BenefitsLink.com logo   

BenefitsLink
Message Boards Digest

June 7, 2018

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

Author's photo

Chomper created a topic in 401(k) Plans

Which Recordkeepers Are Filing Form 5558?

Was interested in knowing which of the major recordkeepers actually file the 5558 for the plan sponsor? Most will prepare and some will actually mail/file.
Number of replies posted  2 replies      Number of times viewed  76 views      Add Reply
 
[Advert.]

Findley Davies | BPS&M is now Findley

Sponsored by Findley
We make the complex world of retirement, benefits, human capital and M&A simpler for organizations across the nation. Learn how!
FINDLEY is: Flexible, Innovative, Nimble, Dynamic, Loyal, Experienced and integritY
Author's photo

TimR created a topic in 401(k) Plans

401(k) Eligibility -- 'Layoff' Then Rehire

Employee was hired on 1/15/18. Employer laid off employee on 2/15/18. Employee was rehired on 5/7/18. Plan has 90 day service requirement to be eligible for the plan. Contributions can start on 1st day of the month following the month when 90 day service requirement is reached. I've seen plenty of examples where the employee terminates/quits/is fired/etc. Is a layoff viewed in the same way?

In most examples I see, it appears that time from 2/15/18 to 5/7/18 wouldn't even be considered a break in service. Is this correct? My thought is that as of 6/6/18, employee has completed 61 days of service (1/15-2/15 and 5/7-6/6). The time in between doesn't count and 29 days from now, on 7/7/18, the employee is eligible. Entering on the 1st day of the following month would mean employee is eligible to contribute and get employer match beginning on 8/1/18. Can anyone confirm or correct me?

Number of replies posted  5 replies      Number of times viewed  61 views      Add Reply
Author's photo

pmacduff created a topic in Distributions and Loans, Other than QDROs

Taxation of Partial In-Service Roth Distribution

Plan allows in-service withdrawals after age 59-1/2 from any (all) fully vested accounts.

Active participant is over 59 1/2 with 401(k), Roth and match balances in her account. Her Roth contributions started in January of 2014 so she has not yet met the 5-year rule. She has made ~$21,700 in Roth contributions and the earnings on that are ~$8,178. She would like to take $20,000 from her Roth account only. The participant basically wants to "net" $20k.

It's my understanding from reviewing the regs that a pro rata portion of the withdrawal will be considered earnings and will be taxable to her because she has not met the 5-year rule. (I came up with the "earnings ratio" and based on that it appears that ~$5,474 of her withdrawal will be taxable to her.) I understand the 10% excise will not apply, however because she is over 59 1/2.

The plan is with a large 401(k) vendor and I'm checking with them to see how they would apply taxation as well as how they do the calculation.

In the meantime, anyone agree or disagree with my thought process on the calculation?

The following is from the IRS website:

What happens if I take a distribution from my designated Roth account before the end of the 5-taxable-year period?

If you take a distribution from your designated Roth account before the end of the 5-taxable-year period, it is a nonqualified distribution. You must include the earnings portion of the nonqualified distribution in gross income. However, the basis (or contributions) portion of the nonqualified distribution is not included in gross income. The basis portion of the distribution is determined by multiplying the amount of the nonqualified distribution by the ratio of designated Roth contributions to the total designated Roth account balance. For example, if a nonqualified distribution of $5,000 is made from your designated Roth account when the account consists of $9,400 of designated Roth contributions and $600 of earnings, the distribution consists of $4,700 of designated Roth contributions (that are not includible in your gross income) and $300 of earnings (that are includible in your gross income).

Since I make designated Roth contributions from after-tax income, can I make tax-free withdrawals from my designated Roth account at any time?

No, the same restrictions on withdrawals that apply to pre-tax elective contributions also apply to designated Roth contributions. If your plan permits distributions from accounts because of hardship, you may choose to receive a hardship distribution from your designated Roth account. The hardship distribution will consist of a pro-rata share of earnings and basis and the earnings portion will be included in gross income unless you have had the designated Roth account for 5 years and are either disabled or over age 59-1/2.

Number of replies posted  0 replies      Number of times viewed  30 views      Add Reply
Author's photo

Vlad401k created a topic in 401(k) Plans

Plan Excludes a Particular Division; Top Heavy Determination Affected?

Let's say that a company excludes one of its divisions entirely from the plan. Would that affect the Top Heavy test in any way? The software provider we are using considers excluded employees to not be participants and doesn't even count them in the Top Heavy test. That doesn't seem correct. Shouldn't these employees (and their year-end balances) be counted in the Top Heavy test?
Number of replies posted  2 replies      Number of times viewed  34 views      Add Reply
Author's photo

t.haley created a topic in Correction of Plan Defects

Handling Account of Ineligible Participant, Now Deceased

Individual not eligible to participate in the plan allowed to participate for a number of years. Failure discovered after individual's death. Beneficiary paperwork for plan shows wife as 100% beneficiary. Not sure what if there is a will or if wife is named as beneficiary. Because the individual was not eligible to participate in the plan, we're thinking the provisions of the will (if there is one) or state law should control who gets the corrective distribution. Thoughts?
Number of replies posted  0 replies      Number of times viewed  27 views      Add Reply
Author's photo

JPIngold created a topic in 401(k) Plans

Qualified Plan and SIMPLE in the Same Year?

A business client is getting grief from its bank requiring it to inject some capital into the business. Unfortunately, money is tied up in long-term construction projects, so cash is tight. The company has a SIMPLE IRA for two of the three owners to participate in. The other owner and the rest of the employees are in union plans and are subject to collective bargaining agreements. I know -- they should have listened to me years ago and established a 401(k) plan instead of the SIMPLE. But would the following idea work? Have the company establish a profit-sharing plan that accepts rollovers and allows plan loans. Roll enough money into the PS plan from the SIMPLE and then have the two owners take loans sufficient to satisfy the bank's capital injection requirement. No contributions would be made to the PS plan for 2018 so as to not violate the exclusive plan requirement, because it's my understanding this requirement is satisfied if no employee accrues a benefit under a QP in the same year as the SIMPLE IRA is maintained. We then would implement 401(k) provisions as of 1/1/2019. The company would cease making SIMPLE IRA contributions in 2018 and roll the rest over to the 401(k) PS plan in 2019.
Number of replies posted  1 reply      Number of times viewed  40 views      Add Reply
Author's photo

Albany created a topic in Distributions and Loans, Other than QDROs

2017 1099-R Never Issued or Filed for Rollover

We are preparing the year-end valuation for a small 3-life 401(k) Plan. For 2017, one participant rolled their account to an IRA (direct rollover). A 1099-R was never issued. At this point, how should this be corrected? Because this was a non-taxable event for the participant, would it be OK to let it go?
Number of replies posted  3 replies      Number of times viewed  42 views      Add Reply
Author's photo

KJ Theo created a topic in 401(k) Plans

Plan Documents Must Be Signed Before Effective Date of Plan?

What is the timing for adoption agreements for new plans to be executed? Must they be signed before the effective date of the plan? If a plan isn't adopted timely, do you need to file with the VCP? Would this be considered a nonamender failure?
Number of replies posted  6 replies      Number of times viewed  61 views      Add Reply
BenefitsLink.com, Inc.
1298 Minnesota Avenue, Suite H
Winter Park, Florida 32789
(407) 644-4146

Lois Baker, J.D., President  loisbaker@benefitslink.com
David Rhett Baker, J.D., Editor and Publisher  davebaker@benefitslink.com
Holly Horton, Business Manager  hollyhorton@benefitslink.com

Copyright 2018 BenefitsLink.com, Inc. All materials contained in this mailing are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of BenefitsLink.com, Inc., or in the case of third party materials, the owner of those materials. You may not alter or remove any trademark, copyright or other notices from copies of the content.

Links to web sites other than BenefitsLink.com and EmployeeBenefitsJobs.com are offered as a service to our readers; we were not involved in their production and are not responsible for their content.

Unsubscribe | Privacy Policy