EPCRSGuru

On the old Schedule SSA, reporting terminated participants with unpaid vested benefits was mandatory but reporting them after they had received a distribution was optional. So, we never did it. Now we have a little over 2,000 people who were probably reported as term vesteds with a balance and never removed upon subsequent payment. Their payment dates were from 1994 to 2005. The problem we have now is that these people are receiving letters from the Social Security Administration reporting that they may have a benefit due. It is sometimes difficult to convince people that they were paid. After all, a government agency is telling them to contact us. We have the check number, amount, and payment date, and even in most cases signed distribution election forms, but we no longer have the canceled checks so people don't always believe us. And much of our information is on microfilm which requires in-person research, which is a bit of a hassle. How appropriate would it be, the next time we file the 8955-SSA, to report these people as having been paid out? Is this a huge red flag? Would it trigger unwelcome attention from some agency or another?

An employer of my acquaintance, who uses a well-respected 5500 software product, filed a number of 5500s timely. Upon checking on the government web site they discovered that the auditors' report was missing for one of their many plans--the remaining are fine. On further examination it looks as though it might have been omitted when everything was uploaded to the vendor's web site for filing. Don't know if this is system error or human error but obviously needs to be corrected. Any advice to avoid a penalty for an incomplete filing? Do they file an amended return even though none of the numbers changed? Should they contact the vendor? Other? Thoughts appreciated!

We were audited by the DOL a few years ago. Our document contains the IRS contingent forfeiture language but the DOL forced us to restore ALL those forfeitures to the plan. The people we forfeited were deceased for many years, had minimal service (we had immediate entry and vesting pre-1995), had returned to their home countries after their brief employment with us, and survivors were unlocatable after contacting their places of employment, googling their obituaries, etc. So now we have these funds in our plan being slowly depleted through a quarterly administration fee--after a few decades I guess the problem will solve itself. I was advised that ERISA preempts the state escheatment laws although that would not have helped in our case. For US residents, PBI (for a fee) has a relative search. You can enter demographic data (including SSN) and a list of relatives will be provided.

My company does 60 days. During that time we send information about the plan and auto-enrollment so people have an opportunity to enroll themselves or opt out before the salary deferrals begin. (Our default deferral percentage is only 3% and we worry that people will allow themselves to be auto-enrolled at 3% as opposed to affirmatively electing a higher percentage.) We have a very low opt-out rate and no complaints. We also allow permissible withdrawals for people who somehow miss all our communications. The "pay decrease" is not an issue for most people because of the accompanying decrease in tax withholding.

We are running into a situation with our recordkeeper involving the valuation date for QDROs. In the past a determination date was some date in the past chosen by the participant and alternate payee, and was usually the date the participant and spouse were separated or divorced. The AP's account was then valued by taking the balance as of the determination date, adjusting for earnings, contributions, withdrawals or whatever, and then splitting the account. The APs account could then be administered just like any other account; payment could be requested or deferred, investments chosen etc. Now the recordkeeper has unilaterally decided that the valuation date is the date of transfer so there are no earnings calculations needed. This is not what our QDRO procedures or models provide and we have a number of DROs in process which are expected to stipulate the prior method when they are submitted to us for approval. We are getting pushback from participants who want to divide the account based on a specific past date and who are unequipped to calculate several year's worth of investment earnings on their own. The recordkeeper is calling their new process "industry standard" but in my years in the industry as a TPA the majority of my cases have used the prior method. Do agree this is industry standard? I have not been a TPA in 10 years so perhaps the industry has moved on without me knowing?

The language in the plan document pertaining to the maximum amount of the loan generally follows the language in the Internal Revenue Code, except for the issues other people have identified. But it is perfectly appropriate for the amount requested by the participant to be expressed in dollars and not in percentages--that happens almost all the time. The participant usually wants a dollar amount for a specific purpose where the cost is known. Some participants, if allowed by the plan, will request "the maximum available" if they are making a large purchase such as a house or paying tuition, and since the value of an account fluctuates, the amount of the loan would not be determined until it is actually processed.

No paper form; it is all online. Not only do we post a link to the payroll cutoff schedule right on the screen where participants make their elections, there is also a field right there for the participant to elect the desired effective date. They easily could have specified 1/1/2023 or waited until after the cutoff date to submit. There is no match. I guess these posts confirm that there is no legal basis for refunding their contributions, which is what I thought but it is nice to have the confirmation. I wish I knew why they waited until the last few days of February to report a problem with the December paycheck!

We have a participant who intended to make a salary deferral election effective January 2023, but submitted it too soon so it was implemented effective December 2022. They asked us TODAY to refund it. I can't find any legal justification for refunding it to them--it was a valid, although premature election; they did not exceed any IRS limits and they have no distributable events. They are under 59 1/2. Is there a loophole I am missing?

I have run into this issue several times in the past few years and we also tell people that participation is not optional due to various IRS requirements. But by any chance is your reluctant employee Muslim? Our plans offer a self-directed brokerage account and there are a number of sharia-compliant funds (such as Amara) easily available.

PBI has worked well for us. They can almost always tell you the participant's current address and they even have a "relative search" function that is helpful if the person is deceased.

Thank you Mr. Bailey, sir!

On a related topic, a former employee who worked for us for 10 months from 1993 to 1994 needed a letter from me (a sponsor in the non-profit world) saying that he is not now and has never been eligible for a pension or a lump sum. The ex-employee said under the "Windfall Elimination Provision" the SSA cut his Social Security in half (with no proof of anything), and he needed verification from me that his 10 months of service did not entitle him to a benefit. Is this legit? It sounds really weird and I thought I had seen it all.

We had this issue come up a few times. There was one time where we believed the participant received bad information from an employer source and we allowed the election to be un-done, but otherwise no. In our Plan, the election of an optional form of benefit can only be made during the benefit election period, which is 180 days prior to the annuity starting date. And the annuity starting date is the first period for which an amount is payable as an annuity under the Plan or, if not an annuity, the first date on which all events have occurred which entitle the participant to a benefit. Since the check has already been cut it would appear that all the required events have occurred, so if your plan has similar language you can point to it when you refuse the participant's request.

The benefit-accrual year, limitation year, nondiscrimination year, plan year all are calendar years. The employer's fiscal year ends June 30 so on the employer's books the comp would be the same either way, but for Plan purposes it would be off. The employee is not highly-compensated, key, a shareholder, etc. but is a very high-status person in an employee classification that is accorded a lot of deference, and the employer often finds it difficult to say "no". Hence I am spending much more time on this than necessary. I am still trying to find the answer to the question of what happens if for some reason he is unable to perform services for the entire 12 months after being paid in advance. Thank you for the cite--I had a vague memory of something in the regs that would argue against doing this and I think this cite is it.

I have a situation where a division of my company is proposing to pay an employee in 2022 for services rendered for the period 9/2022 through 6/2023. Besides the obvious downsides involving how advance pay is reflected on the company's books, the risk if employment terminates before 6/2023, and possible problems with IRS caps on compensation and contributions, I recall there is some specific reason why qualified plans cannot consider accelerated compensation when determining compensation. (We have a money purchase and a 401(k) plan.) I have been searching but have not found anything but I recall this coming up with clients in my previous job. Can anyone point me to a cite? I'd be grateful!

In my TPA days I often saw trust income reported as being taxable income to the plan sponsor and eliciting an IRS response, so I think this is a real concern. My client base was physicians and small entities so I imagine they were likely to be audit targets!

But I believe participant notification is also required, although I am on my phone and don't have any cites handy.

Auto-enrollment/auto-escalation is working well for us although some of our unions are still not convinced. We have very few opt-outs, and after nine years of AE we can see clear differences in retirement readiness between the employee groups subject to AE and those who are not. I am more worried about the potential requirement that all age 50-catch-up contributions will be Roth. This is going to cause systems/administrative problems for us if passed, even though we currently allow Roth. It also removes participant choice, and some have valid reasons for making pre-tax contributions even when close to retirement. And I don't see the benefit either to the participant or the government--is immediate taxation on the catch-up amount worth all the aggravation this is going to cause? What do you think the chances are of this provision passing?

QDROphile, can I please have the cite for the case referred to above? It is relevant to something I am working on. Thanks!

Perhaps an attorney or another legally-knowledgeable person can confirm, but I believe the deadline is still April 15, regardless of the tax deadline. See IRC Section 402(g)(2)(A)(ii) which says: (A) In general If any amount (hereinafter in this paragraph referred to as “excess deferrals”) is included in the gross income of an individual under paragraph (1) (or would be included but for the last sentence thereof) for any taxable year— (i) not later than the 1st March 1 following the close of the taxable year, the individual may allocate the amount of such excess deferrals among the plans under which the deferrals were made and may notify each such plan of the portion allocated to it, and (ii) not later than the 1st April 15 following the close of the taxable year, each such plan may distribute to the individual the amount allocated to it under clause (i) (and any income allocable to such amount through the end of such taxable year). Publication 525 for 2021 returns (https://www.irs.gov/pub/irs-pdf/p525.pdf) also says April 15. I recall that last year the deadline remained April 15 even though the regular tax filing deadline had been extended due to COVID.

Wow. Assuming this is a participant-directed plan, at the very least this appears to violate the fee disclosure regulations, which state that participants need notice of a change at least 30 but not more than 90 days prior to the effective date. There is an exception for "unforeseeable events" but I would hardly think this qualifies--the Vanguard change was announced well in advance. Unfortunately, the requirement seems to fall on the Plan Administrator, who would suffer the legal consequences of non-compliance.

Participant specifically elected a benefit that provided an annuity for his lifetime and 50% of that benefit to his spouse if she survives him. He had the option of electing a single life annuity or a lump sum distribution with spousal consent, and did not. He completed forms, checked 4 boxes, selected the annuity starting date, and entered the required information about his spouse. There was nothing automatic about this process. We have sent him our claim procedures and invited him to file. This is going to be my first claim in 12 years. We are curious to hear his reasons for wanting to make the switch. As for the DOL benefit advisors who take participant complaints, I can tell you that they are very, very thorough. I once had to provide massive amounts of documentation to prove that an early retirement benefit enhancement program did not exist. Apparently some nameless supervisor might have hypothesized that an early retirement incentive program might someday be offered, and this participant was off to the races. Cue a DOL inquiry that I had to respond to with payroll records, plan documents, SPDs, SARs, benefit election forms, previous letters to participant saying that such a program did not exist and was never contemplated, AND a copy of his benefit calculation. Another DOL inquiry was to prove that working fewer than 200 hours of service in any of the applicable eligibility computation periods did not qualify as working 1,000 hours or more, which is what the plan requires for entry. DOL complaints seem to have picked up--don't know why.

I wish it were that simple. When I say "stubborn" I mean beyond the point of all reason.

I have a stubborn married person who wants to retroactively rescind his election of a J&S annuity to get a lump sum. Obviously the answer is no, no, a thousand times no, but I am having trouble getting through to him. Any suggestions?

Attorney advice is appropriate here. An attorney of my acquaintance has recommended what he calls the "impossibility standard." We use it from time to time when people who have no children elect a dependent care FSA instead of a health care FSA, elect a pre-retirement survivor annuity when they are unmarried, etc. I would think your example would definitely qualify as impossible!