For 2020, a Participant elected $1,625.00 401k plus 541.66 catch-up withheld per pay.

December 29, 2020, Participant completed another election form electing $19,500 annual 401k plus $6,500 annual catch-up withheld (proportionately from each pay).  The employer provides 24 payrolls per year, therefore the 2021 per pay withholding should change to $812.50 + $270.83 respectively.  Unfortunately, it was not changed and for both of January 2021's payrolls the previous election stood.

Both of January 2021's 401k deferrals have been remitted over to the plan (same day as pay dates) making this not only a payroll issue but a plan correction issue.

How best is this corrected?  Should the employee be provided a special paycheck equal to the over contributions with taxes withheld (recognizing FICA will be overpaid)? And then to correct the Plan, should the contributions to the Participant's account be removed and placed in a forfeiture account? 

The employer realized the error and spoke with the Participant who is okay with what happened, does not want a correction, and simply wants to skip 401k deferrals for the month of Feb and restart again in March (plan does permit this frequency for changes) - is this acceptable?

Thank you.

Hi.  I am getting confused on what year's compensation to use in determining HCEs and NHCEs.

We are doing the testing for the 2020 Plan Year.  We use the Prior Year method.

To determine 2020 HCEs, do we look to see who made over $125k in 2019?  And ignore 2020 comp altogether?

This problem has probably been answered.  Today I learned that a plan participant terminated during the year and the financial advisor rolled out the balance to an IRA.  Little did they realize that the participant is due a SH contribution in addition to a NEC employer contribution.  Do they need to re-establish an investment account and roll the funds over or can the contributions be directly paid to the rollover IRA?

Just a heads up.  Within the last two hours I received emails from two different TPA firms with a  link to a Share file document.  I do not deal with either of the TPA firms so not sure of the source of the emails: Bush Retirement Plan Services and BDS Consulting Group

Has anyone else received odd emails.

I have a one person plan (401k/PS) terminating  20201231 with life insurance.  He has assets at 2 other investment houses.  He cashed in his life insurance policy ($42,000) and now wants to roll it into the IRA along with the assets from the other investment houses.  I don't think you can do that, correct? What are his options now as far as the life insurance cash? He doesn't want a tax liability. Fidelity (one of his investment houses)  told him to send them a check and mark it 60 day rollover along with a 1099R ... 

I have an interesting situation that I don't know how to fix so I'm hoping someone out here has come across something.  A new 401(k) plan was adopted 1/1/2020 - not safe harbor with discretionary match and profit sharing.  Volume submitter plan document allows for irrevocable waivers and the plan sponsor wanted it because many employees wanted no part of the plan due to religious beliefs.  We received the irrevocable waivers in December of 2019.  We have now received the 2020 census data - every NHCE signed an irrevocable waiver and the only eligible plan participants are the owners.  There were 7 NHCE who exceeded the statutory eligibility requirements so they are showing up as eligible, not benefiting, for 410(b).

These employees want no contributions from the employer for religious beliefs which is why they signed irrevocable waivers in the first place.  Any ideas out there about how this should be handled?

I have a participant that recently went through a divorce and the QDRO was processed, paying the former spouse.

The participant passed away last week.   He was provided but never returned his new beneficiary form.  The form on file is the old one listing the now former 'spouse'.

Does the divorce and QDRO deem the designation form null and void?

I appreciate any input.

Thanks!

I have a question about 401(k) contribution limit when a someone participates in 2 plans. I understand that you can contribute up to the limit for both plans assuming the companies are no related (there is no affiliate relationship). Does that simply mean that the 2 companies are not in a control group/affiliated service group relationship?

Here's the situation:

A participant own 100% business of Company A and 25% of Company B. Company A and B are not part of Control Group/Affiliated Service Group. Can he max out contributions with both plans (of course, assuming that he does not go over the 402(g) limit).

Thanks!

Hi,

The payroll system for this client capped the compensation at the annual of $285,000 for 2020. Instead of contributions stopping because the compensation limit was met, the contributions are still be deducted but as after-tax. Wouldn't the client had to have something in the document allowing for after-tax contributions in order for this to happen?

Thankls!

We have recently been brought in to consult on a 401k plan.  Client is ABC Company for our purposes.  ABC Company bought a number of businesses that were in foreclosure.  Lets call them Company XYZ.  the employees of XYZ started for ABC on 1/4/2021.   The current recordkeeper redrafted the documents effective for 1/1/2021 to recognize service for Company XYZ.  The document now states that ABC Company 401(k) plan recognizes Company XYZ for eligibility and vesting.  The client is now saying this was a mistake and they didn't want that those exemptions in the document.  No communications have been made to the employees of Company XYZ even though those employees would of been eligible on 1/4/2021.  Please note that no deferrals started for those employees and the plan has a 90 day wait and 1st of the month Eligiblity.  Can ABC Company have the recordkeeper redraft the documents and remove this since no communication was given to the employees?  

See this thread for more information.

Hi, 

One of my client is terminating the ESOP plan, this is the first time I'm assisting a ESOP plan termination.  Could you help me understand how different is a ESOP Plan termination from a 401(k) Plan Termination. 

• Terminating due to acquisition Part will be moving to the acquiring company plan - Can participants move the funds in- kind to the acquiring company 401(K) ?
• The plan does not have any Stock assets - Does the sponsor have 6months to distribute assets or is there a 6month rule ?
• If the participants do not take action can these be liquidated and rolled over to an IRA like we would normally do in a 401(k) plan. ?

I’m 60 years old. I have a 403b that is currently invested in a 6 year shield annuity. I’m in year three of the shield.I retired from teaching here in Milwaukee and now have a private sector side job that I’ve opened a tax deferred 401k with.  I also have my own personal Roth account. How do I move my investment in the shield annuity to my Roth account so that I can pay the taxes due out of my own cash savings to maximize what I can put into my Roth account. Do I need to surrender the shield annuity? 

Question on late retirement increases. Assume everything above board re: more recent DOL guidance (late retirement increase required for TVs, and for actives where plan either:

1) doesn't have suspension of benefits language

2) has the language but notice not provided

In this case, the plan has SOB language (touching only on the rehire circumstance and suspending benefits then but treating the benefits for actuarial adjustment purposes as if they've stayed in payment) and client has been providing notices to participants past NRD, but only restarted doing so in recent years. 

The case circulated through a few different actuaries, administrators after splitting from another plan eons ago. Other plan stayed with same counsel the entire time and language is clear (This is for background, not implying that another plan's language has bearing on this plan) - benefits suspended at normal retirement date if participant continues to work and benefits at a later date will be those earned at actual retirement, including service and pay). 

However, the subject plan has been "boilerplated" and sloppily so by previous actuary/administrator (I can't imagine legal counsel put the doc together). SPD and document only discuss rehire for SOB, and plan document says late retirement (again, boilerplate language) will be NRD benefit plus greater of new benefits earned or "Late Adjustment" required under the plan. 

capitalized, no verbiage elsewhere and assuming that's also boilerplate as it wasn't in the original doc before split. No definition of Late Adjustment method that's capitalized - assuming either the description was taken out elsewhere since no definition or detail refers to this anywhere else. 

SPD in this case is short, also boilerplate in nature (looks like bits and pieces thrown together). SOB language is old school "if you return to work, your benefit will be suspended", and no mention of what participant will get except for early and normal retirement. 

Please pick apart my conclusion (waiting for green light to get opinion from legal counsel). More important in this plan than some others (in terms of the decision) due to the proportion of over 65 participants.  

* SOB language only talks about rehires, but in general, that still counts in determining if plan allows SOB at normal retirement and no actuarial increase

* since the mother plan more clearly describes no late increase until 401a9 required, I'd like to see far more in terms of intentional adding of a late retirement adjustment (including an actual adjustment description or method that appears to be missing)

* with a combination of the two, applying actuarial increase through the date that SOB notices were restarted, and then for older participants who work well past 70, starting again at what would have been RBD (4/1 after CY that 70 1/2 is attained). 

I know, dumbest question ever, right?

But is it:

1. E[mploye]R & E[mploye]E

or

2. [employ]ER & [employ]EE

For 20 years, I had always thought of it as one of the above, but someone else's usage just made realize that the other potential source exists.

Hi there- new here.

Employer  contributes to NHEC employee % of salary, based on years of service. After internal audit, employer discovered they had miscalculated years of service  (over and contributed at this higer rate based on this mistake... going back 10 years. 

 Is the only appropriate correction to adjust years of service back to the initial error, and remove difference in contribution plus interest and earnings  for the full 10 years from empoyee RSP account? This would represent a significant percentage of the employee's RSP balance. Are there any alternative approaches to correct? 

Thanks!

What liability does a plan sponsor have for accepting an invalid beneficiary designation form?

401(k) participant submitted a beneficiary form in 2018 naming wife and 3 children as equal beneficiaries (25% each). Participant signed his own name on the line for the spouse's signature for the spousal waiver. It is possible he had POA for the wife at that time, but that is not noted on the form and the plan administrator has no record of a POA. There was no witness signature. Form was accepted by plan sponsor. Participant died in January.

My opinion is this was not a valid spousal waiver and therefore the spouse is his beneficiary. One of the children is threatening a breach of fiduciary duty claim against plan sponsor for "recognizing the propriety" of the beneficiary designation form and leading participant to believe it had been properly submitted and was accepted.

Does plan sponsor have any liability here? 

Given the DOL/IRS May 2020 guidance (85 FR 26351) extending the time under ERISA/IRC a participant can file an appeal under a retirement plan during the COVID-19 emergency, by what date does a participant have to file an appeal?  Just say 60 days after announced end of COVID-19 emergency? 

I have someone who terminated in 2020 and took a distribution.  I need to add her distribution amount back to the plan balance for Top Heavy.

Do I have to also add back any of her in-service withdraws the previous 4 years?

I know the IRS has said that we could use either "1" or "2" for Box 7.  Just curious what the majority of people have been doing?  Also, I assume we mark the entire distribution as taxable?

Thanks!