When considering spinoffs and plan mergers, what would be considered the date of establishment for the plan that is spun off or for plans that merge.  Would it be the establishment date of the original plan?  Would these plans be considered new for purposes of the new auto enrollment requirement?

Hi

Looking at a possible takeover. This is a question on what is used for offset calculations. I have not done of these in 20+ years.

DB is 50% of pay offset by 26.25% of TWB, fractional

DC has 401k+PS+NESH (mandatory 3%)

What is used for offset?

Thank you

How are folks interpreting this section?

I recognize it is optional, but because its effective now, there seems to me a lot of questions about it. 

Let's start with a basic 401(k) plan, that has a basic safe harbor match provision. 

There are two options coming up - 

1. The employer would make a blanket decision to have the safe harbor contributions as Roth. Can this be a yearly election? What if it's just the annual discretionary employer contribution (profit sharing) does it have to be in the plan document that the employer contributions for year 20XX will be designated Roth Contributions? 
2. Each individual participant would elect if they wanted the SH contribution made as Roth or not. 

For item 2- I'm not seeing anything in section 604 where the the participants get to elect one way or the other. Plus plans can already accomplish pretty much the same thing if they allow for in-plan Roth conversions. 

I think #1 is how I am interpreting 604, which will be useful for plans that have an auto-enroll feature where the default enrollment is a Roth deferral, so any match will also be Roth. 

I can see the plan issuing 1099-R at year end for the amounts of the Roth contributions that weren't Roth deferrals. 

What say all of you? 

Here’s the situation (with some facts adjusted slightly to protect my client’s and others’ privacy):

About four weeks after a 78-year-old participant’s death, the plan’s administrator receives a document the sender presents as the participant’s beneficiary designation. It is dated a few days before the participant’s death.

Nothing about the form is witnessed, by a notary or anyone else. But the employer has no record that its former employee ever had a spouse (or any child or other dependent), and the obituary mentions no spouse or former spouse and no child.

The employer/administrator worries that the ostensible beneficiary-designation form might not be the participant’s act.

Here’s the difficulty: Because the participant retired 16 years ago, the employer discarded records that might have showed its former employee’s handwriting. The retiree’s request, a few years ago, for automated minimum-distribution payments was processed through the plan’s website. The recordkeeper too has nothing that shows the participant’s handwriting.

No one now working for the employer knows anything about the retiree beyond what’s in a computer system record from when she retired. (The employer has tens of thousands of employees, and many retirees.)

What information would you want to form a discretionary finding about whether the form submitted as the participant’s beneficiary designation likely is the participant’s act?

What information might suggest to you that the ostensible beneficiary designation is not genuine?

My understanding is that non-ALEs offering an ICHRA are supposed to file 1094-B and 1095-Bs.

Other than the "because it's the law" and "there could be substantial penalties if your failure is discovered" is any real purpose served by such filings?

Thanks

Company B is merging into Company A ( controlled group issue and surviving plan).

Company B's definition of disability - determined by a licensed physician

Company A ( the surviving plan) does not require physician approval. The document states The Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months. The permanence and degree of such impairment must be supported by medical evidence.  

Company A wants to use the Social Security Administration as the determination for disability. Is there a protected benefit issue here? Can the plan change licensed physician to Social Security and not have any protected benefit issue?

Plan sponsor failed to implement a request to reduce employee deferral withholdings.   Is there a basis for issuing a corrective distribution to the participant or must that be corrected through payroll with the excess amounts that were remitted being moved to the forfeiture account?

My understanding is the latter, but hoping for guidance to the contrary.

Thank you.

Can an employer nonelective contribution for 2022 be made in January, 2023 for a calendar year nongovernmental 457(b) plan?  The contribution would be made to the account of a participant who contributed less than the applicable deferral limit in 2022.  

I enrolled and paid for COBRA coverage starting 10/1/2022 from Company A which I was an employee.  I voluntarily terminated Company A in September 2022.  Company B acquired Company A in 2022 in an all stock sale and continues operations offering remaining employees 2023 benefits from Company B.

Despite several written communications to the merged Company proactive seeking revised COBRA coverage elections from Company B health plan(s) before 1/1/2023 (and prior to employee annual enrollment), the merged Company failed to provide notice of continuation options and payment arrangements for annual elections to continue COBRA coverage prior to loss of coverage on 1/1/2023.  

Any suggestions for how to retain legal assistance or rights to address health related costs, damages, and any possible non-compliance liability due to loss of coverage?  The plan administrator is now behaving as if I did not make payment by new period.  No notice of 2023 enrollment information about plan options or payment arrangements were provided before coverage lapsed on 12/31/2022.

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