Message Boards Digest

June 19, 2019

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

Belgarath created a topic in 403(b) Plans, Accounts or Annuities

Entry Date in Plan Using a 20-Hour Exclusion

Someone who is HIRED at 8 hours per week, and is therefore "reasonably expected" to work less than 1,000 hours, is subsequently put on full time. Let's further suppose it is a calendar year plan, DOH is February 15, 2019 and full time status starts in July of 2019. Does the person [1] enter immediately in July, since no longer "reasonably expected" to work less than 1,000 hours in the initial computation period, or [2] does the person actually have to work the 1,000 hours, and therefore subsequently enters on February 15 of the following year (2020) when the initial computation period is complete? Even if "[2]" is the more technically correct answer (which it is IMHO) do you think it is reasonable to interpret it, as long as done consistently, such that you use "[1]" instead?
Number of replies posted  3 replies      Number of times viewed  34 views      Add Reply
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scrabelle created a topic in Mergers and Acquisitions

Vesting Service Under Merged Plan

Company A was acquired by Company B in an asset sale. The Purchase Agreement provided that service with Company A would be counted as vesting service under Company B's 401(k) plan. Company B was later acquired by Company C in a stock sale. Company B's 401(k) plan was then merged into Company C's 401(k) plan. X was originally employed by Company A. He became employed by Company B as a result of the asset sale. He terminated employment with Company B before Company B was acquired by Company C. X was hired by Company C sometime after Company C's acquisition of Company B. X's total vesting service under Company B's 401(k) plan (counting his service with both Company A and Company B) was longer than his break in service from the time he left Company B until he was hired by Company C. If X received a total distribution of his account under Company B's 401(k) plan when he terminated employment with Company B, does his service with Company A count for purposes of vesting under Company C's 401(k) plan?
Number of replies posted  0 replies      Number of times viewed  17 views      Add Reply

ERISA-Bubs created a topic in Nonqualified Deferred Compensation

Granting NQDC to a Non-Service Provider (a Creditor)

Code Section 409A governs NQDC when granted to a service provider from a service recipient. We want to grant NQDC -- specifically, phantom stock -- to a non-service provider. Basically, the company owes money to a creditor and wants to grant the creditor phantom stock to cover the debt. First, can this be done? I don't see why not. But, second, what rules apply? I assume if it is vested, constructive receipt somehow plays a role. But say it's vested this year but is to be settled in year 3 -- what are the tax consequences there? I assume we wouldn't be limited to 409A's payment triggers (fixed time, death, disability, etc.) since 409A wouldn't apply? Any other issues?
Number of replies posted  2 replies      Number of times viewed  26 views      Add Reply

Richard Tate created a topic in Defined Benefit Plans, Including Cash Balance

Handling an Overfunded Pension in a Divorce Situation

Here's the situation, and I apologize for the length and if I am not getting all the terminology correct as I am not a professional. Mother and Father (from now referred to as M & F) are nearing end of divorce that started years ago. I'm helping M. F, age 70, is 100 percent owner of company (which has 4 plan participants including himself) with a defined benefit pension plan that is significantly overfunded. He has the vast majority of pension vested benefits. His vested benefits are 10 times that of employee #2 (longtime 30-year employee), employee #3 (family member), employee #4 (new employee). Despite M working for free for years for the company, she was never an official employee that had any interest in the pension plan. The pension overfunding is so large that it almost equals the amount of F's current vested benefits. To soak up overfunding, F shifted a couple hundred thousand dollars into employee #3's plan, which didn't make much of a dent in overfunding, and since he is only 30 years old, maxed him out on his future expected benefits. F is trying to soak up the rest of the overfunding by having the plan buy term life insurance for employees, and pay the yearly premium. The plan has more than enough overfunding to pay the upfront premiums and pay the yearly premiums for the 30 year duration of the policies. As per law, the death benefit on the policy can be 100 times the monthly salary of the plan participant -- so figure that as long as F doesn't live until 100, his designated beneficiaries get a hefty life insurance payout. If he lives until100, all the premiums went down the toilet, but hey he won anyways, he lived until 100! As part of divorce settlement, F has agreed to give M half of his vested benefits of pension plan in a QDRO. However there is significant value in the overfunding that F is extracting via life insurance purchases for his choice of beneficiary, and possibly other ways to monetize overfunding in future (such as selling the company or a part of it, and the overfunding) -- at bare minimum, overfunding reverts to company at 10 cents on the dollar after excise/income tax. F refuses to make M or her choice of heirs a one-half beneficiary of this life insurance he is purchasing, and refuses to compensate M not even 1 dollar for the value of the overfunding. M is upset because it was through F's own foolishness that he built up overfunding with their money and effort over the years and now he is getting value out of it and he is refusing to give her anything. Questions are as follows [1] Is there a way to transfer any portion of this Overfunding into M's QDRO, whether through cash or pension assets? If so what are the legal ways to do it? [2] Can a judge order the pension plan trustee to transfer Overfunding cash or assets into a Wife's QDRO? [3] Does anyone know of any instances in which Overfunding has been valued in a courtroom setting, and more specifically in marital law? For instance, at the very minimum that overfunding is worth 10 cents on the dollar if all the money reverts to the company and excise/income tax is paid -- but F is purchasing life insurance with the overfunding to avoid the excise tax., and there is an expected value to that death benefit his choice of beneficiary is receiving. There also other creative options for monetizing overfunding. .Does anyone have any experience with convincing a judge or negotiating a settlement based on pegging a value to an employee's interest in his pension plan's overfunding? [4] Any other suggestions that would help M get value from pension overfunding that F is getting benefits from and may monetize in the future, but refuses to share with M? I have talked to a lawyer in pension funding, who has helped me get this far, but as you can see this is a very niche issue and any fresh perspectives or experience would be much appreciated.
Number of replies posted  1 reply      Number of times viewed  49 views      Add Reply

John314 created a topic in Defined Benefit Plans, Including Cash Balance

415(b) Increases as Applied to a Governmental Plan

1.415(b)-1(c)(5) states that an automatic benefit increase can essentially be disregarded when applying the 415 dollar limit to a benefit if [1] the benefit is paid in a form to which section 417(e)(3) does not apply, [2] the plan satisfies other requirements. I have a plan that provides for an accelerated form of payment (a Social Security Level Income Option), but otherwise satisfies all of the requirements of the above section. The catch is that this is a governmental plan that is exempt from the requirements of 417(e). Does a form of payment that would otherwise be subject to 417(e)(3) no longer fail the above exception by virtue of being paid from a governmental plan?
Number of replies posted  0 replies      Number of times viewed  11 views      Add Reply

BG5150 created a topic in Correction of Plan Defects

Failure to Start Deferrals in Auto-Enroll Plan

If a sponsor does not start somebody's deferrals in an auto-enroll plan, there is no QNEC needed if they start the deferrals no later than 9-1/2 months after the plan year in which the first deferral was missed, right? So, if someone was eligible 1/1/18, there would be no QNEC if they start the deferrals by October 15 2019. That's 21-1/2 months late! (I understand they have to start as soon as it's brought to their attention, and that the match has to be calculated from 1/1/18. But that seems like an awfully long time!) From EPCRS: "If the failure to implement an automatic contribution feature for an affected eligible employee or the failure to implement an affirmative election of an eligible employee who is otherwise subject to an automatic contribution feature does not extend beyond the end of the 9-1/2 month period AFTER the end of the plan year of the failure (which is generally the filing deadline of the Form 5500 series return, including automatic extensions), no QNEC for the missed elective deferrals is required, provided that the following conditions are satisfied . . ." (emphasis added).
Number of replies posted  4 replies      Number of times viewed  28 views      Add Reply

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

Timing of First RMD to Recently Terminated Participant Who Is Over Age 70-1/2

If a 76-year-old participant terminates employment in April of 2018, would their first RMD be due April 2019, or in December 2018?
Number of replies posted  3 replies      Number of times viewed  38 views      Add Reply, Inc.
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