ConnieStorer

I have a somewhat unusual situation. We have a defined benefit plan that was frozen back in 2017. The Plan Sponsor recently amended the Plan to allow for lump sum payments. We had a terminated vested participant who just passed away. The only death benefit was the QPSA for married participants. This individual was divorced (I believe back in 2020). The Plan sponsor received a copy of the divorce settlement from the ex-wife after the Participant died. The divorce settlement stated that the full benefit from the defined benefit plan was payable to the spouse. No QDRO was ever written. The Plan Document is an FIS Cycle 3 Document with the following language: 5.22 QUALIFIED DOMESTIC RELATIONS ORDERS All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any Alternate Payee under a "qualified domestic relations order." Furthermore, a distribution to an Alternate Payee shall be permitted if such distribution is authorized by a "qualified domestic relations order," even if the affected Participant has not reached the "earliest retirement age." For the purposes of this Section, "qualified domestic relations order" and "earliest retirement age" shall have the meanings set forth under Code §414(p). A domestic relations order that otherwise satisfies the requirements for a "qualified domestic relations order" will not fail to be a "qualified domestic relations order": (i) solely because the order is issued after, or revises, another "qualified domestic relations order"; or (ii) solely because of the time at which the order is issued, including issuance after the Annuity Starting Date or after the Participant's death. We told the ex-wife that she needs a QDRO before any payment can be made. However, there is some disagreement in our office as to whether or not there are any benefits payable to the ex. My arguement is that the Participant died prior to the request for any payments to begin. He had attained Early Retirment Age but was a few years from Normal Retirement Age. As an unmarried Participant, there is no death benefit so the ex is not entitled to any benefit. Another administrator in the office thinks that if a QDRO is written, then the death of the participant should not affect the payment available to the ex since she was the Alternate Payee and entitled to 100% of the benefit. I still think any benefit payable to the ex is contingent on the Participant being alive at the time an election is made. The Plan Sponsor has no problem with paying the benefit to the ex if she can get a QDRO issued. Any thoughts out there on the benefit payable in this situation?

Hi Audrey, Most documents (FIS at least) says to use years in which the participant receives credit for TH. If the participant does not work 1000 hours in a year, then they should not receive credit for TH for that year.

Thanks everyone. The normal url that we use does not show the updated rates. Guess I need to snoop around more.

Does anyone know when the updated segment rates will be available? The last rates we have are January 2025.

I am assuming that you use FIS/Relius. We had to go in and fix the rates in our system after we ran the global updates. Someone in Jacksonville is not doing a good job of checking their work.

I have a terminating Defined Benefit Plan with assets in a pooled account at Vanguard. I prepared my standard Letters of Authorization for the Trustee to sign and submit to Vanguard for the benefit payments. Vanguard said the Letters were not sufficient but did not provide any alternative. Does anyone have a form or template that they have successfully used to get payments made from a qualified plan with Vanguard? Thanks,

I would like to think this would work but the deferrals were reported on the 2023 W-2. They were Roth so no tax consequences to the participant.

I have an ineligible employee who was allowed to defer prior to meeting eligibility. I would normally just amend the Plan to allow early entry for this employee. My only concern is that the Plan is Top Heavy. Is there anyway to avoid allocating a Top Heavy Benefit to this employee?

OMG That is so true.😂

Hi Jakyasar, That is my understanding of how the calculation works. Attached is a little spreadsheet that I use when I am forced to calculate a premium based on 74-307. Definitely not a fan of insurance in a qualified plan. Rev Ruling 74-307.xlsx

This is a small plan. The Trustee is the Plan Administrator. I have no clue as to why the Trustee/Plan Administrator is so adamant about paying out benefits now. No one has submitted a claim.

Very strange situation. Participant dies with no spouse. He does have minor children. The Plan document (FIS prototype) provides the order of payout. Since no spouse, the payments will go to the children. The Plan Trustee reached out to the parents of the deceased participant assuming that they would be the legal guardians. The Parents will not respond to the Trustee. At this point the Trustee wants to send the death benefit to the state's (Ohio) unclaimed funds. We cautioned the Trustee that this was not the appropriate action to take. The Trustee is totally fed up with the situation and is asking what he can do. Does anyone know if there is an agency that can be contacted to obtain information on the legal guardian of the deceased Participant's children. At least this would confirm who the Trustee needs to contact in order to pay out the death benefits. Any other suggestions would be greatly appreciated.

Thanks CuseFan. The Plan Sponsor would like all the assets housed at one place. Currently the individual accounts are with 15 plus brokerage houses. The goal was to simplify the annual reporting process which is currently a challenge to say the least. They would also like to appoint a Corporate Trustee rather than the current arrangement which is to name two of the Key Employees as Trustees. We did not think that it would be possible to get a Corporate Trustee if the assets are with multiple brokerage houses and vendors. I do like you idea of spinning off the MP accounts into a separate MP Plan and then terminating that Plan. Dropping the In-Service Age on the MP Assets is not that helpful due to the age of most Participants.

I would appreciate any thought from the Pension Guru's out there. Here is a little backgroud information: I have a somewhat large Profit Sharing 401(k) Plan where everyone has individual accounts. The Participants all have an investment account (with Advisor X)where their profit sharing and deferral contributions are deposited. More than 50% of the Participants also have individual advisors with separate accounts at other financial institutions. Periodically the assets are moved from the Advisor X accounts to their separate individual advisor accounts. The Plan Sponsor is thinking of doing away with the individual advisors and forcing all Participants to house their assets under a single platform provider. This will most likely meet with some resistance so they want to allow individuals to periodically take in-servive distributions in order to rollover their assets to an IRA with their individual advisor. The biggest issue with In-Service is that about 5 years ago the Plan Sponsor merged their old Money Purchase Plan into the Profit Sharing Plan. The old Money Purchase accounts have been maintained separately from any of the Profit Sharing Accounts and we have always restricted In-Service to those age 62 and over. Is there anyway, short of terminating the entire Plan, to get the Money Purchase Accounts out of the Plan? Can the Profit Sharing 401(k) Plan be terminated and only allow the Profit Sharing and Deferral money sources to be rolled directly into a new 401(k) Plan? Any ideas would be helpful.

The reversion will be roughly $60,000. Peter, thank you for the advise. We will throw this back to the attorneys.

Here is a strange problem that an associate of mine is dealing with... A defined benefit plan is being terminated. The only participant, I will call Mr. Bill, received the maximum payout allowable and there are excess assets. There is no possibility of a qualified replacement plan so our only option is to revert the excess back to the Corporation. Now we find out that the Corporation no longer exists. My understanding is that there was a divorce and the ex was awarded ownership of the Corporation. The only employee of the corporation and the sole Participant in the Plan was Mr. Bill. He terminated employment with the corporation that the ex took over and started a new company. Now we found out that the ex closed out the corporation. Any suggestions on what to do with the excess assets.

I have to disagree with some of the other comments. According to AC, the document says that the amount contributed or allocated wil be reduced to avoid exceeding the annual additions limit. The annual additions limit applies to each participant individually, not the entire plan. I think the wording allows for the reallocation of the excess to other participants. I do not think that the wording implies that the Employer Contribution must be reduced. "If the Employer contribution that would otherwise be contributed or allocated to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed such maximum permissible amount, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the maximum permissible amount."

Just a thought... if the plan name, SSN, EIN are identical on both 1099-R's you probably only need to send one corrected 1099-R showing $0 in box 1 and 2. Also, if the 1099-R's were coded as rollovers there should be no taxable income.

Thanks CuseFan... I was hoping to get support for using December as the ninth month so January 1 would be the first day of the 10th month.

We have several non calendar year Plans. A discussion recently came up as to the due date of the AFTAP certification. One opinion is that the due date is based on the exact date of the end of the Plan Year; just nine months later. A 3/27/2022 Plan Year End would have a due date for the AFTAP of 12/27/2022. However, the other opinion is as such. The instructions say that the AFTAP must be certified by the first day of the 10th month. Could the 10th month be interpreted to be April? In this case the AFTAP would need to be certified by 3/31/2022. I cannot find anything specific to a non calendar year plan. Any insights would be appreciated.

I ran into an issue when I used the allocated like for a John Hancock case. Make sure you have at least one Voya investment selected in the investment funds for the Plan. It does not matter which Voya investment it is... Relius just needs one in the specs in order to connect the allocated link.

Thanks Mr. Bagwell.... you are correct about the messy situation part. The document is an FIS volume submitter. There is minimal language regarding going from an eligible classification of employees to an ineligible classification.

I am working on a cross tested 401(k) Plan. This Plan has a few allocation groups that are defined as ineligible for Plan Purposes in the Plan Document. In 2022 one of the participants moved from a non-Partner group that was eligible to participate in Profit Sharing to a Partner Group that is ineligible for participating. This individual is less than a 5% Partner so he is considered non-key. In addition, he is not an HCE. He made employee deferrals prior to becoming a Partner. Since he is considered ineligible as of 12/31/2022 would this require the return of his deferrals made when he was eligible to Participate? He is still employed as of 12/31/2022 so does this require a 3% top heavy minimum and the gateway minimum of 5%? If yes, would this be on his W-2 wages only or would we also need to include his K-1 wages. Thanks for any insight.

Just an FYI... I had a plan with no active participants. We offered lump sums to the non-retirees and then purchased annuities for those in pay status. After that we filed a plan termination with the PBGC showing 0 participants and $0 assets. PBGC stated I was circumventing the plan termination rules and that then audited the Plan. Everything was fine but the PBGC was not happy!!!

Would it make a difference in this case that the only two remaining participants were past age 65? The active participants did not need a plan termination to have a distributable event.