Message Boards Digest

March 18, 2019

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

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401(k)Ben created a topic in 401(k) Plans

Handling Previous Years' 401(k) Nondiscrimination Test (ADP) Failures

Our company employs union employees from numerous trade unions. Each trade offer its own retirement benefits to its members, many of which consist of 401(k) plans administered by the various union trusts. As an incentive to work for our company, we have offered an additional 401(k) plan to these union employees with a 3% match. Historically, for nondiscrimination testing, we have only counted employees who participated in our plan. We did not count eligible employees who did not participate in our plan because they had 401(k) plans offered by their individual unions that they were participating in. In other words, rather than taking deferrals from pay and adding to their company 401(k) accounts, we were making contributions to their union plans out of our payroll. This year, we were informed by our TPA that we should have been counting all "eligible" union employees, not just the employees who participated in the plan. When these additional "eligible" employees were added to the pool of employees tested, we failed the ADP test due primarily to all of the non-participants. We fixed the problem this year and issued refunds to the impacted highly compensated employees. However, because we performed the nondiscrimination testing using incomplete data for many years, we are facing the rather daunting task of remedying past failures. We have been advised that the remedy involves making refunds to highly compensated employees for past failures and making one-to-one contributions to the non highly compensated pool of plan participants. Besides the financial burden this poses, it leads to several other problems such as deceased participants and participants who retired and pulled their money from the plan. Has anyone had a similar experience, and what recommendations do you have for dealing with the issue? Is anyone aware of a rule or exception that would justify the way we were counting employees for discrimination testing?
Number of replies posted  8 replies      Number of times viewed  100 views      Add Reply

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thepensionmaven created a topic in 401(k) Plans

Two 1099Rs for Excess Contribution?

Client received two 1099Rs 2018 for one excess contribution plus earnings, as follows: One 1099R shows the excess plus earnings both as gross and taxable. The other is blank in box 1 and $0 taxable. Have not seen this before.
Number of replies posted  1 reply      Number of times viewed  40 views      Add Reply
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BW created a topic in 401(k) Plans

Coverage Testing in a Controlled Group

Two employers in one controlled group each have their own 401(k) plan. This year they wished to run ADP and ACP on a disaggregated basis. As a result we ran coverage testing the same way. One plan passes, plan "A", the other just fails the 70% ratio test. I am doubtful that the ABT will pass. Let's call the failing plan "B." Question: the employers have employees who move between the plans. If a participant ended the year in plan A and was counted in plan A's coverage test but at some time in the year was covered in plan B, can that participant also be counted in plan B's coverage test for the same test year? Aggregating the ADP/ACP would have solved the problem but the results would have hurt plan B, so they didn't want to re-run the test on that basis.
Number of replies posted  4 replies      Number of times viewed  56 views      Add Reply
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legort69 created a topic in 401(k) Plans

On the Successful Navigation of Another March 15: Congratulations

Another March 15 has come and gone. Hope everyone fared well. I appreciate the folks on here who help us navigate through the sea of complex rules and regs. Kudos.
Number of replies posted  0 replies      Number of times viewed  37 views      Add Reply
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mjf06241972 created a topic in Distributions and Loans, Other than QDROs

Participant Wants Loan to Purchase Primary Residence

Owner wants to take a loan for $250,000 for the purchase of a primary residence. They have over $500k in the account so 50% is not an issue. They will have to amend the plan to add the loan for residence purchase but [1] can someone take a loan for over 5 years, and [2] can it exceed $50,000, and [3] what is the process?
Number of replies posted  2 replies      Number of times viewed  62 views      Add Reply
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Belgarath created a topic in Defined Benefit Plans, Including Cash Balance

Suspension of Benefits: Understanding How It Works

Assuming a plan has a suspension of benefits (I'll hereafter refer to as SOB) clause, this doesn't prevent a participant from accruing additional benefits, right? But it does mean that benefits can be suspended without actuarial increase for the later payment (but not for retirees who weren't subject to the SOB), and with some quirks, such as actuarial increase still required for active employees over 70-1/2 who are not 5% owners, and taking into account anti-cutback regs for existing retirees, etc... But in the absence of this SOB, if a participant retires on or after NRD, starts receiving benefits, and is later rehired, then the employee will continue to receive payments, with no actuarial increase in those payments, because payments weren't suspended? I'm not sure I can properly phrase an example of what I'm thinking, so I apologize in advance! Suppose employee retires at age 65, and starts receiving normal plan benefit of $1,000/month. Returns to work another year later. Plan has no SOB. Participant continues to receive $1,000/month with no actuarial increase, plus each year may accrue another piece of benefit, which is added to the $1,000. Now, suppose plan has SOB. In same situation, plan suspends payments of the $1,000. Participant works another 3 years, (prior to 70-1/2) and accrues an additional benefit of $100 monthly for each of those 3 years. Then terminates employment, and starts to receive monthly benefit of $1,300 monthly, because no actuarial increase. Am I on the right track?
Number of replies posted  2 replies      Number of times viewed  35 views      Add Reply, Inc.
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