would really appreciate any insight or advice from this group.

i finally chose to consolidate an old 401k from a previous employer from about 5 years ago.  making this more complex is that i had started contributing ROTH into this 401k in addition to pre-tax, another previous roll-over, and employee match.  i am trying to move it into my current employer's plan, which i have confirmed multiple times will accept ROTH.  i had called both banks at least 10 times each to ensure this process would go smoothly.  i filled out the request for separation distribution form paperwork with someone on the phone who ASSURED me i would receive two checks - one with pre-tax and one with ROTH as that is standard operating procedure and the roll-in institution insisted on two checks.  of course, i only received one check for the full account balance.  i called and asked them to void the check and send two checks - they called me back yesterday to let me know that a supervisor had 'rejected my request'.  the other institution will not accept the check and this institution is refusing to write two checks.  now i have a large check written out to an institution (FBO me) that cannot be accepted.  without getting an attorney involved, do i have any recourse?  this is extremely stressful and again would appreciate any insight or help.  thank you.

Participants who were terminated but receiving RMDs didn't need to be reported on the 8955-SSA because they were receiving at least some portion of their benefits.  With 2020 and the RMD waiver, many RMD-eligible participants did not take their RMD.  So when we're working on the reporting this year, they need to be reported on the 8955-SSA for 2020 because the "payment of the deferred vested retirement benefit cease[d] before ALL of the participant's vested benefit is paid to the participant..." (from the 8955-SSA instructions).

I'm wondering if there was something covering this specific situation out there.  Otherwise, there are going to be a bunch of additional people reported... and we know how well the SSA maintains this list, even when the Code D is properly reported at the time of payout. *cough* not overly well *cough*  I certainly don't want to make the decision for my clients and not report people and run the risk of incurring the $10/person/day penalty, and it's not like it's a particularly large amount of work for the typical-size clients we service, but I just figured I'd check the hive-mind since I didn't see anything addressing it myself.

Yes, I know that if the participant has taken their 2021 RMD by the time of the 8955-SSA filing, that would put them back in "pay" status and make them not need the form... but sometimes, getting that information is harder than just completing the form!

Thanks.

Company has a traditional DB plan (X% x Years of Participation x 3-year Average Annual Comp) and hires "Guy" 9-1-2017. Wages paid for 4 months in 2017 are $195,000. Paid $500,000 in 2018. After 8 months in 2019, Guy terminates. 2019 wages were $300,000. Vesting is 2-20, so Guy is 20% vested.

Comp before entry is not excluded and comp in the year of termination is not excluded. Document says if Guy has less than the 3 years of compensation, the average annual compensation will be the average of "whole and partial years (whole months) of compensation."

I think that means we sum the compensation and divide by Guy's 24 months. That produces a higher average for short service employees, but after limiting each year by 401(a)(17) comp limit, the result here is essentially ($195,000 + $275,000 + $280,000) / 24 = $31,250. Well, $31,250 is an annual compensation of $375,000, which exceeds the 2019 comp limit.

What is Guy's Average Compensation? The plan has has no prior employee with this fact pattern.

1. We limit Guy to the comp limit in the year of termination ($280,000 annual or $23,333.33 monthly average)

2. We prorate the comp limit for each year for periods of employment (4/12 x $270,000 + $275,000 + 8/12 x $280,000) / 24 = $22,986.11 

I read treasury regulation section 1.401(a)(17)-1(b)(3)(iii)(A) and (B), "if compensation for a period less than 12 months is used for a plan year, then the otherwise applicable annual compensation limit is reduced in the same proportion as the reduction in the 12-month period" and "a plan is not treated as using compensation for less than 12 months for a plan year merely because the plan formula provides that the allocation or accrual for each employee is based on compensation for the portion of the plan year during which the employee is a participant in the plan."

Based on that, I think #2 above is incorrect as a "plan year" is defined in the document, not by the participant's service. Would #1 be your choice? If so, someone with over 36 months at the comp limit each year who terminates in 2019 would have a lower average compensation, since the 2017 and 2018 limits drag down the average: $270,000 + $275,000 + $280,000) / 36 = $22,916.66 or $275,000 annual. The plan document lacks the detail I'd like to see to clarify this.

Any comments are welcome.

Lets say a company in Abu Dhabi sponsors a 401(k) plan for all of its employees who work in Abu Dhabi who are US citizens. There is no connection to a US company, purely a Foreign entity. If this plan ran coverage, would it have to include all of its US citizens in coverage or could it include only employees who are actively participating?

I'm not even sure this is a legitimate question if I'm being honest.

New Plan Effective 1/1/2020 to be adopted by due date of business return, as per SECURE Act. For 2020 it will be a cross tested Profit Sharing with individual allocation rates; 2021 will include 401k with Safe Harbor in addition to the Profit Sharing. NRA is 65+5 Participation, The Plan will exclude service prior to its Effective Date for Vesting credit purposes (actual hours credited basis).

Owner wants to waive the eligibility waiting period as of the Plan's effective date (1/1/2020) for any employees actively employed on that date to enable his son to be a Participant (otherwise eligible 1/1/2021).  This will make for three (3) HCEs for 2020.  In doing so, there are four (4) NHCEs who will also be eligible as a result of this provision (note 1 of the 4 would otherwise be eligible as of 7/1/2020).  Concerns are as follows:

1. The owner is 79 years old and will of course be subject to Required Minimum Distributions. Though the entire contribution is receivable for 2020, would the owner be required to receive a 2021 Minimum Distribution based on his "12/31/2020 valance" including the receivables (up to his vested account balance, note NRA is 65+5P to avoid 100% vesting)?
2. The owner is able to maximize his Profit Sharing allocation (allocation rate is 100% of eligible pay) with a 5% Gateway to all NHCE staff.  This same 5% Gateway to all NHCE staff affords the son a PS allocation rate of about 18% and the third HCE (unrelated) a PS allocation rate of 3%. Total PS contribution is well within the deduction limitation, all rate groups and Average Benefits Test pass. Concern here is two (2) of the four (4) NHCEs that come in under the "eligibility waiver" are terminated during the 2020 Plan Year - since the Plan excludes service prior to the Plan Effective Date all Participants are zero vested. Is this a concern, or not since all receiving same 5% allocation rate?  One of the two who terminated is counted in the owner's and his son's Rate Group testing -does this impact the answer?  Both, of course, are in the ABT. Finally, I will add, even if past service is counted (actual hours 2019 and 2018), the referenced two who terminated would still be zero vested due to short service/insufficient hours.

Thank you.

The DOL published FAQs last week. For self funded medical and pharmacy plans, how are you going about preparing the comparative analysis and ensuring compliance? I understand that (at least the PBMs) are not planning on providing this analysis to plan sponsors. Are you looking to law firms, your H&W consultant or elsewhere to make sure the analysis is complete?

https://www.jdsupra.com/legalnews/show-your-work-faqs-on-non-quantitative-2551955/

401k plan currently allows for in-service distribution of rollover accounts only (i.e., plan states that distribution of "Rollover Account" maybe made at any time but no other in-service distributions are allowed other than hardship distributions).  Plan sponsor did not intend to allow in-service distributions of any amounts, including rollovers, and wants to eliminate this going forward.  Any anti-cut back issues?

Can someone please point me to the regulation that limits to the 6% deductibility on the Cash Balance?

Thanks!  I just have someone questioning me, so I wanted to show them the actual regulation

I have a 401k plan with a 3% safe harbor that has two participants that missed having deferrals for the entire 2020 year.  Their payroll department "turned them off" in the year prior because they hit the 402g limit and neglected to restart the deferrals in 2020.   

The issue is that one of the participant's would have had catch up deferrals while the other didn't.  Therefore, using the average deferral percentage to calculate the QNEC seems not appropriate for both.  I did find a newsletter online that indicated that a missed catch up should be "fixed" with a 50% QNEC.  Does anyone have any documentation that addresses this specifically?  It is not addressed in the EPCRS Fit it Guide

I have a small investment group (5 people) looking to start a new 401k plan.  They will want individual brokerage accounts for each participants.  In general, would they receive a 404a5 notice from the brokerage account company?  For example Schwab or Fidelity?  If not, would the prospectus' they receive as well as the contract information that details what their account fees are be enough to satisfy the content requirements of 404a5?

Thank you

Good Morning!

I received question about a loan that was suspended under the CARES Act by a qualified individual.  The loan was reamortized in January 2021 and one year was tacked on to their original final repayment date.  Lets say it was suspended upon initiation of the new loan with a 60 month term and once reamortized it was to be repaid over 72 months.  Participant made three monthly payments since January 2021 and has 69 months left.  He is looking to refinance the loan which is permitted under the plan.  The new replacement loan will be within the 50%/50,000 loan limit and HOLB.  Question - do you think they can refinance the loan (replacement loan with a new loan amount) over the 69 remaining months or are they subject to no more than 60 months on a non-principal residence loan because it is technically a new loan.  I keep going back and forth on it.  I would greatly appreciate any thoughts.

If an employer terminates a phantom stock arrangement before any triggering payout events and no payments are made as a result of the termination, is the employer still subject to the 3-year prohibition on adopting a new plan of a similar type under 1.409A-3(j)(4)(ix)(C)(5)? Thanks!

Hi all,

When should a previously forfeited ESOP balance be restored to an employee’s account?

Should the forfeited balance be restored upon return? After a year of service? Retroactively to the day of return after a year of service? 

I’ve confirmed with the Admin that it’s eligible for restoration. I left at 0% vested and my entire balance was forfeited. I returned a year and a half later, and have put in a full year of service since.

There is nothing specific that I can find in the document. It states, “Forfeitures: Some participants will terminate employment before they are fully vested in all of their Accounts. The portion of those Accounts that is not vested is called a “forfeiture.” Forfeited benefits will be used to pay Plan expenses or added to the Company’s contributions and allocated to eligible participants’ Accounts. If you are rehired by an Employer after your non-vested Account has been forfeited but before you have five consecutive one-year breaks in service, you are eligible to have the amount of the forfeiture restored to your Account. If you received a distribution of the vested portion of your Account, you must pay back to the Plan the amount of your distribution to have the forfeiture restored. Whether you repay the distribution or not, your prior vesting service will be counted for vesting your Account.”

The timing of the restoration makes a rather huge difference in this case, since the appreciation of the balance through 2020 is significant. I returned in February 2020 but my shares were only restored in March 2021. My thinking is since I didn’t receive a distribution at termination, I would have been fully “repayed” upon rehire and immediately eligible for restoration. 

If not specified in the document, is there a standard to follow? Is there somewhere else in the document I should check?

Would appreciate any experience or guidance around the special 15-day 204(h) notice period rather than the usual 45-day notice period when an amendment reducing benefits is adopted in connection with certain qualifying business transactions.  The "in connection with" language seems fairly broad and flexible but I cannot find any guidance on how broadly that is to be interpreted or applied.  For example, is it possible to freeze a plan using the special 15-day rule before a pending deal is signed up?  The deal is proceeding and expected to close soon and will expressly require that the seller freeze and terminate its cash balance plan but if the plan is not frozen using the 15-day rule (and thus in advance of closing) additional benefits will accrue for 2021.  Thanks.

Say an employer has a deferred comp agreement in place that provides a retired employee a fixed amount per year for a defined period. Call it $100,000 per years for the next five years. The employer wants to add an earnings component by basically converting the payments to a $500,000 "account balance" and allowing the retired employee to select investments. The amounts would be paid out in five installments over the next five years (same time and form as the original terms) but instead of being a fixed $100,000 per year, it would be 1/5 of the account balance in the first year, 1/4 in the second year, and so on.

Would this be simply a change of "amount" (and not a change in time or form) such that they could amend during the payment period without violating 409A?

If not, could they add a new earnings component that says on the date of the last fixed payment, the employer will pay the employee an additional amount equal to the (positive) earnings accruing on the total remaining benefit amount as if it were invested in, say, the S&P 500 over that period (and that the employee would forfeit any negative earnings)?

It seems like adding only an earnings component would generally be acceptable, but I'm having a hard time squaring it with the existing nonaccount balance status. Would appreciate any thoughts.

Has anyone looked at the Form 8881 to use for the Start Up Credit? What would you enter into line 6? Line 8 adds 5 and 6 and would seem to double the credit or what am I missing? Thanks

Good morning!  I have a new client that is currently maxing out a SEP, but also has the opportunity to start a Profit Sharing or Cash Balance Plan.  I don't believe the SEP has any bearing on the maximum contribution into the other plans, as the companies are unrelated, but I wanted to make sure someone could max out both a SEP and a Profit Sharing (or receive a contribution in a Cash Balance).

Thanks in advance!

The Internal Revenue Manual directs an Employee Plans examiner not to challenge a plan for failing to meet § 401(a)(9) if the plan’s administrator could not locate the distributee after a diligent search that included IRS-specified steps.  IRM 4.71.1.4(15)(d) https://www.irs.gov/irm/part4/irm_04-071-001

But that direction does not speak to a situation in which an individual-account (defined-contribution) retirement plan paid no involuntary minimum distribution because the plan’s administrator did not know the participant died.

Should the IRS relax strict adherence to § 401(a)(9) if the plan’s administrator shows it followed reasonable procedures to detect participants’ deaths?

What should those procedures be?

How often does it happen that no one has filed a claim within ten or eleven years after a participant’s death?

Several of our plans use the Empower platform and receive plan net credits.    Empower reports this as negative fees.     On the Form 5500-SF is it correct to report this as a negative expense under Administrative service providers?

A participant had a loan default in 2020 and there was a deemed distribution (he was still employed but not repaying the loan).

I understand that the deemed distribution amount needs to be shown on Line 8e on Form 5500 and the Ending Balance should not include that loan amount.

However, would you still include the amount of the deemed distribution on Line 10g ("Did the plan have any participant loans?")?

Thanks!