I know the general rabbi trust template (and many others based on it that I have seen from trust companies) says the trustee will make all distributions to participants and report/withhold. Others say (and in my experience this is what the sponsors often do, regardless of the trust terms) the sponsor may pay the benefits directly and request reimbursement from the trust. 

Sponsors paying directly and requesting reimbursement usually cite the inability for the payroll systems to accurately record a direct payment from the trustee for W-2 reporting.

In the former case, where the trust makes the payment directly, what exactly do they report to the IRS and how does that information get reconciled with the sponsor's payroll system?

Thanks in advance for any insight.

Interesting question - suppose a plan has an eligibility requirement of (x) hours in the first 6 months of employment, and if not met in the first 6 months, the employee becomes subject to the 1 Year of Service requirement.

Now assume the employee works 5 months, then due to Covid economic issues, the employer furloughs this employee (and others) for a period of time - let's say 3 months.

What's your opinion on an employer granting eligibility service while furloughed due to Covid, operationally, and allowing them to enter as soon as reemployed?

P.S. - my point in all this is to see if there is a way around amending plan to use elapsed time. I don't see that the pre-approved document language is flexible enough to handle an amendment to credit hours of service service while furloughed, other than sideways through elapsed time if they aren't furloughed too long. And FWIW, just doing it operationally without appropriate document language, while "nice" of the employer, doesn't seem like an acceptable option.  I suppose it could be submitted under a 5307, and I'd be surprised if the IRS would reject it, but it's a pain, costs more money, and hard to know how long it would take.

I forget if I asked this before, but are Top Heavy contributions subject to coverage if that's the only ER contribution?

Hypotheical:

Plan is 401(k) only.  Does not allow for match or ER discretionary contributions

1 owner, 10 NHCE/non-keys.  Everyone eligible for 401(k) BOY.

4 NHCE quit in summer.

Plan is Top Heavy. 

So, only 6/10 EE's get Top Heavy.

Do I have a coverage issue?  How do you get around that if I do?

Ran across a situation where in order to avoid a 410(b) failure, must make a profit sharing contribution for a terminated participant who is 0% vested.  The plan is top heavy and has never made a profit sharing situation before.  The required contribution is over the $5k involuntary cash-out threshold.  What are the options for how should the plan handle this circumstance?    Hope that the balance falls below $5k so they can force the participant out?  Wait until the plan someday terminates and the funds become 100% vested?  Any ideas are much appreciated. Thanks.

Scenario #1

MEP adopter terminates services with MEP effective 1/1/2020.  Per agreement, once termination occurs, they immediately are no longer eligible to contribute to MEP.  New plan is not effective until 5/1/2020. It is established as a new plan with a short plan year in the document.

Can the employer withhold contributions from 1/1/-5/1/2020?  I am assuming no since there was not a "plan" in place.

If the answer is no, if the employer withheld contributions, what should the ER do with them?

Since there is a gap in the time from leaving the MEP to the new SEP, how does this impact testing?  Would HCE determination be from 5/1/18-4/30/20?  What about prorating the compensation limit?  For top heavy, would the 12/31/20 balance be used for 20 &21?

Scenario #2 

MEP adopter leaves the plan effective 4/30/2020, New Plan is established 5/1/2020.  Document indicates it is a short plan year for the first year.  How does impact testing? HCE determination.

Do we test contributions from 1/1-4/30 under the MEP and only test contributions from 5/1/2020 through 12/31/20? 

If one spouse is eligible for a Retiree HRA and the other spouse for herself or both of them has access to a HDHP with a HSA, if one or both of them uses the HDHP/HSA, must participation in the Retiree HRA be suspended for one of both until such time as neither is participating in the HDHP/HSA or in any HDHP plan year only until such time as the deductible and all required first dollar payments for the HDHP are made through the HSA or other resources?  

Retiree HRA document is being drafted and the drafters are not clear on what is required so your thoughts are eagerly solicited. Thank you!

In September, I did a lost earnings calc on the VFCP site with these figures (among several other entries):

Principal: 12,132.67

Loss Date:  4/29/2019

Recovery Date:  5/2/2019

Final Payment:  9/28/20

Amount Due:  $6.40

But, they never made the correction, so I'm re-calcing the interest with a Final Payment of 10/28/20 this time.  I entered:

Principal: 12,132.67

Loss Date:  4/29/2019

Recovery Date:  5/5/2019

Final Payment:  9/28/20

Amount Due:  $12.83

Notice I made a small mistake.  The Recovery Date is 3 days later.  And the amount due is MORE THAN TWICE AS MUCH!

When I run the original figures again with 10/28/2020 Final, it gives me the $6.40 again.

Does it make sense that a Recover Date merely 3 days later would result in a 100% higher result?

Non-profit has a 457(b) plan and 401(k) plan. They want to terminate the 457(b) plan and have the assets distributed to the participants (2 executives). One of the executives would like to contribute pre-tax salary deferrals to the 401(k) plan from the 457(b) distribution. The definition of compensation in the 401(k) plan is W-2 plus pre-tax deferrals. The executive is arguing that the 457(b) distribution is reported as W-2 wages and I can't find anything that says it can't be done - it just feels wrong. Does anyone out there have something that either supports or opposes the executive's position? 

Employer wants to reduce the deferred compensation benefit paid at termination of employment from $2.5M to $2M?  Is this permissible if we keep the same time and form of payment and the parties agree?  The 409A regulations (26 CFR 1.409A-1(c)(3)(vi)) envision that it is permissible to increase the benefit but I do not see any express approval of reducing the benefit.   

I have a staffing firm that has internal employees (work in the office) and around 200 external employees that work on jobs about 9 months out of the year, work over 1000 hours.  They all get W-2 wages and health insurance.  They want to start a 401k plan but want to exclude the external employees (known as contractors) and only have the  internal employees be part of the plan.  I am thinking they cannot do that since the "contractors" are getting W-2 wages and work over 1000 hours and some may work 12 months within a 12 month period.  The staffing firm says other staffing firms are able to have a 401k plan and not include their external employees (insist they are W-2 waged as well).  Am I missing something?  Wouldnt they have to be included if they worked 12 months, 1000 hours (some leave and come back within 12 months)?

They would not pass coverage testing if they exclude the so called "contractors".  There are about 20 eligible and there are only 6 internal employees.

I keep reading that contractors can be excluded - but arent most 1099 waged not W2?  How are staffing companies excluded contractors that are W2 waged?

Thanks

We have a new client who has come to us to establish a 401(k) plan.  The entity is a Community Land Trust.  I have not encountered this type of entity before.  Can they establish a plan?  Thanks in advance for your input.

So, a profit sharing plan needs to define a "Contribution Formula" and an "Allocation Formula" in order for the plan's contribution to be definitely determinable. In many plan documents when you select a new comparability - each employee is own group formula, no additional "method" on how to allocate the contribution formula is required. For example, no additional input is required to establish if each group will receive a flat dollar, % or the greater of the two.

However, its different when we select new comparability - groups, documents tend to make you establish in the plan document whether the contribution formula will be allocated via flat dollar, % or the greater of the two.

I can reason why this may not be required for new comp - each employee is own group. But my question is this, is it actually required that the plan document define in new comp - groups that each group will be allocated the contribution based on flat dollar, % of comp or the greater of the two? Couldn't that simply be provided in writing to the plan administrator to satisfy the definitely determinable requirement?

Have a takeover plan that failed 401(a)4 for 2018 and 2019 and no corrective amendment was done. Our understanding is the only way it can be corrected is with a VCP submission at the shocking new fee of $3,000. Must we pay $3,000 to correct 2018 and $3,000 to correct 2019? Or can they both be corrected at one time for one $3,000 fee?

Our CEO started in Feb of this year and was doing 401k % of 5%

He is at 500K annual base comp

He has now hit the 285K comp limit for 2020 in Sept 2020 and both his match and deferral stopped

Match is 14,500 which is ok 5% of 285K

But 401 k is capped at 14500 as well

He is over age 50

If he had done say 10% when he started he would have been able to do 26K in 401k contribution

Can we catch him up in 401k to 26K by suggesting he increase his 401k % from 5% t0 14% for final 2 months of plan year?

Or is it too late to do this since he has hit the 28

Thanks

Alexa

In another BenefitsLink discussion, the originating inquirer described a plan sponsor’s desire to change to a regime under which each participant is a distinct allocation group.

Instead of asking about how to make such a change, I ask different questions:

(Assume that no nonelective contribution will be a subterfuge for what really is an individual’s § 401(k) cash-or-deferred election.)

Does ERISA’s title I or the Internal Revenue Code impose any constraints on a plan sponsor’s opportunity to specify that each participant is a distinct allocation group?

For those plan sponsors that use IRS-preapproved documents to state the user’s documents, do the documents available from mainstream providers impose any constraints on a plan sponsor’s opportunity to specify that each participant is a distinct allocation group?

Assume an employer has enough practical capacity to decide, allocate, and communicate a distinct contribution for each individual.  Are there other reasons a plan sponsor would not want the flexibility to specify that each participant is a distinct allocation group?

Hi

DOT is 12/31/2020

NOIT - termination notice - given by 10/31/2020 - to satisfy 60 days

NOPB - notice of benefits - given by 11/9/2020

Can I file 500 with PBGC on 11/10/2020 or have to wait till after 2021?

I believe it can be done earlier i.e. do not have to wait till 1/1/2021 but cannot remember.

Thank you

If an entity purchases another division and wants to merge the existing 401(k)/retirement plan into their existing plan, what steps can they take to limit the purchasing entities fiduciary and liability exposure if the merging plan was not run correctly?

I had a couple of question regarding nonstatutory stock options.  

A nonstatutory stock option is includable income in the year granted if it is includable in the employees taxable income.  But what exactly are the circumstances that would cause the option grant to be includable or not includable in income, and how is that income generally reported.  I know that it would be on the employee's W-2 at the end of the year, but is it reported as part of their paycheck, for example, when the option is granted?  So if they had a deferral election for a 401(k), the compensation related to the grant would be included in that deferral election, unless the compensation was excluded?

If a plan were to switch from using the W-2 compensation definition to a definition that excludes stock options, would the safe harbor 415 compensation be the better option, since that excludes not only compensation from exercising an option, but also when an option is granted?  

Thank you very much.

Starting restatements almost immediately. There exists an option to to do a "minor modification" and submit to the IRS on a from 5307, if necessary. Question for any of you who might have a contact at the IRS - is this form and/or instructions going to be revised any time soon? Current version is, I believe, 2014. If no revision contemplated, then I guess we use the current one! (Not that I'm planning to anyway, if it can be avoided...)

https://www.irs.gov/forms-pubs/about-form-5307

We had a participant request to come and review the financial reports of the qualified plans (i.e., essentially the 5500s).  The participant does not want to pay copy costs and just wants to come to the office.  We are limiting access to our office due to COVID and do not want participants coming in to the office.  So, the two options I can think of are (1) let the participant come but limit his time and place him in an unused office and require a mask the whole time or (2) waive the copy costs and send him the documents.  Does anyone see any issues with these options?  

Thank you.