AlbanyConsultant

A 63-year-old active participant died in 2022. Her 75-year-old spouse is trying to roll the balance to an IRA. The product platform is saying that an RMD must be taken first. Looking at 1.401(a)(9)-5 Q&A 5, it seems that there is a catch. The way I'm reading it, it talks about the calculation for the year after the year of the participant's death... but nothing for the year OF the participant's death. Does that mean that there's a "free year"? I can kind of justify that, since as of 12/31/21, there was no RMD to be calculated for 2022. Or am I just reading into it what I want to see? Of course, if the product says "we're making the beneficiary do an RMD because that's how we do it, period", then that's the way it goes, but since we do non-product plans, I figured I'd see if I was at least taking a reasonable position (in case this comes up again, which I hope it never does). Thanks.

Yes, it is an NHCE, so if all else fails calling it a QNEC will work (we use Datair's doc). Appreciate all the input.

The plan sponsor calculates and deposits the employer contribution per pay period. For this particular participant, they calculated it incorrectly and deposited $30 too much for the 2021 calendar plan year. Unfortunately, the plan has immediate distributions; by the time we got to do the reconciliation, the participant had terminated and taken a distribution. Sure, the plan could try and get the money back because it was an excess distribution... but that would be returning money to the plan that didn't belong there in the first place. Similarly, if the participant balks at returning it, we'd normally instruct the plan sponsor to deposit $30+earnings to the forf account... but, again, that's $30 that shouldn't have been there at all. Is there any justification for letting this go? I need a justification because it's an audited plan, so I have to be able to back this up to the audit team. Thanks.

@Dave Baker, "xt" is short hand for "cross-tested". @CuseFan, no allocation conditions on the PS, so that's not an issue. All NHCEs will get 3%SH + 2%PS, so gateway should be satisfied unless PS gets too much... and since the goal is to limit the additional ctb to staff (if not hold it to zero), the gateway will dictate my upper bound. OK, thanks for wiping away this delusion.

There are any number of rules and regs that I go along with because "that's the rule", not because I believe they make sense. This was one of them. Yes, it's all based on the same "allocation date", so I agree that as long as the HCEs aren't getting their money BEFORE the NHCEs, then you can't call them out on anything there.

How fanatical are y'all about this? I've sometimes mentioned it when talking to clients, but I've never really been too big on it. My current situation: plan of an s-corp does monthly deposits of 3% safe harbor and 2% profit sharing for everyone including HCEs. They are considering doing additional profit sharing for the owners after the end of the year; as much as they can do that still passes cross-testing without giving the staff more allocation. Obviously, this allocation would be all HCE and no HCE. If this deposit was tested as a discrete event, total fail. But it would pass for the year in total. Given the recent comments by the IRS that they want to increase their audit revenue, is this something that I should be discouraging? Wait wait wait... in my head, I was POSITIVE that testing each deposit was a thing. Now, I can't find any reference to it anywhere. Sure, I'd be thrilled if it were gone, but... am I through the looking glass or what?

We used to get them for our non-product plans, but very often many years would go by without a distribution, and when one would finally happen, the TIN would be 'stale' and we'd get a notice that said TIN was not associated with the trust any longer - the IRS would assume it was no longer in use and re-assign it. Also, and I don't remember the details on this, but since withholding rules have changed, it is not as likely that there would be any crossover confusion between the plan and the employer (I really don't remember exactly what that was all about - I remember a CPA told me), so there's another reason not to get it. And we make any cash distributions get paid out through a distribution service (Penchecks) so they do withholding... between all those, I don't see the point any more.

That's what I was thinking, but I just got inside my own head, I guess. Thanks!

Oh - I wasn't clear. I'm talking about for a pooled plan where they are being distributed annually. And, yes, I know there's a whole debate as to when the first ones need to be given out. This is a theoretical discussion here, so I'm not looking at that. Let's pretend this is next year, and we're not having any "within a year" issues.

Maybe I'm just realizing this later than everyone else, but since the rates are changing monthly, are we in for a bunch of timing headaches? Specifically... 1. My efficient assistant prepared the report and statements in April... and I'm just now getting to reviewing them. It used to not be a big deal because no numbers changed. But now I have to re-run the lifetime income disclosures because the interest rates aren't the same now as they were three months ago (or they might be, maybe... better not take the chance!). 2. Let's say I actually did send the statements with disclosures back in April. Plan sponsors being plan sponsors, the package sat on their desk until I reminded them that they actually need to open it and do something, so they don't hand the statements and disclosures out until July. Are the disclosures that we prepared back in April no good? Would the participants ever know or care? 3. The interest rates update near the end of the month (according to the updates I get from my recordkeeping software provider). Does that mean I'm on hold with sending out reports near the end of the month so I don't accidentally force a client to hand out a disclosure notice that is 'behind' by the time they hand it out? These sound ridiculous... but that doesn't mean they're not how the rule was written. Of course, then there's "written" vs. "interpreted"... anyway, am I working myself up over nothing? Thanks.

This seems to comes up periodically... some of the threads end up trailing off, and some don't seem to come to the same conclusions (though that might be me misreading them!) because this is not particularly intuitive, so let me try and ask this with a concrete example that was just presented to me. I'll even link some of the previous threads that I thought were good ones. Doctor D is doing the max 403b deferrals and getting a match in the hospital's 403b plan. He is now about to start a practice of his own (100% owner) and wants to start up a 401k plan - deferrals, 3% SH, class based profit sharing. He does not control the hospital or sit on its board. He is 55 years old. I don't have exact numbers, but let's make the math easy and say he's getting $200K compensation from the hospital and expecting $300K from his S-corp practice. The hospital's 403b match is capped at 2%. He can't double-dip on deferrals between both plans, so he will do those in the 403b plan to get the match (if the CPA can find a tax angle for him to do deferrals from the private practice in 2023 that is worth giving up the match, he can make that change in January 2023). But let's assume that he keeps deferring into the 403b plan. Do I have to include the 403b deferrals in any testing that I do? It appears "yes": $67,500 max including catch-up less $27,000 403b deferrals = $40,500 that he can get as employer (i.e., non-401k) contributions in the 401k plan. Does the match he is getting affect this at all? I'm thinking "no", since it is an unrelated employer, even though there is all that stuff about the 403b 'belonging' to him. That's actually another question: the 1.415(f)-1 regs refer to a 403b "annuity contract"... but what if the 403b plan is not held in annuity contracts, but it's instead on a mutual fund recordkeeping platform? Is that splitting hairs? Admittedly, it might be... If Doctor D was establishing this as an equal partnership with Doctors E and F 1/3 apiece, since D's ownership would be less than 50%, would he not have to count his 403b deferrals against his $67,000 limit and/or $27,000 limit, in effect getting two separate limits? Is there anything else that needs to be considered? Any of this incorrect? Thanks. November 2016 thread July 2017 thread March 2018 thread November 2021 thread Also reference your favorite site for 415(c) and 1.415(f)-1(f) (see especially Examples 6 and 7).

In all instances, it's determined as of the end of the year of separation, even in cases of death, disability, or retirement. So the people who are being paid now separated in 2021 (or before). Anyone who left now would have their balance determined as of 12/31/22 - it's coded as anniversary date, not valuation date. So I think this interim val date will have no effect on anyone currently active... other than to show them that their account balance is tumbling just like pretty much everyone else's.

I've got a calendar-year pooled 401k/PS plan where the trustee has asked for an interim valuation because the assets have (of course) dropped by a significant percentage since 12/31/21 and participants with a significant total of the plan's assets are looking to take a distribution. I've already gone over the pros and cons, the "if you do it when it's down, you should make sure you consider doing it when it's up" speech, etc. My Q is... obviously, the terminated participants who are looking for a distribution should get updated statements to reflect the updated amounts that are going to be distributed to them. But what about the active participants (who are not eligible for a termination distribution)? Is there any reason to give them statements as of 5/31/22 that show this ~20% drop in value? Since it's not EOY, do they need to get this interim valuation statement? The plan allows no ISWs or hardships (except RMDs, which wouldn't be affected by this interim valuation). Thanks.

Just had an initial call with the financial advisor, so some of this is subject to change as I get more details, but it sounds like: > NFP has a 403b with a large insurance co and is tired of bad service, high fees, etc. > NFP is looking into a new recordkeeper and wants to move the plan, but the insurance co says that the accounts are individual annuities (though they are the only provider and there is a company contribution, so this should be an ERISA plan with all that entails) so the plan sponsor does not have the right to pick up all the accounts and move them - each participant would have to agree to do so. Is there anything legally preventing the opening of a new 403b plan and saying that effective 7/1/22, all deferrals go to New Plan at New Recordkeeper, and all participants have to complete a new deferral election form? Any participant who wants to make a transfer from Old Plan to New Plan may do so, but not vice-versa. Old Plan would still exist separately for document, 5500 and whatever other purposes; if someone wanted a plan loan, for example, they would only be eligible for the balance in the plan they are applying in. The real problem is that the extra expense of two plans will likely offset the savings the New Recordkeeper is offering. But at this point, I'm just trying to figure out options. I know this isn't a perfect solution, but we've been burned several times with trying to manage a plan where there are still accounts in the old recordkeeping platform and trying to get information from them each year is a complete hassle. You think "oh, the balances will just decline each year, it won't be that bad"... five to seven years later, and they're still going strong!

Al, the owner of the company which sponsors the PS-only plan, was taking RMDs and then passed away in 2017. His two sons, who were his 50/50 beneficiaries and who were participants and now became the 50/50 company owners chose to not take Dad's money out of the plan. An RMD is being calculated on Al's balance each year and paid to each of the sons (split evenly between the two of them). The plan does have the 5-year-rule selected (though I thought that was only applicable if the participant died before RBD). Is there any limit as to how long the sons can keep this going inside the plan? Is there something that will require them to take Al's money out at some point? The sons are just over 60 themselves, so they have a few years before they hit RMD status on their own accounts. Thanks.

I'm having a meeting with my cybersecurity consultants on Monday, and I figured I'd bring them the latest guidance we have to try and follow. Are those 3 pdfs from the DOL in April 2021 (news release here) pretty much what we have officially (or semi-officially)? Thanks.

Years ago, three participants in this non-ERISA 403b plan opened up accounts at Equitable. They all terminated in the early 2000's. After that, the plan started making employer contributions and took more control of the plan (moving all employees to one RK), moving the plan firmly into ERISA 403b territory, which is when we got involved. So only these accounts were still 'outside', and we've not been reporting them on the 5500 under the 2009 rules. Now the NFP is terminating the plan. We asked Equitable for options, and they told the plan sponsor that they have no authority over those accounts because they are individual tax-sheltered annuities. The plan sponsor spoke to the participants who have agreed in theory to take the money from the plan... but haven't. Does the 2020 IRS guidance apply here? Can they just consider these accounts as not part of the plan any more and say the plan is done? Thanks.

A little confused on how the timing works on what Datair is providing as additional PPA document amendments (Expanded Hardship, Qualified Plan Loan Offset, Forfeiture Allocation, and Disability Claims Procedure) that need to be in place by 12/31/21 (though only Expanded Hardship and QPLO need to be signed by the plan sponsor; the rest are adopted at our level or above). We're restating our plans effective 1/1/22, signed (hopefully!) in December 2021. We're getting unclear information from Datair themselves as to whether this means that these amendments need to be executed separately in 2021 because they belong to the PPA document, or if they are considered 'wrapped up' in the restatement because the restatement is executed prior to 12/31/21. Any thoughts from other Datair users? Or in general? Thanks. For a post-PPA restatement not signed by 12/31/21, I believe they would need these amendments executed separately.

A non-profit client of mine with a 403b absorbed a smaller NFP with a 401k plan. I told them that the two plans couldn't merge. The participants are all being retained as employees, but obviously under the surviving employer NFP. I've still got nightmares of the same-desk rule swimming in my head - are these people considered "terminated" and therefore can roll their 401k money into the 403b plan as rollovers? Or is an IRA their only option? Thanks.

That's an interesting distinction, @shERPA. I just got a call from a financial advisor representing a client who has a SIMPLE and they are projecting to go over 100 employees early next year... so my immediate thought was "have they already terminated their SIMPLE for 2022?" But is that not as necessary if they establish a 401k plan effective 1/1/22 and tell the participants that the SIMPLE elections are therefore invalid starting on 1/1/22 (so here, defer into this 401k plan instead)?

This is the problem - I believe the plan sponsor does not have the estate's TIN. Thank you both.

A participant in RMD pay status passed away this year, and her plan beneficiary is her estate. However, the estate is not responding to the plan paperwork to have the RMD processed. What can be done? I know there's generally a 50% penalty to the participant if the RMD isn't paid by 12/31/21, but I don't think the participant herself cares at this point - would the penalty pass through to the estate? Thanks.

I've already written off the bad debt - I stopped fighting it over a year ago. I'm now in the "casually wondering what's going to happen when the IRS realizes that there's a missing 5500" phase. They are going to send a letter that will never get responded to... eventually they may track down the next of kin. Is there any responsibility on that person?

We were the TPA on this one person plan, and the owner stopped paying our invoices. We went back and forth a couple of times over it, he rolled his money out, we told him we wouldn't prepare the final 5500 until he paid us per our client service agreement, and then he never responded. Just found out that he recently passed away. So, clearly, we're not getting paid. But... just wondering... what is going to happen with the 5500? At some point, they'll figure out that a filing is missing and send a letter to the business that is no longer there. The guy is dead. Does the IRS have the authority to levy any penalties against a spouse, estate, heirs, etc.? It's more of a morbid curiosity at this point.

Thankfully, none of my clients ever seem to be in a disaster area where they need disaster relief, but this time, one of my audited plans is in NYC and wants to take advantage of the 1/3/22 deadline. From what I'm reading, there's nothing special to do - just file before the new deadline, and the IRS is supposed to know by the address that the plan sponsor is eligible for the relief. For those who unfortunately have to deal with this on a more regular basis, does that sound right? Doesn't the box on Line D usually have to be completed? I don't want to add a $2,000 late filing penalty to this company's other issues...