Hi

Need to revisit the following as I am now getting contradictory info from CPA. There are no exclusions per plan document.

From W-2

Box 1 $240,000

Box 6 $225,000

On the earnings summary

Gross Pay                      $225,000 - matches box 5

less deferral                  $  20,500

plus s-corp 2%             $  42,000 - medical premium

less catch up               $     6,500

Reported W-2              $240,000v - matches box 1

What to use as salary for pension purposes?

Thank you

Just received this question from a CPA friend.  One of his tax client who was a 5% owner in a small consulting firm (about 5 years back) and then reduced his ownership to 2% later.

He received RMD while he was a 5% owner.  Since then he never received any RMD from the plan (for 5 years).  Recently he received a letter from the TPA that he missed taking his RMD for the past 5 years and they will be processing all of his RMDs and he will owe taxes and penalties (for failure to take RMD) as well as the TPA has told this participant that the plan now has a compliance failure and that needs to be corrected and said that they (the TPA) will bill him about $5,000 for the filing fee + TPAs fee.  What should be the response by the participant.

If an employee chooses to catch-up on their medical FSA contributions upon their return from leave and they do not have enough pays to complete the catch-up contributions prior to year end, can the employer post the remaining contributions due as post-tax contributions and take the remaining amount due in the following calendar year?

I was just advised by my client that, per his broker (that I have done business with for years) he is changing plan investments from American Funds to Vanguard.

Apparently, the only way Vanguard will accept new business is to insist they handle the plan administration through a party they contract out with, Ascensus.

This is an excellent client, pays his bills on time, no problems with the plan.  I'm sure he did not know any of this.

My client just sent over the standard form letter informing me of this.

We all lose a client now and then, but to find out from the client who advised us of this and not the fellow I have been doing business with for years I find highly unethical.

Possibly good for the client, until he discovers what Ascensus charges for the administration of the plan.

Perhaps this is just "sour grapes" on my part and my only recourse would be not to do any more business with the broker.

Hi,

A Happy and Healthy New Year to all. Calendar year DB Plan uses December  as the look back for the 417e rates for lump sum calculations. A participant  requested on Nov 7  2022 his benefit, as he was retiring. Had the benefit been prepared anytime prior to 12 31 22 then the lump sum would have been calculated based on the 417e rates of December 2021. The December 2021 were quite low and thus, the lump sum would have been quite high. Although the sponsor was pushing in late December for the calculations to be completed, however it was not done until now in 2023. Question: The December 2022 rates are much higher and therefore the lump sum, calculated now in 2023, will be much lower. Do we give the participant the lower lump sum, or do we say, that since the participant requested his benefit in November 2022 and the sponsor really was pushing in late December 2022 for the benefits to be completed that the lump sum should be calculated as if it was done in 2022 based on the lower December 2021 417e rates and therefore give a higher lump sum? Thank you for any insights etc on this.

Suppose employer provides a fringe benefit which is taxable. Further suppose that the employer provides a "gross up" on the taxable fringe benefit.

Finally, let's suppose that this particular fringe benefit IS excluded for plan purposes, and that fringe benefit taxable amount is $1,000, and the "gross up" is an additional $250.

Is the "gross up" considered part of the taxable fringe benefit, and thus excluded for plan purposes? Or, is it considered separate, and therefore normal plan wages since not excluded?

Hi. My employer subsidizes the premium payments for employee coverage. They pay the greater of 50% or $300. Is this permissible? I would think that for younger employees, the greater would usually be $300. For older employees, the greater would likely be 50%. Thus, there would be a different employer subsidy depending on age. Is this legal?

Not sure this was done correctly.  Participant terminated, plan funded with annuity and life insurance.  Insurance policy is the only distribution, the policy ownership and beneficiary were changed  to the individual.

Of course, the insurance company does not prepare 1099s.   From the broker: "What we did was, take the cash value as a distribution and rolled it into the participant's annuity contract."

Insurance company told the client this is an unreportable transfer from the life insurance policy to the annuity.

Isn't the cash value taxable??

Some BenefitsLink neighbors have observed that a recordkeeper will incur considerable expenses to tool up for new distributions and other features SECURE 2.0 permits. And some have observed that, even if one knew or estimated that many or most plan sponsors don’t want the newly permitted provisions, the expense to build a capability is almost unavoidable, because there will be some current and prospective service recipients that want a provision (or the opportunity and flexibility to choose it).

Further, new kinds of distributions—such as, an emergency personal expense distribution (not to be confused, or cost-accounted for, with a distribution from an emergency savings account) and an eligible distribution to domestic abuse victim—might involve increased complexity, might generate increases in transactions, and so might increase attributable or allocable costs.

(Without discussing specific amounts or anything else that could be price-fixing, collusion, or anti-competition:)

How should plan fiduciaries and recordkeepers together seek to allocate these expenses?

Compared to a fee for processing a normal distribution after severance from employment (or age 59½) and assuming one’s only reasoning is an attempt to allocate a cost to those who generate the cost:

Should a fee for processing an emergency personal expense distribution be less than, the same as, or more than the fee for processing a normal distribution? Why?

Should a fee for processing a domestic-abuse distribution be less than, the same as, or more than the fee for processing a normal distribution? Why?

Should a fee for processing a hardship distribution be less than, the same as, or more than the fee for processing a normal distribution? Why?

Should a plan’s sponsor—using its non-fiduciary settlor powers to decide a plan’s provisions, including charges—favor or disfavor some kinds of distributions?

Should a sponsor disfavor an emergency personal expense distribution by charging a higher distribution fee?

Should a sponsor disfavor a hardship distribution by charging a higher distribution fee?

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.