Tom Veal

A client whose plan is terminating needs to locate the beneficiaries of two deceased participants. One participant has a beneficiary designation on file; the other does not. The employer is located in Pennsylvania. Any recommendations for a commercial locator service?

While I agree with Artie M., let me note that a favorable IRS determination letter would not prevent participants from bringing an action under ERISA. The IRS has no authority over Title IV of ERISA, which includes rules governing reversions.

While I don't deal to any great extent with Davis-Bacon plans, the answer to this question is pretty clear. The prevailing wage requirement has two parts: cash wages and fringe benefits. The minimum for each is calculated separately. An employer may reduce the fringe benefit component by paying cash wages in excess of the minimum, but not vice versa. In HrdWrkr's case, the cash wage component is $30 an hour, and he receives $30 an hour in cash. Since there are no wages in excess of the minimum, the employer must provide fringe benefits with a cost of at least $14 an hour. Elective deferrals don't count toward the fringe benefit minimum. If they did, the cash wage would be less than $30. The same payment can't count toward both prevailing wage components. (Aside from that, three percent of $30 is quite a bit short of $14.) Hence, the fringe benefit component must be satisfied by matching or nonelective contributions. It's also true, as Artie M. points out, that paying workers at a higher rate when they don't make elective deferrals (what HrdWrkr believes is happening at his work place) would violate the contingent benefit rule and disqualify the cash or deferred arrangement.

The purpose of opt-out money is to encourage married employees to sign up for coverage under the plan of a different company where the employee's spouse can obtain family coverage. That purpose isn't served if both spouses work for the same company.

Eris was the Greek goddess of discord who inspired the Trojan War. Cornell Law School's Legal Information Institute has the complete U.S. Code, including ERISA. The only drawback is that it uses the Code section numbers rather than ERISA's.

Absolutely. The estate is the worst possible beneficiary, particularly of an account as large as this one. The heirs will have to wait until probate, which can be slow and expensive, is finished before getting their money and, as already noted, will not be able to defer taxation through rollovers.

Since the participant died before her required beginning date and assuming that the estate is the beneficiary (as is almost certain based on what you say), the account balance must be distributed by the end of the fifth calendar year following the year of the participant's death. If my understanding of TSP is correct, that requirement will definitely be satisfied, because distributions to non-spouse beneficiaries are made within 90 days after the participant's death; there is no option to postpone the distribution.

The IRS's historical position was that, with a few exceptions that wouldn't be pertinent here, discretionary plan amendments could not be effective for plan years before the year in which they were adopted. SECURE Act 2.0 partially reversed that policy. New IRC §401(b)(3) provides that an amendment that increases benefits may be effective as of any day in the preceding plan year, so long as adoption is no later than the extended due date, including extensions, of the employer's income tax return for the taxable year within which ends the plan year that contains the effective date. Since adding tips to the plan's definition of "compensation" can only increase benefits, it is unobjectionable. I agree with the previous comments about the practical difficulties of taking tips into account, except for tips that are reported on employees' W-2's.

The mandatory Roth catch-up provision is part of section 414(v). Failure to comply negates section 414(v)(1), which allows plans to include "regular" catch-up contributions. The special 403(b) catch-up is provided by section 402(g)(7)(A), an entirely separate rule. Therefore, the Roth requirement doesn't affect it.

An in-plan rollover to a Roth account is the simplest solution.

Agreed. What's more, a final return showing only the 2025 activity would be utterly uninformative. Opening balance: $0.00, Income received: $0.06, Distribution: $0.06, Ending balance: $0.00.

The prohibition against unfunded plans for rank-and-file employees comes from ERISA. A church plan that hasn't elected ERISA coverage is exempt from it.

Yes, that is correct. Assuming that the participant is past his required beginning date, a Roth RMD was required for 2023 but never again until after the participant's death.

That was the motive for the IRS's original restrictions on early NRA's, which it dropped, because it decided that the section 415 limitations were restrictive enough. It restored the restrictions, so far as I can discern, to thwart avoidance of whipsaw distributions in cash balance plans. Then Congress repealed the whipsaw, but the new regulations weren't dropped. They don't serve any real purpose now.

A cash balance plan is a defined benefit plan. Contributions to defined contribution plans don't affect DB plan contribution limits. I wonder, though, whether the description of the proposal is accurate; "reclassify the excess as after-tax contributions for this year so I can start my cash balance plan this year" doesn't in fact make sense.

Yes, two year cliff vesting is allowed for safe harbor QACA matching and nonelective contributions.

If the plan has reached the point of filing a Standard Termination Notice, you must inform the PBGC that the enrolled actuary's certification of sufficiency (Schedule EA-S) is no longer valid. The plan sponsor should then initiate a distress termination by issuing a new Notice of Intent to Terminate to participants and to the PBGC (which is a recipient of NOIT's in distress terminations but not in standard terminations). If the Standard Termination Notice hasn't yet been filed, the PBGC doesn't yet know "officially" about the termination. A distress termination NOIT should be issued. It goes without saying that you should apprise the PBGC personnel with whom you have been communicating about the client's altered circumstances.

Can you describe the circumstances more fully? Is this a DB plan? If so, did it terminate in a standard or a distress termination? Is the plaintiff the plan's trustee or the employer? What will be done with the funds recovered from the ex-spouse?

The employee count affects only eligibility for the credit. An employer is ineligible if it had (quoting the Form 8881 instructions) "more than 100 employees who received at least $5,000 of compensation from you during the tax year preceding the first credit year". If there is no preceding tax year, the employer didn't have more than 100 employees during it. Ergo, it is eligible for the credit. That interpretation is supported by the fact that an employer that is ineligible for the credit in the year in which the plan is established never becomes eligible. See Notice 2024-2, Q&A B-4(1).

If I may add a couple of points -- An unfunded church plan that doesn't meet the criteria for a section 457(b) eligible deferred compensation plan is subject to IRC §457(f). Deferred compensation is then included in taxable income when the right to the compensation is no longer subject to a substantial risk of forfeiture. Earnings credited after vesting are taxable when actually or constructively received. Church plans are not exempt from IRC §409A, which imposes significant restrictions on plan design and severe penalties for violations. It is therefore important to consult knowledgeable counsel before adopting an unfunded plan.

Gilmore, your recollection is correct. Section 112(b) of the original SECURE Act states that only eligibility computation periods beginning on or after January 1, 2021, are taken into account in determining part-time employees' eligibility.

The route that the corrective contribution follows into the plan is unimportant. What matters is that, from whatever source the contribution comes, it is classified as an employer nonelective contribution and is subject to the rules that apply to contributions of that type. If the recordkeeper remits funds directly to the plan, the transaction will be constructively a payment to the employer followed by the employer's contribution to the the plan. The paper trail is simpler, however, if the recordkeeper pays the employer and the employer pays the plan.

There's nothing wrong with letting the new group of employees participate immediately without regard to the normal service requirement. Eligibility requirements don't have to be uniform (with the obvious caveat that they can't result in discriminatory coverage).

That strategy seems dubious for a variety of reasons. The clearest and most straightforward objection to a 12/31/21 plan termination date is that plan assets were not distributed within one year, as required by Rev. Rul. 89-87. Even if a resolution terminating the plan had been adopted by 12/31/21, the termination would be ineffective, and the plan would remain subject to all requirements that apply to ongoing plans, including the minimum funding standards.

You are probably thinking of PBGC Op. Ltr. 88-5, which states that the cap applies after a mass withdrawal only to employers that withdrew before the mass withdrawal. If their initial liability was limited by the cap, they are not subject to redetermination or reallocation liability. If, however, the employer sells its assets after the mass withdrawal, there is no cap, because the asset sale wasn't the event that caused the withdrawal.