Message Boards Digest

June 19, 2020

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

DR245 created a topic in SEP, SARSEP and SIMPLE Plans

25% Penalty for Early Distributions -- Still Due in This Correction Scenario?

"I was one of many employees who had their contributions corrected over an 8-year time span. Our boss did not inform anyone of the SIMPLE IRA and had to correct 5 employees and make them right. Now I'm in need of some of those funds (not COVID-related) and was curious if there was any stipulation or exception for my scenario concerning the normal 25% early withdrawal penalty (vs. 10% after two years) due to my circumstances. Because I normally would've been vested as of 2015, do I fall into the 25% penalty regardless since my contributions were finally deposited in March of this year or do I potentially get an exception for my case?"

2 replies   |    47 views   |    Add Reply

Gilmore created a topic in 401(k) Plans

Off-Calendar Plan Year -- ADP Catchup with No Deferrals?

"Revisiting my catchup issues with an off calendar year plan and ADP catchup. Plan year ends 4/30/2020. The only deferrals made to the plan for a participant are made in December 2019, in the amount of $23,300. No deferrals prior in 2019, and no deferrals in 2020 before 5/1/2020. My admin system is treating $4,300 of the deferrals as catchup for 2019, and using $19,000 in the 4/30/2020 ADP test. So far so good.

Plan fails the 4/30/2020 ADP test and the participant needs a refund of $9,000. The admin system is treating all of the $9,000 as a distribution.

The EOB has an example that says it is not directly from the regs but is an extrapolation of the rules. (Ch 11, Section 11 Part C.1.e). The example has a plan year ending 10/31/2016. Participant defers $22,000 from 11/1/2015 to 12/31/2015. $0 from 1/1/2016 to 10/31/2016. $18,000 used in the 10/31/2016 ADP test, with $4,000 catchup for 2015. 10/31/2016 ADP fails and participant needs an $1,800 refund. EOB says to treat the $1,800 as catchup for 2016 even though no 2016 deferrals were made for the plan year. This then reduces the total amount the participant can defer in 2016 after 10/31/2016 by $1,800. The EOB says the total would be $22,000 but I think it might be $22,200.

So going back to my 4/30/2020 plan, I'm thinking $6,500 can be used to reduce the $9,000 refund and be treated as catchup for 2020. And the participant could defer no more than $19,500 for the rest of 2020. Agree? Has anyone treated catchups in this manner?"

2 replies   |    43 views   |    Add Reply

Jakyasar created a topic in Retirement Plans in General

Errorneous Deposit Into a DB and 401(k) Plans

"Sponsor has a client who was supposed to pay directly to the sponsor's business a fee in kind (stock). Instead of it going to the sponsor's business, 1000 shares of the stock were deposited into each plan. The price of the stock at that time was $50. All happened in 2018.

In the DB plan, client sold 500 shares and made a long term gain of $5,000 and never withdrew the money (as far as I know, no taxes were paid for the gain). Remaining 500 shares were later taken out of the DB plan and transferred to sponsor's business account (no cash transaction but I believe the value at the time of transfer was less than $50/share). All happened in 2018.

In the 401k plan, a similar situation -- transfer of 900 shares back to the business (not sure if the stock price was over/under $50) and sold the remaining 100 shares in the plan but at a loss of $5,000 and never withdrew the money.

What are the corrective steps to take?"

7 replies   |    58 views   |    Add Reply

SpecialGuest created a topic in Employee Stock Ownership Plans (ESOPs)

How to Fairly Split ESOP with My Soon-to-Be-Ex-Spouse

"My spouse and I are getting divorced. My spouse's company sponsors an ESOP. What are my best options for splitting my spouse's account?"

2 replies   |    23 views   |    Add Reply

Catch22PGM created a topic in Distributions and Loans, Other than QDROs

RMD for Spousal Beneficiary

"Husband and wife are 50/50 owners of Company A that sponsors the Company A 401(k) Plan. Husband dies in December 2019 at the age of 70.5. Wife is age 58 and is sole beneficiary. The required beginning date would have been April 1, 2020 but the 2019 RMD was not taken when CARES was enacted so no 2019 RMD has been distributed. Wife wants to roll over Husband's 401(k) account balance into her 401(k) account. Can she do this and avoid RMDs until she reaches age 72? I don't see why not, but the RMD rules with a deceased participant always trip me up."

0 replies   |    21 views   |    Add Reply

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