I was wondering if anyone attending Pensions on Peachtree this past April?  I was told that Derrin Watson would be providing a sample form that would satisfy the new IRS guidelines for Hardship distributions.  I was hoping to get a copy of the sample notification.

Thanks.

Company A established a 401(k) plan in 1999. In 2008, the owners of company A purchased company B and we had a controlled group situation. Late in 2016, ownership changed and there was no longer a controlled group but the plan has become a multiple employer plan. Employee Z contributed to the plan from 1999 to 2005.  In 2016, he became a 10% owner of company B. He is currently not working for company A. He has an account balance attributable to contributions made while working for company A. He is not currently making contributions.

What happens to his existing account? Should it be accounted for under the assets of company A? Or, is it now counted as a company B asset? Plan B would become top heavy if the assets move to that plan.

Company A owns 100% of Sub 1 & Sub 2.  Sub 1 & Sub 2 sponsor a DB plan that requires a separation from service to receive retirement benefits.  Sub 2 is sold to an unrelated party and leaves the controlled group.

Can those employees of Sub 2, who have attained early retirement age, receive a distribution, even if they are still employed by the company formally known as Sub 2?  

Does the sale to an unrelated party result in separation from service and permit the plan to pay the distributions? 

I have a safe harbor plan that utilizes a basic safe harbor matching contribution.  Currently, salary deferral contributions are withheld from all gross pay including (but not limited to) vacation pay, sick pay, and bonuses.

The client would like to allow participants to separately elect to defer from any bonus paid to them.

Is this an acceptable mid-year change if the proper notice is provided?

My understanding is that you cannot specifically exclude an HCE from a SEP Plan.  What about in the following situation?

Wife has a SEP sponsored by her self-employed real estate company.  She has no employees, so she is the only SEP participant. 

She works for her husband's company, of which she and her husband are the only two employees.  Her husband is the 100% owner.  The two companies are controlled with the wife owning 100% of her company and she is deemed, through attribution, to own 100% of her husband's company (this would not be the case if she did not work for him).

I have not seen her SEP document, but I highly doubt that her husband's company is an adopting employer of the plan.  So, can he be excluded from the SEP if his company is not a sponsor of the plan?  I do not handle SEP plans and rarely need to get involved.  Do most of them have language that indicates that employees of related companies will be automatically included, in which case a specific reference to the husband's company would not be needed and we have an issue since he has not received SEP contributions? 

Thank you!

A plan implemented a QACA effective 1/1/2017; prior to then it had a plain old ACA. The QACA auto enrolls at 3%, with 1% increases every January 1. The plan's first auto increases will be 1/1/2018.

1. A participant was already deferring 4% as of 1/1/2017; his rate stayed at 4%. Should that person ever have his deferral rate auto increased? If so, would his first increase be on 1/1/2018, or on 1/1/2019? In other words...since he's already at 4% - the minimum rate for the second period - does he skip a year before being increased?
2. Another participant became eligible 4/1/17, and elected to defer 5%. Would he ever have his rate auto increased? If so, when?

Thanks!

I have a client that wants to add an after-tax provision to their plan document.  One of the reasons for this is so that the HCEs who are due corrective distributions (due to an ADP test failure) can have them recharacterized as after-tax employee contributions.  I wanted to do some research before I consulted with them and I ran across 401(m)-2(a)(4)(ii).  It says: 

Quote

 

ii)Recharacterized elective contributions.—

Excess contributions recharacterized in accordance with §1.401(k)-2(b)(3) are taken into account as employee contributions for the plan year that includes the time at which the excess contribution is includible in the gross income of the employee under §1.401(k)-2(b)(3)(ii).

 

Upon reading this, it appears that if a ptp has a pre-tax elective deferral recharacterized to an after tax, that the after-tax contribution is tested in the ACP in the year in which the recharacterization is performed.  (This is very surprising to me.)  To clarify, calendar year 2016 test.  ADP fails and recharacterization occurs in 2/2017.  From my reading of the above, it appears that the recharacterized amount would be include in the 2017 ACP test. 

1) Do I have this correct? 

2) What if the participant terminates prior to the 2017 plan year?  Does the participant have compensation for ACP purposes?  Does the recahracterized after-tax contribution count as compensation?  Eligible compensation?  How does this get included for ACP purposes?  (I would not include this person in the ACP test if they did not have eligible compensation and work during the plan year.) 

3) Same issue as #2 above, but let's say he works 1 day in the 2017 year and earns a very small amount. 

4) If the elective deferral is a Roth elective deferral, I would think that this changes the issue and the recharacterized amount would then be included in the 2016 test as it was taxed in 2016. 

Any help is greatly appreciated. 

Hola Amigos!

I was wondering if anyone could point me to some guidance regarding the calculations of the deduction limit prescribed by IRC §404(a)(3) for an Employer that terminated their Plan mid-year, specifically if you use comp for the entire year, or just the portion of the year that the Plan was active.

I am inclined to say that it is for the entire year because I know that the deduction for DC plans is 25% of the aggregate comp of the eligible participants and that comp for deduction purposes is all comp paid or accrued to the participants during the Employer's taxable year.

I was hoping that someone would know where this scenario is described in the EOB or some other text. 

Thanks in advance!!

Hi - I am seeking practical feedback on the question of attribution of ownership to minor children.  I don't question that IRC section 1563 attributes ownership from parents to children under 21. This creates controlled groups of entirely separate companies simply because they are owned by spouses with minor children.  The thing I struggle with are the many cases where the issue goes unnoticed (or is even ignored). I have lost a couple of prospects because they refuse to believe that aggregation is mandatory.  For those with existing plans, they often say their TPA never notified them (even in cases where they are confident the TPA is aware of the facts.)

I am curious about others' experience.  Do you find this rule is often overlooked?  I've never heard of IRS making an issue of it.  Have you?   

I have searched the web and this site but can not find an example of a notice you would give to the participants of a plan informing them that they can establish an individual brokerage account away from the current financial advisor where their funds are being held.  Here is why I am looking for examples.....

A new plan to me... currently the plan has say 15 participants and all the participants have individual accounts at a legacy investment firm.  The owner has a substantial balance ($700K) and his account is being managed by a money manager at a smaller boutique investment firm.  The other participants do not have the minimums to open accounts at this boutique firm so their accounts are managed at the larger legacy investment firm.  Doesn't seem fair to me... why does the owner get to choose a different investment firm while everyone else is stuck at the legacy firm?  As you can guess, the owner doesn't want to give up his boutique firm so he wants to make it available to the other participants the option for them to choose where and who their account is invested. 

Does anyone have a boilerplate form that I can include as an addendum to the SPD as well as include at the end of the participant statement/SAR package given upon completion of the annual administration?

Thanks!

Apparently, all purchases of prescription drugs, whether retail or mail order, will have local sales tax (based on U.S. residence of consumer) applied to cost-sharing regardless of whether it consists of fixed co-payment, fixed coinsurance percentage, deductible (specific or all perils) or combination thereof. If in fact this comes to pass, is sales tax reimbursible from HSA?

It is my understanding that the Required Beginning Date is the date by which a participant must take his RMD. If the person chooses, he can take his RMD earlier, correct? He does not have to take it on the RBD?

For example, if the RBD = 4/1/2018 but the participant wants to take his RMD prior to 1/1/2018, so it affects his 2017 taxable year, he could. Is this correct?

This is for a Cash Balance Plan, not a DC Plan.

Thanks.

I’m hoping BenefitsLink “heavy hitters” will help me think through an issue intensified by the new market for 3(16) administrators.

An employer (also its retirement plan’s administrator) engaged a 3(16) provider for some plan-administration responsibilities, including deciding claims for a distribution.

A participant submitted a claim for a retirement distribution grounded on her severance-from-employment.  The employer signed a statement, on the claim form, to confirm that this participant is severed from employment.  (For this hypo, assume no other condition could entitle the participant to a distribution.  Also, assume the plan has no provision for a participant loan.)

Through other services, the 3(16) provider has actual knowledge that the participant continues to perform (personally) services for the employer, and knows the employer classifies the worker as a “1099” contractor.  The 3(16) provider believes the employer’s classification is wrong, and was not made in good faith.

To meet its ERISA fiduciary responsibilities, must the 3(16) provider reevaluate or question the employer’s classification of the participant as a nonemployee?

If so, how much “poking” must the claims administrator do?

I have a client who made their final deposit for 2016 (payroll date 12/30/16) and first deposit for 2017 (payroll date 1/13/17) were not processed by the recordkeeper for several weeks; it wasn't discovered for another month or two.  To make good, the recordkeeper reversed the initial transactions and re-processed them as of the date they should have been done, using that dates' share prices (I wonder if the relative share prices made it come up a net positive or negative for the rk?).

So... I presume that this gets us out of having to calculate any lost earnings (presuming that the rk also made sure to correctly credit any dividends or capital gains)?  And how in the world do I begin looking at a 5330?  Any suggestions?

can we set up a plan for a company located in the US VI?  i know PR is complicated but for some reason thought maybe the rules were different for USVI.

I have a 401k participant who came out of retirement to do some work.  While he was retired he was saving $6,500 in his IRA and getting the full deduction.

Now - he is covered by a retirement plan because he is receiving employer SHNE and Profit sharing dollars, and is only getting about $1.5k worth of deduction for his $6,500 IRA contribution each year.

1st - Can he refuse employer dollars?
2nd - if he can refuse employer dolalrs and he does - would he still be considered covered by retirement plan? Or would he not be covered because he doesn't receive any dollars from employer?

The description for Characteristic Code 2A changed a little from 2014 to 2015.   It was just noted when preparing the 2016 return.  I contacted EBSA who referred me to IRS since they created the codes.  Neither EBSA or IRS would commit to a definition of Code 2A.  I am interested in how Code 2A is being interpreted by those of you preparing Form 5500.

In the past, if the plan document had a new comparability profit sharing allocation method, we coded Form 5500 with "2A" regardless of whether the profit sharing component was funded for that year.  Since it was a plan characteristic, we coded accordingly.

The new description reads, "Use this code if the employer contributions in the return year were based on one of the following allocation types-Age/service weighted or new comparability or similar plan, etc.  

1)  Do you interpret this to mean that you code with "2A" only IF the employer makes a profit sharing contribution IN THE RETURN YEAR?

2)  Or do we continue to code with "2A" if the plan document has a new comparability profit sharing contribution provision and it does not matter whether this component is funded in a plan year?

My thoughts are if the plan has the provision, that is how it should be coded.  We don't go back and forth with the code 2K when an employer match is made or not made from one year to the next.

Your thoughts please....Thank You!

Not sure, but I thought y'all would get a kick out of it. I stumbled across it on another board when doing a Google search for something.

"If that is what the publications say, then that is what I would do. If you do not get a good answer here, try re-posting on the BenefitLinks website. That is where the benefits heavy hitters hang out. "

I have a client, age 91, who recently died. He has an IRA annuity which has been annuitized & receiving regular payments. His beneficiaries are his 3 children. I understand the annuity payments would satisfy the RMD requirements of Code 401(a)(9). Upon his death, the IRA annuity stopped making payments & his beneficiaries are entitled to receive a lump sum distribution of his remaining annuity balance.

How is the decedent's 2017 RMD calculated? Would his remaining 2017 annuity payments have to be paid to the beneficiaries? Would the calculation be based as if it was a non-annuitized IRA & divide his 12/31/16 balance by the appropriate life expectancy factor & net his 2017 annuity payments?

Once the decedent's 2017 RMD is distributed from the IRA, can his beneficiaries rollover the remaining balance to separate inherited IRAs? Would the remaining balance be considered not an Eligible Rollover Distribution because it would be considered as one in a series of substantially equal periodic payments which would not permit rollovers to inherited IRAs.