Larry Starr

Bri has it correct; Ken's comment about establishing a pattern that would require a 3 year total allocation period is not correct.

NEVER believe anything anyone at Fidelity, Vanguard, Merrill Lynch, or any insurance company platform tells you.  They are almost always wrong!  If you really want to go with Fidelity, you have to work your way up the representative chain.  Start by immediately asking (nicely) to speak to a supervisor and start from there.  Eventually, you might get to someone who actually knows something....

Fundamental point: a cash balance plan is NOT a type of plan (ala DB, PS, MP), it is a type of DB formula.  Thus, you have a DB plan where you are going to change the formula.  It is not a plan termination, just a type of formula change.

Yes, a 5500 is required.  Even if a new plan is set up for 2022 in January of 2023 (so no deferrals for 2022; ps only) and the client decides ultimately decides NOT to make a profit sharing contribution for 2022, the DOL has said a 5500 is needed.

Second: a deposit to the plan is NOT required for the plan to be in effect; the trust may not have any funding, but it exists as part of the plan and normal filing rules apply.  We always have and will use accrued accounting for lots of reasons (I think using cash is just one big problem since nothing ever matches), but if you are using cash you won't have any numbers in the financials, and that's fine.

Also, regarding the comments about the extension (5558 form), remember that there is an AUTOMATIC EXTENSION without the 5558 if the employer's tax return is on extension and certain conditions are met. Note, this extension on filling the 5500 does NOT go to 10/15 if the employer's return is due 9/15 (partnerships and S Corps)  Read this:

If certain requirements are satisfied, your company may be able to rely on its federal income tax return extension to automatically extend the Form 5500 filing deadline. (As a reminder, the Form 5500 filing deadline is the last day of the seventh month after the plan year ends—for a calendar-year plan, the deadline is July 31.) An automatic extension for filing Form 5500 is granted to the extended due date of the sponsoring employer’s federal income tax return if three conditions are satisfied: (1) the plan year and the employer’s tax year are the same; (2) the extended due date for the employer’s federal income tax return extension is later than the regular Form 5500 due date; and (3) a copy of the application for the income tax extension is maintained with the filer’s records (it is not included with the Form 5500 filing).

On 8/15/2020 at 11:04 PM, AlohaGuy said:

Hi,

First let me apologize. I am a newbie to 401K plans and I am just beginning to understand the basics.

If this question has been asked already please direct me to the related thread.

My scenario:

I have a 401K with Wells Fargo through my employer.

Employer matches 100% for the first 3% and 50% for the next 2%.

100% of my account balance is allocated to State Street Target Retirement 2050 P.

Question:

I understand how the contribution part works, but I am confused about the fund (State Street Target Retirement 2050 P SSDLX).  Wells Fargo lets me choose which fund to invest in. But I am not sure if I understand the "investing" part.  My 401K plan does not give me any dividends so why does it matter which fund I choose?  Does my 401K  increase or decrease based on the performance of the SSDLX?  If yes how and where would I be able to see those earnings or losses in my statement?  Is there a minimum balance in my account that is protected no matter how the SSDLX performs?

Help & advise is much appreciated.

Help is exactly what you need, but not the kind offered here.  You need to talk to your employer and ask them who you can speak to at Wells Fargo that will explain basic investment issues.  It matters  TREMENDOUSLY which fund you go into; currently it seems that your funds are going into the Target retirement fund you mentioned, but you most likely have a number of alternative choices with the target fund probably being the default.  Find out who at WF is available to provide some employee education, which is what you clearly need.

On 8/12/2020 at 3:59 PM, Mike Preston said:

There are sometimes valid reasons why a contingent trustee is preferred.  One example: trust has non-qualified assets requiring a bond in excess of $500,000.  In such case the bonding company has been known to request financial statements of each appointed Trustee.  There are no doubt others.  So, while somebody might be willing to accept appointment as Trustee to wrap things up, they might not be willing to sign on as a non-contingent Trustee. The advice we were given is that there is no need for the Trust document to have a provision specifically authorizing a contingent trustee.

Here is what we have used for a long time:

ACTION BY THE BOARD OF

ABC INC. ("Employer")

BY WRITTEN CONSENT

             The undersigned, being the sole Director of the above corporation, and acting pursuant to the provisions of the By-Laws of the corporation, does hereby consent to and approve the following resolution(s):

             WHEREAS, the Employer adopted, and has had in effect the ABC Inc. Profit Sharing Trust (the "Trust") which was initially established in conjunction with the ABC Inc. Profit Sharing Plan; effective the same date; and,

             WHEREAS, [Name of first Trustee] and [Name of second Trustee] have been appointed as Trustees of the Trust effective January 1, 20yy; and

             WHEREAS, The Employer has determined it is in the best interests of the Employer and the Trust's beneficiaries to designate a Contingent Successor Trustee in the event of the incapacity or death of both of the Trustees named above;

             NOW, THEREFORE, BE IT RESOLVED:   That the following individual is hereby named as the Trust's Contingent Successor Trustee:

                                                                                  Linda E. Johndoe 

            RESOLVED, FURTHER:  That the Contingent Successor Trustee shall not serve as Trustee of the Trust unless both [Name of first Trustee] and [Name of second Trustee] are no longer serving as Trustees because of (a) death, (b) physical and/or mental incapacity as certified by two (2) physicians, or (c) a combination of (a) and (b).

             RESOLVED, FURTHER:  That the Contingent Successor Trustee named above shall only serve as Contingent Successor Trustee of the Trust if she accepts, in writing, the appointment as Contingent Successor Trustee, with said acceptance being valid whether it pre-dates the contingencies identified or not.

             IN WITNESS WHEREOF, the undersigned has executed this written consent on the  _____  of February, 20xx.

                                                             __________________________________

                                                            [Director]

=============================================

CONTINGENT SUCCESSOR TRUSTEE ACCEPTANCE

ABC INC. PROFIT SHARING TRUST

 I, Linda E. Johndoe, hereby accept the position of Contingent Successor Trustee of the ABC Inc. Profit Sharing Trust.  Upon notification that both [Name of first existing Trustee] and [Name of second existing Trustee] are no longer serving as Trustees because of (a) death, (b) physical and/or mental incapacity as certified by two (2) physicians, or (c) a combination of (a) and (b).

I see no reason why that wouldn't work; of course, the company has the ability to change the trustee at any point, so the day after the contingent becomes the trustee, he/she can be replaced using the same mechanism of a company resolution.

On 8/12/2020 at 3:26 PM, pmacduff said:

ok -manufacturing client added COVID withdrawals to their 401k Plan but only up to $3,500 of the participant's vested balance.  Employees have been back to work full time for months.  (Furloughs were very brief for this particular client.) Can the Employer put an "end date" on these withdrawals so long as participants are properly notified?  They are seeing a dramatic increase in requests "all of a sudden" and surmise that word is getting around from those who took distributions early on and fear now it's just being used to get funds out. 

I'm thinking the answer is "no" and that they must keep this in place until 12/31/20.....  

 

I'm thinking the answer is yes (actually, I'm sure of it!).  And I'm not as concerned as Luke is on the issue of notice.  I say you can stop anytime, just like you could eliminate a loan provision completely at any time without prior notice.

Just now, david rigby said:

The above responses assumed the original Q was concerned with the death of the trustee.  I read the Q more broadly; it may also be prudent to consider disability and/or incapacity.

 

Which is exactly why we always recommend at least TWO trustees.

5 hours ago, Belgarath said:

Re new 402(f) Notices. How quickly do you think these (or similarly updated Notices) need to be utilized? For distributions as of today, or are we realistically ok for a couple of weeks, etc.? Doesn't take long to manually copy the IRS model into a Word document and do this manually, but takes a little time to update systems/procedures, etc.

Curious as to how quickly folks are implementing this. Of course, sometimes these are produced by the recordkeeping platform, so that's a separate question.

Isn't the only change regarding Roth accounts; if the plan doesn't allow for Roth accounts (only ONE of our plans provides for Roth), do you even need to modify your old form? I have not yet had a chance to research that question, but that was my initial impression.

6 hours ago, JDeans said:

Final Divorce Decree included QDRO, it was ordered that it be sent to VRS for implementation when either I or my ex retires. My ex retired August 31, 2019. Didn't tell anyone and didn't file the QDRO with VRS. I found out he retired several months later, I sent the Divorce Decree with QDRO to VRS. It was approved and implemented and I started receiving the regular amount calculated in February 2020. Question is, from the time he retired and started receiving payments to the time I finally started receiving payments, do I have to go to court to receive the payments that weren't sent to me due to him failing to submit the QDRO when he retired? Any other information would be appreciated. Thank you.

To add to MoJo, you were both badly represented by your counsel.  The judge's order is NOT a QDRO unless and until it is submitted to the plan and the plan certifies it as a QDRO and accepts it.  It was a major fault to provide that it was not to be sent to the plan UNTIL one of you retired.  Someone may have a malpractice claim against the lawyers involved, but it won't be pleasant.

22 hours ago, Jakyasar said:

Thank you, will amend the plan prior to termination so that CARES will kick in.

It's appropriate to amend the plan, but just to make sure the plan doesn't still require a distribution even if there is no RMD distribution.  Assuming your plan doesn't require a distribution unless it is an RMD, then for 2020 the LAW eliminated RMDs so you aren't amending for that reason.

On 8/11/2020 at 1:06 PM, Scuba 401 said:

Not innocent. he created the plans for the sole purpose of taking the rollover.  i wouldn't say he didn't intend for the plan to be qualified. i would say that the plan probably isn't qualified.   we are assuming for arguments sake the IRS disqualifies the plan to get a  worse case scenario

You can't just assume it is not qualified.  What is your reason for making that assumption (it may be wrong by itself)?  You need to tell us WHY you are asking the question about the rollover since the question may not even be applicable.

However, theoretically speaking, a transfer to a plan of money that IS eligible to be rolled over but the plan it is transferred to is not qualified would result in a non-qualified rollover, which means it should be 100% taxable at the time of transfer!  Your supposition regarding the 6% excess contribution tax is, I believe, simply not applicable.  It is a whole other problem! 

If it was a situation where an amount was subject to the 6% annual excise tax, which is cumulative, after a number of years, 6% will compound to 100% of his account value as an excise tax! Roughly, after 12 years, he would owe slightly more than 100% of the rollover amount!

On 8/10/2020 at 10:29 AM, Stash026 said:

I have a one-person Profit Sharing Plan that wants to name his daughter as a "contingent trustee", just in case something were to happen to him.  How would we go about that, or is it really more of a beneficiary (or just add her as a second Trustee)?

Thanks everyone!

Assuming you could write language that does the above automatically at his death, it is actually controlled by whoever takes over the contol of the business (the plan sponsor) at this death.  That individual has the authority to appoint trustees and can appoint (or keep) the daughter OR replace her with someone else of their liking. 

We always suggest there be a second trustee just to avoid the problems of what happens if the single trustee dies and then we have to wait for some estate process in order to be able to appoint a new trustee.  If it is a corporation and there are other corporate officers, then there is no problem, but a sole prop dies with its owner and the court would have to get involved to appoint someone to wind up the affairs. A second trustee can continue to provide trustee services without having to wait for the court.

Separately, if the daughter is the natural beneficiary of his bounty, then he should ALSO make sure she is listed as the beneficiary since that cannot be changed after he dies.

So: appoint her as a second trustee now; name her as beneficiary now (especially if the default beneficiary provisions don't already accomplish that).

13 hours ago, Christina said:

We have a client who is splitting off one location as a separate entity/company. We'll now have Company A and Company B. Each will sponsor its own 401(k) Plan. There is no common ownership for controlled group purposes, but may be as an affiliated service group due to management functions and/or as the 65% owner of Company B is the father of of the 50% of the owner of Company A. This will be passed by the company's attorney.  The intent of the companies/plans is to have zero liability to/for one another.

Question - an employee of Company A (non owner) acts as the Plan Administrator/Employer Sponsor for Company A's 401(k) plan. The plan uses a turnkey provider as Trustee, but names two individuals as Administrator/Sponsor in the Plan's documents. This person signs off on plan resolutions/amendments, approves distribution requests, handles payroll and contribution deposits to the plan, etc.  If new Company B uses the same individual in the same capacity, acting as Plan Administrator/Sponsor named in the docs, performing all of the same functions, wouldn't there be liability or a common tie there?  I have concerns for this person that would be named as Administrator on both plans.

You said: "If new Company B uses the same individual in the same capacity, acting as Plan Administrator/Sponsor named in the docs, performing all of the same functions, wouldn't there be liability or a common tie there?"

NO. 

And you can't call this individual Plan Administrator/SPONSOR (the sponsor part is not applicable). The sponsor is always the employer (Company A for Company A's plan and Company B for Company B's plan).  And he may not even be the legal Plan Administrator (in my plans, the PA is ALSO the employer and someone acts on the employer's behalf to do the things that are PA type functions). 

On 8/6/2020 at 7:20 PM, Dennis G. said:

As the author of the original post, to clarify, this is a one man plan with all assets attributable to accumulation as a Defined Benefit Plan asset.  The 1 man participant took his RMD due him for 2019 before 9/30/2019, plan year end.  In October 2019 the plan transferred the remainder of the DB assets to an IRA.  Perhaps the better question is did the DB Plan produce an RMD requirement for 2020 because it held assets as of 9/30/2019?

Go back and re-read my 7/31 posting. It tells you exactly what the answer is. And just to state the obvious again, there is no 2020 RMD for ANYONE IN THE COUNTRY, and if the RMD rules were still in effect, there was an IRA at 12/31/19 (not a DB plan) which would determine the RMD for 2020.  Anything not clear there?

4 hours ago, chc93 said:

We've had situations where the employee just calls the employer one day and says that he is "quitting"... and never shows up again.  Others just don't show up for work... with no contact with the employer.  No valid addresses in either case.

And, terminated employees that "move on" with no current addresses and become "lost" is a major problem if and when the plan terminates. 

At plan termination is when the problem of lost participants go away.  Because at plan termination, we can do a mandatory rollover for participants who cannot be found, regardless of the amount.  Our plans have that language and yours probably do too.  Our rollover company get the SS number and LAST KNOWN ADDRESS; they are experts at finding people, and even if we don't have last known addresses, they will work with just the SS number and still most likely find the person.  More importantly, it ain't our problem any more when the funds have been sent off to the IRA provider.

2 hours ago, hhlife said:

Questions based below situation：

 

1. Defendant will use  his portion of 401k to pay child support and alimony. The tentative settlement is that all funds will be transferred to Plaintiff 's account, but when Plaintiff withdraws the money from Defendant‘s portion 50% 401k as the child support and alimony, it will trigger tax liability for Plaintiff, but actually child support and alimony are non-taxable. How to solve this problem? 

 

2. Defendant's 50% 401k, his portion is not sufficient to cover the full term of child support and alimony for 10 years, how can the Plaintiff  track the remaining amount of the defendant's portion if 100% of the 401k is transferred into one account and mix together? 

 

Please advise.  Thanks!

 

SITUATION AS BELOW ==============

 

 

In light of Defendant’s current financial circumstances, Plaintiff shall receive and thereafter

retain 100% of the 401K/retirement assets in Plaintiff’s name, which total approximately

$100,000. Plaintiff shall utilize Defendant’s 50% share of the account for the alimony and

child support obligations from the effective date of the obligations, per Paragraphs

2 and 3 of this Order, until no more funds remain in Defendant’s 50% share of the assets to

cover the support obligations. When no more funds remain in Defendant’s 50% share of the

retirement accounts to cover the support obligation, then Plaintiff or Defendant may file the

appropriate motion with the Court at that time to address support. Within 30 days of the

date of the execution of this Settlement Term Sheet, Defendant shall timely sign all

documentation necessary to transfer 100% of his retirement accounts to Plaintiff. Plaintiff’s

attorney shall provide Defendant with the documentation for the company that will prepare

the Qualified Domestic Relations Order to transfer the retirement accounts to Plaintiff and

Defendant shall cooperate and timely sign the documentation.

Who is writing this stuff?  The law requires that money in a divorce be handled through a QDRO.  It appears that your QDRO is going to transfer 100% of the participant's acct to the alternate payee (that what the last two sentences above say).  Fine. But then the language in the first part just doesn't apply. If all of the participant's money in the plan (that is the defendant, yes?) goes to the ex-spouse as part of a QDRO, it is now the ex-spouse's qualified plan money (can be transferred into the alternate payee's IRA, for example) and when it comes out, it is taxable to the ex-spouse.  You can't control or treat it as alimony; it is not.

The reference to "defendant's 50% share" makes no sense if 100% is transferred to the ex; there no longer is ANY share for the participant. 

You need a competent ERISA expert to make sure what you want to accomplish is done in a way the accomplishes what you want; I don't see that in the above.  Who is writing this?  Doesn't look like they under the ERISA law with regard to QDRO's from what I can understand of the above, which is extremely unclear at this point.

Best of luck.

9 hours ago, B21 said:

Are individual states required to comply with the relief enacted under the Cares Act with regards to waived 2020 RMDs, Aug 31st due date for rollovers, & one IRA rollover per year exemption?

I was told NYS is not following the Cares Act & was asked how to handle RMDs that were taken during 2020 & then rolled over into IRAs after 60-days for state tax purposes.

Wouldn't it be based on how the states define eligible rollovers & if they cite the federal code & regulations?

Yup. And also which version of the federal tax law they follow. Mass does not follow the current version, but it tied to an earlier version.

9 hours ago, Shuo said:

I'm new to this and I heard that when people leave a company, they tend to leave their 401k behind. Is it a big problem for the employer to keep all those orphaned 401k's? If so, how should we encourage people to rollover their 401k when they leave? Thanks!

First: where did you HEAR that?  Always be suspect of "hearing" things.  They usually are not true.

Second: What kind of a problem are you asking about?  Normally, the employer isn't doing anything special since the admin service is doing all the work.

Third: Who are YOU when you refer to "we" in the encouragement issue. Why do you care?

Fourth: Almost all of our plans provide for a lump sum distribution to be available after the year is over in which the participant terminates and the annual work is done for that year, and almost all of the  participants take their money at that point. We see very little evidence of people leaving their money with their ex-employer.

Just some things to add to the discussion. Welcome aboard.

Larry.

19 hours ago, Belgarath said:

They trust us. They just don't trust their payroll service!

Kudos to you if 100% of your clients do exactly what you recommend. Our percentage isn't quite that high.

Ah... but we also change most of our clients to our favored payroll service, which also happens to be a client of ours (but we were a client of their for many years before they became ours and we still recommended that everyone switch. We actually have capability to enter their data system and pull all the payroll info that we need, so that makes the client's lives easier, and that's one very large selling point. FWIW.

2 hours ago, thepensionmaven said:

Plan allows for two loans at a time.  Participant has one loan outstanding and qualifies under COVID to both suspend on the existing as well as take out a new loan, the total of the two not to exceed $100K.

Is the $100K offset by the outstanding balance of the existing loan?

I wouldn't use the word offset; it is part of the maximum allowable loan calculation.  Read this (from IRS) at https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers#:~:text=A coronavirus-related distribution is,from all plans and IRAs.:

Loan limit may be increased: The CARES Act also permits employers to increase the maximum loan amount available to qualified individuals. For plan loans made to a qualified individual from March 27, 2020, to September 22, 2020, the limit may be increased up to the lesser of: (1) $100,000 (minus outstanding plan loans of the individual), or (2) the individual's vested benefit under the plan. See section 5.A of Notice 2005-92.

On 8/3/2020 at 11:59 AM, Pammie57 said:

Client acquired another practice in 2016.  They did not give credit for prior service with prior employer for purposes of vesting, etc.  Three doctors attained NRA (which is age 55 in this plan) during their employment with Client.   However, all of them worked less than 5 years before either retiring, quitting, etc.  Would they still be 100% since they met NRA while employed? Plan document just has checked "specific age"  age 55 - doesn't have the age/participation box checked.  So I am just asking if you agree that they would be 100% based on that?  It's a LOT of money as they fund their Profit Sharing every year.  Thanks!

Of course they are 100% vested; you said that in your message.  They reached NRA while working, your plan fully vests at NRA. What is the issue? "Will they STILL be 100% vested"; if they ARE 100% vested, they remain so. Did you mean to ask "Do they BECOME 100% vested"?  And the answer is still YES.

Does that help at all?

8 hours ago, Belgarath said:

We also have a few (very few) holdouts on this. Typically it is bad memories of an incompetent payroll service (or in-house payroll administrator) who constantly screwed up deferral changes and caused a lot of work/expense to fix. 

That's perfect:  "You came to us BECAUSE your previous experience with "BIG Payroll Incompetent Company" was a problem.  We make sure you don't have those problems.  We are your retirement experts now and we know how to run these plans.  You want fewer problems?  DO IT OUR WAY."

Larry.