AlbanyConsultant

I've re-read ERISA 105, and we're debating if it's necessary to send annual participant statements (from our recordkeeping system) to participants who are fully invested in self-directed brokerage accounts. What they are not getting from those accounts are (a) vesting by money type and (b) information about their loan balance (where applicable). At the moment, that's all that they are functionally missing - while it might be nice to know how much of their balance might be in the deferral money source vs. the profit sharing, if it's all vested, it doesn't matter as much. So we're thinking that if a plan is by design fully vested, then we can skip the statements; we'd still provide statements if the plan has sources subject to vesting, even if all participants are fully vested due to accruing enough years of vesting service. As for loans... I don't see that as being a requirement anywhere, so we're on the fence about it. Any comments, ideas, etc.? And I know that this could or will or may change once we get new rules on lifetime income wording, as I suspect that the brokerage accounts won't put that on their statements (I will be happy to be wrong about this, though) - since many of them aren't even set up as "retirement plan accounts", why would they follow retirement plan rules? Thanks for your thoughts.

In this plan where all the assets are in self-directed brokerage accounts, the deferrals are sent in one check to the financial advisor, who deposits them to a holding account titled in the name of the plan. A breakdown is sent with the check, and once the check clears (I assume that has to happen first?), the money is moved from the holding account to the participant accounts. The checks often arrive in approximately five business days... so we're already getting close the the safe harbor timing. While this may be outdated these days, we might be able to make the argument that this mailing time and waiting for the funds to clear and then +1 day for the split is "reasonable" for this set up. Mmmmmaybe. But what about the times where there is a delay at the financial institution? The money has been segregated from the employer and is deposited to the plan - check. So it's not really late to the plan. Where's the exposure that it didn't get to the participant's account timely... because I assume there has to be some, right? This happened a couple of times last year, so I want to warn them about this, and being able to hang my hat on something would be nice, but all I'm finding is "must be deposited to the plan", which it was. I know, get them to a product platform. Maybe one day. LOL Thanks.

I've got a NFP that is terminating their 403b plan and starting up a 401k plan (for many reasons). Most of the active participants are expected to roll their 403b plan balances into the new 401k plan. Of course, we never had to worry about top heavy in the 403b plan... but what about these rollovers in the 401k plan? It's the same entity sponsoring the plan, so they seem to be related rollovers, and they are participant-initiated. But since they are from a 403b plan, do they retain the characteristic of not being subject to top heavy (so therefore I can treat them as non-related rollovers for the purpose of testing)? Thanks.

If the former fiduciaries are considering allocating and paying this out, this is going to lead to messy 1099-Rs, isn't it? They can't get 'free money', so there has to be a 1099-R, but who is the 'payor'? The platform, whose TIN they had been using while the plan was active a decade ago? From other asking around that I've done, I don't believe that this will cause the plan to have to be 're-opened', so no new documents or 5500s would be needed. In some way, that seems at odds with the idea of needing 1099-Rs, though.

The former plan sponsor of a plan that terminated and was paid out in 2011 just received a check at her home from the fund platform that held the old plan. The accompanying letter says that, as plan fiduciary, she needs to handle this $1,400 which comes from a settlement from 2012 by either allocating it among the plan participants or applying it as plan fees, so this leads me to think that this isn't specifically for her account. Ignoring the fact that a settlement is arriving in 2021 from nine years ago... there were 8 or 9 participants with balances in the final year of the plan. Distribution fees alone could easily eat up 1/3 of that. Throw in some consulting time... The problem I see is that there is no trust any more to pay the participants from. We'd have to re-establish the accounts back at the platform, probably sign new paperwork, send distribution forms (find the participants!), etc. And if the trust has assets again, doesn't that mean the plan is active again and we have to file a 5500? Update the document? By the time all those fees are tallied up, this money is definitely spent. On the other hand, taking this money pre-emptively but not doing that work to 'earn it' seems wrong, unless consulting for it is a very long process. Any suggestions? Thanks...

We see a lot of participants opt to take more than the minimum, which is why we defaulted to providing the notice. "Your RMD is $4,700." "Then I'll take $5,000." This way, we've already given the notice... which is especially helpful when we're having these conversations in December. But I'm thinking some re-wording might change the way it works: "here is your RMD, period. If you want anything else, that's an in-service distribution, which is a separate transaction; don't cross the streams." Thanks, all.

We always provided the 402f notice with RMD paperwork just to be on the safe side, but I stumbled upon this article that suggests that Notice 2020-62 clarifies that this is not necessary. I can see why it wouldn't be, but I'm just being overly-cautious. Any thoughts? link Relevant section from article: Of course, the IRS Notice nowhere comes right out and says this - it says that QBAD doesn't need a 402f notice because it can't be rolled over. Is the GF article writer just being a little aggressive? I note that American Funds has removed the 402f notice from it's RMD form, so maybe there really is something here...

I've got a hardship request for a casualty issue where the participant says that he and his buddies have the skills required to do the work themselves, but they need the hardship to cover the costs of the materials, and, hey, why shouldn't he be able to compensate his buddies for their time, too? OK, the materials I can see, but the rest of this is sounding alarm bells... Assuming that the Plan Administrator wants to approve this as a true casualty situation hardship, is a fair recommendation to suggest that the participant get an estimate from a licensed contractor and use that for the hardship distribution amount? Technically, once the amount is paid to the participant, it's not on the Plan Administrator to ensure that the money is used for that purpose, anyway, but if the participant wants to do the job with his friends and pay them instead, as long as the amount isn't unreasonable (which is what the bona fide estimate is going to be used to substantiate), isn't the plan on solid ground?

This got shifted a year, but my head may not be shifting it, so I think I've got dates that don't line up... As I recall, this was originally effective sometime in 2019 in proposed regs that could be followed, and we expected that the amendment itself could be done before 12/31/20 but effective in 2019 - we drafted a whole bunch of them then (that we held awaiting for a document restatement package that we still can't prepare, but that isn't part of this issue other than to say that these amendments are drafted to have an effective date of 2019 but not signed). Then there was a one-year extension, and it had a "soft opening" in August 20, 2020, but was really truly effective starting 1/1/21. So now I presume the amendment has to be done before 12/31/21 (never mind the tri-cycle restatement for the moment). Can the amendment still be effective for 2019? Or is that off the table? Thanks.

Thanks, everyone. I think Bird's point is spot-on for the client - this plan has been around since the early 80's or so, and we took it over a couple of years ago. "We've always done this" is what they keep saying, and "But you shouldn't!" is my reply.

In this pooled money purchase plan, the custodian hits the account for their fees directly. The plan sponsor doesn't want the participants to have to suffer the fees, so they deposit money into the account to cover the fees. I can't see any way in which can be OK. My first thought was to include it as part of the contribution and reduce the remaining deposit. But I've got terminated participants who are being affected by this fee as well, and obviously they can't benefit from a contribution allocation. I asked the plan sponsor to bonus the participants in the amount of the fees that were allocated to each of them. That was not met enthusiastically. I asked the custodian to change their policy to bill the plan sponsor instead. It's not the right kind of account, it doesn't work, all sorts of other excuses that I don't believe for a moment. So now there's a big call tomorrow to discuss why I'm causing a problem. Hey, I'm not the problem here! Is there no way for the participants to be shielded from the fees (which aren't unreasonable in amount, but, still) because the custodian won't play nicely?

So therefore, because the RMD is expected to resume, it is not ceased and no 8955-SSA would need to be filed. I like that take.

I've never had an issue with missing someone on an SSA before, but watch this be the year someone at the IRS figures out they need to check this. I mean, what's one last slap in the face 2020 can heap on us? LOL

Participants who were terminated but receiving RMDs didn't need to be reported on the 8955-SSA because they were receiving at least some portion of their benefits. With 2020 and the RMD waiver, many RMD-eligible participants did not take their RMD. So when we're working on the reporting this year, they need to be reported on the 8955-SSA for 2020 because the "payment of the deferred vested retirement benefit cease[d] before ALL of the participant's vested benefit is paid to the participant..." (from the 8955-SSA instructions). I'm wondering if there was something covering this specific situation out there. Otherwise, there are going to be a bunch of additional people reported... and we know how well the SSA maintains this list, even when the Code D is properly reported at the time of payout. *cough* not overly well *cough* I certainly don't want to make the decision for my clients and not report people and run the risk of incurring the $10/person/day penalty, and it's not like it's a particularly large amount of work for the typical-size clients we service, but I just figured I'd check the hive-mind since I didn't see anything addressing it myself. Yes, I know that if the participant has taken their 2021 RMD by the time of the 8955-SSA filing, that would put them back in "pay" status and make them not need the form... but sometimes, getting that information is harder than just completing the form! Thanks.

[Not to resurrect this, but...] This is the way we handle them, but I just had a CPA (who I generally trust) tell me that it's wrong when he saw that we did this for two 2020 distributions. According to him, for someone who is over 59.5 we should be using code 7, and for someone under we should be looking at codes 1 or 2 as applicable. And I see something to support that here. In this instance, the two participants (one 60+, the other not) are taking in-service distributions. I guess the question is what takes precedence? Is this a "Roth IRA conversion" as described in Code 7, or a "direct rollover from a qualified plan" as described in Code G? I just called American Funds and confirmed with their distribution department that they would do this as a Code G.

This is an ERISA 403b plan. The deceased participant's sister, who is acting as the executor, is making a claim that the benefit be paid to the estate. The divorce was never finalized. I have suggested that they take this to legal counsel, and the plan sponsor agreed.

The participant has ceased to be. She has expired, passed on, etc. Which makes this all a little trickier.

One of my colleagues looked it over and pointed out that since the separation agreement didn't ask for any of the plan benefits to be segregated, did it actually have to meet QDRO standards? It's not trying to award plan benefits to anyone... it's (in theory) taking away the rights of the husband to be the beneficiary, apparently with his agreement. There is a partial beneficiary form on file from years ago (pre-separation agreement) with the husband listed as the beneficiary - it's not signed, of course - and nothing was ever updated. Not being an attorney, I'm not fully comfortable with anything beyond "you have a beneficiary form that says the husband is the beneficiary, so you have to follow that". If they want anything different than that, I think they may want to get an attorney's opinion. I suspect that the husband believes that he's not entitled to this money, but what he thinks and what is legally accurate might be two different things.

There's a deceased participant ("wife") whose estate is producing an executed Separation and Settlement Agreement that says, after going on at length about the husband's State retirement benefits and how that will be split, that "each party hereby waives any legal or equitable interest which he or she has or may have in and to the value of any Retirement Plan owned by the other party. The term "Retirement Plan", as used herein, shall include, but not be limited to, any Pension Plan, Profit Sharing Plan, Keogh Plan, 401(k) Plan, deferred compensation plan, or Individual Retirement Account titled in the name of either party. Upon the execution of this Agreement, any such Retirement Plan shall become the separate property of the party in whose name the Plan is titled." This was executed in 2019 (the deceased had been a participant since 2000), and it was signed by a Notary Public (two, in fact). Fine, this is a 403(b) plan, but I'm willing to say that falls under the "not be limited to" provision (though, really, she had been there for 19 years at that point - they couldn't have added that in or gotten that right?). So... does this count for plan purposes? It's not a typical QDRO, and it was never submitted to the plan sponsor before. Can the plan honor this? Does this remove the separated husband as the deceased wife's beneficiary under the plan?

@John Feldt ERPA CPC QPA, the company that sponsors N has a decent union population, so I was going to use that to get over the 50+ employee threshold for the QSLOB. I don't know why Plan R is built that way. You and @Mike Preston both suggest the bottom-up QNEC (which I'll have to retroactively add), so I'd give up to 5% to... does it have to be the lowest paid that are eligible? Or the lowest paid that are participants (whether in Plan N or Plan R, i.e., not in the excluded class)? Or the lowest paid in Plan N? I'm going to need a lot more detailed information about the Plan R people before I can do that, of course - I just got enough to look at a ratio percentage test. Yes, excluding HCEs going forward would be the best way. I'm still trying to convince them of that. They seem to think it will make hiring new top people harder, go figure. The problem there really is that the non-owner HCEs in N have their comp bounce between $115K and $135K, so "excluding HCEs" is going to be difficult. It will take a lot of coordination to tell them who can and can't defer in the following year... and I'm not sure their HR dept is up to the challenge. @CuseFan, the purchase was in 2018; this ownership group came in and purchased N from my former client - I've been getting resistance and odd data for a couple of years, and now that I have a deferring HCE I dug in my heels because I knew I had to get answers. So we're out of transition time. But you raise a good point about maybe some of those per diems might actually not be eligible. One more thing to dig deeper on. Thanks for the good ideas. Hopefully something works and we don't end up in VCP. The good news is that, if N were to stand on it's own, it would be failing ADP (it's a small refund), so by giving some QNECs to N's NHCES, that might mitigate that entirely!

I'm getting all turned around on this one... Due to purchases, a controlled group has ended up with two plans. Plan R (that I just found out about) is 401k and safe harbor match with no HCEs but ~1/2 of the NHCEs excluded in a "per diem employee" class ("well, we have no HCEs because the owners don't take compensation, so we don't have an issue"). Plan N, my plan, is 401k and regular match, and has 2 HCEs. So I'm pretty sure this is going to fail coverage: R total NHCEs: 216 R benefitting NHCES (under either deferral or SHM): 114 N benefitting HCEs: 100% N benefitting NHCES (under either deferral or regular match): 33 I tried for a QSLOB, but the owners say that they are involved in managing both businesses... yet they don't draw pay from either one. So this is a 410(b) problem on both the deferral and the match side. This is where I'm stuck - I don't see a way forward. Even making the N plan safe harbor for 1/1/22 might not fix this, because with all those excluded NHCEs in the R plan, that's always about 40% of the NHCE population. How do I fix this? Thanks.

The conversion rep just keeps saying "that's our minimum, and we can't change it" every time I say "but it wasn't in the document up until now - is your legal team OK with it being added now?" So either (a) he is totally going back and confirming this, or (b) they're just going with it and assuming no one will ever check. I'm sure it's (a) and nothing bad will come out of it. 🙄

Thanks, Bill!

We've administered this non-safe harbor 401k plan for years, and now they are moving to a new asset platform that insist on using their plan document, to which we grudgingly complied. One of the provisions they say they need to have is a $500 minimum on in-service distributions and hardships... but there wasn't a minimum in the plan before. That sounds like a cutback in available benefits to me. Am I reading too far into this?

Thanks, all. @EBECatty, isn't appointing a new trustee an amendment that will take the plan out of the transitional relief period?