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May 4, 2018

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

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Sabrina1 created a topic in Cafeteria Plans

Excess Contribution to One-Participant SEP

Self-employed owner funded a SEP for the first time based on "projected" income. Later discovered he had a self employment loss. He took back the SEP contribution, less losses incurred while invested (before his tax return due date). Is there an excise tax 10% on this reportable on 5330? Also, is the 1099-R reporting only for employees, and since he has none this is a non-issue? Anything else to worry about? Can he take the "loss" on his tax return somehow?
Number of replies posted  2 replies      Number of times viewed  36 views      Add Reply
 
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Patricia Neal Jensen created a topic in 403(b) Plans, Accounts or Annuities

When Is a 403(b) Not a 403(b)? Possible Non-amender Problem

New client with a plan document which is on a 403(b) Adoption Agreement and the plan's name is '403(b) DC Plan' but the plan only permits a nonelective employer contribution: no deferrals. Is this a 403(b) plan? (Why do I care? Because it is not a PPA document. If it is a 403(b), then I can restate now. If it is not a 403(b) but a DC plan, it's a problem.)
Number of replies posted  1 reply      Number of times viewed  24 views      Add Reply
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ERISAAPPLE created a topic in Operating a TPA or Consulting Firm

Targeting the Ideal Client for Cross-Testing and New Comparability

What types of individuals or companies do you find to be "ideal" target clients who could benefit from a cross-tested or new comparability plan? I will be glad to share my thoughts. I look for smaller businesses that have a lot of income with demographics that are favorable for the testing and with owners who want to sock away some money, take advantage of the tax deduction, and mitigate the costs of benefits to their staff.
Number of replies posted  1 reply      Number of times viewed  30 views      Add Reply
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C. B. Zeller created a topic in Defined Benefit Plans, Including Cash Balance

Offset Using a Hypothetical Account Balance?

I recently received a cash balance plan that defines the accrued benefit as the actuarial equivalent of the hypothetical account balance (where the hypothetical account balance is the usual sum of principal and interest credits), reduced by the actuarial equivalent of the balance of the "hypothetical offset account." The plan states that the hypothetical offset account for each participant is credited with an allocation equal to the lowest allocation rate from [Sponsor Name] Profit Sharing Plan plus the actual rate of return from the participant's account in the profit sharing plan. The profit sharing plan uses a new comparability allocation formula with each participant in their own group. In past years, the owner received a contribution equal to the 415(c) limit, and the non-HCE received the minimum gateway, let's say it was 6%. The profit sharing and cash balance plans satisfied the numerical tests for coverage and nondiscrimination when tested together. The idea behind this design seems to be that although the participants are not getting a uniform allocation in the DC plan, they are getting a hypothetical uniform allocation in the form of the hypothetical offset account, and it is that account balance which is being used to offset the accrued benefit. In other words, even though the owner is really getting a 20% allocation in the DC plan, his balance for purposes of the offset is based on only a 6% contribution since that is the lowest allocation rate of any participant in the DC plan. My concern is whether this arrangement satisfies the minimum participation requirements. Treas. Reg. 1.401(a)(26)-5(a)(2)(iii)(A)(2) states that the formula meets the requirements if "The employees who benefit under the formula being tested also benefit under the other plan on a reasonable and uniform basis." The word "plan" here concerns me as I do not think that a hypothetical offset account constitutes a plan. Nor do I think there is any permissive disaggregation rule that would allow that portion of the employer nonelective source which is attributable to contributions not in excess of a certain allocation rate to be considered its own plan. This plan does not have a determination letter. Has anyone ever encountered this type of plan design before? Does this seem permissible?
Number of replies posted  1 reply      Number of times viewed  22 views      Add Reply
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MGOAdmin created a topic in 401(k) Plans

Quasi Deferred Comp: Promising a Profit Sharing Allocation Five Years from Now

An owner-client is having difficulty keeping a certain type of employee to stay at the company. He asked about having a 10-year cliff vesting schedule. This is obviously not allowed, so here's an idea we came up. Assume he wants to give $5,000 per year of service to these employees. In year 5, he would make a $25,000 profit sharing contribution for these employees. Any amount in excess of the annual additions limit would be paid as a bonus. None of the employees are HCEs and the plan makes each employee their own allocation group. [1] Does anyone see any issues with the above arrangement? [2] Should he be accruing the expense on the books? [3] Is this a deferred comp arrangement? Are there any 409A issues?
Number of replies posted  2 replies      Number of times viewed  29 views      Add Reply
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