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Message Boards Digest

December 9, 2019

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

Cheryl S created a topic in 401(k) Plans

Controlled Group Coverage Testing

"I have 3 companies. Each company is owned 100% by the same person. Two have their own separate plans, one does not (all non-key employees). Each plan will pass coverage on its own, so I don't believe I must test them together for ADP/ACP, but I do have to perform combined coverage testing. They will fail combined coverage when we include the company that does not have a plan. We are going to create a plan for the one company that does not currently have a plan. [1] Can the plans have different eligibility -- two have 60 days and 1 year for the other? [2] Can I rely on the otherwise excludable option to carve out anyone who does not meet age 21, 1 year with semi-annual entry into their own 'plan' and test them separately for coverage?"

Number of replies posted  6 replies      Number of times viewed  78 views      Add Reply
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Santo Gold created a topic in Distributions and Loans, Other than QDROs

Denying a Plan Loan Application Due to Particpant's Bankruptcy

"A 401k plan allows for plan loans for any reason. A participant who is requesting a loan recently declared bankruptcy. The company is aware of it because they received a court order to terminate his wage attachment for child support. Can (and should) a Plan Administrator deny the request for the loan because they have reason to believe (i.e., the bankruptcy) that the plan loan would not be paid back?"

Number of replies posted  8 replies      Number of times viewed  83 views      Add Reply

AMDG created a topic in 457 Plans

457(f) After-Tax Contributions: Why Would One Make Them?

"I am looking at a 457(f) plan that permits after-tax contributions. Why would a person want to give their already-taxed compensation back to the employer? Deferral of taxation on earnings for a few years doesn't seem to warrant the risk of the sponsor's bankruptcy. What am I missing?"

Number of replies posted  1 reply      Number of times viewed  29 views      Add Reply

ESOP Guy created a topic in Distributions and Loans, Other than QDROs

RMD? Not Sure If This Person Is a 5% Owner

"I have an ESOP client and here are the facts: Person A owned >5% of the stock in Company XYZ until 100% of the shares were sold to the ESOP in March of 2018. The ESOP was effective on the date of the sale of the stock to the ESOP. This person was 70-1/2 in 2018. He was 70-/12 in 2013. It just dawned on my he got a balance allocated to him as of 12/31/2018. We didn't get the work done until August of 2019. So is the 5% rule that you are a 5% owner any time during the year regardless if the plan exists or not, or do you have to be a 5% owner on or after the effective date of the plan? Does this person need an RMD for 2019 because he was a 5% owner in 2018 when he was over 70-1/2 or does the fact he stopped being a 5% owner on the day the plan was effective change this? The RMD will be <$30 so the amount is the issue it is a simple compliance question. I guess the balance could grow to the point the RMDs become more meaningful."

Number of replies posted  1 reply      Number of times viewed  48 views      Add Reply

austin3515 created a topic in Correction of Plan Defects

How to File EPCRS for a Client Using Pay.gov System?

"Can someone explain from 30,000 feet how I would go about filing a VCP on behalf of a client through the pay.gov system? Do I need to have them send me a check for the fee, so that I can pay with a credit card? Is there another way? We used to just have them sign things and send everything back to us. I certainly don't want my clients data entering an 8950 and following a 15 step set of instructions to file."

Number of replies posted  1 reply      Number of times viewed  41 views      Add Reply

Sofinka created a topic in 401(k) Plans

Suspending 401(k) Match Mid-Year -- the Plan Has a True Up Provision

"My company has a non-safe harbor 401k plan. In the adoption agreement it is provided that the match formula is discretionary, but the limit(s) apply per Plan Year. The limits are not specified. But the company communicated verbally (only verbally) that it will match 50% on the first 6% of elective deferrals. The company also always communicated that the match is discretionary and that it may stop it at any time. The company deposits matching contributions into participants' accounts quarterly. The company did so for the first 2 quarters of calendar year 2019. The company clearly communicated and announced that due to financial hardship the match will be temporarily suspended and that there will be no employer match for the 3rd and 4th quarters.

Now it is the end of the Plan Year and time to calculate the true-up. If we take annual compensation and multiply by the match that was in Q1 and Q2, this would mean we still need to provide match for Q3 and Q4 even though we communicated that there will be no match in Q3 and Q4. What are our options other than paying the match for Q3 and Q4? Paying the match for Q3 and Q4 is absolutely NOT an option at this point. What is the best way to mitigate the risk? What would be the least riskiest way?

(Option 1) Calculate salaries as follows:

X = (2019 W-2 wages plus Elective Deferrals from only Q1 and Q2) / 2 (the plan indicates that Compensation is W-2 wages plus Elective Deferrals as to All Contribution Types;

and then calculate true-up as follows:

(X * 6% ) /2

This option at least ensures that we are doing true up to people who changed the percentage of elections within Q1 and Q2

(Option 2) Amend the Plan to remove the true-up election? Can we still do it? Is it not too late? How do we amend the adoption agreement? Can we still amend the plan retroactively so that there is no true-up and contribution since 1/1/2019 are done on a quarterly basis?

(Option 3) Cut the match in half (50% on the first 3%) and calculate the true up on this new matching formula and the FULL W-2 salary plus Elective Deferrals from all 4 quarters

(Option 4) Just accept the notion that there is no uniform formula, so no need to do any true-up, people received Employer Match based on non-uniform formulas. I understand the risk here is the ACP test as we have a couple of executives who maxed out in Q1 and Q2."

Number of replies posted  1 reply      Number of times viewed  48 views      Add Reply

Buzzlightyear created a topic in Qualified Domestic Relations Orders (QDROs)

Participant Transfers 457 to New Administrator with Job Change Before QDRO Was Summited

"After 3 years of chasing the Participant (ex-husband) to sign the QDRO the draft was signed and submitted to Calpers on 05/04/2002. They approved it and the final was sent back to the administrator signed on 4/24/2003. The Order reads that all contributions from 6/15/1991 (Date of Marriage) to 11/09/1997 (date of Separation) added to his 457 Deferred Compensation Plan be divided by 50% adjusted to reflect the investment earnings or losses on such share from 11/09/1997 to date of transfer of alternate payee's share to a separate account. After about 4 months a letter was received from ICMA-RC (he changed jobs before the QDRO was completed) stating 'ICMA-RC received a domestic relations order and we are not able to act upon the order as its valued the assets for a date prior to ICMA-RC receiving the funds.' (Assets rolled to ICMA-RC from a prior administrator on 11/30/1998.) I was told that the funds would be put aside and I would get any and all profits that my portion would bring. So I left it there due to the fact I did not want to deal with rolling it into another account and the funds were not needed. Now after 16 years I want to transfer my portion to an IRA. What will I have to do? Just because he rolled it into a new Plan with ICMA-RC with a job transfer will I lose my portion? Is there anything I can do without paying an attorney all over again?"

Number of replies posted  0 replies      Number of times viewed  30 views      Add Reply

ratherbereading created a topic in 401(k) Plans

Safe Harbor Match Suspended: Testing on Pre-Suspension Portion of Plan Year?

"Plan suspended their safe harbor match as of 9/1/2019. PY is 12/31. There was no other match made for the year. Do I need to do both the ADP test and the ACP test for the safe harbor that was made during 2019 prior to suspension?"

Number of replies posted  2 replies      Number of times viewed  37 views      Add Reply

cpc0506 created a topic in Mergers and Acquisitions

Plan Sponsor Sold Assets of Several Participating Employers

"Employer A owned 100% of 3 other companies. Employer A sponsors a 401(k) plan in which the 3 companies signed Participating Employer Agreements. I found out today that Employer A sold the 3 companies a few years through an asset sale. [1] Can I amend plan now to indicate that a controlled group no longer exists? [2] Should cessation agreements have been generated for each Participating Employer? Or does the type of sale negate the PEA?"

Number of replies posted  1 reply      Number of times viewed  31 views      Add Reply
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