Message Boards Digest

February 21, 2020

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

DDB BN created a topic in 401(k) Plans

Business Pays Medicare and Supplement Premiums for Sub S Owner

"Plan uses 415 safe harbor comp. The owner of a Sub S Corp is now on Medicare. The business pays the Medicare and Supplement premiums on behalf of the Sub S Owner. Would these premiums be added to the Sub S Owner's compensation for plan purposes?"

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

justanotheradmin created a topic in SEP, SARSEP and SIMPLE Plans

Sponsor a SIMPLE IRA Even If No NHCEs Covered?

"I was watching the ERISApedia webinar on the SECURE Act questions -- and Ilene mentioned that in order to sponsor a SIMPLE IRA, an employer must cover/have an NHCE. Does anyone have a cite for that? I've never heard that particular rule, but I don't work with SIMPLE IRAs. I thought a sole proprietor with no employees could sponsor a SIMPLE IRA, but maybe I'm mistaken."

Number of replies posted  5 replies      Number of times viewed  50 views      Add Reply

Bridget created a topic in 401(k) Plans

1099-R Needed for Death Benefit 'Paid' to Spouse Who Also Participates in Plan

"Husband and wife work for the same company. Husband holds private stock in the 401(k) plan. Husband passes away. Because the stock is held in the plan f/b/o husband, will a 1099-R code "G" be needed? None of the assets actually leave the plan -- they will be transferred to the spouse's participant account."

Number of replies posted  3 replies      Number of times viewed  50 views      Add Reply

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

Benefit Option Now Available, But Wasn't Available When QDRO Received

"Background: DB plan is terminating. I've just begun the PBGC application. Traditional DB plan was frozen 30+ years ago. Two participants, vested terminees, remain, because they'd been awaiting age 65. Plan never had a lump sum option, only annuities. As part of the decision to terminate, the company that now administers the plan (bought the prior company, which is no longer in business) decides they should just offer a lump sum option, so it's been written into their final PPA restatement as of 1/1/2020. The lump sum option also helps so the plan doesn't end up with maybe $5,000 in residual assets, too. Now, one of the two participants immediately returned his form for a lump sum. (Although he hadn't asked for early retirement benefits, he's past the plan's Early Retirement Age of 55 and so he's eligible to be paid now, independent of the PBGC review.) I have reviewed the prior TPA's distribution files. I found a QDRO from 2006 signed by a judge. Or, at least it was meant to be a QDRO. The order assigns 50% of the participant's account balance as of some date in late 2005, with all the earnings thereon, to his ex-wife. Seems normal enough except that the plan did not offer a lump sum option at all, and so technically there's no account balance. Now that there is a lump sum option, there's at least some substance to the request to assign 50% of the lump sum value to the Alternate Payee. What's the actual legal rule for something like this? The order indicated a form of payment not authorized by the plan at that time. But now the plan does authorize such a form of payment. I suspect a revised Order will be needed, if for no other reason that there never really has been an 'account balance' to divide and assign."

Number of replies posted  1 reply      Number of times viewed  24 views      Add Reply

Chris123 created a topic in 401(k) Plans

S Corps, General Partnerships, and 401(k) Withholding

"My understanding is that 401(k) withholding -- also called the employee deferral (max of $19,500 in 2020) -- must be withheld from a paycheck. That is, the gross wages must be high enough so that when the withholding is taken out, there is enough left for a net check that is $0.00 or higher than zero. For example, I have a doctor group of S Corps who have a partnership. The S Corp /Doctors have salary schedules. They front load their 401(k) withholding in January/February of each year because they can -- their cash flow is high enough to allow this. In order to do it, we have to increase the gross wages to accommodate the withholding of the 401(k) deferrals. My understanding is that the law requires the gross wages to be included in this situation so they can collect Social Security and Medicare on those wages. I have had 2 pension 'experts" tell me this over the last 10 years.

Recently, the law firm's pension administrator (internal admin person, not a lawyer) said that the law firm's policy is to treat all partners the same with respect to 401(k) withholding, and that is to withhold it from their 'compensation' -- in this case, since the entity is a partnership, the compensation is in the form of guaranteed payments as required by IRS rules. Partners cannot receive W-2s from the partnership if they are more than 2% owners. They must receive guaranteed payments (GP). GP are subject to 'self-employment taxes' if the partner is an individual. But when the partner is an S Corp, there is no self-employment tax at the S Corp level. The S Corp must pay a reasonable salary to the shareholder, but if the shareholder does not take any money out of the S Corp that year, the IRS would not receive any social security or medicare taxes on that 'compensation.' It is my understanding that this is therefore NOT an allowable approach when the partner is an S Corp -- withholding from GP to take the 401(k) employee deferral of $19,500.00.

Were both of the 'experts' incorrect? Is the law firm is allowed to handle this the way I stated above, when the partner is an S Corp -- withholding 401(k) employee deferrals from GP? Or were they correct and what should happen if the S Corp should have a salary schedule that includes gross-ups sufficient to allow for the 401(k) withholding to be paid that way?'

Number of replies posted  3 replies      Number of times viewed  44 views      Add Reply, Inc.
1298 Minnesota Avenue, Suite H
Winter Park, Florida 32789
(407) 644-4146

Lois Baker, J.D., President
David Rhett Baker, J.D., Editor and Publisher
Holly Horton, Business Manager

Copyright 2020, Inc. All materials contained in this mailing are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of, Inc., or in the case of third party materials, the owner of those materials. You may not alter or remove any trademark, copyright or other notices from copies of the content.

Links to web sites other than and are offered as a service to our readers; we were not involved in their production and are not responsible for their content.

Unsubscribe | Privacy Policy