AnnCK

The Plan Administrator must decide how to interpret the plan and the beneficiary form. However, my thinking is that if the form specifically states that the percentages must total 100% (which most forms have this language) and the designations did not total 100%, then the form is invalid and cannot be honored. Determining that the form is invalid because the instructions on the form were not followed would be consistent with the Honeywell case where the beneficiary form specifically stated that the percentages must be whole numbers and the court found that Honeywell was correct in rejecting a form where the participant had listed the percentages in fractions. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://ecf.ca8.uscourts.gov/opndir/22/08/213453P.pdf Thinking a little outside the box, if I were the PA I might also consider not rejecting the form but rather paying 50% of the account to the individual who was listed as 50% beneficiary, then taking the position that there is no beneficiary for the remaining 50% so that portion needs to be distributed in accordance with the terms of the plan document. That might be stretching it a little but personally I would feel better knowing that I was at least honoring the participant's wishes on the portion of the benefit that was clearly intended for the 50% beneficiary..

I am a financial advisor (used to be a TPA) working with a small company with a pooled 401k account. The plan sponsor is terminating the plan. There are 2 life insurance contracts in the plan. One contract only has a cash value of about $450 so we'll ignore that for this purpose. The plan has been paying the premiums. However, the other policy which is on the owner of the business has a cash value of over $200k. That policy is paid up so no premiums have been paid on it for as long as I have been involved with the plan. The plan assets are pooled and valued quarterly. I noticed on the most recent valuation that the account balances that are being reflected and given to participants do not take the insurance into account at all. In other words, the value shown on the participant statements only equals the value of the plan investments exclusive of the life insurance contracts. Same for the most recent 5500 - no accounting for the life insurance. The owner wants to take the cash value of his policy and roll it to an IRA. I feel like the insurance is an investment of the plan and that if it is surrendered, it wouldn't just go to the owner. But I am not sure on that.. ? This plan has been in existence since the early 70's. I don't know if the life insurance premiums for the owner's policy were paid from plan assets or charged directly against his account. Does that make a difference on whether the cash value of the policy all goes to him? thanks for any insight!!

I am getting a little mixed up when I try to think this through so could use some help I have a client who is currently contributing for their field employees $4 per hour into the 401k plan. This is tested under 401(a)(4) testing by the recordkeeper. it is not Prevailing Wage, just profit sharing. The client wants to change the arrangement so that employees will have the option of either continuing to receive a $4 per hour contribution into the plan OR getting a $3 per hour pay raise. What are the implications of this? Since employees will have a choice, has the employer effectively given a pay raise to all of them of either $4 per hour or $3 per hour, depending on what they elect? I would think that previously the employer was taking a tax deduction for the employer contribution, but under this new arrangement employees who elect to receive the $4 per hour contributed to the plan are really just contributing their own pay, so this is no longer an employer deduction? And the employer will now need to pay applicable payroll taxes, etc on these raises? Also this seems really confusing in the case of an employee who is currently already contributing to the 401k plan as a % of their pay, and now they elect to continue to receive the $4 per hour into the plan. Doesn't that conflict with their deferral election? thanks!

To add additional info, the plan document states that "In the sole judgment of the Plan Administrator, if any Beneficiary entitled to benefits under the Plan is not capable of managing the benefit about to be distributed, such distribution may be made to legal representative of that Beneficiary, or in the case of a minor Beneficiary the guardian, under a valid power of attorney, a court appointed guardian or any other person authorized under state law to receive the benefit. The Plan Administrator may require an order of a court of competent jurisdiction before making such distribution. " I think the document allows that the Plan Administrator could pay the money directly to the kids if he/she thinks that they are capable of managing the benefit (?). I don't think it would be unreasonable to assume a 15 and 17 year-old could manage a $95 payment... Any thoughts? thank you!

I work for a bank that is trustee of a 401k plan. One of the participants passed away in 2019 with no beneficiary form. He has $590 in his account. He was not married. He has 6 children. In the state where he lived, 18 is the age of majority. 4 of his children are older than 18. The other two are 15 and 17 years old. Each bene is due around $95. For the 2 children who are not 18, must those checks be paid to a guardian? I think those 2 kids might be living with a grandmother. If the payment has to be made to the guardian, do I need to request something to substantiate who is legal guardian for the two minor children? Thank you!

Thank you!!

Thanks Lou - yes, I should clarify. She is already a participant in the plan and has a small balance herself. The man who died was the owner of the business and his wife works there too and is now running the business. The plan uses a DATAIR document. The RMD section of the plan states that if the participant dies before distributions begin and the spouse is the bene, distributions will begin by the later of 12/31 of the calendar year following the participant's death OR by 12/31 of the year in which participant would have been 70 1/2. However, isn't there a requirement that the wife must take a distribution each year based on her life expectancy if the account stays in her husbands name? OR she could roll it into her 401k account in the plan and not have to take any RMDs until she is 75? But she will be subject to 10% early penalty on any withdrawals prior to 59 1/2 (?) I can't find a good resource that clearly explains the options/requirements on this situation. Thanks!

We have a small balance forward 401k plan. One of the employees died at age 49 and his wife is the beneficiary. She is also 49. She wants to leave the money in the plan. Should we/must we change the name on the account to her name, rather than using her deceased husband's name? Any other issues we should be aware of? Thanks!!

The IRS Simple Plan FAQs indicate compensation is used for the entire year: "As an alternative to making matching contributions under a SIMPLE IRA plan, you may make nonelective contributions equal to 2 percent of each eligible employee's compensation for the entire calendar year." https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-simple-ira-plans#compensation

Thank you! I had read the language in 416 incorrectly and was thinking it said to substitute 50% for 5%, not the other way around !

Law firm that is a partnership. Bill and Mary and married and both work for the firm. Bill owns 5% profits interest and Mary owns 5% profits interest. When they reach RMD age, must they start the RMDs while they are still working? Neither one has more than 5% profits interest. I am reading several articles that state that the reference in 416 to the constructive ownership rules of 318 will require Bill to be deemed to own Mary's interest, and vice versa. Therefore they will each be deemed to have 10% profits interest and therefore must start the RMDs. My question is, "what is the significance of 416(i)(1)(B)(iii)(I) which says that “constructive ownership” only applies if a person owns more than 50% of the stock of a corporation, or (II) in the case of an employer that is not a corporation, principals similar to the principals of (I) apply. To me, this seems to be saying that Bill would not be deemed to own Mary's profits interest unless Bill owned 50%, and vice versa. So while 318 requires constructive ownership, it seems like 416 is saying that for purposes of determining a 5% owner, the constructive ownership rules will only apply if a person owns at least 50%. Thanks!!

I am a bit confused on the W-4P and W-4R usage. Lets assume a lump-sum distribution, rollover eligible. If a participant requests a distribution from a plan and completes a distribution form that includes a section where he/she can elect the withholding that they want to apply, is it also necessary that the participant complete a W-4R? Along the same lines, I have seen some TPAs use a distribution form that has an election to pay the participant "In a single payment of my entire account balance, less required 20% withholding". If the person chooses that election, do they also need to complete a W-4R form? Thanks!

My other thought on this is that under the new Long-Term Part-Time rule in the SECURE Act, if any of the summer folks have worked 3 consecutive years with at least 500 hours starting with 2021 and are age 21, then on 1/1/24 they will be eligible to participate in the plan. So I think that starting in 2024 you will not be able to file an EZ, if you have anyone who meets that criteria.

I have a client who is bundled with a daily vendor and the company is being sold as part of a stock purchase. The daily vendor is saying it will take 6-8 weeks before they can even look at preparing an amendment to terminate the 401k plan. We need to get the plan terminated ASAP because the buyer is requiring the plan to be terminated prior to the transaction. I have read the BPD for the vendor and there is no specificity on how the termination must be accomplished (board resolution or amendment), just typical language about all accounts being 100% vested, no future contributions, etc. If the client's attorney types up a Board Resolution to terminate the plan with an effective date prior to the acquisition, will this be sufficient to legally terminate the plan? Then if the vendor wants to prepare some sort of amendment they can follow up with that later? Thank you!!