AlbanyConsultant

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?

We were just told yesterday that effective 12/31/20 Company M sold out to Company S in a stock sale such that M is a wholly-owned subsidiary of S. We are the tpa for M's plan (401(k), safe harbor, profit sharing), and S's goal is to terminate M's plan in 2021. M's employees are still being treated as belonging to a different entity, and are still deferring into M's plan. Obviously, we want to take advantage of the transitional relief rules so that we don't have to deal with S for testing in 2020 or 2021. This brings up a few questions: 1. Can M as a corporate entity be the plan sponsor of M's plan post-12/31/20? 2. Can the trustees of M's plan (who were the former owners of M) stay on as trustees of M's plan? I don't see why not, though they may not particularly want to. If we amend, we lose the transitional relief, so I'm wary of that. It's funny - the articles about this topic all seem to be written from the point of view of the purchaser, not the seller. Maybe I should be dumping this all on S and telling them to have their TPA figure this out! Oh, wait - they don't really have one; they use a bundled low-cost product, so they have no one to give them any advice (except their attorney, who I'm sure charges much more per hour than I do!). Thanks.

This is kind of an off-shoot of another question I had earlier... For the many plans that have a YOS requirement (or some other hours... but mainly YOS, I suspect), there might be an issue where employees who were otherwise expected to be working enough hours to meet eligibility had their hours reduced due to COVID (layoffs, etc.) and now didn't meet that threshold in whatever eligibility computation period you're looking at that covers 2020. These people just... don't become eligible yet, right? Nowhere in any of the regulations or relief was there anything like they get additional credit for some number of hours for purposes of X, Y, and Z including retirement plan eligibility, was there? Not that I'm expecting that people who were out of work for months to be putting retirement savings at the forefront of their financial decisions, but this also likely affects eligibility for safe harbor and other employer contributions, so they're going to be a year behind (in the best-case scenario) for those contributions.

We still have a lot of plans that prefer to have allocation conditions hard-coded in the plan (probably so that the SPD shows them). For plans with an hours threshold, there are going to be a bunch of participants who normally cleared the bar that don't for 2020 because they were temporarily laid off, or were furloughed, or whatever for part of 2020 and didn't work enough hours to meet the plan threshold in 2020. Do these plans/participants have any options (other than the plan sponsor giving them what they would have given them as a contribution outside the plan as a bonus)? Possibly a one-year-only amendment that says that for 2020 only, the hours of service required for a contribution is lowered to X hours? This is just speculation at this point (for me, at least), but I can see that it might cause coverage issues (in which case, we can start bringing participants back based on highest hours first, but only until 410b is passing and then no further).

Just got updated info from client - owner had stopped deferring at $19,500, but will take a bonus today and defer $6,500 from it to get to $26,000 (it's almost like they don't read our newsletters!). So I presume this is a moot point and that I can go ahead and max him at $63,500. But if anyone still wants to weigh in on the ramifications of what would have happened if that bonus hadn't been made, that'd be appreciated.

I'm looking at a PYE 9/30 401k/PS plan, and for the first time, the deferrals for the owner (who is 50+) are substantially lower then they have been in the past: 10/1/19 - 12/31/19: $2,200 1/1/20 - 9/30/20: $16,800 10/1/20 - 12/31/20: not received from client yet He wants to max his profit sharing for the 9/30/20 PYE in his cross-tested plan. What is his DC allocation limit for the plan year? I know, without that last bit of information there's no exact answer yet, but this is why I hate off-calendar 401k plans. Does he have to actually have deferrals over $19,500 in calendar 2020 to take advantage of the catch-up provision? Meaning if he deferred $4,000 in the last quarter of 2020 for a total of $20,800, would his limit be $58,300? Thanks, and happy holidays!

Right - if we've merged one PS plan into another, for example, then I'd have no problem. And I'm sure they're all thinking "employer contributions are employer contributions". But, alas... no.

Thanks, Bill. The FA was so sure that this could be done that I started questioning myself. Now I have to start questioning him!

I've got a non-profit that is terminating their 403b plan effective 12/31/20 (and is going to be able to pay everyone out) and starting up a new 401k plan effective 1/1/21 because they are getting close to the audit threshold and need to put in eligibility requirements (even the 20 hours/week is problematic). They are impatient about the 2020 employer contribution, though - the question asked is if that can be made to the 401k plan so that they can pay out the current accounts now instead of waiting for them to get us census, etc. which could mean the distributions won't happen until mid-2021. Which isn't a problem legally, except that it incurs plan-level fees that they are trying to avoid. My immediate response was "no"... but is there anything I'm overlooking? Thanks.

We have very few plans that register for TINs anymore. One that just did is for a one-person plan, and now the person is moving. I found Form 8822-B that looks like it might be what is needed to change the address at the IRS, but... does anyone actually do this? Or is it good enough to wait until a return is filed with a new address and let the IRS update their records at that time? Sure, watch this be the one time that the IRS sends a notice to the trust, and they won't be there to receive it...

There were... things in the old plan that we wanted as much separation from as possible. I wish we didn't have to do it this way, either. The CPA decided that they were not going to put in a contribution for the 4/30/20 PYE after all (I don't know why). I feel like it is less necessary to reduce the calendar 2020 limits in the new plan because there is no benefit being given on the 1/1 - 4/30/20 compensation in the old plan.

We started a new calendar year PS plan eff 1/1/20 for a corp that previously had a 4/30 PYE (there are reasons). The CPA who ran the prior plan (who is one of the reasons) is planning out his contributions for 4/30/20. The owners of course want to max their profit sharing allocation for the 4/30/20 plan year. If he uses compensation 5/1/19 through 4/30/20 - and I can't see any reason why he wouldn't - then doesn't that cause an issue for the 12/31/20 PYE? It feels like the 415 limit (and maybe even the comp limit) should be reduced somehow so they're not double-dipping. If we had done this via a short plan year, we would have had a year with less comp and pro rated limits, so it feels odd to benefit by doing it this way (though I know there are other times when doing things in a more convoluted way does give an advantage...). Am I looking for a problem where there is none, or is my gut on the right track? Thanks.

I've got a new plan where the potential ASG issues are complicated enough that I felt that they should go to an ERISA attorney to make sure which side of the line they fell on, and they are in the process of doing so. Are those attorney fees includable in the start-up costs for the new plan credit? Seems like it should be. Thanks.

Thanks, everyone, for your input. These are a lot of the same discussions we were having internally (thanks, @RatherBeGolfing - we knew we had heard about that 'informal guidance' before, but hadn't been able to put our fingers on it!). Thankfully, in this instance, the negative amount is small enough and we're only looking at the 3% safe harbor; I believe that the plan sponsor will be comfortable with the 'treat the negative as zero' line.

Have a client that is a sole prop, but added an s-corp in at the beginning of the year (calendar year 2019; sole prop was left open through 2019) and the employees were transferred to the s-corp as of 1/1/19. It's a controlled group, and the s-corp adopted the plan 1/1/19. The sole prop (which has only the owner, no employees) is booking a bunch of losses, so the net comp is going to be about -$5K, and the owner's s-corp W-2 is going to be $100K. What's the best way to determine the owner's compensation? Is it $100K? $95K? Something else? Thanks.

Yes, in a 403b plan. Thanks.