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Message Boards Digest

August 19, 2019

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

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

Participant Loan -- Not a Segregated Investment

Scenario: Plan has pooled/trustee directed investments. Participant loans are allowed. Loans are NOT treated as a segregated investment.

I'm looking at the mechanics of the loan itself rather than fiduciary issues. There is some disagreement in my office. (This is one of those days where I would gladly take a coffee-IV.) I believe it's still a participant loan secured by the participant's balance. The loan interest is credited to the plan trust as a whole rather than back to the participant account.

  • Bud Weiser has a $100,000 account balance and borrows $50,000.
  • For 2018, Mr. Weiser has repaid $10,000, $1,000 of which was interest.
  • Before Mr. Weiser's account is credited for 2018 earnings, his 12/31/2018 balance is still $100,000 -- $59,000 in pooled investments and $41,000 as a participant loan.
  • The $1,000 Mr. Weiser paid as loan interest is added to the plan trust gain/loss to be allocated among pro rata for all participant ending balances.
  • Mr. Weiser's share of the pro rata investment earnings is limited to the $59,000 that is part of the pooled investments.

My office colleague believes the trust made the $50,000 to the participant as an investment, and it did not actually come from the participant's account balance.

  • The 12/31/2018 balance for Mr. Weiser is $100,000 before it is adjusted for earnings.
  • The loan should be tracked separately from Mr. Weiser's account balance in the plan.

Am I crazy, or is the opposing view describing an extension of credit (secured by plan participant assets?) as a plan investment rather than a participant loan?

Number of replies posted  8 replies      Number of times viewed  84 views      Add Reply
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Bri created a topic in Retirement Plans in General

SARs Question (Not SARS -- No Need for Masks)

Anyone see this new addition of a Paperwork Reduction Act notice to the DOL's model Summary Annual Report? Not sure how half a page of unrelated text reduces paperwork. Also, is there a deadline where this becomes mandatory? It's enough of a slog to get an SAR to fit on one page after it's been generated by our software. I feel like deleting it until something more obvious and official dictates it has to , has to, be in there. What say ye?

Number of replies posted  2 replies      Number of times viewed  75 views      Add Reply

M Norton created a topic in Mergers and Acquisitions

Company A buys 80% of Company B -- What Happens to Their 401(k) Plans?

Company A buys 80% of Company B, effective 10/1/2019; Company B's owner retains 20% ownership of B. Both companies sponsor calendar year 401(k) plans, but B's employer contribution is not as generous as A. After Company A buys 80% of B, they become a controlled group. Can A and B continue to maintain separate 401(k) plans with different ER contributions? Do they have to be tested together or can they be tested separately? If they have to be tested together, when must that begin?

Number of replies posted  0 replies      Number of times viewed  31 views      Add Reply

JustMe created a topic in Correction of Plan Defects

VFCP: What Is 'Summary Documentation'?

Does anyone know what is required to be submitted for the summary documentation for VFCP filings? I know my client meets the requirements to file summary documentation, but not sure what constitutes summary documentation. Does it have to be authorized by the plan's recordkeeper to reflect that the contributions were deposited and the amounts, or is a report of the contributions deposited to the recordkeeper sufficient?

Number of replies posted  0 replies      Number of times viewed  24 views      Add Reply

Will created a topic in 401(k) Plans

404a-5: Do Quarterly Disclosures Meet Annual Disclosure Requirement?

If a quarterly participant statement reflects all fees and expenses deducted from a plan does that meet the annual 404a participant disclosure requirements?

Number of replies posted  0 replies      Number of times viewed  44 views      Add Reply

Tmile1928 created a topic in 401(k) Plans

Have Paid Back My 401(k) Loan -- Please, Sir, May I Have Another?

How long after I repay my 401k loan in full do I have to wait to apply for a new loan?

Number of replies posted  1 reply      Number of times viewed  93 views      Add Reply

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

133% Accrual Rule -- Effect of Retroactive Change in Benefit Rate on Safe Harbor Status

A pension plan covers Bill and Jill. Bill owns the business, Jill is a secretary. The plan was set up in 2010 using a unit benefit accrual of 10% x High3 x Service (including all past service). The plan is amended as follows in 2017: the new formula is 20% x High3 x Service (including all past service). We can't explain why this change was made (takeover case this year), but query: was the 133% rule violated? In fact the amendment has no practical affect because the benefits already are at the 415 limits based on original formula! But my question is whether a retroactive change in the accrual rate for all current employees for all years could affect the safe harbor. I don't see any violation since the change applies to all years of service. Checking the available vals there are no terminated employees since plan started.

Number of replies posted  0 replies      Number of times viewed  28 views      Add Reply

K-t-F created a topic in Distributions and Loans, Other than QDROs

Loan Payroll Deduction Did Not Start -- How to Fix?

A participant took a loan from the plan and the payment was supposed to be withheld from their payroll. The payment was not. Besides getting the deduction going so that the loan is paid back, what is the remedy for the lost time... missing payments?

Number of replies posted  4 replies      Number of times viewed  34 views      Add Reply

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

Distribution to Self-Employed Participant from DB Plan that Has Non-Deducted Contributions

I have a self-employed client with a Defined Benefit Plan that has been contributing the minimum required amount for the past several years. In the past 3 years, those contributions have not been deducted, since there were no self-employment earnings in those years, (business actual experienced losses). It is expected that 2019 will also be a loss and that the business will no longer exist since the client has retired. I am aware that the contributions avoid the penalty tax under IRC § 4972 due to the special rule under IRC § 4972(c)(4). However, I cannot find anything that addresses how these non-deducted contributions are treated when they are distributed. Distributions, (MRDs) have been made as required by IRC § 401(a)(9) and they were fully taxed on the presumption that the contributions would eventually be deducted. Since there is no expectation of future self-employment earnings it would seem that there is a tax basis recovery of cost (investment in the contract) that should be considered on future distributions. The plan will likely terminate, to eliminate future non-deducted contributions. Upon termination and after payment of the MRDs the plan would distribute lump sums, which would be directly transferred to IRAs. If the accumulated non-deducted contributions were treated like employee after-tax voluntary contributions then they would be excluded from the rollover and refunded to the participant, which would be the best possible outcome. Assuming that these are nondeductible contributions for all purposes except IRC § 4972, then it seems that they are not eligible for rollover treatment. One fact that I have left out is that the client’s wife is the only other plan participant receiving a minimum benefit that was fully funded before the plan was improved to generate contributions for the self-employed participant. Has anyone had a similar situation; and how was the tax reporting done on the final lump sum distribution?

Number of replies posted  1 reply      Number of times viewed  20 views      Add Reply

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

Calculation of Amount of Deferred DB Pension

Our traditional DB pension starts at age 65. Our vendor has created an option within the system software to enter a date and allow a late calculation. When is that permissible? Does one age out of a late calculation perhaps at RBD date? I'm going to raise this to the vendor and/or counsel, but I can't find anything about it in the pension answer book I'm using. My understanding is that back payments to the original retirement eligibility date should be made, which has been done with this plan for many years.

Number of replies posted  1 reply      Number of times viewed  25 views      Add Reply

Chris Thomas created a topic in SEP, SARSEP and SIMPLE Plans

Terminate 401(k) Mid-Year and then Fund SEP-IRA

I know one cannot maintain a 401k and SEP IRA at the same time using SEP Form 5305. However, if the 401k is terminated on 6/1/2019 (short-plan year) - could the employer then open and fund a SEP-IRA for 2019? Some additional facts particular to this question: there was only 1 employee in addition to the owner. The employee left first half of the year and the owner did not want to continue the admin and expense of the safe-harbor 401k therefore provided notice, distributed assets and terminated the 401k 6/1. It's now just the owner as the only employee. If the answer to the first question above is yes, how would the SEP contribution limits be calculated for the owner being that he made deferrals to the 401k for the first half of the year and received SH matching contributions?

Number of replies posted  0 replies      Number of times viewed  9 views      Add Reply
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