Hi!

Company A is selling Division Z to Company B with the close date being mid-month.

Company A will stop providing health coverage to Division Z employees mid-month at close. Company B will start providing health coverage to these employees at close (no time without coverage).

However, since Division Z employees were not offered health coverage for each day of the month at Company A, there will be a reporting gap for 1094 and 1095 purposes. Likewise, for Company B.

Has anyone dealt with this before? Is there a workaround here to eliminate the coverage gap, other than requesting company A keep benefits turned on through the end of the month?

We have a very standard NQDC Plan.  Section 409A-compliant.  Elective deferrals and employer contributions.

Are there any risks that a standard NQDC Plan can make the company/sponsor subject to any Securities Law or Blue Sky Law (Federal/State) requirements?

If an auditor concludes that a plan has a "significant deficiency" in the plan's internal controls (but that deficiency does not rise to a "material deficiency"), must that be reported in the plan's financial statements attached to the plan's Form 5500?

We have a 401k plan with a participant who died a couple of years ago.  The beneficiaries are the 2 adult children.  The daughter has already received her distribution, but the son will not respond to any contact from us or from his sister.  He did respond when we first contacted him and said he would complete the paperwork, etc.  He never did and now does not respond to mail, calls, etc.  We cannot even do a forced rollover because we have no SSN to provide the platform that holds the assets.  Any suggestions are appreciated.

Thank you.

Hi, 

As per the new DOL regulatory the requirement for annuities has been loosed is there thing that can be shared what those  requirements are? any DOL guidelines links that any one share? 

Suppose a participant in a traditional db plan terminated employment 10/31 and has an annuity starting date of 11/1. If they receive two months of severance comp which is not paid until 12/31 can that comp be included in the accrued benefit as of 10/31 and become part of the first payment on 11/1?  If the severance comp is paid in the final 10/31 pay I think clearly it is okay. The first scenario does not seem correct to me but I cannot say why precisely. Would it be different though if the benefit calculation is done after 12/31 with a RASD to 11/1?  The plan document says that the accrued benefit is as of a date but compensation seems to be related to the plan year?

if a DBP terminated in 2023 with 4 active employees (2 owners and 2 staffs) in 2023 and the sponsor wants to move the excess asset to the 401k plan to avoid excess tax, however, both staffs (one is HCE, another is NHCE) terminated in 2024, the NHCE needs to get GW so she/he needs to be benefiting in 2024 xtest, what about the HCE? he doesn't have any required contribution (GW or TH). Also, I find the following language from ERISA Outline Book, in this case, he doesn't need to be benefiting in 2024 in order for the 401(k) plan to be qualified as a replacement plan (95% active participants), right? Thank you in advance!

5.a.3) Restrictions on allocations to HCEs. Pursuant to IRC §4980(d)(4)(A), an amount allocated from the suspense account may not result in prohibited discrimination under IRC §401(a)(4). Thus, if the employer restricts allocations to HCEs who were active participants in the terminated defined benefit plan, such restrictions will not cause the plan to fail to satisfy the 95% requirement described in 5.a. above. See PLR 201147032 and PLR 201221059.

Does anyone know if SECURE 2.0 made changes to EPCRS that can now apply to governmental and non-governmental 457b plans? Thanks!

This is a 3% non-elective 3% safe harbor hce are included in the plan (they are allowed to participate in all contribution sources).  The question is:  the client does not want one of the hce's to receive the 3% safe harbor contribution.  Can we simply not give the HCE the 3% safe harbor contribution?

We have a client that has a crazy match.

Defer 2% get 300% match (6%)  Defer 4% get 150% match (6%)  Defer 6% get 100% match (6%)

No match on deferrals less than 2%.  If you defer something other that 2,4,6...then match is 100% of deferrals.  No one in the plan defer more than 6% even though they could defer up to 100%.  We think the plan sponsor verbally doesn't allow it.  It is a very small company (45 participants).

It doesn't seem correct.  For BRF, everyone has the ability to defer and receive the match.  Any thoughts?

Working with a client who has a small excess in a term'd DB plan and wants to use the excess for matching contributions under the client's existing 401k plan.  The 401k plan provides for immediate eligibility for FT and PT employees with autoenrollment.  We have assumed, therefore, that the replacement plan will satisfy the 95% rule b/c all of the active employees who participated in the DB plan would be immediately eligible for 401k plan with an auto-election and would have had to affirmatively opt-out.  But do folks actually go through the plan rosters and count the number of active former DB participants who are active prtcpts in the replacement plan?   (These are big plans and counting would be somewhat manual).  Second, can anyone point to guidance on who constitutes an "active participant" in a replacement plan?  Is it mere eligibility or does the active participant have to have a balance?  Third, I realize that there are restrictions in the PLRs on using the excess for match.  But I'm pretty comfortable that if the excess is applied to match earned in the previous payroll period w/r/t previously made elective contributions, we should satisfy the match rules.  Any thoughts?

Hi

This is a first for me.

Looking into a proposal for DC/CB combo.

DC plan already exists and has early retirement age (ERA) provisions

• NRA is 65/5 and date on which participant attains NRA
• ERA is age 59.5 and at least 6 years of service for vesting purposes (1000 hours) and on anniversary date with/next following satisfaction of ERA

I am confused the way written as at least I would this the retirement date would need to be the same (again, no idea and/or experience)

The above aside, for CB plan design, other than NRA being 65/5, do I need to include ERA in the CB plan and cross test as well or just 65/5 is sufficient?

How is the testing done?

Any comments/suggestions?

Thanks

I hope I'm on the right message board here.  I had a client ask me about taking his RMD and directing it straight to a charity tax free (and still have it count as his RMD).  I have a couple questions on this topic and any input would be appreciated:

• Can the RMD be taken from a Profit Sharing Plan or 401-k or must it come from an IRA?
• If the answer is just IRA than can the client accomplish this by rolling funds from the Profit Sharing to an IRA and then directing it to the charity tax free?
• Does it have to be an RMD or can any distribution directed straight to a charity receive the favorable tax treatment?
• Obviously if the transaction is tax free (and still counts as RMD) then the funds going to the charity aren't eligible to be deducted since they are already tax free?
• Does it have to be the whole RMD or can you direct a portion to a charity tax free and take the balance as a taxable distribution?

Any clarity on the matter would be greatly appreciated.  Thanks!

A self-funded plan is under audit from DOL. The investigator alleges the plan lost grandfathered status a decade ago when switching networks. The rationale is that the schedule of benefits under the old network arrangement offered an incentive for participants to seek care from certain high-quality providers. In other words, the copayment for office visits for certain specialty physicians has always been $30, but under the old network agreement, participants benefitted from a $15 copayment when using certain highly-qualified providers. This program was proprietary and designed to ensure participants were receiving the highest level of care for certain conditions. The incentive program stopped when a network change was made and participants could no longer benefit from a lower copay when using the specialty network. The DOL argues this was a change in cost-sharing that cost the plan its grandfathered status. However, the plan had no access to the specialty program when the network change was made. Any input is appreciated. 

I have acquired a client that has an existing plan participant that took a hardship distribution for $20,000 in calendar year 2023. Rather than paying this participant the net amount after 20% withholding of $16,000, he had the entire gross amount $20,000 distributed to him. When the 1099-R was prepared, It showed that the distribution made to him was the entire $20,000 with all of it being taxable and no taxes being paid in calendar year 2023. What are the implications of distributing the gross amount and not the net amount? Not trying to make excuses, but the participant paid the taxes on the entire amount of $20,000 and it is basically a timing matter.

I sent a 5500-SF to a client for signature.  I suspect the client will sign and send it back to me after 7/31 even though I instructed otherwise.  I plan on filing an extension.  If the client signs the 5500SF that doesn't have the 5558 box X'd in by the software, can I manually fill in the 5558 box on the 5500-SF that he signed?  Or do I need to go back to him and have him sign a new 5500-SF with an X in the 5588 box generated by the software?

Thanks!

Question for the team: My client is a small business. The father started the company and transferred 100% of ownership to his two sons in 2016, splitting the ownership 50/50. In 2016, the Father was 68 years old. In 2018 (or 2019), the Father started his RMDs, even though he is still employed and no longer a 5% owner.  The Father is still getting RMDs but doesn't want them since he doesn't need the money.

Would someone be able to help me with this situation?  Can we stop the RMDs since he is still employed but no longer a 5% owner?  I believe he was erroneously left as an owner on the year-end questionnaire in 2016 because the previous plan admin did not understand the ramifications of not updating the ownership.  I'm not sure if you can stop an RMD, once it has started, even though it was a mistake to begin with.  I'm also unsure of attribution rules since his sons are now the owners.

I would appreciate any help!  Thank you!

IRS Notice 2024-2, Section G, Q&A-7 re Section 332 of SECURE 2.0, provides the following:

When the SIMPLE IRA plan is replaced by the safe harbor section 401(k) plan mid-year, the total amount that may be contributed as salary reduction contributions under the terminated SIMPLE IRA plan and as elective contributions under the safe harbor section 401(k) plan may not exceed the weighted average of the salary reduction contribution and elective contribution limits for each of those plans (weighted by how many of the 365 days in the transition year each plan was in effect). Thus, the total amount that may be contributed as elective contributions to the safe harbor section 401(k) plan is equal to:

(1) The annual limit on salary reduction contributions under a SIMPLE IRA plan for the year (taking into account catch-up contributions described in section 414(v)), multiplied by a fraction equal to the number of days the SIMPLE IRA plan was in effect for that year divided by 365, plus

(2) The annual limit on elective contributions under a section 401(k) plan for the year, under section 402(g), multiplied by a fraction equal to the number of days the safe harbor plan was in effect for that year divided by 365, minus

(3) Any salary reduction contributions under the SIMPLE IRA plan for the year.

(1) above specifically includes catch-up contributions under 414(v) in the calculation, whereas (2) does not. Does this mean the fraction in (2) is only taking into account the $23,000 limit, and not including the $7,500 catch-up? That's how I read it, although it doesn't make sense to me... 

Interesting situation. An ERISA 403(b) plan - large plan, audited - was treated as a controlled group/affiliated services group for several years, when in fact, it was not - it was a MEP. 5500 forms did NOT have the MEP attachment.

If amended forms are filed with the MEP attachment, would that require a new audit? It seems unreasonable, as nothing changes except the attachment detailing the breakdown of the assets between the participating employers - total assets, participant counts, etc., remain the same.

Anyone ever encountered this?

>There is no question that, except for defined benefit plan payments made to a spouse or former spouse for child support, the amount paid to a spouse or former spouse via a QDRO (as alimony or as an allocation of property) is taxable income to the alternate payee.  But I cannot find the section of the IRC or the Regs that say that.  It is set forth in IRS Publ. 504 and 575, but the source is not stated. 

Whoops. I just found https://www.law.cornell.edu/cfr/text/26/1.61-11#:~:text=CFR-,§ 1.61-11 Pensions.,income unless excluded by law.

Any other citations?    

>For the first time is 38 years of preparing QDROs I have an attorney for the Participant insisting that the allocation of a defined benefit  plan be computed with respect to the "net" (not the gross) annuity payments paid to the participant, that is, net of the participants state and federal tax  withholding, Social Security and Medicare taxes, health insurance and life insurance premiums, and the cost of the survivor annuity.

I pointed out that we NEVER use "net" since the amount is subject to manipulation by the participant and because is forces the alternate payee to pay part of the participant's taxes (what the hell?), but I have been looking for a learned treatise, or law review article, or even  caselaw, that sets forth a better and more authoritative argument. 

Anybody?

Thanks, 

David