QDRO was filed post divorce and signed by both parties.  The pension plan belongs to the wife.  Husband received a set amount and the divorce agreement notes that he will remove the monies and either a) roll to an IRA or b) collect cash and pay tax penalties.  Parties and judge signed QDRO on 4/14/2010.  Alternate payee did not remove the monies as far as we can tell.  He died in October of 2016.  The QDRO did not identify beneficiaries.  The husband did not remarry and had no will.  He shares on biological child with the ex-wife and two stepchildren.  What happens to his portion of the pension?

      The IRS provides that, for estate tax purposes, “A terminable interest in property is an interest which will terminate or fail on the lapse of time or on the occurrence or the failure to occur of some contingency. Life estates, terms for years, annuities, patents, and copyrights are therefore terminable interests. However, a bond, note, or similar contractual obligation, the discharge of which would not have the effect of an annuity or a term for years, is not a terminable interest.”  See 26 CFR § 20.2056(b)-1.

     In Belthius v. Belthius, No. B315673, Court of Appeals of California, Second District, Division Two, (January 4, 2023) -
https://scholar.google.com/scholar_case?case=12306033257629875954&hl=en&lr=lang_en&as_sdt=20006&as_vis=1&oi=scholaralrt&hist=bY5nDLcAAAAJ:14880692104701005079:AAGBfm2qi1_JaXLJvydb4f3quYTnTlLkbA&html=&pos=0&folt=kw
. . .. . the wife submitted a draft QDRO to the court seeking to allocate her interest in the husband’s Los Angeles Fire and Police Pension Plan.   The wife’s QDRO provided, inter alia, that: 

        "[I]f [Angela]'s death occurs, [Angela]'s separate property interest established under this Order shall pass under [Angela]'s beneficiary designation on file with the Board or, if none, shall pass under [Angela]'s will or should [Angela] leave no will, shall pass by intestate succession."

The trial court in Belthuis declined to enter the wife’s QDRO and instead entered the husband’s QDRO  omitting the above quoted and highlighted language.  The Court of Appeals held: 

            “Family Code section 2610 was enacted to abolish the terminable interest rule (Regents of University of California v. Benford (2005) 128 Cal.App.4th 867, 874), which had previously "governed disposition of community property interests in retirement benefits upon the death of either of the spouses in dissolution proceedings" (In re Marriage of Powers (1990) 218 Cal.App.3d 626, 634 (Powers)). Under the terminable interest rule, "a nonemployee spouse's interest in pension benefits terminated on that person's death, so that the nonemployee spouse could not bequeath benefits by will. [Citations.]" (In re Marriage of Nice (1991) 230 Cal.App.3d 444, 451 (Nice).)

            "[A]brogation of the terminable interest rule means that a nonemployee spouse's community property interest is now inheritable. [Citation.]" (Nice, supra, 230 Cal.App.3d at p. 452; see also Powers, supra, 218 Cal.App.3d at p. 639 ["if the nonemployee spouse dies before the employee spouse, his or her interest in the employee spouse's pension plan does not revert to the employee spouse by operation of the terminable interest rule but becomes part of the nonemployee spouse's estate"].)” (Emphasis supplied.)

 Query:   Does a Plan Administrator of an ERISA qualified plan have the authority to treat as a terminable interest what State law intended to be non-terminable, or what may be construed as implicitly terminable?  In California there is a specific statute addressing the issue.  In Maryland, my home state, the law authorizes the court to transfer an ownership interest in a pension or retirement plan,thereby evidencing an intention that the recipient Alternate Payee's ownership is not conditional, that is not terminable.  This is an issue that comes up in connection with CSRS and FERS retirement annuity benefits.  See my attached Memo. 

Thanks, 

David 

OWNERSHIP INTEREST 5 CFR 838.237(b)(3).pdf

Good morning!  We have a Cash Balance Plan that has the owner and 2 employees being covered.  The issue is, for 2022 the owner ultimately didn't take a salary due to business being terrible for the year.  Would a contribution still be owed, even though there was no salary drawn?

I believe I know the answer, I just want to be sure.  Thanks in advance!

For a partially vested participant who has terminated employment, but has not taken a distribution, is it permissible for the plan to forfeit the unvested portion of the balance before five breaks in service (subject to any restoration and continuation of vesting on rehire)?

I don't see any rule affirmatively stating that the forfeiture cannot occur. The guidance seems to say that, by implication, a forfeiture can't (shouldn't?) occur before five years because the participant may still advance on the vesting schedule if rehired. 

The pre-approved plan documents I can locate from several vendors all require five breaks in service. IRS Pub. 6389 (review of vesting provisions under 2020 RA list) also states the rule explicitly by saying a forfeiture before five years can only occur by a cash-out distribution. 

Appreciate any insight.

Two doctors own a medical practice.  They want to start a pension plan.   They each have their own corporations.   They have 7 employees of the practice who are eligible for the plan.   They each want to establish a pension plan for their respective corporations without covering any of the employees, and to  establish a separate 401k Profit Sharing plan for the employees.  CPA insists that several TPAs have told him this design is ok.     Can this pass IRS rules.   

Calendar Year Plan

Effective 07/01/2022, the hours requirement for eligibility was changed from 1,000 hours to 800 hours in a 12 consecutive month period.

Employee was credited with more than 800 hours in the 2021 Plan Year, but is under 800 hours for the 2022 Plan Year.

I would think she is not eligible - but software says differently.

So, it's known that if a client makes an election to use the top-paid group for HCE determinations, it needs to use the same election across all plans of the employer for the determination year.

But what happens if separate plans from related employers have conflicting elections?

I would suspect that since not all plans actually include the election, then the election is invalid and everyone over the pay threshold will count as HCEs.

But it'd be nice to have something to point to.  Does anyone have anything reliable for that?

Thanks.

--bri

In Secure 2.0 there is a section on LTPT that references 2 years of 500 hour of serivce and it is set to take effect in 2025.

Does that override the current rules?  Or do we use 3 years of 500 hours UNTIL 2025 then scale back to 2 years?

Plan entry requirements are 6 consecutive months of 83.33 hours per month.  Monthly entry.  Plan is not using 1 year hold out.  Is using Rule of parity.  After initial eligibility computation period, computation period reverts to the plan year.  Plan uses counting of hours method.

Employee(not ever a participant)

DOH - May 2019

Term - Nov 2019

Rehire - May 2021

Term - October 2021

Rehire - April 2022

2019, 2020 and 2021 hours less than 500.  Employee never met the 83.33 hours per month requirement.  But worked over 1000 hours in 2022.  Did work 6 consecutive months of 83.33 hours from April 2022 to December 2022.

When is the employee eligible?  After 2019, does their eligibility computation period revert to the plan year? Do they enter 1-1-23 after having 1000 hours in 2022.  Or do they start new April 2022 and enter November 1, 2022 after meeting the 6 consecutive month/hours requirement?

Hi, I'm looking for some guidance on how to unravel a mess we've created with adding both an FSA and HSA for 2023.

My wife started a new job with her own healthcare coverage and added an FSA with $250 for 2023.  I have a HSA maxed at $3850 and partly paid by my employer.   She didn't realize this would create a problem with having both FSA and HSA in the same year and it's too late now to change the plans. 

I found an older post here from 2009 and wanted to confirm that the advice was still current. The post says to suspend contributions to the HSA and to spend down the FSA asap.  Once the FSA is empty, restart the HSA contributions and I can then contribute up to the annual amount.  I'm also seeing conflicting posts that say FSA coverage applies to the whole year regardless of whether it's spent down so disqualifies HSA contributions for the whole year. 

It also doesn't say if there are penalties or what to do with any money contributed to the HSA.  What happens to this money?  Does it need to be removed from the HSA and/or taxed at the end of the year?  Can I continue with contributions to the HSA and just pay the tax?

I also found a post about the possibility that her FSA may include a clause where "the spouse can elect that the money in the FSA can only be used by family members not covered by the HSA" so checking that out.  

I'm looking for any help on what to do next.  Any suggestions would be appreciated.

We don't get this issue much here in the Northeast. An employer (not agricultural) is apparently hiring some foreign workers under some program (name/number of program as yet unknown, other than it is not H-2A). Wants to exclude them as a class, subject to coverage testing.

Although this is a labor lawyer question, any thoughts as to whether it is generally allowable to exclude, as a class, foreign workers under various work/Visa programs, again, subject to coverage testing?

P.S. - it appears that all of these workers will be from Mexico. It seems to me that an exclusion that has the effect of excluding only employees of one nationality would be a violation of some discrimination regulations.

This is hypothetical:

Owner wants to add a facts & circumstances hardship provision to plan in order to take a large distribution.

As plan administrator, he will be the arbiter of "heavy and immediate" need.

What if the plan gets audited by the IRS and they determine the need really was neither heavy nor immediate?  Like, maybe he used it to purchase a stake in a thoroughbred race horse or a down payment on an office building.

What is the redress?  pay it back?  Disqualification?

Secure Act 2 permits sole proprietors (and LLC taxed as a sole proprietor) to adopt a 401k plan including salary deferral contributions effective retroactive to the first day of the prior tax year up to the due date for filing the sole proprietor's individual tax return for the prior year. Why didn't this section of the act include partnerships? Can a partnership adopt a 401k plan retroactive to the prior year and allow partners to make retroactive salary deferral contributions?

Is there a way in the plan doc to cut off the need to look back to the beginning of the company to determine eligibility. For hours of service can we say you have to complete X hours of service within the last 5 years to be deemed eligible? I know there is the option for specified months - hours of service, but this still does not seem to take away from the fact that we would have to look back to the start of the company to determine if anyone ever met these requirements in case they are hired again.  We are trying to find a way to not have to look back to the beginning of the company in cases where people may be rehired to determine if they completed the eligibility requirements before. 

What advanced notice, if any, is required to be given to plan participants when there is a significant change in health plan benefits due to a stock purchase transaction? 

Here's the situation - Company A is about to be bought by Company B in a stock purchase transaction. Company A currently participates in Parent Company's fairly rich health plan as part of a controlled group. Company A's participation in Parent Company's health plan will cease at the time of the transaction and Company A will sponsor a new MEC plan going forward. 

Parent Company (the Seller) doesn't want to give any notice whatsoever prior to the transaction. Purchaser is concerned about potential liability related to claims not covered by the MEC plan, that would have been covered by the Parent Company's richer plan, if employees are given zero notice. 

Does the 60 day advance notice requirement for changes during a plan year apply? I would think not, as the new MEC plan's plan year will not begin until the day following closing so it's not really a mid-year change. But it seems illogical that no notice is required in this situation. 

Any thoughts appreciated!

The wrong compensation was used in the allocation of the 2020 profit sharing allocation.  The Plan Sponsor left off a bonus for 3 employees when they reported the compensation to the TPA.  We have determined an additional $5,000 + investment earnings must be deposited to the Plan.  For 2021, the earnings percentage was 11%.  For 2022, the earnings percentage was -18%.  

Do you use the negative earnings for 2022?

BACKGROUND:

403(b)(9) non-electing church plan offers an in-plan annuity. 

In the absence of a Form W-4P, the default withholding for annuities initiated prior to 2022 has been "married with 3 allowances".

It is my understanding that the Plan must notify annuitants annually of their right to elect withholding that differs from this default rate. 

QUESTION:

For these pre-2022 initiated annuities, is the Plan able to continue withholding at the old default rate of "married with 3 allowances" indefinitely, for annuitants that never submit Form W-4P in future years?

Section 305 of the SECURE 2.0 Act of 2022 division of the Consolidated Appropriations Act, 2023 undoes some limits on the Internal Revenue Service’s Self-Correction Program.

In a BenefitsLink discussion, Luke Bailey invites considering “whether VCP [the Internal Revenue Service’s Voluntary Correction Program] will be the rare exception going forward, replaced almost entirely by SCP, in light of SECURE 2.0 Sec. 305[.]” https://benefitslink.com/boards/index.php?/topic/70104-brain-cramp-employer-has-two-401k-plans/#comment-327871.

To open a discussion:

Who decides that the plan’s administrator had “established practices and procedures” that allow one to use self-correction?

Who decides that a failure is inadvertent?

Who decides that a failure meets the further conditions for an “eligible inadvertent failure”?

Who decides that a correction fits within what a Revenue Procedure allows?

How does a plan’s sponsor or administrator get comfort that a failure was eligible for self-correction and is sufficiently corrected?

If a client wants a comfort letter, may a practitioner who is neither an attorney-at-law nor a certified public accountant render the letter?

If a third person (for example, an acquirer of shares of, or business assets from, the plan’s sponsor or a participating employer) wants a comfort letter, may a practitioner who is neither an attorney-at-law nor a certified public accountant render the letter?

Dentist is retiring and another dentist in the office is taking over the practice.  New EIN and Employer name.   Can the existing 401k simply have a change in Plan Sponsor/EIN?  What if the retiring dentist has receivable contributions under his practice name/EIN that will not be paid into the plan until after the change?