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June 27, 2018

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

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Ted Munice created a topic in Plan Terminations

allocation of excess assets limted to 8% for non-actives

Code 4980 says that the excise tax on a reversion is limited to 20% if AT LEAST 20% of the surplus is allocated to plan participants. But it further indicates that not more 40% of the allocation can go to non-actives. And that even if more than 20% is allocated, only 40% of 20% - 8% - can go to non-actives. So for instance if 50% of the surplus is allocated to plan participants, 42% must go to actives and only 8% can go to non-actives. Am I reading this correctly?
Number of replies posted  0 replies      Number of times viewed  24 views      Add Reply
 
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C. B. Zeller created a topic in 401(k) Plans

Top Heavy Silliness

The other thread on creative ways to handle a top heavy plan reminded me of something I thought up a while back but never went forward with because I felt it was too aggressive. However I can not find any reason why it would be actually disallowed. I'm hoping someone here can poke a hole in this scheme and teach me something. This is a 401(k) plan with a single 100% owner who is the only HCE and the only key and is over 50 years old. The only contributions for the plan year are deferrals, although discretionary matching and nonelective contributions are permitted in the document. The plan passes the ADP test for the current year. The plan is top-heavy for the current year. The HCE's deferral contributions are equal to $6,000. Can we do the following:
  1. Shift 100% of the NHCEs' deferrals to the ACP test. The ACP test passes because there are no HCEs included in the test.
  2. Recharacterize the HCE's $6,000 deferral as catch-up as it now exceeds the limit of the ADP test, when testing on only the un-shifted deferrals. Since all of the NHCE deferrals were shifted, the ADR for the NHCE in this test is 0% and therefore the ADP limit for the HCE is 0%.
  3. There is no top heavy minimum for the current year, since the key did not have any contributions other than catch-up contributions, and catch-up contributions for the current year are not taken into account for purposes of section 416.
My thinking is that this falls apart on step 1, that you can not shift deferrals into the ACP test just for fun, that there has to be an actual failure of the ACP test first. Is that actually written somewhere, or just accepted practice?
Number of replies posted  1 reply      Number of times viewed  60 views      Add Reply
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RSmith created a topic in Qualified Domestic Relations Orders (QDROs)

QDRO/Decree vesting error

I have a major QDRO issue. In 2004 I was granted a divorce with a lump sum amount attached of 80k in both the Decree and QDRO going to the Alternate Payee. Only the participant (me) had a attorney at the time of divorce. The pension plan initially rejected the QDRO with the lump sum dollar amount, as I was not vested in a lump sum amount at the time of divorce. The amount should have been in a percentage, with the number of years married taken into consideration. It does not appear the attorney was familiar with the QDRO process, model language or rules. After numerous rejections, as the same QDRO was being presented to the pension plan administrator by the Alternate payee. Also, the attorney did not attempt to rectify the QDRO issue through numerous rejections. In Sep2017 the Alternate Payee hired an attorney and presented a QDRO with a new date of determination of 1/1/2014, which was after the date I turned 50 and now eligible for a lump-sum distribution. I have a new attorney who is familiar with QDRO's. The argument now is that the date of determination is changed from the date the decree was signed to match the dollar amount in the decree. Also, the Alternate Payee's approved QDRO does not state clearly the date in which interest will be accrued from, as it appears the judge may use the (2004) date the decree was signed to accrue interest, which would be contradictory and possibly illegal. I also have a approved QDRO with the correct percentage that was approved in 9/2017. However, the judge has stated that he will only consider the lump sum dollar amount in the decree that matches the QDRO. This is a attempt to take advantage of the pension plan by changing the date of determination and I'm not sure if the complicated process is legal. Also, should the original attorney be held liable for legal malpractice?
Number of replies posted  4 replies      Number of times viewed  57 views      Add Reply
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YankeeFan created a topic in Correction of Plan Defects

Anonymous VCP filing

Can a VCP filing be submitted anonymously to the IRS for any failure such as failures related to paying required minimum distributions timely and amending the plan document for compliance with EGTRRA?
Number of replies posted  1 reply      Number of times viewed  33 views      Add Reply
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TPApril created a topic in Health Plans (Including ACA, COBRA, HIPAA)

Form 5500 failure to provide info by life insurance co's

I noticed many life insurance companies fail to provide participant counts on their Schedule A letters. Sometimes there will be a note indicating that information is on file. Also, some medical carriers will not report covered employee and cobra counts. In our office, our approach is to obtain this info from either the broker or the plan sponsor themselves, but I've noticed some 5500 preparers will instead leave the item blank and check off "Yes" to failure to provide. We've always felt it will make the 5500 stand out less if we can answer No, and it doesn't seem that after all these years of these questions that such carriers have adjusted their reporting. It doesn't seem like a big deal to go back to the Plan Sponsor. I'm curious what is done elsewhere.
Number of replies posted  1 reply      Number of times viewed  22 views      Add Reply
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Bird created a topic in Correction of Plan Defects

MP and PS plans not restated since 1999 adoption

New client adopted MP and PS plans in 1999, moved the money a couple of times, and never restated them. Surprisingly, everything else looks pretty much ok - he's actually been entering 5500 info online and filing directly. Two participants in each plan - father and his daughter, who is term'd. Any thoughts/experience with maybe merging the plans now and submitting a VCP filing as one plan? Over $500K in each plan; $3000 fee per plan...
Number of replies posted  3 replies      Number of times viewed  37 views      Add Reply
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Nest Egg created a topic in Defined Benefit Plans, Including Cash Balance

Frozen Cash Balance Plan

A cash balance plan is frozen 6/30 with an estimated distribution date of November 30. The plan's interest credits were also frozen at 6/30. Permissible? Or should interest credits continue through the distribution date.
Number of replies posted  2 replies      Number of times viewed  25 views      Add Reply
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RLR created a topic in 401(k) Plans

Withdrawal of Participating Employer

We have a 401(k) plan with related participating employers. One participating employer (the owner and his wife) is terminating its participation in the plan. Is this a distributable event? I think it is not as the plan did not terminate, one of the employers just terminated their participation in the plan. If it is not, a distributable event, are those account balances still included in the TH test? Any other TH considerations? I think those employees would be included in the 410(b) test. What if it was a multiple employer plan? I would appreciate any guidance/thoughts.
Number of replies posted  1 reply      Number of times viewed  29 views      Add Reply
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karen1027 created a topic in Health Plans (Including ACA, COBRA, HIPAA)

HIPPA Adult Child

Adult child no longer lives with non-custodial parent. Child is covered under non-custodial parent's health insurance as a dependent. Insurer is mailing ALL health insurance documents/notices including health information to non-custodial parent. (Non-custodial parent is opening the mail even though mail is addressed to adult child.) Can the adult child require the health insurer send mailings to adult child? Additionally, non-custodial parent is sharing the mailings with others....
Number of replies posted  0 replies      Number of times viewed  14 views      Add Reply
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