Hi,

Which distribution code should be used for the following distribution? The participant exceeded the 402(g) limit for the year and did not distribute the funds by April 15 of the following year. All of the contributions were with the same company, so the distribution must be processed even though it's after April 15. The contributions that the participant put in were Roth. Since the earnings on the excess should be taxable because it's made after April 15, would the Code be "P", "1", and "B", assuming the participant is under 59 1/2?

Thanks!

I have a 457(b), non-governmental plan that we will answer basic questions for a 401(k) client.  The document was drafted to begin distributions upon severance of employment or at age 70 1/2.  They can choose a lump sum payment or 5, 10 or 15 year installments.  One of the participants asked if he is still working at 70 1/2 and chooses to take a 10 year installment payout, if he retires 3 years in, can his payout be accelerated so that he can take the balance?  The document isn't clear, but there doesn't appear anything that would stop the acceleration.  His financial advisor who worked with them to set this up many years ago has no clue and is asking me.  We don't specialize in 457 plans so I want to ask the experts in this group.  Thanks for any insight you can provide.

One participant plan,  71 year old owner with more than ten years of service and participation. NRA was 65. 3 yr avg pay is $280,000. Benefit is 100% of pay. Distribution will be made on 12/31/20.

Actuarial equivalence of $230,000 limit is about $371,000. Lump sum of $371,000 based on AMT at 5.5% is about $3.8 mm.

But maximum benefit is 100% of pay, or $280,000. Lump sum of 280,000 based on AMT at 5.5% is about $2.9 mm. Lump sum using 417 segment rates is about $3.5 mm.

What is the maximum lump sum for this participant? I’d like to say $3.5 mm, but I’m not convinced. This would not be an issue if 417 rates weren’t so low.

I work for a TPA (covered entity), and our legal office has a disagreement over whether we can disclose to the plan subscriber if an adult child is or is not enrolled on the subscriber's (the parent's) plan. I say that their enrollment information is PHI and we need approval from the adult child. Another attorney says it isn't PHI, and we can tell the parent who is enrolled on his/her plan. Please weigh in.

Lets say there are two controlled groups. Controlled group 1 contains employers A, B and C, and controlled group 2 contains D, E and F. In addition, employers B and E are an affiliated service group. Both controlled groups sponsor a retirement plan with each of its controlled group members. The two plans provide for different benefit arrangements, controlled group 1 is a profit sharing only plan, and controlled group 2 provides only deferrals and matching contributions.

I assume that when testing coverage for controlled group 1 would I need to consider employees of employer E in my analysis. If coverage fails without employer E for average benefits purposes, would I aggregate the entirety of both plans together or would I just include employer E employees into the controlled group 1's plan?

I'm ignoring coverage testing of controlled group 2 because I'm assuming the same procedure applied to controlled group 1 would apply to controlled group 2.

Recordkeeper is requiring a new QACA 401k to add a 2 month eligibility waiting period for new hires so they can distribute notices to them. Is this correct or is it possible to implement a shorter eligibility period such as 30 days? 

Since QACA allows an employee to retroactively opt-out, it seems a lengthy notification period isn't needed, but maybe I'm wrong and the recordkeeper is right. I couldn't find IRS guidance on this.

So a last minute client would like to set up a safe harbor 3% in order to make deferrals for 2020.  

If we set up a plan with a plan year end of 11/30/2021, when can it be amended to a calendar year plan.

Can it be amended 3/1/2021 for a short plan year to 12/31/2021, thus providing for a 3 month initial plan year.

Or does the first plan year need to run for 12 months before a short plan year can be created, meaning a short plan year starting 12/1/2021 and ending 12/31/2021, and the calendar year plan starting 1/1/2022?

Thank you.

Assuming the compensation-ratio test is passed, can a plan exclude non-U.S. source income? For example, a U.S. citizen employed by (and getting paid by) a U.S. employer but who spends working time in and out of the US during a plan year. Can the plan allow deferrals from, and/or base allocations (including SHNEC) on, only U.S. source income?

Hi

I was approached to do a termination for an overfunded db plan (non PBGC)..

Unfortunately, the provisions require that the excess to be distributed to the participants (always a bad choice, at least in my opinion).

To confirm my understanding, this is a protected provision and cannot be amended to "revert to company" prior to termination date. The idea is to transfer the excess to a QRP.

Also, there are 2 terminated participants. If the excess distributed to the participants, do the terminees get additional allocation?

Assume no 415 issues.

Thank you for your comments.

One plan of a controlled group fails the safe harbor percentage test of the ABT but meets the unsafe harbor percentage.  It would seem to meet much of the "Facts and Circumstances" criteria of 1.410(b)-(4)(c)(3) but that is uncertain unless "the Commissioner finds...." that it passes.

Am I correct that a Determination Letter still cannot be requested on this issue for an on-going plan?   What if an options exist, a Private Letter ruling?   Is that practical?

I have told these people that they have a controlled group. They keep balking at me.  Just confirm for me so I know I am not going crazy...

FACT:  Bob and Betty are husband and wife

Bob & Sons Excavating

1. Bob is sole owner.

Bob's Pipe & Supply

1. Bob is sole owner

Bob & Sons Gravel

1. Bob is sole owner

Betty's Enterprises 

1. Betty (Bob's wife) is sole owner, sole proprietor.
2. Bob receives W-2
3. Betty's Enterprises performs management services for all of Bob's businesses

Because Betty's Enterprises earns money off of Bob's businesses we must include all 4  businesses ... correct?  Attribution?

Bob wants to setup a Simple IRA because he thinks it would be cheaper than a 401(k)  (because his businesses have employees).  Bob and betty want to setup a 401(k) for Betty's Enterprises because it is just the 2 of them... no rank and file employees. 

Thoughts?

Thanks

Plan calls for mandatory distributions under $5,000.  It says it will be done without participant consent.

Do they have to send out distribution forms to those they want to force out first? 

If so, what is the cite?

When computing the cushion amount for 404(o), you are allowed to include the amount by which the funding target would increase if future compensation increases were taken into account. Does this include the expected increase in the participant's 415 limit due to the increase in the high 3-year average compensation?

For example, say a participant's high 3-year average comp is $60,000/year(=$5,000/month) and their accrued benefit under the plan's formula before applying the 415 limit is $8,000/month. However the actuary reasonably expects the participant to earn $120,000/year for the next 3 years. Can increase in the funding target due to the extra $3,000 be included in the cushion?

Is the answer different depending on whether the plan is covered by PBGC? I know PBGC plans are permitted to assume increases in the 415 dollar limit for this purpose. I am not sure if that also applies to increases in 415 due to the 100% of pay limit.

Just received email from CCA on 2021 EA meeting. Something seems to be afoot between AAA and CCA. 

"Due to current uncertainty related to the availability of the Marriott Wardman Park as well as uncertainty about the requirements that Washington DC will impose on large gatherings, the format and specific dates of CCA's Enrolled Actuaries Conference have not yet been determined.

The CCA and the American Academy of Actuaries (Academy) have had fundamental differences that we have been unable to resolve regarding the manner in which the Enrolled Actuaries Meeting should be run in the future. As a result, there will no longer be a jointly sponsored Enrolled Actuaries Meeting, and we thank the Academy for their partnership with the CCA in the past."

What are y'all naming your trusts?  I was thinking if the name of the plan is ABC 401(k) Plan the trust would be named ABC 401(k) Plan Trust (as in the trust established for the aforementioned plan).

Relius just sent us a notification that the trust name can be the same as the Plan name but that just felt awkward.  Things that are different should have different names!

Can the spouse of a 1/3 owner of a company service as the broker for a 401k plan?

Hi

A PS plan in existence as of 1/1/2020.

Adding a 401k provision now.

Can they add non-elective SH for 2020?

I do not believe so as the 401k feature was not in existence for 3 months?

Just checking.

Thank you

Is the Auto Enrollment Tax Credit ($500 per year for 3 years under SECURE Act) available to ALL EACA's, or just EACA's that cover ALL employees (i.e., an EACA that includes a sweep of existing eligible employees).

A lot of EACA's only apply to those who become newly eligible. 

Hi

If the plan adopts the 2020 non-elective SH between 12/1 and 12/31/2020 i.e. 4%, what needs to be done/when to switch to 3% for 2021?

Thank you

I have a plan that terminated and 2020 is the last plan year.  It’s a short plan year.  Do you have to file a Form 8955-SSA to report the short plan year as the final year even if there is no one to report on the form? 

It appears that there is a penalty if you don’t report the plan termination. I see no actual field to report that information on the Form SSA.  Following is from the penalty section of the Form SSA instructions:  

“In the case of a failure to file a notification of a change in the status of the plan (such as a change in the plan name or a termination of the plan), or a change in the name or address of the plan administrator, section 6652(d)(2) imposes a penalty of $10 for each day during which such failure occurs. The penalty, up to a maximum of $10,000, is imposed on the person failing to so file unless it is shown the failure is due to reasonable cause.”

Any clarification here is appreciated.