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Message Boards Digest

June 18, 2019

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

pam@bbm created a topic in Correction of Plan Defects

Is This a Document Failure or an Operational Failure?

Our client has a 401k plan. We (the TPA) just discovered an error in the way the client has been calculating deferrals. Prior to the EGTRRA restatement, bonuses were excluded for deferral purposes. When restating for EGTRRA, we (the TPA) did not code the adoption agreement correctly to exclude the bonus. So both the EGTRRA and PPA restatements were written to have deferrals deducted from bonus. The client has never deducted deferrals from bonus and that has been their intent for over 15 years. Do we have an operational failure or a document failure? Or is this a scrivener's error? What is the best way to correct? Do we have to go to VCP?
Number of replies posted  3 replies      Number of times viewed  52 views      Add Reply

Luke Bailey created a topic in 401(k) Plans

Do Taxable Bonuses to Replace Forfeited Matches Violate the Irc SEC. 1.401(k)-1(e)(6) Anti-Conditioning Rule?

If a 401(k) plan fails ADP, distributes the excess contributions as required to correct the failure, and in the process HCEs forfeit matches attributable to the distributed excess contributions, as they must, can the employer turn around and provide taxable (W-2 compensation) bonuses to the HCEs with the match forfeitures, for example exactly in the amounts of the individual match forfeitures, without violating the anti-conditioning rule of Treas. reg. sec. 1.401(k)-1(e)(6)? Arguably this is OK, because the bonuses are not conditioned on the employee's making or not making the elective deferrals, but rather are conditioned only on some of the elective deferrals failing ADP, since in order for the bonuses to be paid, in the amounts they are paid, both (a) the HCE must have made the elective deferral, and (b) a portion of deferral must be distributed to correct an ADP failure. On the other hand, the employee would not receive the bonus if he or she had not made the deferral to begin with, albeit that the employee did not know at the time he or she made the deferral whether a portion would be returned to him or her as excess and result in a cash bonus rather than a 401(k) match. The reg says that the conditioning can't be "direct or indirect" (emphasis supplied), so maybe what I'm describing is "indirect" conditioning. On the other hand, what is being proposed here is very similar to what you can do with matching in a nonqualified spillover plan matched to your 401(k) plan, although the PLRs blessing those seem to be based on part on the language in 1.401(k)-1(e)(6)(iii) specifically dealing with nonqualified plans, so maybe they are distinguishable on that basis, and of course they are only PLRs anyway.
Number of replies posted  0 replies      Number of times viewed  36 views      Add Reply

mikael650 created a topic in Employee Stock Ownership Plans (ESOPs)

My Employer (the Plan Sponsor) Might Be Bought Out Soon

I work for a 100% employee-owned corporation that is currently in the feeling-out process of selling to an investment firm. They announced their intentions to look into selling back in March, but have gone silent on the matter since then. I have several questions about the buyout process, but I am having a hard time getting them answered from my corporate office. Here are the questions I have, if anyone can help I would greatly appreciate it! [1] How are the shares valued during the sale? Are they valued in the selling price of the company? [2] Since this is a 100% owned company, do the employees get a vote on whether or not the company sells? [3] How are the distributions taxed if the company is purchased, and I don't roll them into a 401k or IRA? I know there is a 10% fee for early withdrawal, but not sure if this counts as regular income or capital gains. [4] Does the company have the ability to decide if my distribution gets rolled directly into my 401k, or is that a decision I get to make? [5] Can the company require me to sign a contract promising to stay with the company before receiving my distribution? [6] How are the company's liquid assets figured into the value of the company, or the stock price when the company sells, or are they even figured in at all?
Number of replies posted  3 replies      Number of times viewed  38 views      Add Reply

Pammie57 created a topic in 401(k) Plans

Terminated Plan Did Not Fund Safe Harbor Before Distributing All Plan Assets

A restaurant client had a safe harbor 401k. They terminated the plan in 2017. However, they were supposed to fund the 2017 safe harbor contributions prior to distributing all of the plan assets. They only funded about $5,000 of the $15,000 that was due for the participants. However, during 2018 they paid out all current account balances and the platform shows zero for the plan balance. What is the procedure for making the participants whole at this point? They're anxious to file the final return, but there are still contributions due participants. I don't think they have the funds to put into the plan.
Number of replies posted  1 reply      Number of times viewed  40 views      Add Reply

Belgarath created a topic in Defined Benefit Plans, Including Cash Balance

Trust Named as Beneficiary for Post-Retirement Death Benefit

Non-ERISA DB plan -- a public school. A participant who is retiring wants to receive her retirement benefit in an option that used her spouse's DOB as the basis to calculate the various optional forms of benefit. But, she wants to reflect their REVOCABLE trust as beneficiary. I know this wouldn't qualify under the RMD rules, but is it allowable under the "regular" rules? Is it allowable for the plan to calculate the retirement options using the spouse as measuring life, yet have the death benefits paid to a revocable trust (even assuming the spouse is sole beneficiary under the trust)?
Number of replies posted  3 replies      Number of times viewed  33 views      Add Reply
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