Reviewing a plan for takeover. The base document provides for a default beneficiary of:

1. Surviving Spouse;

2. Participant's issue, per stirpes;

3. Participant's surviving parents, in equal shares; or

4. Participant's estate.

Fairly standard stuff. Now, in the Appendix, this default is modified to be:  "the Participant's spouse, children, or parents, then estate."

My question to you legal dudesses and dudes is, other than no per stirpes for the children, what, if any, is the real legal effect of this? How would a Plan Administrator determine, for example, anything other than a 50/50 split for the parents? Etc.? Is there a good reason you can see for this modification of the default? Seems to me it can only cause confusion.

Thanks.

I'm taking over a Plan and working on the Cycle 3 Restatement.  What I find interesting is that there are two different sets of eligibility requirements for 401(k) contributions:

Senior Managers - 21 and 6 months of service

All Other Employees - 21 and 1 year of service

To me this seems discriminatory since it's benefitting the managers (upper level) and allowing them to participate sooner, but I wanted to see what everyone else thought.

Thanks!

Yes, it is that time of year again – the annual tax lament, to the tune of “Yesterday” by the Beatles. Remember, it is only when the final line is truly sung from the heart that one can appreciate the scope of anguish and angst that the artist is attempting to convey…

Yesterday...

Income tax was due, I had to pay...
All the funds I tried to hide away...
I don't believe, I'll eat 'till May.

Suddenly...

I'm not sure that I am fiscally...
Ready for responsibility...
Oh yesterday, came suddenly.

Why, I

Owed so much, I don't know, I couldn't say
May be
Forms were wrong, how I long, for yesterday.

Yesterday...

Seemed like prison time was on its way...
Now I need a place to hide away...
While keeping IRS at bay.

Why, I

Owed so much, I don't know, I couldn't say
May be
Forms were wrong, how I long, for yesterday.

Yesterday...

Taxes due, I filed come what may...
Losing all deductions that's my way...
Of giving IRS my pay.

mm - mm - mm - mm - mm - mm - mm.

Small business owner established a SEP IRA 3 years ago and the business contributed to the SEP IRA for the owner each year.  During that 3-year period, the small business had no other employees but operated with Independent contractors.  On January 1, 2021, the independent contractors were converted to employees and some additional employees were hired.  The SEP Agreement (Form 5305-SEP) provides, in part, that the employer agrees to provide discretionary contributions to IRAs of all employees who are at least 21 years old and "have performed services for the employer" in at least 3 of the past 5 years.  Does the 3-year eligibility clock for the employees start to run as of January 1, 2021 (when they became employees) or does it go back to the time that one or more of the employees started working for the business as an independent contractor?

Does anyone know if the additional Medicare tax on high earners gets factored in when calculating Earned Income for a Self-Employed individual?  Since that tax is entirely on the employee, my guess is that it can be ignored and does not factor into the SE calcs.

I've got a client that is asking whether Medical Loss Ratio (MLR) rebates paid back to employees from a health insurer can be considered retirement plan compensation.

The plan has the following exclusion: All fringe benefits (cash and noncash), reimbursements or other expense allowances, moving expenses, deferred compensation, and welfare benefits are excluded. No other exclusions are chosen. The plan uses 3401(a) as the definition of compensation. 

The client's argument is yes since it is the participant's compensation that is being rebated. This isn't like a flight, hotel, or car rental, but an overpayment that would have otherwise been in their salary. 

What I've seen is that these amounts typically are for a prior year's premium payment and I wonder if it wasn't already considered plan compensation during that year? I know the paycheck reduction is pre-tax for the health plan premium but I believe that it is still considered plan compensation under "Elective deferrals or salary reductions made pursuant to §125, etc" The payroll code is currently no but no documentation exists for why.

Some context: https://www.irs.gov/newsroom/medical-loss-ratio-mlr-faqs Scenario D seems the be the relevant scenario

Anyone gone down this trail already?

I'd also be interested in hearing about best practices for taking the numerous contemporary payroll codes and properly assigning them to plan's compensation under the little guidance that the retirement plan regulators and plan documents provide. The IRS used to post a chart online Definition of Compensation Chart.pdf, until 2013 or so, but even this only has 20 categories.

Thank you in advance.

Our current document provider doesn't have language/options that allows a Plan sponsor to set a minimum that they'll allow an employee to rollover from one year to the next in their FSA, but we'd like to add an appendix/amendment to limit rollovers to $25 and anything under $25 will be forfeited. Do you all know if anything in the Regs that would prohibit that type of language? Thanks all.

We have a situation where a participant erroneously took their first RMD in 2020 because they met the old rule's requirement for RMDs rather than the new one. Is she required to continue taking an RMD annually even thought she isn't 72 yet? For reference: DOB: 4/1/1950, Retired 12/31/2019, Took RMD 2020. 

On the one hand, she isn't aged 72 yet (which is her RMD age), so I would think it's not necessary to continue her RMDs this year. But on the other hand, we haven't had a problem like this before so I figured I would see if others had any input. 

Thanks!

Brain cramp!!! Suppose corporation A sponsors a plan. Newly formed corporation B now purchases the assets of corporation A. Corporation A still exists.  No controlled group/affiliated service group involved.

Can corporation B assume the liabilities of the corporation A plan and become the new plan sponsor, if both corps. are willing? I feel like I'm missing something...

P.S. - I think they can - just concerned I'm missing something.

Thanks.

Does anyone know where in the regs (or if it does) state that contributions need to be funded prior to the filing of the tax return?

(i.e. this year someone filed their tax return in April, but didn't pay their employer contribution until early May since the filing deadline was extended to 5/17).  The accountant is asking me if this scenario is acceptable.

Trying to do final ADP test for a terminating plan.  Short plan year 10/1/2020 to 2/28/2021.

However, I am coming off of a short plan because of plan year end change.  6/1/2020 to 6/30/2020 ***meant 7/1/2020 to 9/30/2020****

By experience, I know of one employee that is HCE because he has been HCE last several years.  There may be one more.

I think I am looking for compensation for the time period of 10/1/2019 to 9/30/2020 to determine if HCE, correct?  And being that the plan year started in 2019, I'm looking for compensation over 125,000, correct?

I have a participant that passed away late last year.  He's been taking his RMD for years.   In 2021 his two children will split the benefit and are rolling their portion of the account into Inherited IRA's.   Do we still have to distribute the RMD based on his life expectancy first?   I am having trouble finding a definitive answer.

The recently e-disclosure rules do not seem to apply to Health & Welfare plans.  So providing SPD's, SAR's rely on the old method?

Anyone remember the song from the '50s "Heartaches"?

"Well, here we go again"

Concerning the PPA restatements, a question was asked about fees, specifically "what is the range TPAs are charging for the documents.

EBRI published their survey on fees charged for the PPA restatments, broken down by prototype, volume submitter and IDP; with highs and lows for each.

I seem to recall the individual who posted the question (and it could have been me), was totally blasted for having the audacity to ask such a question.

Comments like this is a conflict of interest to discuss fees, this is unprofessional, this is against our code of conduct, and something about a servicing agreement.

All we are looking for is a range.  Something like "we have seen" a range of X-Y.

How is that unprofessional, when we are retirement plan professionals asking one another?

How is this counter to the Code of Conduct when we are not only speaking among ourselves and not mentioning a particular client?

Certainly we are not providing documents to our clients out of the goodness of our hearts, not any of us a re charitable institutions; and I'm sure none of us want to charge a fee so high that a client or prospect will walk away.

Just a range - what's the harm?

Like most TPAs we have a combination of record keeping platforms and brokerage account clients.  Distributions for record keeping platform plans are certainly easier.  brokerage accounts and DB plans not so much.

Is anyone willing to share some processing tips?  The force out process is VERY time intensive - identify, send communication with forms, returned to sender, use locator, send again, and then when no response, send funds to IRA or issue check to last known address, and then deal with uncashed checks.

I'd like to get the distribution form and tax notice for all plans into the hands of the client (and online instructions when applicable) so plan sponsor can hand out at last day of employment.  Therefore, the notification has gone out and they can be forced out say in 60 days to be safe.  Still could be lots of follow up.  We do almost all the work here but I'd like to shift as much work to the plan sponsors as possible.  Reason - almost can't charge enough for handling distributions.  We also issue distribution checks, deposit taxes and prepare 1099-Rs for those not on record keeping platforms.

Tom

I see a few prior threads on this, but wanted to see if there have been any changes in opinion.

If a plan sponsor makes a corrective QNEC for missed deferrals before the participant starts deferring for the year, does the QNEC count toward the participant's 402(g) limit? For example, the plan sponsor fails to implement a deferral election from January through June and corrects using the 25% QNEC. Say the deferral would have been $8,000, so the QNEC is $2,000. The participant's correct deferrals start in July. Can the participant still contribute to the full 402(g) limit, or the 402(g) limit minus $2,000?

EPCRS seems clear that the opposite fact pattern (participant has deferred, then error is caught and QNEC made) requires limiting the corrective contribution to the 402(g) limit. But no rules or examples in EPCRS apply to the QNEC first then deferrals.

Would appreciate any thoughts.

We have a client with a lot of employees who elect additional income tax withholding.  The forms provide that employees are to specify the amount of additional withholding per pay period.  However, some employees instead put down a figure that they intend to be their entire year's withholding.  The result is that so little is left in each paycheck that 401(k) deferrals are limited by the absence of any paycheck to defer from.  And surprisingly, this occurs often enough that it's impractical to manually check and fix the issue, and employees sometimes don't notice and correct the error right away.  

Does anyone have any experience with whether it will be treated as a plan qualification error if the client does not withhold and defer the  percentage of compensation elected by the employee because there is not enough money left after taxes from which to deduct the funds? I've heard rumors that this was a JCEB question (never answered) some time back, but have been unable to find it in the online JCEB materials.

I have an owner only CBP that invested plan assets in collectibles (art and watches). They are held in a vault, so as I understand it there is no PT for personal use by a disqualified person, however, I believe the rules for self-directed accounts apply in this case and upon the purchase of the items, a deemed distribution occurred. I'd appreciate thoughts and commentary from others.

Investments in Collectibles in Individually Directed Qualified Plan Accounts _ Internal Revenue Service.pdf

A participating employer in a 401(k) plan is being sold via a stock sale (will no longer be in the controlled group).  Employer contributions in the 401(k) are subject to a vesting schedule. 

Will the employees of the participating employer who participate in the 401(k) plan end up forfeiting non-vested amounts?  There won't be any partial plan termination. 

Thanks in advance! 

I have a prospective client who established a Solo 401k for him and his wife last year.  He did not fund it.  Turns out he has a part-time employee who was eligible.  There is no hours or service requirement.  Document preparer said that is their default when completing documents.  He doesn't mind paying a safe match contribution to the employee, but the issue is that she was not offered the opportunity to defer.  But how do we correct for the missed deferral opportunity when nobody deferred?  

is it possible to correct the original plan document to align with the client's intention?   Retroactive amendment? 

Can we just pretend the plan never happened since it was funded or filed with the IRS?  (just kidding)