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Message Boards Digest

February 24, 2020

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

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

DB Plan with Separate Income for Partner?

"This is a multi-part question about setting up a DB plan with unrelated business income. 50/50 partner with his son in an accounting firm gets unrelated income paid directly to him on a 1099-R. Let's say from serving on a Board of Directors. The Accounting firm has rank-and-file employees and a 401(k) plan that the partners maximize. [1] Can the senior partner set up a Defined Benefit plan using only the 1099-R income or is that precluded by controlled group rules? [2] If precluded, can the senior partner lower his ownership percentage or even give up ownership to be able to set up that DB plan? [3] If so, are there a number of years that need to go by of not being a partner (or less than 50% partner)? [4] Do ownership attribution rules apply here with the father/son partners?"

Number of replies posted  0 replies      Number of times viewed  32 views      Add Reply
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Doogan created a topic in SEP, SARSEP and SIMPLE Plans

Salary Reduction Election Period under a SIMPLE IRA Program

"I have a simple IRA setup, but upon looking back I am stuck on some of the fine print and want to make sure I am doing it right. Probably over-thinking this. My eligibility requirements for example are as follows. For our plan year 2020, you have to be expected to make at least $5,000 in 2020, and also have made in 2 preceding years (2018 and 2019). What I'm stuck on is the second part of the following statement: 'For a calendar year, an eligible employee may make or modify a salary reduction election during the 60-day period immediately preceding January 1 of that year.' I'm OK with thar part. Continuing: 'However, for the year in which the employee becomes eligible to make salary reduction contributions, the period during which the employee may make or modify the election is a 60-day period that includes either the date the employee becomes eligible or the day before."

What's that saying? My understanding is that that eligibility is based on calendar year, so let's say, an employee earned $5,000 in 2018, and 2019, and are expected to in 2020, I would have given them the notification paperwork prior to the 60 day notification period ending Dec 31.'

Number of replies posted  4 replies      Number of times viewed  54 views      Add Reply

jesse12 created a topic in 403(b) Plans, Accounts or Annuities

Non-ERISA 403(b) Plan Sponsor Acting Like an ERISA 403(b) Plan Sponsor

"I have a prospective client that I 'won' through our answer to a Request For Proposal. I didn't know a ton about the plan until we 'won' the business. I don't work with any 403(b) plans. This is a 403(b) plan sponsored by a college. The college says they're ERISA-exempt. The plan document reflects that as well, but it has an employer match and designates the employer as having responsibilities that should be prohibited in a non-ERISA plan -- QDRO processing, etc. They've NEVER performed testing, had a plan audit (150 participants), or filed a Form 5500. [1] There isn't some legitimate reason how they could possibly be operating the plan this way, is there? I'm not finding anything. [2] To correct this, would they have to retroactively test and file 5500's dating back to 2009?"

Number of replies posted  1 reply      Number of times viewed  38 views      Add Reply

michaelhughes created a topic in Retirement Plans in General

Rollover of Death Benefit by Beneficiary to Distributing Plan

"Husband and wife participate in the same plan. Reciprocal beneficiary designations (his to her and hers to him). Wife dies.. Husband has requested an immediate lump sum. He wants to roll over the distribution to his rollover account in the distributing plan. Can this be accomplished by an intra-plan transfer? Form 1099 would be issued with Code G. What am I missing?"

Number of replies posted  3 replies      Number of times viewed  62 views      Add Reply

justanotheradmin created a topic in 401(k) Plans

EACA Tax Credit from SECURE

"I am starting a new thread because I think it it warranted and better suited in the 401(k) message board. Please see my prior question and the replies from @Larry Starr and @Bill Presson I'd like to clarify upfront that I am NOT asking about the start-up cost credit. I think I have a pretty good handle on that one. I am asking about the NEW! automatic enrollment credit provided by SECURE. Please don't conflate the two. [1] Section 45T adds the new EACA credit. Can a one-person plan (HCE only) claim this credit? Assuming of course they are amending their plan to add an EACA? I don't think the plan start-up costs definition in 45E is relevant because this isn't a plan start up cost. [2] Does anyone think the sponsor of a 1 person HCE plan CAN'T claim the credit? If so, why?"

Number of replies posted  0 replies      Number of times viewed  33 views      Add Reply

Will.I.Am created a topic in 401(k) Plans

Hospital Affiliated Service Group and HCE Determination

"I have a C corporation which is a hospital and employs hospital staff (PAs, non-owner doctors, etc.). I then have a separate partnership which was se tup as a billing entity and bills the hospital for services (1099 income). They try and zero out the C corporation's income each year by having the partnership (billing entity) bill the C corporation. The owners of the billing partnership are 22 S corporations (4.55% each) which are owned by 22 individual doctors who provide services to the C corporation hospital. The owners of the C corporation hospital should theoretically be the 22 owners of the S corporations, but they have told me they haven’t been the best at keeping its ownership up to date -- I probably need to ask them who the actual owners are -- when new partners are admitted to or are /removed from the partnership. The 22 S corporations and the C corporation are the only entities with employees and are the only entities covered by the plan -- the billing partnership isn’t covered by the plan. [1] Are the S corporations and the billing partnership B-organizations to the C corporation? This would make them an affiliated service group with no A organization, right? [2] What ownership percentage do I use for determining if the 22 owner doctors are HCEs? 4.55% or 100%? I assume 100% because each of the 22 owner doctors own 100% of their own S corporation and each S corporation participated in the plan."

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

tjw572 created a topic in 401(k) Plans

Exclusion of Eligible Participant from Profit Sharing Contribution in Prior Year

"I have a situation where the prior year profit sharing calculation missed giving a contribution to an eligible employee who should have entered the plan. The normal correction method is to do a make-up contribution for the prior year plus earnings. Total contribution due is approx $1k. However, I have an extra issue with this plan. It's a partnership subject to the self-employment calculation. To be technically correct, 2018 should be redone adjusting the contributions/plan compensation of the partners in 2018. That would cause many more problems, e.g., amendment of the partnership return, the individual returns of the partners. Would it be more practical to factor it into the 2019 partnership calculation along with the employer contributions for the staff for 2019?"

Number of replies posted  2 replies      Number of times viewed  46 views      Add Reply

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

Spousal Consent - Loans, Hardship Withdrawals, Rollovers, Distributions

"I am often asked, outside of a divorce context, whether or not a Participant in a defined contribution plan needs to notify and/or obtain consent from his spouse before: (i) making a loan; (ii) taking a hardship distribution; (iii) rolling over Plan benefits to an IRA or other qualified Plan account; or, (iv) taking a taxable distribution. I know how it works with a Federal TSP Plan, but I cannot find a definitive answer or a reference to any applicable statute as it relates to 401(k), profit sharing, 403(b), ESOP, or other form of defined contribution plan, or with respect to an IRA. Much of what I see says that it depends on the Plan documents. Any ideas?"

Number of replies posted  4 replies      Number of times viewed  55 views      Add Reply

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

What Amount to Show on Relative Value Disclosure Upon Termination of Cash Balance Plan?

"We are in the process of terminating a client's cash balance plan. The sum of the account balances will be equal to the value of the investments once the 2019 contribution is made. I realize that as a DB plan, we must give each participant a relative value disclosure of their options, e.g., lump sum, annuity, 10YC, etc. I've never administered a DB or had a participant elect any sort of monthly benefit -- they've either elected a lump sum to roll over, or a lump sum to be cashed out. My software vendor's program provides the options and those dollar amounts that must be offered to each participant The client is asking, what does he do if one of the participants in fact elects a monthly benefit? If the plan is terminating, where do those options come from?

I could understand an ongoing plan paying an annuity for the life of one of the participants out of the plan investment account. If the plan is terminating, the monthly payments cannot come from the plan. If the participant takes the lump sum and buys an annuity, depending on interest rates, the lump sum very well will throw off a different monthly annuity amount than what is shown on the relative value disclosure. How is this to be addressed?"

Number of replies posted  8 replies      Number of times viewed  61 views      Add Reply

M Norton created a topic in 401(k) Plans

When Is a Deferral Remittance Considered 'Late'?

"401(k) plan. Sponsor has bi-weekly payroll, every other Friday. Deferrals are withheld from payroll Friday, the 10th of the month. The due date, seven business days, would be Tuesday, the 21st. Plan sponsor writes a check for the deferrals and mails it on Monday, the 20th. It is received and posted to the brokerage on Thursday, the 23rd. Just looking at the activity in the plan brokerage account it appears the deferrals were late, but the payment was mailed timely. Does the check date count? The postmark on the envelope?"

Number of replies posted  6 replies      Number of times viewed  84 views      Add Reply

Jakyasar created a topic in Retirement Plans in General

Rollover Into a Profit Sharing Plan from a DB Plan for a Retired Participant

"A DB plan covers the retired owner (a corporation) and also his spouse who is part of the plan as an additional employer (sole proprietor). Their children are over 21, for Code section 1563 purposes. Retired owner has both DB and rollover assets in the DB plan and wants to transfer the rollover portion into the new PS plan. Eventually they will terminate the DB and will want to rollover all assets into the PS plan, maybe this or next year. According to the vendor for the PS plan document, the document does not allow any new participants who are already terminated/retired, thus the retired owner cannot transfer his rollover portion from the DB into the new PS plan because he can never be a participant (nor do the eligibility provisions allow/have anything on it). According to the vendor, the only way out is to change some language in the document, which may take out the document out of pre-approved status. Has anyone seen this before and was able to find a solution?"

Number of replies posted  5 replies      Number of times viewed  36 views      Add Reply

Marino created a topic in Nonqualified Deferred Compensation

Deferred Compensation Plan for a Partner in a Partnership?

"Is there any creative way to establish an executive deferred compensation plan for a partnership? I totally understand the flow-through issue but this firm is adamant that there has got to be a way to create such a program for partners who are retiring and getting a return of their capital contributions (all of which are seven-figure distributions). If they're recategorized as income partners instead of equity partners, would that make a difference or would the capital distributions still be treated as K-1 income?"

Number of replies posted  0 replies      Number of times viewed  12 views      Add Reply

Gilmore created a topic in 401(k) Plans

Withholding on ADP Refund -- Must Provide Participant with an Election?

"It is my understanding that 10% withholding is the default on ADP refund distributions, as a non-periodic payment. Most of the recordkeepers with whom we work allow the participant to elect the default, no withholding, or withhold an amount other than 10%. Is the Plan required to allow the participant to make an election? We are working with a new recordkeeper whose process for refund distributions is a spreadsheet that has no option for withholding. Upon questioning they have responded that 10% applies with no other options for withholding."

Number of replies posted  1 reply      Number of times viewed  28 views      Add Reply
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