Hi

Having a brain freeze for a change. I have not had the following situation for many many moons.

Also having a discussion with an actuary.

DB plan, covering husband and wife, both HCE and both key. Both way past NRA/NRD and in their 70s.

Both are at 100% of pay and fully accrued in prior years. Low average salaries, in the 30k range.

My software tells me that I am failing 401a26 and actuary agrees.

I tried to use accrued-to-date method but the software does not allow me to do so. I was told that for 401a26 to use accrued to date, plan must satisfy 410b.

What am i missing/not seeing here, sorry cannot think straight today.

Thanks

Hi,

A client's advisor convinced her to start a 401k plan. She made 2 contributions to it then decided that she didn't want it. I tried to tell her that it will now have to go through the termination process but she is just demanding that her contributions be returned to her.

Am I wrong in telling that as well as she will get taxed and penalized on her distribution? Or is there another way?

TIA

One owner has 4 separate businesses, all somewhat related, working at the same location, but separate employees.  single or multiple employer plan? I'm thinking Single.

What is a Qualified Disability Benefit under IRC Sec. 411(a)(9)? An example would be appreciated. Is such a benefit considered an "ancillary benefit" that doesn't need to be "protected" under IRC Sec. 411(d)(6) or not an ancillary benefit (e.g., a "retirement-type benefit) that is protected under that IRC Section.

I'm hoping QDRO experts here might have some ideas on how to address this situation. 

FACTS: QDRO was accepted by the DB plan in 1998. In addition to dividing the interest under the plan between husband and ex-wife the QDRO required the husband to select a form of benefit providing a survivor benefit equal to at least 25% of husband's benefit under the plan and name ex-wife as the sole beneficiary of the survivor benefits. QDRO also stated ex-wife was to be treated as the "spouse" for all purposes under the plan. Plan accepted the QDRO as written. Husband retired in mid-2000s, selected a joint and survivor annuity and named ex-wife as beneficiary.

In 2019, pension plan is terminated and benefits transferred to an annuity provider. Participants were given the option of taking a lump sum upon plan termination. Husband was not allowed to take a lump sum due to the QDRO requiring he select a form of benefit with a survivor benefit. He was upset and wanted to "take his ex-wife off the pension". Plan sponsor tells them they can't do anything due to the court order (aka QDRO) and husband would have to go back to court to change it.  So...in December 2020 husband gets a court order modifying the QDRO in which both husband and ex-wife agree to remove ex-wife from the pension entirely (what?), designate a new beneficiary for any survivor benefits, and agree the remaining balance of the pension should be released in full to the husband.  Plan sponsor explains the plan is terminated and these changes cannot be made, even if ordered by a court (except beneficiary maybe). Husband and new wife are extremely upset.

ISSUES:

1.  Was the law was different in 1998? Could a QDRO put restrictions on a participant's future benefits earned after the date of the QDRO (i.e. requiring form of payment with survivor benefits following divorce)? If not, I don't believe the QDRO should have been qualified and accepted by the plan as it was written.  

2. What liability does the plan sponsor have for accepting the DRO originally? What about for not allowing husband to select a lump sum when the plan was being terminated?  

3.  What do we do now that the plan has been terminated and benefits are in pay status with an annuity provider? Any ideas on what the plan sponsor can and/or should do in this situation?

I appreciate any thoughts you may have. 

For 2020, the Owner received $ 150 above the match formula.

We are being told that since it is less than the $250 EPCRS  allows the excess to remain in the account. In other words, the   the Plan Sponsor does not need to forfeiture the  excess amount. 

The question is,  does the $150 remain in the account and then used to offset the 2021 match?  Or does the owner get the benefit of the excess contribution for 2020.

I am trying to wrap my head around the fact the owner is receiving an allocation higher than the NHCEs.   If the excess is used to offset the 2021 contribution  I could understand leaving the money in the account.   Having to remember to track the excess as an advance for 2021 could be a  nightmare.

A government 457(b) plan defines NRA as age 55.  I am trying to figure out if that age is allowed under the facts.  The employer does not sponsor a defined benefit plan, but does sponsor a Money Purchase Plan.  Under the applicable 457(b) regulations, an NRA of 55 is only allowed if age 55 is an age at which MPP participants "have the right to retire and receive, under . . . a money purchase pension plan in which the participant also participates . . . immediate retirement benefits without actuarial or similar reduction because of retirement before some later specified age."  See 1.457-4(c)(3)(v)(A). 

The MPP never has actuarial reductions. The MPP has cliff vesting after 5 years of service. The MPP allows distributions of the non-forfeitable account balance at age 45 after termination of employment.  The MPP allows in-service distributions of the non-forfeitable account at age 62.  The MPP provides for full vesting at age 65, even without 5 years of service (thus age 65 is the earliest age at which every participant is guaranteed not to have a forfeiture).

Under those facts, what is the earliest NRA allowed under the regulation cited above?  There is never an actuarial reduction in the MPP, but there can be forfeiture reductions before age 65.  Is a forfeiture  a "similar reduction" to an actuarial reduction making 65 the earliest allowed NRA?  Or is age 45 the earliest allowed NRA, because forfeiture is not a "similar reduction" to an actuarial reduction, and the participant can get their full non-forfeitable balance at age 45? 

We have a 16 year old minor who is now receiving the remaining stream of pension benefits of her deceased father (the plan participant).  There is a custodian in place to make the payments to.  Just wondering about the minor beneficiary naming their own beneficiary of their benefit in case something happens to her.  Generally, it is my understanding that custodians do not have the authority to do that on behalf of the minor.  Anyone dealt with this before? 

I have been tasked to understand/learn some pension basics.  This site was recommended to me as the authority when it comes to all things pensions. Thank you for your help.

• a one participant plan is one where there are no employees other than the owner (and spouses and partners)
  If there is an employee but they just don't meet the eligibility requirement of 1,000 hours  to enter the plan, is it still a one participant plan?
  And if that is true, then a form 5500-EZ is only required
  And as long as that one employee stays under 1,000 hours the plan will continue to be a one participant plan?
   
• if a one participant plan has an employee who has met the eligibility requirements, regardless of whether they have made a salary deferral, the plan must file a 5500-SF, correct?
  they would be a participant, just no plan balance.
   
• If the employee defers compensation in 2021 (meaning they have a plan balance) and they terminate in 2022, as long as their plan balance is in the plan do they need to file a form 5500-SF?
   
• Is it safe to say that any plan that is required to file a form 5500-SF is entitled to title 1 ERISA protection?

I'm sure I will have additional questions.  I don't want to be the source of misinformation. 

I've re-read ERISA 105, and we're debating if it's necessary to send annual participant statements (from our recordkeeping system) to participants who are fully invested in self-directed brokerage accounts.  What they are not getting from those accounts are (a) vesting by money type and (b) information about their loan balance (where applicable).  At the moment, that's all that they are functionally missing - while it might be nice to know how much of their balance might be in the deferral money source vs. the profit sharing, if it's all vested, it doesn't matter as much.  So we're thinking that if a plan is by design fully vested, then we can skip the statements; we'd still provide statements if the plan has sources subject to vesting, even if all participants are fully vested due to accruing enough years of vesting service.

As for loans... I don't see that as being a requirement anywhere, so we're on the fence about it.

Any comments, ideas, etc.?

And I know that this could or will or may change once we get new rules on lifetime income wording, as I suspect that the brokerage accounts won't put that on their statements (I will be happy to be wrong about this, though) - since many of them aren't even set up as "retirement plan accounts", why would they follow retirement plan rules?

Thanks for your thoughts.

Can a plan be amended say effective 1/1/2022 to exclude employees who previously met eligible and were covered under the plan?  Specifically the employer wants to exclude a defined class of employees, some of which worked 1000 hours in a past year and became eligible in a prior year.  Now the employer wants this group excluded even if they previously met plan entry. I'm thinking this is ok.  Coverage testing of course would have to be passed.  I believe anyone who EVER worked 1000 hours even if many years ago would be in the testing group.  That is unfortunate because they have many employees who worked 1000 hours in one year many years ago but I believe that will cause them to be in the coverate testing group.

Thank you in advance for your comments.

Tom

Initial plan year defined in document to be 3/1/20 to 12/31/20.  Calendar plan year.

Partner's earned income is determined to be 300,000.

Is the pro-rata to be:

300,000 * 10/12 = 250,000

or

285,000 * 10/12 = 237,500

Thank you.

Plan fails coverage and does not have fail safe language.

What happens if the coverage failure is not discovered until November the next year.  It's now too late to do an -11(g) amendment.  How does it get corrected?

Absent a plan document provision requiring elective deferrals to be deposited within x days of the payroll date, the late deposit of deferrals is not an operational failure and therefore does not fall within the guidelines of EPCRS. The late deposit is a presumptive prohibited transaction (loan to the employer) and fiduciary breach.  Corrective action requires payment of an excise tax of 15% of the "amount involved" which is based on the value of the use of the funds or the disgorgement of profits.  

Every auditor and tax preparer that I know has traditionally calculated the missed earnings and resulting excise tax using the DOL calculator, and prepared Form 5330 accordingly, regardless of the actual earnings of the participants' accounts.  However, I am aware that others say you can't use the DOL calculator to determine missed earnings if you don't file an application under the DOL's VFCP. 

What authority is there that the IRS method(s) of calculating missed earnings contained in EPCRS should apply to late deposits?    

Plan A excludes a large class of employees that are required to be included in testing for minimum coverage.  Coverage testing had never been an issue in the past due to there being no HCEs (non-profit entity, so no owners).  Now there is a HCE under compensation rules, and we have a coverage test failure.  Plan Sponsor of Plan A wishes to amend Plan A going forward so that HCE's are excluded from participating in order to pass minimum coverage under Treas. Reg. Section 1.410(b)-2(b)(6).  Does this proposed amendment violate Anti-Cutback provisions?  Any other concerns?

hello!

I have a participant over age 72 that passed away in 2020.    The RMD was waived in 2020

His spouse (beneficiary) passed away in 2021.  She was over age 72 as well.

The 3 children are the beneficaries.

RMD is required for 2021, based on 12/31/2020 value.

Whose date of birth would the RMD be based on? 

I appreciate your help!

We have a company that is a US based company with the majority of their employees residents of the US. However, they have a number of employees that are residents of the Philippines. Are the employees located in the Philippines able to participate in the 401(k) plan?

For many years, individuals A, B, and C own Corp. X 1/3, 1/3, 1/3, while A and B own Corp. Y 50-50. Also for many years, Corp. Y has a 401(a) plan that has not been adopted by Corp. A. Assume no affiliated service group has ever existed among X and Y.

In 2020, C retires and Corp. X redeems C's stock. For remainder of 2020, through today, A and B each own 50% of both Corp. A and Corp. B, so Corp. A and Corp. B comprise a brother-sister controlled group of corporations under IRC sec. 414(b).

The text of IRC sec. 410(b)(6)(C) says that the 1- to 2-year grace period rule applies when a company "becomes, or ceases to be" a member of a controlled or affiliated service group, which would literally cover the above fact situation, especially when one considers that in the redemption Corp. X acquired C's stock. However, the caption of IRC sec. 410(b)(6)(C), which could be used by a court in interpreting the provision, says that the rule applies to "CERTAIN DISPOSITIONS OR ACQUISITIONS," and Treas. Reg. 1.410(b)-2(f) says that for purposes of the rule, "the terms 'acquisition' and 'disposition' refer to an asset or stock acquisition, merger, or other similar transaction involving a change in employer of the employees of the trade or business." Thus, at least arguably, the provision's caption and the reg narrow the application of the rule to only those situations in which an employer becomes or ceases to be a member of a controlled group as part of what we would otherwise refer to as a "merger or acquisition." Moreover, the legislative history (at least the TRA '86 Blue Book) of 410(b)(6)(C) would seem to support such a narrow(er) interpretation, because the first sentence of its discussion of the change to 410(b) is, "The Act contains a special transition rule for certain acquisitions or dispositions of a business."

I reviewed Q 11:2 of the 6th Edition of Derrin Watson's "Who's the Employer," and I think it quite reasonably punts on this question, so I am looking to see whether others have had experience with this issue in the marketplace or have experience with arguing the issue with IRS.

Standardized preapproved plans are required to cover all controlled group members, but their adoption agreements usually provide for each controlled group member to execute the plan document, typically by using a page called a "Participating Employer Addendum." Having the "non-lead" employer sign an addendum to make clear its agreement to be included in the plan makes a lot of sense for collateral reasons (e.g., having a state law basis for requiring the controlled group member to pay its share of the plan's costs, including contributions other than elective deferrals; deductibility under Section 404 of contributions made by the controlled group member), but is it necessary to satisfy the Code? IRC secs. 414(b) and (c) state that the controlled group members are considered a single employer for purposes of Section "401" of the Code, thus seeming to forestall any argument that separate adoption by each controlled group member is necessary to satisfy the exclusive benefit rule.

Derrin Watson in Q 10:2 of the 6th Edition of "Who's the Employer" states unequivocally, I think, his conviction that adoption of the plan by the controlled group member is not required, and I'm inclined to agree with him, but because he cites no direct authority for this conclusion, I'm trying to gauge whether others have experience in the marketplace with IRS or other practitioners that would push back on this conclusion.

If separate adoption by the controlled group member is not required, then it would appear that an employer in a controlled group can potentially solve a 2020 410(b) problem created by a missed controlled group situation through the adoption in 2021 of a 1.401(a)(4)-11(g) amendment, I think.

I've completed all the required modules and have registered for the exam in November.  I can't find any practice tests anywhere and I understand the essay format.  Are there any recent test takers out there that can shed light on their preparation and what to expect as far as the actual exam goes?  Thanks!