I have a client who owns 40% of 3 car dealerships, the other 60% is owned by his father-in-law (30%) and uncle-in-law (30%). He then owns 100% of 4 other dealerships. He has two 401(k) plans that we administer, one plan covers the entities he owns 40% and the other plan covers the entities he owns 100%. With respect to this situation I have the following questions:

1. I have done controlled group analysis and have determined that the 3 dealerships he owns 40% are not part of the same controlled group as the entities he owns 100%; does this appear to be right? Am I missing anything? I don't think affiliated service groups applies since a car dealership isn't a service entity and I don't think a management group applies because he gets paid a W2 from each dealership, he doesn't have the dealerships pay a management company that he owns (also, I am not sure if it is a requirement for the business to be a service company to be part of a management group). 

2. We have been allocating a profit sharing contribution for each plan and since I think both plans are unrelated he has a separate 415 limit in each one. One plan he does his max deferral and gets a match and maxes out to the 415 limit via profit sharing and then the other we just allocate a profit sharing contribution and max out to the 415 limit. However, he just turned 50 in 2022 so he is eligible for catch-up. My question is, if we had him fund the normal 402(g) limit (22,500 for 2023) to one plan without catch-up and then fund the catch-up (7,500) to the other plan, could he fund $73,500 to each plan? It seems wrong because he is basically using the catch-up limit twice (each plan would be using 7,500 of catch-up) but he isn't going over the 402(g) limit (he would only be funding 30,000 total in deferrals between both plans). 

Hopefully my questions make sense, let me know if I need to clarify anything. 

Thanks, 

I have a client who has not been able to process his payment since Friday, and has a tried a few times.  Anyone know if the site is down?  He finishes entering all of his info on the DOL side, he goes to the IRS pay.gov site and enters all of his credit card information and then it tells him there was an error processing.

I feel like I am the kid going to the first day of school in looking at setting up this non qualified plan.  But I am also quite aware of the many pitfalls and trying hard not to step in them and cause problems down the road.

We are looking at setting up plan that has a discretionary employer contribution and also allows the employee to defer a portion of their pay. 

I am confused a bit by the IRS W2 directions because they do not seem to indicate any reporting in Box 12 Y for employee deferrals.  

From the NQDC Reporting Example chart in the IRS Publication

"Example 1—Deferral, immediately vested (no risk of forfeiture). Regular wages: $200 Defer, vested: $20 Employer match, vested: $10 Box 1 = $180 ($200 – $20) Boxes 3 and 5 = $210 ($200 + $10) Box 11 = $0"

There is no mention of Box 12 Y, yet the directions for Box 12 Y clearly indicate  "Deferrals under a section 409A nonqualified deferred compensation plan"

Hi

Participant turned 72 in 2022.

The AB 1/1/2022 is $1,000 and 12/31/2022 is $2,000

Must start RMD 4/1/2023.

Does not want to take it monthly, wants a lump sum withdrawal.

As 9 months in 2023, is it correct to provide $18,000 on 4/1/2023 (9 * $2,000)? If taken later, would you adjust each monthly payment from 4/1/2023 to date of withdrawal by 5% (plan pre/post %).

If wants to take in February 2023, would you adjust the distribution to 11*$2,000 i.e. $22,000

Any other corrections to my math/thoughts, I know I am not thinking correctly here ?

Thank you

Under SECURE 2.0 section 317, a Sole-Prop can RETROACTIVELY elect to defer for a new startup 401k for PYs beginning after 12/29/22. Normally I would think that means “for 2023 PYs”, but could the following work:

1. Initial SHORT PY = 12/30/22 – 12/31/22
2. Limitation Year = calendar year ending within PY
3. Compensation Computation Period = calendar year ending within PY
4. Therefore elect to defer full 20.5K/27K for 2022 PY fully deductible for 2022 Tax return.
5. (+ PS alloc up to 415 limit, which is NOT prorated since Limitation Year is full 12 months, as well as Comp year; this part was already available for retroactively adopted plans I believe)

I’m a pension actuary obviously trying to think outside the box and there may be other boundaries that can’t be crossed that I am not thinking of. 401ks are not my forte.

Hypothetical situation:  Trustee terminates plan and takes all money, including monies due to employees.  Takes this money and transfers into a personal IRA for this trustee.  Believes he/she can get away with it since no reporting of benefits was ever done to participants.  What is the TPA or actuary's obligation in this situation?

Help! 

Post SECURE Act/IRS Proposed Regs re: successor beneficiaries is making my head spin - 

Scenario

• Traditional IRA owner, dies pre-SECURE Act & before their RBD
• Original designated beneficiary was "stretching" payouts & died in 2022

Questions

Its my understanding the successor beneficiary is subject to the 10 year payout (which in this case - year 1 is 2023)

I am struggling to get an answer re: whether RMDs are required in the 10 years and if so - whose life expectancy is used?  Pre-Secure the successor bene "Stepped into the shoes" of the original beneficiary and continued the "stretch" using the remaining life expectancy of the original beneficiary - easy enough

The IRS proposed regs (at least my interpretation) say the RMDs (during the 10 years) are dependent on when the account owner died - before/after their RBD - 

Does this mean (in this situation) the Successor Bene does not take RMDs?   In other RMDs stop.  Which doesn't seem to make sense?  Or doe the successor beneficiary continue taking RMDs based on the original (designated) beneficiaries life expectancy for years 1-9 & drain the inherited account in year 10

Thank you in advance

A participant in an ERISA 403b plan passes away.  She named her spouse as beneficiary and son as contingent beneficiary.  Years before her passing, she divorced then remarried, but never changed the beneficiary form.  

Is the beneficiary form with the ex-spouse still applicable under ERISA?

This is taking place in New York, which has a divorce revocation statute, which would seem to no longer permit the ex-spouse to be a beneficiary.  But would NY state law take precedent over ERISA if ERISA would call for the ex-spouse to be the beneficiary, since the form was never changed?  And if the ex-spouse is not the beneficiary, would the contigent beneficiary (the son) now be the beneficiary would the current spouse be the beneficiary?

I am not sure if a QDRO was ever produced after the divorce.

We are having an attorney look into this but I was hoping for any comments on this as we go along.

Thank you

Profit Sharing plan took the balance of an unlocatable participant and transferred it to a Default IRA. Question is does the plan have to prepare a 2022 Form 1099-R for this participant, knowing that the form will never been received by the person? Thanks for any replies.

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?