Hello.  We have a new client - Client A - that was a participating employer in a MEP who has decided to leave the MEP and establish their own plan.  We have assigned Plan 001 to the client's new plan as it is the first plan being sponsored by client A.  A colleague is questioning why we are using 001 and not 002 for the plan.  Is our reasoning correct on the plan number?

Good morning to all, 

We have a takeover case in which we want to be sure we correctly identify the Key employees.  We are not sure because we do not know anything about trusts.  I know the following is convoluted but I am not making this stuff up!

The company was started by two brothers, who we will call Bill and Sam. Bill is the president of the company,  and Sam has passed away.  The ownership of the shares of the company are as follows:

24.7% belongs to a Q-TIP trust for the wife of Sam who is not an employee.  We aren't worried about this.

41.1% belongs to Bill.  That's a no-brainer.  He's an owner and President of the company.  Key and HCE.

Bill's 3 kids are on the payroll.  One of them owns 0.8% of the stock outright.  Another 15.9% of the stock is in a trust for Bill's 3 kids, who are treated equally under the trust.  To our knowledge, the trust and the percentages are irrelevant here.  The fact that the kids are on the payroll and their father owns 41.1% of the stock is sufficient to make all of them Keys and HCEs.

Now comes the part we are not sure about.

Sam, remember, is deceased. Sam's 4 kids are on the payroll too.  One of Sam's kids owns 1.6% of the company outright.  Then, as in the case of Bill's kids, 15.9% of the stock of the company is in a trust for these 4 kids and they share equally in it.  So one son has his own 1.6% that he owns outright plus 3.98% that he indirectly owns through the trust for a total of 5.58% of the stock being for his benefit.  His 3 siblings just have the 3.98% each that they own indirectly through the trust.

Are Sam's kids Key and HCE or not?  We don't know what impact the trust has on making this determination.  Our suspicion is that maybe the son who has the total of 5.58% is a Key and maybe the siblings who only have 3.98% are not, because they have less than 5%?  We'd much rather hear what the experts have to say than just go on our suspicions.

None of these children, neither Bill's nor Sam's, has a sufficiently high salary to be considered an HCE just on that basis.  None is an officer of the company with a sufficiently high salary to be considered a Key just on that basis.  It's all about the stock.

Your advice will be greatly appreciated.

I'm looking at a presentation from an actuarial firm that suggests a 12/31/18 FYE taxpayer set up a CB plan with a 11/30/18 plan year end.  The contribution for the 11/30/18 plan year end can be deducted on the 2018 tax return as long as it's made by extended due date.  Nothing new there.  The suggestion is to fund the plan year beginning 12/1/18 before 12/31/18 so that amount could also be deducted...giving two years deduction in 2018.  Of course, all later years would be "normal"  Any thoughts/comments on that?

The actuarial firm also promotes what I think is a very aggressive 401(h) plan so I'm a bit leery of anything they show.

Thanks,

Just discovered an employee with two 401K loans had paid off first loan a year ago. We received no notice of payment and employee did not notice it on loan history website. Twenty-nine overpayments were applied to the employees second loan without authorization from employee or notice. This is the second time the company we hired to manage the 401K has done this with an employee in two years. Is that legal? Employee would have preferred to stop making TWO payments when first  loan ended and continued on amortization schedule for the remaining loan. 

Seems also to be a breach of fiduciary duty as well as illegal. 

Good afternoon to all,

We have virtually no experience with MEPs.  We have a client who owns two separate businesses and maintains a 401(k) plan for each business.  One has well under 100 employees and one is dangerously close to needing an independent audit.

There is a new investment advisor to the plans and she is wanting to create a MEP out of the two plans, claiming that there will be lower fees from the recordkeeper if they become a MEP.

My question is this:  Is this potential new MEP considered one plan with one 5500 to file, and will it now be thrust into the category where it needs an independent audit because it will have over 100 participants with the two companies combined?

Your advice is greatly appreciated.

Under current safe harbor hardship rules prior to 2019, there is the requirement that a participant take a loan if available under the plan before a hardship distribution can be approved. However, I believe there is a stipulation that if the loan will create an additional hardship the plan can waive the loan requirement. Does anyone have any details on this? How would a recordkeeper apply this exception other than relying on employee certification?

Thanks!

I have a plan I want to terminate 12-31-18 and I want to freeze accruals 11-15.  I am submitting to the IRS but the plan is not covered by the PBGC.

I have a 204h notice prepared and set to go out 10-31.

Is there a NOIT when the plan is not covered by the PBGC?  Or another notification to the participants that the plan is terminating?  That should be issued 60-90 days in advance?

I know I have to do a notice to interested parties 10 to 24 days prior to my IRS submission.

Can I submit my plan termination paperwork to the IRS before the plan termination date?  

Our ESOP plan document and the federal guidelines on payment to an alternate payee are the same.  We received a DRO which became a QDRO.

Payment to the alternate payee per federal law in this particular QDRO will be in 5 years.  We have in the past QDROs segregated alternate payee's funds to a third party and paid funds to the alternate payee per the QDRO federal rules.  We believe federal law allows for early payment if we choose..  We do not necessary want to set a precedent and allow alternate payee to access funds early.  We want to follow our past practice of following federal law on payment to an alternate payee.  In this case we believe the alternate payee could use the funds early.  If we decide to pay the alternate payee early which federal law allows, can we: (1). negotiate a 'discount' on the funds the alternate payee will receive;  (2).  does  this set precedent for a future QDROs

Thanks

We have a sponsor and additional adopting employer who are acquiring the assets and employees of numerous companies, who want to credit prior service.  Is it permissible to have some sort of catchall language that credits prior service with all companies that will be purchased instead of amending the plan each time and listing out all individual companies?

The ERISA books didn't seem to address the situation and the FT William document sections says list each company.  Just asking because I think I've seen Relius documents in the past have such a catchall provision.

Thanks in advance. 

Any comments on how many Plan Years you would carry a receivable Matching contribution (whether or not discretionary)?

What about a Money Purchase contribution?

Client has been advised to discuss the deduction issue with their CPA and about disqualification.

501(c) maintains an ERISA 403(b) Plan ( deferral and employer contribution). they are considering a move to a PEO.

1. The PEO sponsors a 401(k) Plan

2. The PEO recommends terminating/freezing  the 403(b) and adopting the 401(k)

Nothing prevents the employer from maintaining  their 403(b) correct? The employer is not required to adopt the PEO's plan, correct?

Thoughts??

Thanks

I just picked up a 403b Document for a Tax Exempt entity that excludes employees who work less than 36 hours per week, with a 24 month waiting period (Elapse Time) and a 3 year cliff vesting schedule.  Does this sound right?

For deferrals this would not meet Universal Availability Requirement.  As for the Match, If someone has been there for 24 months and has worked 1000 hours within a 12 month period wouldn't they be eligible?  Lastly, with a 2 year wait can they have a vesting schedule?

My current plan has 3 participating companies, all part of a controlled group.   The plan sponsor and two other companies.     The sponsoring company and one of the participating companies was sold, with one company remaining.     

Can I amend the plan so the remaining company becomes the plan sponsor?    

I have used Omni AdminWeb and OmniPlus but I see a lot of employers use Relius. Is there a he difference in the two programs and their functionality?

I have a newbie question. For the purpose of this question, I am assuming that the only death benefit being provided in a DB plan is the required QPSA (let's say it is equal to the plans QJSA of 50% J&S) and the QPSA is fully subsidized. No other death benefit in the plan.

Per treasury reg 1.401(a)-20 Q&A 37, a plan is NOT required to provide the written QPSA explanation if a) the QPSA is fully subsidized and b) it "does not allow a participant to waive such QPSA or to select a non spouse beneficiary". 

I think most plans in this situation would make the QPSA mandatory (not allow a waiver) and would therefore not need to provide the QPSA explanation.

However, is a plan in this situation (again, where the QPSA is the only death benefit in the plan and it is fully subsidized) permitted to allow the participant (with spousal consent) to waive the QPSA in favor of a non spouse beneficiary?

In other words - can a DB plan be designed where the only death benefit provided in the plan is a fully subsidized QPSA to married participants - but it allows the participant (with spousal consent) to waive the QPSA in order to make the QPSA payable to a non spouse beneficiary?

Notice 97-10 provides sample language for a spouse's waiver of the QPSA, and the example in Appendix B, Question 2, Option B seems to indicate that yes - the spouse can give up all (or part) of the QPSA benefit and it will be payable "to another person" "often called a beneficiary". Appendix B, Question 4, Option C provides a scenario where the spouse can sign a "general consent agreement" and the sample language says "If you sign this agreement, your spouse can choose the beneficiary who will receive the QPSA..."

However the DB Answer Book states the following:

Q 21:98, Can a participant name a person other than his or her spouse as the QPSA beneficiary? No. The QPSA is payable only to a surviving spouse (or former spouse under a QDRO) (see chapter 23). Example. With her husband's consent, Celia named her daughter as the QPSA beneficiary. After Celia died, the plan refused to pay a survivor's benefit to her daughter, saying the plan provided QPSAs only for surviving spouses. The court upheld the plan administrator's determination. [Butler v. Encyclopedia Brittanica Inc, 18 Employee Benefits Cas. (BNA) 2589 (7th Cir. 1994)]

Now, perhaps this question is assuming that the plan requires the QPSA to be mandatory and does not allow the participant to waive the QPSA in favor of a non spouse beneficiary (again, going back to 1.401(a)-20 Q&A 37). If that's the case then yes, I would agree that a participant cannot name a person other than his or his spouse as the QPSA beneficiary, as the plan does not allow such waiver.

But again, it seems that a plan is permitted to allow a participant to name a person other than his or her spouse as the QPSA beneficiary. Thoughts?

My client intends that vesting service starts on participation date, not hire date. I referenced the plan document which specifies YOS starting with employment date, however, I cannot find anything that specifically states that participant date cannot be the start date for vesting. Any ideas? 

CEO (a highly compensated employee) and company are negotiating employment agreement.  The parties wish to provide that, if the CEO opts out of the company's medical plan, the CEO would receive additional cash compensation in the amount of the company's cost of coverage for that plan.  Assume that the individual's compensation is $200,000 plus he would receive an additional $20,000 if he opts out of coverage.  The company does not offer the opt-out/cash-out benefit to other employees.

I am fairly confident that this arrangement will fail the contributions and benefits portion of the cafeteria plan nondiscrimination tests set forth in 1.125-7 because it discriminates in favor of HCEs with respect to employer contributions for total benefits (which includes taxable benefits).

My question is what is the effect of failing the nondiscrimination tests in this circumstance.  1.125-7(m) provides that in such a case, the HCE must include in gross income "the value of the taxable benefit with the greatest value that the employee could have elected to receive."  In this case, whether the plan is discriminatory or not discriminatory, wouldn't the CEO have gross income in the amount of $220,000 either way?  That would mean that failing the nondiscrimination tests would be meaningless, wouldn't it?

I recognize that the agreement can be structured differently to give the CEO the same economic benefit as the above proposed structure but I wonder if anyone has any thoughts on the effect of this structure.  Thanks.

A small firm (about 30 employees) has a safe harbor plan where the 3% nonelective safe harbor contribution is made.  My understanding is the top heavy testing is deemed to pass for a safe harbor plan but what if the firm elects to make additional profit sharing contributions?  Under what circumstances, if any, would top heavy testing need to be done and how would the profit sharing contribution need to be allocated to avoid makin the plan top heavy (which it would be)?  Thanks for help.

A former partner in a law firm is now just a 1099 employee of the law firm as they are of counsel.

This former partner maximized his benefit in the cash balance plan of the law firm. Can we set up a new cash balance plan for him using his 1099 wages or are his 1099 related to the law firm somehow and therefore he has already reached him maximum benefit?

A company has a group of 80 employees that are part of a large union plan.  The contract has not settled and negotiations are not happening at this point.  What happens to these 80 employees?  Are they now non-union  employees and have to be included as not benefiting in the non-union 401(k) plan?  Do the employees have to first formally disavow the union in order to be considered non-union?