Message Boards Digest

December 21, 2017

Here are the most recently added topics on the BenefitsLink Message Boards:

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Manatee created a topic in Defined Benefit Plans, Including Cash Balance

Timing of RMD from Terminating DB Plan

Client has a DB plan (professional 100% owner and one other employee, not subject to PBGC). Owner reached age 70-1/2 in 2016 and received his first RMD in 2017, slightly before the April 1 required beginning date. The payment was a year's worth of accrued benefit (normal DB RMD paid annually). Per Treas. Reg. 1.401(a)(9)-6, A-1(c)(1), if the plan were ongoing, his next annual distribution would need to be made around that same date in 2018. But the owner terminated the plan in 2017 and is an electing to receive a lump sum at plan termination. Because it's the year of termination, I am thinking that he can take his 2017 RMD via the account balance method using his lump sum as the balance. His employee recently received her distribution materials and may not have made her payment election before the end of 2017, so we don't know the cost to the plan for her benefit yet (it could be her calculated lump sum or an annuity contract purchase at an as-yet unknown price). Barring a large gain in plan assets at the last minute, the plan will not have enough assets to pay the owner's full lump sum, so he will forego some of it to the extent necessary. He does not want to make an additional contribution to allow the plan to pay his full amount. Therefore, we likely will not be able to calculate his RMD before the end of 2017 because the "account balance" is not yet known. Question: Does the fact that we are using the account balance method for the 2017 RMD shift the payment due date to the end of 2017, or would it still be considered timely if he takes it by March of 2018 (one year after the first annual RMD was paid)? We're aware that the RMD should be excluded from any rollover to an IRA.
Number of replies posted  0 replies      Number of times viewed  36 views      Add Reply

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Belgarath created a topic in Humor, Inspiration, Miscellaneous

A Happy Holiday Season to All!

For all of you and your families and friends, wishing you all a Happy Holiday Season -- drive carefully, and enjoy!
Number of replies posted  4 replies      Number of times viewed  38 views      Add Reply
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Pammie57 created a topic in 401(k) Plans

Failure to Withhold 20% on Distribution from 401(k) Plan

Participant took a cash distribution from 401(k) plan in mid-2017. The participant accounts are held in individual brokerage accounts. The broker didn't withhold the 20% tax (even though they've been working with 401(k) accounts for years)... they didn't consult with us and paid the entire vested balance to the participant. The withholding would have been almost $10,000. We're supposed to do a Form 1099R for this. Who is responsible for paying the tax that wasn't withheld? The participant already has spent the cash. And part of the distribution represented an unpaid loan. Should we do the 1099R showing NO withholding, or instead show the correct 20% amount and tell the broker they owe that money to the employer? Or is the participant just liable to pay whatever tax is due on the distribution (on his 2017 income tax return)?
Number of replies posted  2 replies      Number of times viewed  45 views      Add Reply
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Molly the cat created a topic in Distributions and Loans, Other than QDROs

Principal Residence Loan or Hardship Distribution?

I am a TPA who received a request from a Financial Advisor asking if a participant could get a 30 year principal residence loan (allowed in plan document) under the following circumstances: Divorce situation -- spouse doesn't want a QDRO, but he needs the money to pay his (ex?)spouse. Can't afford to keep his home unless he receives a loan or hardship distribution. Hardships use the safe harbor criteria so states 'Costs directly related to the purchase of a principal residence for the Employee (excluding mortgage payments).' The loan policy states that the loan can be for 30 years if proceeds are used to acquire a dwelling unit which within a reasonable time will be used as your principal residence. He already lives in the house, so I don't think he can do the 30 year loan because he is not acquiring the residence. So it appears that the maximum loan could be only 5 years. I don't see a way for him to do either a 30 year loan or a hardship distribution. Is that an accurate interpretation based upon this information? Looks like the spouse's lawyer is smarter is getting her the money without a QDRO so she doesn't have to pay taxes on it, but that's outside of my hands. I've asked for more information to see if there are any other options, such as distribution from Rollover source and/or in-service at age 59-1/2. But the Financial Advisor already may have looked into these options.
Number of replies posted  1 reply      Number of times viewed  28 views      Add Reply
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kmhaab created a topic in 401(k) Plans

401(k) Deferral of Fraudulent (Stolen) Compensation

Payroll employee fraudulently paid herself additional compensation in the form of bonuses, PTO payouts, etc. She was terminated recently for cause. The police were involved and the case is currently in court. This apparently has been going on for 4 years. Employee deferrals and employer matching contributions were made to the 401(k) plan on the stolen amounts. [1] Can the plan sponsor make corrections to recoup the fraudulent contributions? (We know they cannot get repayment of the entire stolen amount from her 401(k), but are asking only with respect to the contributions made in error based on the stolen amounts.) [2] Participant just requested a distribution of her entire 401(k). (Ha!) Can employer delay her distribution until this is straightened out? They are still looking at payroll records, etc. to determine the scope of the theft. I believe the prosecutor has asked the judge to freeze her account, but I am not certain if that would be preempted by ERISA? Any thoughts would be appreciated.
Number of replies posted  3 replies      Number of times viewed  47 views      Add Reply, Inc.
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