I am looking at a non-safe harbor 401k plan that failed the ADP test (passed ACP) in 2017 and 2018.  Only 1 of the 3 HCEs were required to take money back and that was done each year.  About 15 total participants are shown in each years ADP test.

However in reviewing that plan now, it seems that from 5-10 non contributing eligible NHCEs were left out of the tests.  Adding them back in will make the test fail even worse.

Can we have the employer make a QNEC for these past years even through we already made a distribution of the excess to the one HCE?  Or do we have make an additional payout to the HCE since we already made what would be a partial refund?   

Thank you for any replies

Hi,

A owner only DB Plan (owner and wife) is overfunded. He was taking RMD past few years based on Accrued Benefit times 12 (meaning did not elect a particular benefit ie J&S or Years Certain etc.-- this has been discussed on this forum in the past as a method for an RMD for an active participant). He retired now and wants to terminate and rollover into two IRA. The issue of course is that the plan is overfunded.  To avoid any reversion and excise tax he will  keep the plan open and elect a partial lump sum distribution and roll 80% of his benefit into an IRA. The remaining 20% of his Accrued Benefit will remain in the plan. Is this a feasible option? (by opting for  a partial lump sum he is not changing his original election since he never made an election until now, rather he was taking RMDs. In addition, even if this considered a change of benefit election, since he now retired and has a change in status, the change in status should allow for a new benefit election to be made). Thank you for any insights and thoughts on this matter. May we all be safe always. 

Just discovered that client mailed their 5500s for 2018 instead of using EFAST.  Does anyone know what happens to 5500s that get mailed?  I assume they are treated as not having been filed and we need to do a delinquent filing and pay the penalty?

A client is an adopting employer in an MEP. The employer is Top Heavy for 2020 and the keys are contributing. The employer is stating that they will be selling a business unit this year and terminating non-key and possibly key employees. How does this impact the 2020 Top Heavy minimum? Are those employees simply deemed as terminated prior to the end of the year and not allocated the Top Heavy minimum? Or, would the minimum be calculated on compensation until the sale for those employees?

Any feedback is appreciated. Thank you.

My BFF’s husband recently passed away. QDRO with ex wife as AP: should the ex have been paid out her 50% of QDRO at the time of divorce 9 years ago? This is for Pension and 401K only. Life Insurance death benefit is in lieu of remaining balance of alimony upon death (12% only of Life Insurance  policy).

Noe that he is dead, what is my BFF entitled to, especially if QDRO hasn’t been yet paid to the ex? 

seems like the ex is getting all the documentation and my BFF as the current wife and executor of the Estate is getting little to no info or help from her late husbands company.

thank you.

We've received a divorce decree from a participant in Nebraska.  Pursuant to the signed decree: 'For the purposes of continuation of health insurance coverage, the Decree shall become final and operative six months after the Decree is entered."

Question: Has anybody dealt with this before?  I have seen mention of this situation on Benefitslink threads, but curious how it was resolved practically...   because the plan is self-funded would ERISA preemption apply?  Or because of the manner in which it is worded - that for health insurance, the divorce isn't effective until six months, the COBRA qualifying event doesn't happen until 6 moths?

Nebraska Statue Below:

42-372.01. Decree; when final.

(1) Except for purposes of appeal as prescribed in section 42-372, for purposes of remarriage as prescribed in subsection (2) of this section, and for purposes of continuation of health insurance coverage as prescribed in subsection (3) of this section, a decree dissolving a marriage becomes final and operative thirty days after the decree is entered or on the date of death of one of the parties to the dissolution, whichever occurs first. If the decree becomes final and operative upon the date of death of one of the parties to the dissolution, the decree shall be treated as if it became final and operative the date it was entered.

(2) For purposes of remarriage other than remarriage between the parties, a decree dissolving a marriage becomes final and operative six months after the decree is entered or on the date of death of one of the parties to the dissolution, whichever occurs first. If the decree becomes final and operative upon the date of death of one of the parties to the dissolution, the decree shall be treated as if it became final and operative the date it was entered.

(3) For purposes of continuation of health insurance coverage, a decree dissolving a marriage becomes final and operative six months after the decree is entered.

(4) A decree dissolving a marriage rendered prior to September 9, 1995, which is not final and operative becomes operative pursuant to the provisions of section 42-372 as such section existed immediately preceding September 9, 1995.

When participants in a deferred comp plan elect to receive installments over 5, 10, 15 or 20 years, they have been permitted to choose whether those installments will be calculated using a "Level Payment Method" or "Percentage of Retirement Account Method."  Where a participant wants to change from one calculation method to the other without changing either the commencement date of the installments or the number of years over which the installments will be paid, does anyone think 409A's usual rules about changes in time and form of payment -- including the 5-year delay -- would need to be observed?  

Divorced in 2009. Stamped QDRO sent and accepted by ex’s plan. Was told only one of three accounts could be spun off and the other 2 would when ex met a distributable event. Ex just met such event. I called and received a letter telling me that my QDRO is too old now and must be redone?? What?? They are the ones that wouldn’t spin it in 2009 and now it needs to be redone?  Has anyone faced a similar situation?

Can a severance plan be included as part of a H&W wrap plan document

We currently have a separate severance plan document but are restating our H&W plan as a wrap plan

we would like to avoid additional Final  5500 filing for the severance plan each year

Thx

there's  company  A and B. As of 12/31/19 all nhce's of company A "terminated". They were all hired 1/1/20 by Company B.  There are two remaining  hce's ( the two owners). They are not expected to have any ownership in company  B.  The two entities are  still hashing out what to do with company  A (asset sale, etc). The  two owners of Company  A (only two employees)  are expected  to have capital gains from at least the sale of goodwill in 2020. 

Question. Can you count that as plan compensation for 2020 and in so doing make contributions in 2020?

Several years ago a Mississippi Chancery Court judge ordered in a divorce decree a QDRO, as a separate interest stating, "Counsel for the defendant is directed to draft the QDRO in compliance with federal requirements. The parties shall cooperate in the drafting of the QDRO and in its approval process by the plan administrator in a timely fashion."

Points of note:

1. The counsel for the defendant has to date (5 years later) not drafted the QDRO as directed.

2. The separate interest concerns interest in the plaintiff's Mississippi PERS account. He has not yet retired. PERS membership handbook states,  "Your right to your benefit is exempt from levy, sale, garnishment, and attachment; and is not assignable. Furthermore, PERS has no authority for recognizing, implementing, administering, or enforcing the provisions of any domestic relations order or other actions decreed by a court in a divorce settlement." 

So a couple of questions arise:

1. If counsel for the defendant does not draft a QRDO prior to the plaintiff retiring can that be done after he retires or is the door closed?

2. As the MS PERS states they will not recognize or enforce and thus not qualify the DRO is the plaintiff still responsible getting to the defendant their "separate interest" when there is no QDRO?  This is assuming that another court would find that the judge in the decree ordered something that is not legally possible thus the counsel for the defendant cannot be held at fault for there not being a QDRO but as the judge did find that the defendant does have a special interest in the PERS as a marital asset the amount is still owed. 

Any thoughts from anyone?  

I have a plan that is terminating and has liquidated all its assets that were held at a national carrier earlier this year.  Funds were disbursed properly, per participant instructions.

They did this before we could calculate the 2019 Safe Harbor contribution for them.  The national carrier, as expected, is reluctant to re-open the plan.

Our solution was to just have the client open up a bank account using the TIN obtained for the trust.  The bank cannot seem to understand the nature of this transaction and is saying they need to "register" the the name as a new entity thru their CPA.  And they said "alternatively, you can have business documents registered (articles of incorporation or short form) to the name [you] are looking open the account under." [sic]

Any talking points to get these guys off the ledge?  I've never had such trouble (or, rather had a client get so much push back) trying to open one of these accounts.

This is a big, international bank, so I'm mystified as to why they cannot understand the process.

Plan X (PN 001) was effective 1/1/2012 and was made up of two entities (A and B) in a controlled group.

During 2020, Company B is sold to unrelated buyer. Will spinoff / restate as of 12/31/2020 as Plan Y. 

Will the plan number for Plan Y have to be 002 or is 001 okay?

Original effective date is 1/1/12, so for the "new" spun off plan, this is not considered a "first return/report", correct?

Would Line 4 (of the 5500-SF) be completed with the info of Plan X on Plan Y's 2020 return?

Is it permissible to request a participant to sign a release that he accepts the calculation of his benefit from an ERISA pension benefit plan?

Long history short--the participant terminated employment over 15 years ago, and disappeared with a vested balance remaining in the Profit Sharing Plan. The employer could not locate the participant, and so after 5 breaks in service the employer decided to forfeit the entire account balance including the vested amount, with the understanding that the vested amount and earnings would need to be restored if this participant were found. This forfeited amount was used to reduce the employer contribution for the year it was forfeited, in accordance with the Plan provisions.

Fast-forward to last week--the employer was contacted by this missing participant.

We (third-party administration firm) have calculated the investment earnings on this benefit. I have suggested that the benefit statement show the amount of earnings by year, so that the participant understands how his final benefit amount has been determined. After all, the participant would have received a benefit statement each year had the employer been able to locate him.  The amount involved is under $10,000.

I am not comfortable that the employer wants to condition payment of this benefit on a release by the participant. The employer does not require any other participants receiving benefits to sign such a release. I'm not sure what they are concerned about.

Have any of you faced this situation? Thank you for any thoughts you care to share.

Participant P died - he was the brother of the plan sponsor.  The plan is terminating, and all of P's beneficiaries have been paid out except for his minor child... because the ex-spouse is not completing any paperwork.  The product platform says that the child's parent is the only person who can execute any paperwork for the child.  Sure, I've got one or two other non-responsive participants who can be rolled to IRAs, but the platform says that since this has to go to an Inherited IRA, it can't be forced like the others, and that requires a signature.  The plan sponsor has tried to contact the ex-spouse/mother via mail and through a grandmother, but has gotten no response.  I don't know the situation well enough to try and speculate as to why there is no movement.  And we're talking about $50K.

Besides "hire a lawyer", is there anything else the plan sponsor can do?  Thanks.

What is the current status of the extended Define Benefit contribution for Plan Year 2019?

Hello,
I am an employee of the company which few years ago introduced ESOP plan and I was a part of it since day one. Now by the end of 2019 company approached all share holders saying that there is a good buyer for the company and the price is right. Then we all could vote in favor of sale or against it. Sell was accepted and all calculations  and testing started. There was a huge amount of unalocated shares that should be fairly redistributed between all ESOP participants and due to sale all participants were 100% vested. Here my case started. In December 2019 I was injured in a car accident and forced to go for surgery, which put me out of work for 7 months.  During that time I was  on short term disability provided through company's benefits since company did not wanted to adjust my work to lighter duty to allow me to earn my income and recover at the same time.   I was recently released to work by doctors just to find out that I am getting only 100% of my share value which I owned till end of 2019. The big pool of unalocated shares was distributed on the beginning of 2020 and I was told that since theoretically I did not get any pay stub in 2020 I am not eligible for distribution of the most valued shares. In that case I lost 2/3 of predicted after sale payout. Is there any law, rule or regulation that is protecting me in this case? I never quit the company nor was fired. I was told to go on disability which I did. It was not my choice, just unfortunate accident which can happened to anyone and any time. Now it feels like double loss to me since I worked hard many years just to be left like that. Thank you all for any comment, opinion etc.     

Hi,

Employer has 2 companies. One company grows cannabis and makes cannabis products. The other company sells the products. I was told that a 401k plan could be set up for the store but not for the company that produces the product. I can't seem to find anything on this topic. 

Has anyone else had this scenario?

TIA!

Employer (an S corp) has two owner-employees who participate in a tax-qualified profit-sharing plan. The corporation directly pays an investment management fee to an RIA (a percentage of the plan's total assets, usually about $12,000 per year), rather than having the trustees pay the fee from plan assets.

Employer pays about $1,200 in administration fees for the preparation of Form 5500 and other administration services.

Employer pays for an ERISA fidelity bond for the plan's trustees (who are the two owner-employees).

COVID-19 occurs, with general chaos and substantial drop in revenue.

Employer looks for ways to save costs.

Idea: terminate the profit-sharing plan in order to stop the annual administration fee (no more Form 5500s). Also avoids the need to pay ongoing cost of the ERISA fidelity bond. Employer says it isn't wanting to make further contributions. So each employee-participant takes his or her account balance and rolls the distributed assets into an IRA at Schwab (for example).

The sun comes goes down and the sun comes up.

Employer sets up a new SEP arrangement, which covers all employees (being only the two owner-employees), using a document provided by Schwab (for example). The employer probably will need to set up two new IRAs at Schwab, but maybe Schwab will be happy to use the two existing IRAs.

Drum roll, please ...

Can the employer pay the investment management fees of the two IRAs (or "SEP-IRAs," if you prefer), and have the payments be deductible to the corporation and not counted as income to the SEP participants?

On the one hand, it is an employer-sponsored retirement plan of a sort. So, like investment management fees on a profit-sharing plan's trust that are paid to an investment adviser directly by a plan sponsor, the payment of the investment management fees on the SEP participants' accounts arguably is similarly deductible.

On the other hand, there is no trust once the employer has made the contributions to the employees' IRAs.

If the employer doesn't pay the investment management fees, the employees certainly could pay the investment management fees for their IRAs out of their own pockets, but such payments for managing an individual's investments are no longer deductible due to recent legislation. (Or they could have the fees deducted from the assets of the IRAs, which happily avoids income taxes, but which takes away funds that otherwise would generate compounded investment returns inside the IRAs.) So they'd probably opt to keep the plan running because the ability to avoid about $3,000 in income taxes on the $12,000 paid by the corporation would offset the administration costs and the cost of the ERISA fidelity bond.

Year after year client answers 'no' tot he question 'were and deferrals deposited late.'  The accounts are brokerage accounts for which we only get the 12/31 statements with the YTD figures.  Often this is good enough to cobble together my 5500's.  (side note, this is my first year servicing this client)

They switch investment houses in 2019 so I needed some help from the client to reconcile the deposits.

I got a list of all the remittances to the trust accounts by date and type.  Turns out, they were transmitting funds once a month, but the employees get paid every other week.

We are, of course going to calculate lost earnings for 2019 and 2020 and try to right the ship going forward.

I'm pretty sure that this has been going on for a while.

How far back would you go looking to correct this stuff?