First of all, I want to thank all of the great resources on this board for answers as we are trying to set up our NQDC plan.    It appears that we are moving toward an account balance type plan with either a limited menu of investments or something that mirrors our 401k plan.  We are either going to use an outside broker to hold the accounts or possibly our 401k plan administrator.

I am looking down the the road at the eventual distributions.  I know that they are supposed to be reported on a W2 to the employee.  I am really trying to understand the mechanics of the distribution if we use the 401k company. 

Do the custodian send the funds to the company and then we send to the former employee?  I have heard some nightmare issues regarding participants getting both 1099s and W2s and then it looks like the income gets double reported.

As I understand it, the proper procedure is that we would report Box 1 wages, nothing in Box 3,5 as the FICA should have already been paid under special timing and the report a Deferred comp amount in Box 11.

Am I basically on the right track?

Very confusing, as you all know, to follow "insert comma after x, add the following text after y, delete the words z and b" etc., etc.

Do you know of a source where all this has been done, and there is final updated text of all the updated provisions?

The HIPAA Notice of Privacy Practices must be tailored to include state laws that are more restrictive than HIPAA (see https://www.hhs.gov/hipaa/for-professionals/faq/464/must-a-covered-entity-with-a-notice-revise-the-notice-every-time-it-changes/index.html). Is there a resource that puts out a good survey of those state laws? Practical Law does not appear to have have anything like that. 

ok - this one is new for me.  31% owner of company, retired in 2017.  After 2017 the ownership is now in the name of a "dynasty trust/owner's name" and that trust has 37.04% ownership in the company.   Owner's daughter (age 54) comes to work for the company in 2023 as CEO.  Is she considered to be highly compensated and/or key due to attribution?   (Her compensation is under the HCE comp limits.)

Thanks in advance for any insights!

Are there any other systems out there other than Pension Pro that TPA's use to track their clients, etc.?

Hello, we have a plan where 3 NHCEs were brought into the plan early.  They met the age and service requirement, but were allowed to defer prior to their entry date.  I have done a corrective amendment in the past by naming the individual being brought in early.  I thought there may be a better way to write the amendment to bring in multiple employees.  Does anyone have a sample amendment I could use or any ideas?  Also, do you specify the Rev. Proc. or Regulation # in your corrective amendments?

        Excerpted from the PlanSponsor newsletter article by Paul Mulholland, with [bracketed comments by DSG].

    Although the SECURE 2.0 of 2022, primarily focused on defined contribution plans, it also contains reforms to defined benefit [pension] plans. 

    Section 342 of SECURE 2.0 - [effective January 1, 2023] - the biggest change to DB plans found in the legislation, changes disclosure rules for DB plans that offer lump sum payments.

    DB plans often offer participants an opportunity to receive a lump sum instead of an annuity, which sponsors sometimes encourage, since when they remove the participant from the plan, they pay less insurance to the Pension Benefit Guaranty Corporation.  [We normally identify these plans as a "cash balance" plan, a hybrid plan that allows for an annuitized payout that you would expect from a defined benefit plan, and an option to make a lump sum withdrawal that you would expect to see in a defined contribution plan. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/cash-balance-pension-plans]

    [Is it better to take a lump sum or an annuity? See -
https://www.aarp.org/retirement/planning-for-retirement/info-2020/monthly-pension-vs-lump-sum-payout/?cmp=RDRCT-2775b32f-20200915]

    Congress was concerned that many participants were making bad financial choices related to these lump sums, so they required new disclosures for DB plans that offer them.

    “For years, the federal government has allowed businesses to get out of their pension obligations by offering cash settlements to their employees, frequently in amounts that are much less than insurance companies would charge to assume those obligations.  Most people took the check, which was often for tens of thousands of dollars, without knowing that their pension rights were worth far more, and the government didn’t require that they be told.  Now, finally, Congress is acting to help those who still have their pensions.”  

    [In other words, the present value of a lump sum payment was far less than the present value of the stream of annuitized  benefits that the Participant would have received over his/her lifetime (assuming that the COLA rate selected is correct, and assuming that the PBGC  discount rate selected is correct, and assuming that the Participant retires at the age selected, and assuming that the Participant's life expectancy is correctly predicted by the mortality tables used, and assuming that the Alternate Payee lives long enough to receive his/her share of the Participant's benefits.]  

    The new rules under Section 342 require the plan to communicate the following to participants at least 90 days before the lump sum becomes available: the value of the lump sum relative to annuities available under the plan; the interest rate and mortality figures used to calculate the lump sum; that buying their own annuity with the lump sum could be more expensive than taking an annuity under the plan; and the tax rules involved in taking a lump sum.

    Many plan participants have already taken lump sums without knowing it may not have been in their best interest. Gotbaum says, “After more than a million horses have left the barn, the federal government says you should put up a sign saying that, ‘By the way horses, you have other options,’ i.e. you’re being screwed.”

    [You will notice that nothing in the Secure 2.0 Act addresses divorce or QDROs. And these are issues that we must consider.  

    1.  Is the Plan a "cash balance" plan that offers a lump sum payment or an annuitized payout? 
    2.  If the Plan is not a "cash balance" plan can it nevertheless offer a choice between a lump sum payment or an annuitized payout?  In short, have all defined benefit plans been turned into "cash balance" plans regardless of the language of the Plan documents? 
    3.  Can a Participant elect to take a portion of the defined benefit plan as a lump sum and the balance as an annuitized payout?  Or must it be one or the other?  
    4.   Can the Alternate Payee who has been awarded a percentage of the marital portion in accordance with the Bangs/Pleasant formula take his/her share: (i) all as a lump sum using the denominator of the coverture fraction as the date of divorce; or, (ii) all as an annuitized payout, and if so, must it be in the form of a life annuity or will other options be available; or, (iii) partly as a lump sum and partly as an annuitized payout? 
    5.  Will the Alternate Payee be bound by the options selected by the Participant? 
    6.  If the Alternate Payee can elect options different from those options selected by the Participant doesn't that change the allocation of benefits from a "shared interest" (per Bangs/Pleasant) to a "separate interest"?
https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/qdro-drafting.pdf
    7.  If the Alternate Payee selects a partial lump sum, is it clear that any survivor annuity benefit will be applicable only to the annuitized payout?]  

    [Thought experiment:  See attached present value calculation.  Let's say our Participant, Bill, has reached age 65, the normal retirement date in his pension plan where he can get full and unreduced benefits.  His HR department advises him that his monthly pension will be $5,000/month for his lifetime, or he can take an immediate lump sum of $700,000 and either roll all or part of it over tax free to an IRA  or all or part of it take a taxable distribution.  Bill consults his local actuary, Marc Pushkin, in Baltimore, and asks for advice.  "What is the present value of my pension, Marc?"  

    Marc pulls up his program, (more sophisticated than the one used by me,) and plugs in $5,000/month as the monthly pension amount, and Bill's current age, 65.  

    He checks the PBGC website - and determines that the current discount rate is 2.8%. and assumes that it will remain the same from the date that Bill goes into pay status until his death.*   https://www.pbgc.gov/prac/interest/ida - (Disregard the fact that the January, 2023, 4044 rate is actually 4.86%.)  *Speculative?

    He checks with the plan and finds out that, on the average,* retired Participants receive a 2% COLA each year and Marc assumes that this will remain the same from the date that Bill goes into pay status until his death. Speculative?  Actuaries believe that if you put your right foot in boiling water and your left foot in ice water, on average you will be comfortable.

    He assumes that Bill will actually retire at age 65* - although these calculations are often made years earlier - and he may retire earlier, or later, or he may die and never collect a dime of his pension. *Speculative?  

    He checks the UP-94 mortality table and determines that Bill will live for 17.9 years after the date of his retirement at his assumed age of 65.  Speculative because Bill has had 3 heart attacks and suffers from atrial fibrillation and ventricular tachycardia not well controlled by medication.  Marc will admit that mortality tables are for generic people and does not take in account things like medical history or genetic factors. 

    Based on these assumptions, Marc computes the present value of Bill's pension to be $964,865.*  In other words, if you put $964,865 into a savings account earning 2.8% interest per annum until Bill's death, and if at age 65 Bill actually retires and starts to take his pension payments of $5000/month, and if he receives a COLA of 2% per annum until his death, and if he lives for another 17.9 years after age 65, his savings account will be ZERO.  If the 2.8% interest discount rate changes, or if the COLA percentage changes, or if Bill expires before 17.9 years have expired, the present value of his pension could be less than $964,865 - as little as ZERO if he dies before receiving that first check.  *In the past, before the enactment of Family Law Article, Section 8-204(b)(2), it was common for the court to make a monetary award to the Alternate Payee of 50% of the present value computed as above.  They still have the statutory authority to do so if the Alternate Payee complies with the notice requirement of that section.

    And did I mention that the above calculations don't take income taxes into account and have a tendency to change from year to year.    
    So Bill has two options:  Take an annuity and hope that over the next 17.9 years all of the assumptions above will fall into place.  Or take a lump sum of $700,000.  What would you advise him to do?  Plus valet in manibus avis unica quam dupla silvis - a bird in the hand is worth two in the forest.  A contented mind is a perpetual feast.  Half a loaf is better than none.  Better an egg today than a hen tomorrow.  "Do you feel lucky"... Dirty Harry

    Let's say Bob and Helen have two major assets, the house with an equity of $500,000, and Helen's pension with a present value computed as above of $625,000.  Helen's attorney suggests that Helen keep her pension and Bob keep the house equity.  What do you tell Bob to do?   Assume a 20% tax rate on Helen's pension so that $625,000 less 20% state and Federal taxes = $500,000.  Suppose the equity in the house was only $425,000?  Food for thought.]  

I am looking for input concerning the impact, if any, that Secure 2.0 will have on the allocation of benefits under defined benefit and defined contribution plans. 

If, for example, the Participant retires during the marriage and elects to annuitize his defined contribution vested balance, and if a divorce occurs at some later date, is the Alternate Payee bound by the Participant's election.  Can the Participant make such an election without the consent of his current spouse?  Can the Participant elect a life only option and deprive the Alternate Payee of any survivor annuity benefits?   Can the Participant elect survivor annuity benefits that will not be available to the Alternate Payee if she predeceases the Participant?   Will a QDRO supersede/revoke/prevent/direct such an election? 

I have seen nothing addressing the original Secure Act or Secure 2.0 as it relates to the allocation of pension and retirement benefits and/or the ability of a QDRO control such allocation of benefits.   

David      
 

DSG Listserv PV Computation.pdf

In the past many retirees have used the old W-4P (or home-grown substitute forms) to elect a flat dollar amount, or flat percentage of withholding on their periodic benefit payments. The new Form W-4P allows them to elect an additional withholding, but does not appear to allow the flat dollar or percentage approach. 

(As an aside, the new W-4P has been very confusing to the retiree population.)

Questions:

1. Can an administrator continue to allow participants to modify the W-4P and elect a flat percentage or dollar amount for withholding? I saw an update from Empower suggesting that the flat percentage or dollar approach was not acceptable even with the older W-4P forms and that if participants don't file a new W-4P then they will be converted to the default of single with no adjustments. 
2. What is the potential penalty if an administrator insists on allowing a flat dollar or percentage withholding?

Thanks in advance.

Plan adopted a Cycle 3 restatement in Dec 2021, effective Jan 1 2022. 

Is the first required discretionary match notice due for the 2022 plan year, or for 2023? 

I assume the LTPT rules will override the 20 hour exclusion (for deferrals), thereby making the 20 hour provision even more difficult to administer than it already is? (As an editorial comment, I despise the 20 hour rule anyway, but that's a separate issue.)

Anyone have any particular observations on this issue?

IRC Sec 125 does not consider self employed individuals ,including 2% Sub-s owners, to be eligible employees for participation in an employer's cafeteria plan.

Is there an ownership threshold for partners which would make certain partners eligible employees? Specifically, nonequity partners or partners that own less than 2% of the partnership?

Newbie here but nonetheless, determined there were a handful of missed profit sharing contributions from our annual profit-sharing calculations for the past two years. 

Do we calculate any missed earnings on these contributions and how is that done? Do we handle the earnings similar to missed salary deferrals through QNECs or is there another formula that would need to be calculated? 

Thank you.

Is there a way to avoid plan asset status for revenue sharing?  Client, a large 401k plan, has a large amount of revenue sharing that will continue to be forfeited. I am aware of DOL Advisory Opinion 2013-03A in relation to plan recordkeeper accounts.  But can client take the money from that account for their own use?  I feel like this was more for providers to have relief when transitioning the money. Any insight is appreciated it.  

Client rolled over accounts due to plan termination.  Rollovers processed 1/9/23 but client is saying that Schwab says they can designate which year the rollover is attributed to, 2022 or 2023.  Would that affect what year we do the 1099R?  My thought is the 1099R will reflect the actual year of distribution.  Agree?

Have a physician that sponsors a defined benefit plan. His wife is also a physician who owns 50% of a separate medical practice. Since we are in a community property state I believe we have a controlled group.

I know we need to test for 401(a)4 and 410(b) as though the two entities were one. I don't see where the defined benefit plan needs to consider all employees of both entities for 401(a)26. Does anyone believe this is correct / not correct?

Thanks.

A husband and wife each own their own business with 50% ownership in the spouse's business.

There is (1) W-2 employee in the wife's business.  However, they are looking to hire in the future.

There are several contractors.

They had a solo 401(k) - but terminated the plan in 2022.

What plan options are available to allow husband and wife to be part of a plan, along with the W-2 employee - they do not want to include contractors.  Note - they do not want the administrative burden/testing requirements of a 401(k) at this time.

Another question - after researching, self-employed individuals appear to be considered sch. c.  However, in order to defer into a solo(k) for Roth deferrals, would they have been treated as W-2?  If so, would this allow them to start up a Simple IRA for themselves and the employee?

Thanks!

Existing U.S. company sponsors a 401(k) plan and is to be acquired by a Canadian corporation, which has an existing U.S. subsidiary with U.S.-based employees and U.S.-based employees of its own.  Upon acquiring the U.S. company that sponsors the plan, the Canadian corporation intends to become the plan sponsor, having its own U.S.-based employees participate, as well as the employees of its existing U.S. subsidiary and the employees of its newly acquired U.S. company.  Any problems with this concept?

The Canadian corporation owns other entities in various countries outside the U.S., but no other U.S.-based organizations.

Considering a tornado’s harms to people and places in Alabama, do we need to know now whether a plan allows a qualified disaster recovery distribution?

For a provision tax law permits but does not require, remedial-amendment periods make it impractical to look to what many people call the plan document as a reliable source to discern whether the plan allows or omits the provision.

To deal with those situations, recordkeepers, third-party administrators, and other service providers use less formal writings to ask a plan’s sponsor which provisions it wants. Some of these might state an implied instruction: absent a written response, the plan’s administrator is deemed to have instructed its service provider to provide its services assuming the plan provision (or omission) the service provider’s request for an instruction specified as a presumed choice.

Some service providers might have hoped much of 2023 would elapse before it became necessary to ask for instructions about optional provisions under the SECURE 2.0 Act of 2022.

But if a service provider knows or suspects a plan’s participants could include some with one’s principal place of abode in Alabama’s Autauga and Dallas counties, should we ask the plan’s sponsor whether the plan allows a qualified disaster recovery distribution?

A plan may, following Internal Revenue Code of 1986 § 72(t)(2)(M) and 72(t)(11), provide such an early-out distribution.

The incident period began January 12.

https://www.whitehouse.gov/briefing-room/statements-releases/2023/01/15/president-joseph-r-biden-jr-approves-alabama-disaster-declaration-3/

https://www.fema.gov/disaster/4684

Hi

Looking over a possible takeover DB plan. It is 2 years old.

It is for a law firm. 2 partners are in their late 40s and early 50s

The NRA is written as (I have not seen this before):

Later of age 55 and 5 YOP and 17 YOS. Maximum NRA is 65 and 5th anniversary of plan participation.

As this is not one of those special category of employers (like football players etc), how kosher is the way the definition is written?

If kosher, how would you calculate the funding requirements?

I would never use less than 62 but might be missing some allowance here.

Thank you

Hello, I'm a Datair user, former Accudraft user, seriously considering ftwilliam for admin, forms as well as docs.  Familiar with forms and docs.

How easy to use, has all one needs to do DC an DB valuations and testing?

Pros and cons (if any)?

Concerned with privacy, you can email me at steve@thepensionmaven.com