I have a plan that has quarterly entry for participation.  (no age requirement)  The plan excludes Part -time, Temporary, and Seasonal employees.

In the Corbel document, 1,000 hours of service was used to describe the PT, temp, and seasonal employee.

Here is my dilemma, because the plan has only the Qtrly entry requirement, the Subsequent eligibility Computation Period was not completed.  Plan year and Anniversary year are the common choices. 

If an excluded employee would happen to not work the 1000 hours for the next year, that's fine, they would not become eligible.  But what subsequent eligibility comp period do I track next?  I cannot find anything in the master plan to default to plan year or anniversary year.

The plan needs to choose plan year or anniversary. 

Am I missing another provision in the document that might clear this up?

Are premiums paid to medicare an acceptable safe harbor medical expense for a hardship distribution?

Payout provisions of 457(f) plan state that deferred amounts will vest on July 30, 2019, provided Exec is employed on that date, and the vested amount will be paid by March 15, 2020.  Plan goes on to state that this payment is intended to be a short-term deferral under 457(f) and 409(A). 

The payment is taxable to the recipient in 2019, even if paid out in 2020, right?  The law seems very straightforward on this to me, but I am confused about what relevance the short-term deferral language has (if any)?

Any input would be appreciated!

Hi, I'm hoping to get feedback for this non-paying business topic, although it is definitely benefits-related.

I'm the treasurer for a small non-profit.  We had one employee for many years, and she was paid under the payroll system of another non-profit - you could say there is a casual/friendly relationship between our organizations but no way is there any common control or commonality of any kind.  We reimburse the other employer for all wages, taxes, etc.  (I'll come back to "etc." later...)  This all set up way before my time, BTW.

Is this arrangement legit at all?  I was thinking it was ok for the other organization to be a common paymaster and process payroll as a convenience, but as I'm looking at more closely it seems there needs to be some common control or close relationship between employers, which does not exist here.

Back to the "etc." part - she's been participating in certain benefits of the other employer - LTD, life, and a 403(b).  Health was even offered but declined way back when.  I feel very strongly that she was NOT an employee of the other organization - they did nothing but cut her checks - and she should not have been covered under any of these benefit plans (weirdly enough, we are participants in a pension plan through yet another organization, legitimately, so she's been in a pension through one org. and a 403(b) through another).  

Unfortunately she died recently, and we are in the process of hiring a new person.  I want to make sure we do it right, and am advocating strongly to NOT have anything to do with having the new person paid through the second organization (although they remain perfectly happy to do it).  It's...downright fraudulent, IMO, and yet, I guess because "we've always done it," no one seems to grasp the severity of the situation.  

So - I'm looking for confirmation that I'm right, or if I'm not, say that so I can adjust my thinking.

I am just trying to gauge how other companies handle 5500's.  Does anyone work for a company that automates 5500's or has them somehow pre-filled with information provided during the annual compliance review? If so, what software is used? 

Hi Everyone - so I'm in the process of updating agreements and such for my clients.  Was wondering if anyone would be willing to share privately what they provide a new client as far as agreements, required fee disclosure.  Trying not to recreate the wheel but want to make certain I'm sending something reasonable.  I would not copy your template just want an idea of what other TPAs send.

Thank you.

I had a question on RMDs that I am getting confused with. If a participant over Age 70.5 (Age 76) terminates employment in April of 2018, would their first RMD be due April 2019 or December 2018?

I want to get this straight; something seems wrong.

If a sponsor does not start somebody's deferrals in an auto-enroll plan, there is no QNEC needed if they start the deferrals no later than 9-1/2 months after the plan year in which the first deferral was missed?

So, if someone was eligible 1/1/18, there would be no QNEC if they start the deferrals by October 15 2019?  That's 21-1/2 months late!

(I understand that they have to start as soon as it's brought to their attention, and that match has to be calculated from 1/1/18.  But that seems like an awfully long time!)

From EPCRS:

Quote

If the failure to implement an automatic contribution feature for an affected eligible employee or the failure to implement an affirmative election of an eligible employee who is otherwise subject to an automatic contribution feature

does not extend beyond the end of the 9½-month period AFTER the end of the plan year of the failure (which is generally the filing deadline of the Form 5500 series return, including automatic extensions), no QNEC for the missed elective deferrals is required, provided that the following conditions are satisfied...

1.415(b)-1(c)(5)  states that an automatic benefit increase can essentially be disregarded when applying the 415 dollar limit to a benefit if 1) the benefit is paid in a form to which section 417(e)(3) does not apply, 2) the plan satisfies other requirements.

I have a plan that provides for an accelerated form of payment (a Social Security Level Income Option), but otherwise satisfies all of the requirements of the above section. The catch is that this is a governmental plan that is exempt from the requirements of 417(e). Does a form of payment that would otherwise be subject to 417(e)(3) no longer fail the above exception by virtue of being paid from a governmental plan?

Here’s the situation, and I apologize for the length and if I am not getting all the terminology correct as I am not a professional.

Mother and Father (from now referred to as M & F) are nearing end of divorce that started years ago.  For reasons I’d rather not get into on this forum, I’m helping M.    F, age 70,  is 100 percent owner of company (4 plan participants including himself) with a defined benefit pension plan that is significantly overfunded.  He has the vast majority of pension vested benefits.  His vested benefits are 10 times that of employee #2 (longtime 30 year employee), employee #3 (family member), employee #4 (new employee).  Despite M working for free for years for the company, she was never an official employee that had any interest in the pension plan.

The pension overfunding is so large that it almost equals the amount of F’s current vested benefits.  To soak up overfunding, F shifted a couple hundred thousand dollars into employee #3’s plan , which didn’t make much of a dent in overfunding, and since he is only 30 years old, maxed him out on his future expected benefits.  F is trying to soak up the rest of the overfunding by having the plan buy term life insurance for employees, and pay the yearly premium.  The plan has more than enough overfunding to pay the upfront premiums and pay the yearly premiums for the 30 year duration of the policies.  As per law, the death benefit on the policy can be 100 times the monthly salary of the plan participant…so figure that as long as F doesn’t live till 100, his designated beneficiaries get a hefty life insurance payout.  If he lives till 100, all the premiums went down the toilet, but hey he won anyways, he lived till 100!

As part of divorce settlement, F has agreed to give M half of his vested benefits of pension plan in a QDRO.  However there is significant value in the overfunding that F is extracting via life insurance purchases for his choice of beneficiary, and possibly other ways to monetize overfunding in future (such as selling the company or a part of it, and the overfunding)… at bare minimum, overfunding reverts to company at 10 cents on the dollar after excise/income tax.  F refuses to make M or her choice of heirs a ½ beneficiary of this life insurance he is purchasing, and refuses to compensate M not even 1 dollar for the value of the overfunding.  M is upset because it was through F’s own foolishness that he built up overfunding with their money and effort over the years and now he is getting value out of it and he is refusing to give her anything.  

Questions are as follows

1)     Is there a way to transfer any portion of this Overfunding into M’s QDRO, whether through cash or pension assets?  If so what are the legal ways to do it? 

2)     Can a judge order the pension plan trustee to transfer Overfunding cash or assets into a Wife’s QDRO?

3)     Does anyone know of any instances in which Overfunding has been valued in a courtroom setting, and more specifically in marital law?  For instance, at the very minimum that overfunding is worth 10 cents on the dollar if all the money reverts to the company and excise/income tax is paid…but F is purchasing life insurance with the overfunding to avoid the excise tax., and there is an expected value to that death benefit his choice of beneficiary is receiving.   There also other creative options for monetizing overfunding.  .Does anyone have any experience with convincing a judge or negotiating a settlement based on pegging a value to an employee’s interest in his pension plan’s overfunding?

4)     Any other suggestions that would help M get value from pension overfunding that F is getting benefits from and may monetize in the future, but refuses to share with M?

I have talked to a lawyer in pension funding, who has helped me get this far, but as you can see this is a very niche issue and any fresh perspectives or experience would be much appreciated.  Thank you!

-Rich

Code Section 409A governs NQDC when granted to a service provider from a service recipient.  We want to grant NQDC -- specifically, phantom stock -- to a non-service provider.  Basically, the company owes money to a creditor and wants to grant the creditor phantom stock to cover the debt.  

First, can this be done?  I don't see why not.

But, second, what rules apply?  I assume if it is vested, constructive receipt somehow plays a role.  But say it's vested this year but is to be settled in year 3 -- what are the tax consequences there?  I assume we wouldn't be limited to 409A's payment triggers (fixed time, death, disability, etc.) since 409A wouldn't apply?  Any other issues?

Company A was acquired by Company B in an asset sale.  The Purchase Agreement provided that service with Company A would be counted as vesting service under Company B's 401(k) plan.  Company B was later acquired by Company C in a stock sale.  Company B's 401(k) plan was then merged into Company C's 401(k) plan.

X was originally employed by Company A.  He became employed by Company B as a result of the asset sale.  He terminated employment with Company B before Company B was acquired by Company C.  X was hired by Company C sometime after Company C's acquisition of Company B.  X's total vesting service under Company B's 401(k) plan (counting his service with both Company A and Company B) was longer than his break in service from the time he left Company B until he was hired by Company C.

If X received a total distribution of his account under Company B's 401(k) plan when he terminated employment with Company B, does his service with Company A count for purposes of vesting under Company C's 401(k) plan?

This is a constant headache. If we were smart, I swear we wouldn't allow it, but there is great demand for it.

Anyway, suppose you are utilizing this exclusion. Someone who is HIRED at 8 hours per week, and is therefore "reasonably expected" to work less than 1,000 hours, is subsequently put on full time. Let's further suppose it is a calendar year plan, DOH is February 15, 2019 and full time status starts in July of 2019.

Does the person (A) enter immediately in July, since no longer "reasonably expected" to work less than 1,000 hours in the initial computation period, or (B) does the person actually have to work the 1,000 hours, and therefore subsequently enters on February 15 of the following year, (2020) when the initial computation period is complete?

Even if (b) is the more technically correct answer (which it is IMHO) do you think it is reasonable to interpret it, as long as done consistently, such that you use (A) instead?

Non-ERISA DB plan - a public school.

A participant who is retiring wants to receive her retirement benefit in an option that used her spouse's DOB as the basis to calculate the various optional forms of benefit. But, she wants to reflect their REVOCABLE trust as beneficiary.

I know this wouldn't qualify under the RMD rules, but is it allowable under the "regular" rules? Is it allowable for the plan to calculate the retirement options using the spouse as measuring life, yet have the death benefits paid to a revocable trust (even assuming the spouse is sole beneficiary under the trust)?

A restaurant client had a safe harbor 401k.  They terminated the plan in 2017.  However, they were supposed to fund the 2017 safe harbor contributions prior to distributing all of the plan assets.  They only funded about $5000 of the $15,000 that was due participants.  However, during 2018 they paid out all current account balances and the platform show zero for the plan balance.  What is the procedure for making the participants whole at this point.  They are anxious to file the final return, but there are still contributions due participants.   I don't think they have the funds to put into the plan.  

If a 401(k) plan fails ADP, distributes the excess contributions as required to correct the failure, and in the process HCEs forfeit matches attributable to the distributed excess contributions, as they must, can the employer turn around and provide taxable (W-2 compensation) bonuses to the HCEs with the match forfeitures, for example exactly in the amounts of the individual match forfeitures, without violating the anticonditioning rule of Treas. reg. sec. 1.401(k)-1(e)(6)? Arguably this is OK, because the bonuses are not conditioned on the employee's making or not making the elective deferrals, but rather are conditioned only on some of the elective deferrals failing ADP, since in order for the bonuses to be paid, in the amounts they are paid, both (a) the HCE must have made the elective deferral, and (b) a portion of deferral must be distributed to correct an ADP failure. On the other hand, the employee would not receive the bonus if he or she had not made the deferral to begin with, albeit that the employee did not know at the time he or she made the deferral whether a portion would be returned to him or her as excess and result in a cash bonus rather than a 401(k) match. The reg says that the conditioning can't be "direct or indirect" (emphasis supplied), so maybe what I'm describing is "indirect" conditioning. On the other hand, what is being proposed here is very similar to what you can do with matching in a nonqualified spillover plan matched to your 401(k) plan, although the PLRs blessing those seem to be based on part on the language in 1.401(k)-1(e)(6)(iii) specifically dealing with nonqualified plans, so maybe they are distinguishable on that basis, and of course they are only PLRs anyway.

Our client has a 401k plan.  We (the TPA) just discovered an error in the way the client has been calculating deferrals.  Prior to the EGTRRA restatement, bonuses were excluded for deferral purposes.   When restating for EGTRRA, we (the TPA) did not code the adoption agreement correctly to exclude the bonus.  So both the EGTRRA and PPA restatements were written to have deferrals deducted from bonus.  The client has never deducted deferrals from bonus, and that has been their intent for over 15 years.  Do we have an operational failure or a document failure?  Or is this a scrivener's error?  What is the best way to correct?  Do we have to go to VCP?

Hypothetical scenario: Sole owner of a S corp is very young (under 30), unmarried and has low lifestyle requirements (~60k/yr) but has excessive amounts of income (600k+/yr).  He only expects this income to continue for another 3-6 years at best but could slow down sooner. He is considering forming a C corp for tax reasons because he does not qualify for 199A (specified service business) and the corporation has no value without him and will never be sold. 

In a perfect world, he would like to defer taxes on current income in exchange for future income payments (say between ages of 35-60 and use qualified fund contributions/accumulations for income over 60). This all assumes his effective income tax rates would stay at or below dividend tax rates due to his low lifestyle requirements (forget legislative tax risk). Is it possible to use a deferred comp and/or supplemental plan to defer current income taxes and create future income cash flow as he would like?

My first concern with this arrangement would be that as the sole owner, is it even possible to have a substantial risk of forfeiture with either deferred comp or a vesting schedule on a supplemental plan? If this is not normally possible, is it possible to create a corporate resolution to introduce a substantial risk of forfeiture, for example in irrevocably requiring certain excess profits to be used for corporate philanthropy? 

Is there an issue with the "informal" 10% guidelines if the corporation only has 2 employees (the owner and a manager)? I know this rule normally becomes an issue with larger corps trying to include too many employees on a plan, but is this also an issue with a small company only trying to provide owner benefits?

Are there other considerations that could pose problems in addition to these concerns, like accumulated earnings tax on informally funded liabilities? (assume COLI is an unusually expensive alternative due to ht/wt).

Thanks!

414(c)-5 expressly provides for situations where two non-profits can be considered one employer for the purposes of sponsoring a plan together. But it does not expressly provide for a for-profit entity who most likely has control to determine 80% or more of the board at the non-profit to be in a controlled group with one another. Is this situation implied? Can allow the non-profit to adopt the for-profit's qualified retirement plan?

Husband in his mid 50s no longer working for his former employer.  He has a defined benefit plan with them but has not yet elected to commence his benefits although he is eligible to do so.  In the Judgment of Divorce, the trial court ordered that the wife will receive a fixed monthly payment from the Plan starting when the husband reaches age 65.  This is incorporated into a QDRO - shared interest allocation, and sent to the Plan Administrator for approval.  The is no option in the Plan to pay an Alternate Payee prior to the Participant being in pay status.    

Note that the husband may decide not to elect to commence his benefits at age 65.  There is nothing in the Judgment of Divorce or the QDRO requiring him to do so, and he refuses to say that he will do so, and may not.

Note that neither the Judge or the two attorneys (NOT ME) had a clue what they were doing.     

Note that survivor annuity benefits are not involved.   

Note that the parties are not amicable.  

The Plan Administrator, acting through its Third Party Administrator, Fidelity, says that the commencement of an Alternate Payee's benefits must coincide with the commencement of the Participants benefits and cannot be qualified if the conditioned is based on his age, or her age, or at a fixed date, because that makes the commencement date uncertain if he has not actually commenced his benefits.   

I have prepared QDRO where, for example, the husband is 65 and retired and the wife is 55 and still working, and both have DB retirement plans.  They agree on reciprocal if, as and when payments to the other, but such payments shall not commence until the wife reaches age 65.  QDROs accepted.    

Any thoughts, workarounds.  Don't suggest alimony since husband will say no, and because that TCJA of 2017 has made the payment of alimony non-deductible by the payor and non-taxable to the payee, so there would have to be a reduction in alimony to account for his lost tax benefit. 

Thanks, 

David