ldr

Thanks, Bird!

Good morning to all, A client has posed an interesting question that I do not see addressed in our version of the Distribution Answer Book nor Sal's encyclopedia. John will turn 70.5 on July 7, 2019. Although he could delay until April 1, 2020, he wants to take his first RMD in 2019. His question: Does he literally have to be 70.5, thus taking his first RMD after July 7, 2019, or is any date in 2019 okay (like tomorrow for instance)? My first instinct is to think that any day in 2019 should be fine, but I don't know that for a fact. Thank you in advance!

Thanks, Tom! I don't know what the thinking was either. Our document specs were chosen by my predecessor, who retired before I ever came on board.

Tom, I thought about what you are saying about all employees versus just the terminated. Indeed, this particular client said that the check for everybody for hours worked from 12/15 to 12/31 always hits in January of the following year. Those wages do not show up on the W-2 for the year they were earned. They are reported on the following year's W-2, the year in which they are actually paid and received by the participant. We don't have the manpower to undo/redo/recreate everything we've ever done, so I am trying to find a reasonable balance here. My thinking was that the compensation for the participants who are still employed will continue to be based on each year's W-2 wages, Box 1 with add-back of pre-tax withholdings, just as specified in the document and just as we have always done things. For the terminated, however, who left in November and December, we can ask the client if there is a trailing check for eligible compensation dribbling over into January-February, and if so, we can add it into compensation reported to us. Our plans are small and in most cases it won't amount to more than 1-5 people. It should be feasible. And then when the new restatement cycle cranks up in 2020, I am going to recommend that we NOT include the "first few weeks" anymore.

Update: Unbelievable but true, it turns out that the brokerage house had a valid beneficiary form on file from 2016 and the sister is named as the beneficiary. Moral of that story is that just because the beneficiary can't find a copy of the form in the deceased client's papers, and we don't have one, that doesn't mean there isn't one - pick up the phone and call the broker! Everyone involved has decided that the sister is sufficiently documented and empowered to handle the estate, so she's being allowed to function as the Trustee of the plan, and it's going to terminate like any other plan would.

Here are the further details of my case: This plan document was written by an attorney and is one of the few not in our own Datair document. The attorney chose to include post severance pay in the adoption agreement and the basic plan document calls for inclusion of the "first few weeks" pay. The participant with the $11,718 payment in 2018 was not a rehire and did not work any hours in 2018. This money was paid to him partly for unused vacation hours and partly as his year end bonus for 2017. He got the check 02/08/2018, within the 2.5 month period. He received a 2018 W-2 form for this money. It seems that we should have asked the client for information about any trailing 2017 payments for people who terminated near the end of the year in 2017, but we didn't. We calculated his 2017 discretionary match based on 2017 wages that were understated by $11,718, even though those wages matched his 2017 W-2. My thinking is that we will calculate the extra amount he is due, deposit it now, and move on. BUT Here's the important part. Our documents that we write all have the box checked saying that we will include the "first few weeks" payments from the following year. So as we do the 2018 annual reports, we have to be alert for terminated participants who left in December of 2018 and ask the client if there were trailing payments that dribbled over into 2019. Then, when we ask for the census information for 2019 and years going forward, we need a blurb in the instructions asking for information on this type of payment. Does this sound reasonable? Thank you!

Tom Poje thank you as always for your help!

Good afternoon to all, I am chiming in here because I am researching this subject and have some issues with what we have (or haven't) been doing in the past because we simply didn't know. Our document (Datair) has check boxes for including or excluding "amounts paid during the first few weeks of the next Limitation Year (Plan Provision on the 2007 Defined Contribution Plan Interim Amendment)" and we always check the box that says to include this compensation. We haven't really focused much on this, until now. Today I am working on a plan where a participant terminated 12/08/2017. He is reported on the census for 2018 as having -0- hours, yet drew compensation of $11,718.00. Of course first I will check with the employer to be sure he wasn't rehired and actually did work some in 2018. But if this really is 2017 compensation and we should have been calculating his match and his profit sharing contributions based on a salary that was higher by this much, for 2017, oh my. Or on the other hand, maybe he is due those missed contributions in 2018? The article ugueth posted is somewhat helpful, once I digest it. Any helpful hints will be appreciated. Thanks!

BG5150..it's not my decision to make. "Ours is not to reason why, ours is but to do or die!" Of course your idea has been going through my mind as well.....

Thanks, Kevin C! Words of wisdom....let the client decide.

I feel sure we will not go the "abandoned plan" route though it is still good to know about. I think between her lawyer and our lawyer something simpler can be worked out. It's an interesting case and I will post the outcome when we get that far.

Hi Bug on my window and Bob the Swimmer, I do appreciate both your observations even if they don't agree with each other! Bug, it's a delicate situation. I can't get real specific other than to say that the client is a group of people who are considered to have been historically maltreated and at a great disadvantage in society at large. They have no sense of urgency whatsoever and normally cannot be prodded into developing one. To have them as a client is to accept that they will do whatever they will do in their own good time and there's nothing more to be done about it. I have even been looking to see if there are loopholes that might get them out of trouble altogether just for the nature of who they are, but we aren't that lucky. They are not a 501(c)(3). They are not governmental. They have commercial elements in their participant population that make them subject to ERISA. The problem is that ERISA means nothing to them and they have not cared to do anything "on time" , until recently when a new advisor became involved. Now they have become interested enough to at least allow us to finish up 2014 and 2015. We just cannot predict how soon 2016 and 2017 will be resolved. So we are debating just what you two are debating - file 2 now and 2 when we can, or wait and do all 4 at one time?

@Pam Shoup that's an interesting idea, too. Thanks!

Update to this request: I am often the victim of drive-by research inquiries and more details become available as it unfolds. This client is now ready to file the 2014 and 2015 5500. The census data isn't even in and reconciled for 2016 and 2017 and it could be many months, not just a few months, before those two forms are ready. it seems to me that it would be worth it to file the 2014 and 2015 forms, pay the $4,000, and then do it again in a year or so or whenever the 2016 and 2017 5500s are ready to file. But I would still like to hear your thoughts/experiences on this.

Hi to all, We have a client who has not provided sufficient data to enable us to produce an annual report or a 5500 since 2014. Please don't go into the fact that we should have fired the client long ago. There are extenuating circumstances. The bottom line is that they have seen the light and have begun to provide data. We are now in a position to provide them with a 5500 to file for 2015 and 2016. Since they are not under examination at this time, we can use the DFVCP program. From their instructions it would appear that we are supposed to file all delinquent years at one time. However, we are nowhere near being ready with 2017's form and may not be for several months. What are your thoughts on waiting a few months and doing them all at one time versus filing what we do have and doing another submission later on? What if they do get a letter saying they are under examination in the interim while we are waiting to get the 2017 form done? Your ideas are appreciated, as always.

Thanks, everybody. I will keep this updated as to how it goes. We will also get in touch with an ERISA attorney we keep on retainer for special questions that come up like this. Naturally we like to try to solve things on our own if we can but this may be an occasion where it's worth it to involve her.

@jpod, yes, she does have an attorney in this regard. Great idea!

Thanks Bird and ESOP Guy! Yes, this was a sole proprietor and the deceased client wore all the hats. There are a couple of other rank and file participants who also have their own brokerage accounts. We will be terminating the plan and it shouldn't be any problem to pay the employees out. The big question is what to do about the account of the deceased owner and you are being very helpful with your thoughts.

Good morning to all. A client passed away last fall, and her sister popped up recently claiming to be the executrix of the estate and heir to all of the client's assets. We as the TPA do not keep beneficiary forms on file for any of our clients. We inform them at the moment of engagement that they must be responsible for keeping up with the forms in their own offices in the employees' personnel files or something similar.. The sister of the deceased says she has not found a beneficiary form. She says the deceased was divorced and that the ex-husband is deceased, and that they had no children. So far all she has provided to us is a death certificate for the deceased and a "Letters Testamentary" document with one sentence naming her as the personal representative of the estate of the deceased. She is now pushing to have the deceased client's assets transferred to her. The account balance of the client is held in an individually directed brokerage account with a well-known national brokerage house. The plan document says that in the absence of a beneficiary form, the assets go first to the spouse, and if none, to the children, and if none, "such other heirs, or the executor or administrator of the estate, as the Plan Administrator shall select." Bear in mind that the Plan Administrator was the client, who is dead. 1. To what extent are we as the TPA responsible for determining that the spouse is indeed an ex spouse, that he is indeed deceased, and that they had no children? 2. Is more paperwork required that just this one liner naming this woman as the personal representative of the estate required to establish her as the executrix/personal representative? 3. Is this our problem or the brokerage house's problem that holds the funds? 4. Do we have to worry about being sued later if she lied to us and there is a current spouse/children? 5. Can the account be rolled directly to her without passing through the estate in this circumstance? This is a first for us, so any experiences you can share/advice you can give will be greatly appreciated. Thanks in advance.

Thanks, Tom! Happy Holidays! ?

Hi to ETA and Tom Poje, Thank you both for answering. Tom, let me talk through what I think you said to be sure we are on the same page. The plan would have the already promised dollar for dollar up to 6% of pay deferred as the Safe Harbor match. That is of course 100% vested and has no hours requirement, no last day, etc. Then for 2019, he would declare a discretionary match of 66.667% up to 6% of pay deferred. This contribution would be on their vesting schedule and subject to the 1000 hour and last day requirements. This would get someone to the 10% goal line without incurring any ACP testing. This is looking good to me as the TPA because of the ability to avoid ACP testing altogether. It's an approach I could heartily recommend. However, the client isn't worried about the ACP test. He wanted to do what I explained above and take his chances with the test. He doesn't care if the HCEs don't get to keep all of what might be allocated to them. So if we do what he wants, the questions still remain: 1. Must we structure the discretionary match to include all deferrals from the first dollar? Is it impermissible to structure a discretionary match that only applies to deferral contributions above 6% of pay? 2. What exactly goes into the ACP test in this case? The discretionary match only, or the total match including the Safe Harbor? Thank you very much.

If this is a breach of protocol I apologize in advance. I first tacked it on to the end of an old thread and then I decided that maybe nobody reads old threads and that maybe I should start it as a new topic. Thank you. Hi to all! I'd like to tack my new question on to this old thread because they related to each other and even though I have read this 5 times I am still not sure how to handle my situation. I have an employer who wants to motivate his employees to defer more and in his ideal world they would defer 15% of pay and he would match 10%. No, for real, I really do have someone this generous! For 2019 he has already distributed a SH Match notice promising the employees dollar for dollar up to 6% of pay - already really generous. He's trying to figure out how to structure a discretionary match on top of the SH for 2019 that would reward employees who put in more than 6% of pay, in such a way that if someone put in 15%, they would end up with a total of 10% in employer match. He understands that at least some if not all of the match would be subject to the ACP test and that if the test fails, refunds might have to be made, and he doesn't care. At first he, and we, were thinking that he could do a discretionary match of 44.44% on deferrals between 6.01% and 15% of pay. For the guy who defers $15,000 on a $100,000 salary, this would get him a $6,000 SH match plus a $4,000 extra match for a total of $10,000. Then we started reading passages about having to calculate the discretionary match on all of the deferrals, not just the percentage over 6% of pay. In that case, the extra match would be 26.66% of all deferrals up to 15% of pay deferred. This would get our $100,000 person the $6,000 in SH Match plus the extra $4,000 in discretionary match for a total of $10,000. However, of course, it would increase the cost of the lesser paid/lower deferring people. I don't think this employer minds doing this, if the rules require it. He just wants to know what to do within legal parameters to achieve his goal. So here we go: 1. Must we structure the discretionary match to include all deferrals from the first dollar? 2. What exactly goes into the ACP test? The discretionary match only, or the total match including the Safe Harbor? We mostly deal with employers who won't even pay a Safe Harbor match, let alone do more, so it just hasn't come up before. Thanks in advance for helpful advice!

Hi to all! I'd like to tack my new question on to this old thread because they related to each other and even though I have read this 5 times I am still not sure how to handle my situation. I have an employer who wants to motivate his employees to defer more and in his ideal world they would defer 15% of pay and he would match 10%. No, for real, I really do have someone this generous! For 2019 he has already distributed a SH Match notice promising the employees dollar for dollar up to 6% of pay - already really generous. He's trying to figure out how to structure a discretionary match on top of the SH for 2019 that would reward employees who put in more than 6% of pay, in such a way that if someone put in 15%, they would end up with a total of 10% in employer match. He understands that at least some if not all of the match would be subject to the ACP test and that if the test fails, refunds might have to be made, and he doesn't care. At first he, and we, were thinking that he could do a discretionary match of 44.44% on deferrals between 6.01% and 15% of pay. For the guy who defers $15,000 on a $100,000 salary, this would get him a $6,000 SH match plus a $4,000 extra match for a total of $10,000. Then we started reading passages about having to calculate the discretionary match on all of the deferrals, not just the percentage over 6% of pay. In that case, the extra match would be 26.66% of all deferrals up to 15% of pay deferred. This would get our $100,000 person the $6,000 in SH Match plus the extra $4,000 in discretionary match for a total of $10,000. However, of course, it would increase the cost of the lesser paid/lower deferring people. I don't think this employer minds doing this, if the rules require it. He just wants to know what to do within legal parameters to achieve his goal. So here we go: 1. Must we structure the discretionary match to include all deferrals from the first dollar 2. What exactly goes into the ACP test? The discretionary match only, or the total match including the Safe Harbor? We mostly deal with employers who won't even pay a Safe Harbor match, let alone do more, so it just hasn't come up before. Thanks in advance for helpful advice!

@ Bird, so for once, it really is that simple? No RMD? Great! Merry Christmas!

Good morning to all, Something new to us came up this morning. We put in a good number of brand new 401(k) plans in 2018, with effective dates of 01/01/2018. Therefore nobody in those plans had an account balance at 12/31/2017. If a 73 year old employee made salary deferrals in 2018 to his employer's new plan and then quit during the year, must he take a RMD before 12/31/2018? What would the distribution be based upon, since there was no balance at 12/31/2017? Same concept if it was a working owner of the business: a 73 year old owner installs a new 401(k) plan in 2018 and makes salary deferrals. He's still working at 12/31/2018, but because he is the owner, he would normally have to take a RMD by 12/31/2018. What is it based upon, since there was no balance at 12/31/2017? At first blush we thought maybe they don't have to take one until 2019, but nothing is ever that simple or easy. Advice as to what the rest of you are doing will be greatly appreciated!