 350 appears to confine this special correction to plans with Automatic Contribution/Escalation provisions, or failure to afford an eligible employee the opportunity to make an election by improperly excluding them from the plan.

Try as I might, I can't get to a reading of this that covers this other currently allowable special correction. Section 3 says no QNEC required if the requirements of (2)(B) are satisfied with regard to a reasonable administrative error described in 2(A)(i) or (ii) - and neither (i) nor (ii) appear to cover the special fix for the situation I'm considering. 

Other thoughts/interpretations? Agree/disagree?

A participant has one set of elections for a current balance and a different set of elections for new money.

Has anyone ever seen an auto-rebalance procedure that would put all of the current balance into the investments elected for new money?

In other words, rather than rebalancing the current balance according to the current balance elections, this vendor assumes that "rebalance" means to invest all of the current balance as if it were new money. It simply provides no way for auto-rebalance of a current balance to be according to the current balance elections.

This is something I feel I need to alert clients about, but I'm curious if this vendor's practice is as unusual as it seems to be.

100% owner of plan sponsor owns a second company 100% which is not a participating employer to the plan.   He says there are no employees who would meet the plan's eligibility.  The ADP test fails for 2022 (which includes data only for the covered company.).  He wants to add his compensation from the non-sponsoring company which would help the test.  I believe the answer clearly is no.

(And yes we will get the census for non-sponsoring company to check this out.)

Tom

For qualified plans, the tax withholding certificate for non-periodic payments and eligible rollover contributions is Form W-4R. For non-periodic payments, if no withholding election is made, the default withholding is 10%. For periodic payments made in regular installments over a period of more than one year, to elect withholding Form W-4P must be used. 

For RMD's they are clearly not eligible rollover contributions and are arguably not non-periodic payments but rather are typically regular payments that must be made to the participant for a period of more than a year. Thus, it's my view that if a participant wants tax withholding on an RMD that the Form W-4P rather than Form W-4R must be used. In fact, Form W-4R should have nothing to do with RMD's because if it did, then if no withholding election is made the Form W-4R mandates 10% withholding which should never apply to RMD's Any comments?

If a plan makes a 3% SHNEC contribution, but also make a match of 50% up to 5% is ACP testing required?  Does the SHNEC cover both ADP/ACP?

I've been trying to learn about both topics and now I've run across a situation that incorporates both and would like to get this right.  A husband and wife own 100% of company A, which sponsors a profit sharing plan.  Their adult daughter and her husband own 100% of company B which has absolutely no transactions or involvement with A.  All 4 people are only employed by their own companies.  Would the attribution rules cause employees of B to be covered in A's plan in such a situation?  Would the answer be different if the daughter and son-in-law owned only a small percentage of B?

When a person has any ownership in business that sponsors a plan, it appears to be standard practice when requesting end-of-year info to also ask if their spouse has an ownership interest in any other company in order to determine CG situations (and ASG situations if service organizations are involved).  Is there a need to also ask whether the owner's children (as well as the owner's parents) own a part of any company so a similar determination can be made?  Thank you in advance for your help.  

Good afternoon. First Thank you all for answering my previous questions in 2019. However, I’ve returned since then with a new discovery on the topic. Previously, I questioned if my mother was entitled to my fathers NYCER pension after death without a DRO.  Today, I would like to know If my mother is entitled to my fathers NYCER pension if she WAIVED her ALL her rights on the financial affidavit during there divorce? My mother signed her divorce decree stating,” she DIDNT want anything from my father”! The judge stated,” They both leave with what they own in there current possession! Any advise??

Hi

Joe owns 3 LLC taxed as sole-props. Joe is over age 50. Joe never had any employees.

Let's call them LLX, LLY and LLZ

Joe has a DB (no minimum required contribution for 2022) and 401k/PS plan. Only LLX and LLY are the sponsoring/adopting employs. LLZ never adopted either plan.

2022 net schedule c income figures are given as follows (assume after adjusting for 1/2 se tax):

LLX:  -$20,000

LLY: $22,000

LLZ: $100,000

Because only LLX and LLY are part of the plans, only their income can be used and therefore total income that is available for 2022 is $2,000, am I correct?

Because there is 401k deferral election in place for maximum deferral, $2,000 would be deposited into the 401/PS plan as part of 2022 deferrals.

So, the $100,000 in LLX is all taxable. Ouch.

How about the following?

Start a 3rd plan i.e. a new profit sharing plan and put in $20,000 (I know, 3 plans to deal with) and merge the new plan into the old 401k/PS plan in 2023? This would be option 1 which is my favorite. However....

Let's push it further (based on a previous conversation we all had), start a new 401k/PS plan effective 12/29/2022 with PYE 12/31/2022 and full year limitation year (LLZ has been around since 2020). Now we can put away $20,000 of PS and $25,000 ($2,000 was deferred in the old plan) of 401k for 2022.

What are the flaws you can detect here?

Thanks

I have a plan that in 2021 had 1 eligible NHCE that did not defer, and that person terminated employment in 2021.  In 2022 there are no eligible NHCEs. Even though the ADP Test is based on Prior Year testing with the 2021 NHCE ADP% of 0%, can the test can still be deemed to pass because only HCEs are eligible/participating in 2022?

I have a client who acquired companies with two very old VEBAs.  The VEBAs are trust documents and received favorable IRS determination letters on their Section 501(c)(9) status years ago.  The VEBA trusts have been amended from time to time to appoint successor trustees.  The client plans  to move all retirement and welfare trusts to a new financial institution. The new trustee insists its standard trust document must be used for the VEBAs and will not agree to incorporate or even attach the old VEBA documents that received the IRS ruling. The new trusts are boiler plate and contain no description of the original VEBA members or benefits (e.g., retired union employee; retiree health benefits).  The new generic trusts  state the trust  document plus the employer's welfare plans constitute the entire VEBA. I am concerned that the original IRS letters will no longer govern the VEBA's tax-exempt status if there is no provision of the original trust left and no description of eligible  members or benefits in the new trust documents. Note that the employer maintains a retiree health plan document, but the VEBA funds only certain members' (union) benefits. The new trustee insists obliterating the old document will not affect the VEBA's tax-exempt status.  

I appreciate that a VEBA can be amended and that a new IRS ruling should not be necessary simply to name a new trustee. However, i feel that the original VEBA documents that received the favorable IRS letters should at least be incorporated by reference ( at least to the extent they don't conflict with the new trust provisions). 

Any thoughts? I have considered amending the original VEBA trusts to incorporate the new trust documents (essentially doing through the back door what the new trustee won't allow through the front door). 

Defined Benefit plan.

Actuarial Assumptions for all purposes (not just lump sums) :  mortality rates = applicable mortality table.    interest rates = applicable segment rates.  The stability period is the calendar year.

Normal retirement age = 65 and NRD = 9/1/2015   Participant's actual retirement age = 73 with a commencement date of 3/1/2023

Benefits were frozen before the participant reached age 65.  The plan states that benefits are actuarially increased with interest and mortality from normal retirement date to date of actual retirement.  

Assuming the life annuity at age 65 is $1,000 per month, what is the monthly amount beginning at 3/1/23?

I have seen at least 3 methods - based on the 2015 rates, based on 2023 rates. or based on a different rate for mortality and interest for each year.  As an aside, how would you determine the lump sum at age73?  Do you start with the first five years or year 9?  Of course these rates should match the rates used for any optional form.

Thanks to anyone who is bold enough to answer because I'm so confused at this point. 

1099R was issued with a Code 1 for a 2022 distribution but the Participant is claiming they would qualify for the disability exception to the 10% penalty tax.  My understanding is that even though the Code 1 was used, which specifically is titled "Early distribution, no known exception.", you could claim eligiblity for the waiver of the penalty tax.  i.e., we don't have to issue an amended 1099-R.  Is this correct?  Can anyone point me to anything explaining how this is done? I assume it is straightforward.  This must happen on a fairly regular basis.  

Seems like different practioners in our industry see these differently. When changes were made to EGTRRA making these available, the counsel we used at our firm indicated that you could have MORE THAN 1 Owner on these.  Some others see it differently.  How does everyone see that?

The Term "Solo" is just really a marketing term or gimmick, from my perspective.

For example, if Jack and Dave own 50% each of ABC, there are no other companies that are owned by them, no common-law employees who reach 1,000 hours, then they could have ONE Solo(k) and both participate in it, correct?  To go a step further, if they're spouses work for the company and get a W-2, they could also contribute, correct?

Also, if you have 4 separate owners at 25% each (and not CG or ASG issues), they could all set up ONE Solo(k) and each participate, correct?