Message Boards Digest

February 21, 2019

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

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ldr created a topic in 401(k) Plans

Is Rollover Money Exempt from the 10% Penalty?

Our client's document says that unrelated rollover money can be withdrawn at any time, while for all other sources, the participant must be 59.5. A participant in the plan with 6-figure unrelated rollover balance wants to withdraw money immediately for the down payment on a new home. She is literally a month away from turning 59.5. My thinking is that she needs to wait until her date of attainment of 59.5 in order to avoid the 10% penalty on her withdrawal. But a colleague says that, because the funds originated in the retirement plan of a previous employer, and she no longer works for that employer, and she left that employer after turning age 55, then she shouldn't have to pay the 10% penalty. I am thinking that might be true if she had left the money in the old employer's plan, but once she rolled it into her current employer's plan, she's become subject to the penalty if she doesn't wait until she is literally 59.5.
Number of replies posted  9 replies      Number of times viewed  61 views      Add Reply
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DW created a topic in Qualified Domestic Relations Orders (QDROs)

QDRO and Suspension of Benefits After Retirement

I have a separate interest QDRO with the following facts: [1] The QDRO was issued at the participant's normal retirement date (assume exactly, it was close, not sure if a month off). [2] The alternate payee chose to commence benefits at the participant's normal retirement date (life annuity -- no subsidy received in the traditional sense as far as early retirement is usually considered) [3] The participant chose to continue working despite suspension of benefits. No actuarial increase is provided (benefit is frozen) [4] Said participant is now past RMD. The participant is looking to start benefits at age 74, and will receive the appropriate 401(a)(9) increase for starting past RMD [5] During the time since NRD, the alternate payee has received benefits continuously, but the deferral period will reflect actuarially equivalent benefits for the participant only for the period after what would've been RBD if said participant had not been active

Question: since the plan is paying benefits to the alternate payee that it would not have paid without the issuance of the QDRO, has the participant forced himself inadvertently into paying for the alternate payee's benefit during the period between NRD and what would've been RBD via reduction of his benefit once he starts. That is, instead of receiving his share of the benefit increased for the period past typical RBD, is he required to receive that less an actuarial equivalent amount for benefits paid to the alternate payee?

This is a variation on a participant footing the bill for a qdro that allows the alt payee to get subsidized early retirement when a participant doesn't start, but instead of paying for a subsidy, the subsidy is seemingly a benefit reduction (negative subsidy) that he caused himself by continuing to work after NRD.

The number of years we're talking about is about 6-1/2 to 7, so the adjustment would be significant.

Number of replies posted  2 replies      Number of times viewed  26 views      Add Reply
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pcbenefits007 created a topic in Defined Benefit Plans, Including Cash Balance

Splitting a Plan Into Two Plans: Are the Plans 'New' for Purposes of Getting Determination Letters?

Looking for some thoughts here since the rules aren't 100% definitive. If a plan is being spun-off into 2 separate plans and the existing one eventually terminating, could the spun off plans be considered "new" for purposes of filing for a determination letter?
Number of replies posted  0 replies      Number of times viewed  15 views      Add Reply
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Edie created a topic in Qualified Domestic Relations Orders (QDROs)

Denial of Mom's Death Benefit Because Plan Has No Domestic Relations Order

During the month of August 2018 my father passed away. He was collecting his social security benefits as well as his full pension of which all began during 2003 and of course ended during his death of August 2018. He was employed by the City of New York as a New York City Hospital Police Officer. His retirement pension is through NYCER, "New York City Employee Retirement." My parents married in 1971 and divorced in 2008. During August 2018, my mother was awarded a one-time death benefit through my father's pension retirement organization (NYCER). Thereafter, she was informed she would receive my father's annuity funds and that she was listed as his primary and only beneficiary to collect his pension. My mother was directed to complete some documents and to submit a death certificate. Thereafter she was notified she was not eligible to collect my father's pension nor was she entitled to my father's remaining annuity funds because they were divorced. NYCER is requesting a Domestic Relations Order, which my mother does not have. The divorce was uncontested, drawn up in Florida by an attorney or by my father, who failed to include any and all of my father's financial information regarding my father's pension or his Social Security benefits he was collecting -- but remember my father's pension is from New York City, where my mother lives. Can anything be done about this? NYCER continues to send letters regarding my father's Annuity funds which have not been disbursed. There is NO administrator of his estate. There are three surviving children including myself. Please advise. Thank you!
Number of replies posted  1 reply      Number of times viewed  40 views      Add Reply
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CuseFan created a topic in Defined Benefit Plans, Including Cash Balance

Cash Balance Minimum Participation and ROR ICR Plans

Having a discussion with a colleague regarding minimum participation under IRC Section 401(a)(26), the IRS memo-induced 0.5% accrual rate threshold and cash balance plans that use actual rate of return interest crediting rates (ROR ICR).

HCE with comp of $260k and $13k contribution credit (5% of pay) in an ROR ICR plan has a 0.39% normal accrual rate due to negative return in 2018 and zero percent projected interest, causing the plan to fail 401(a)(26) if one applied the IRS memo as if it were law or regulation (which it is not), whereas I argue that in what facts and circumstances universe (which is the law and regulation) is a 5% annual credit not meaningful, and why should a one-year interest rate hiccup/blip turn a very meaningful credit into one that is not?

By that standard, every ROR ICR plan that does not have a contribution credit in excess of 6% for 40% or 50 employees would otherwise fail 401(a)(26) every year they experienced an investment loss and would be required to increase contribution credits. I find that ludicrous, and it ultimately creates a de facto (albeit indirect) interest credit floor so to speak, which you could not do directly because of the market ICR rules. So ROR is good, employee wins, ROR is bad, employee still wins -- yes, that's kind of the DB premise, but it's not the market rate premise. Thoughts from those with experience on ROR ICR plans and dealings with IRS on the issue, including the 0.5% accrual rate line in the sand?

Number of replies posted  2 replies      Number of times viewed  36 views      Add Reply
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mming created a topic in Distributions and Loans, Other than QDROs

How to Pay Federal Tax Withholding During the Year Rather Than After Year-End?

What's the procedure for an employer to remit federal taxes withheld from a 401(k) distribution during the year? Must the employer enroll with EFTPS and do it electronically, or can a physical form be filed with the payment attached? We realize that Form 945 can be filed at the end of the year with the payment if the total amount withheld throughout the year is less than $2,500, but it's very likely that amount will be exceeded, so we'd like to pay the withheld amount from the current distribution at this time. Also, is there a deadline for when such a payment must be made?
Number of replies posted  2 replies      Number of times viewed  37 views      Add Reply
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jane murray created a topic in Defined Benefit Plans, Including Cash Balance

Amending DB Plan to Provide Subsidized Early Retirement

We have a defined benefit plan with a normal retirement age of 65 and no early retirement age. Can the plan be amended currently to add a fully subsidized early retirement age of 50? Does the IRS restrict the use of a fully subsidized early retirement age that is below a certain age or would age 50 be acceptable? for example, an employee age 45 participates for 5 years under the plan and terminates at age 50. After the amendment is made, can the lump sum benefit for this individual be calculated unreduced and fully subsidized at age 50 as opposed to deferred from age 65?
Number of replies posted  1 reply      Number of times viewed  23 views      Add Reply
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austin3515 created a topic in 403(b) Plans, Accounts or Annuities

Sponsorship of Dual Plans: 401(k) and 403(b)

Section 1.410(b)-7 Definition of plan and rules governing plan disaggregation and aggregation.

(f) Section 403(b) plans. In determining whether a plan satisfies section 410(b), a plan subject to section 403(b)(12)(A)(i) is disregarded. However, in determining whether a plan subject to section 403(b)(12)(A)(i) satisfied section 410(b), plans that are not subject to section 403(b)(12)(A)(i) may be taken into account.

OK, so here is my question. The 401(k) covers all of the HCE's and the 403b covers all of the NHCE's. The first sentence above seems to suggest that I should disregard the 403b PLAN. Perhaps what this is saying is that if I disregard the PLAN, then what I have remaining is a bunch of nonexcludable NHCE's who are not benefitting even if they all get the same employer contribution? I want to make sure I understand what this reg is telling me I can and cannot do (I don't actually have this scenario!). I guess what it is also telling me is that if need the average benefits test to pass coverage for the 401k plan I have to include all of the people covered by the 403b plan as zeroes?
Number of replies posted  1 reply      Number of times viewed  22 views      Add Reply
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BG5150 created a topic in 401(k) Plans

Coverage Problem with 401(k) Plan Sponsored by Only One Member of a Controlled Group

We have a 401(k) plan whose sponsor, Company A, is part of a controlled group. Company A is the only one of the controlled group that sponsors a plan. The plan has immediate entry for 401(k). The plan is failing 410(b) coverage by the ratio test. I don't believe the average benefits test is available, because coverage uses the fail-safe provision. What's my remedy? Do I bring in one or more of the employees of the members other controlled group? Companies that have not adopted the plan at all?
Number of replies posted  6 replies      Number of times viewed  37 views      Add Reply
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cpc0506 created a topic in 401(k) Plans

Top Heavy Plan with Davis Bacon Contributions

We have a 401(k) safe harbor plan that is top heavy for the first time in the 2018 plan year. There are employees who only receive Davis Bacon prevailing wage contributions who have not met the eligibility requirements for any other portion of the plan (including deferrals). Client is making a Profit Sharing contribution this year, so top heavy waiver no longer applies. Does the client need to provide Top Heavy minimum contributions to these DB employees?
Number of replies posted  4 replies      Number of times viewed  45 views      Add Reply, Inc.
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