Message Boards Digest

July 16, 2020

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

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

Excluded Employees of Employer Sponsoring a Defined Benefit Plan

"A client is looking to set up a Defined Benefit plan to maximize benefits for two partners. There would be 8 eligible employees -- 4 HCEs (two 50% owners and two by attribution) and 4 NHCEs (two of whom are on average 10 years older than the owners). The formula would be something like 60% of pay less the TRA offset. The proposal the client is looking for is to have the DB plan cover only the two owners (excluding the other HCEs) and the two younger NHCEs (though they would obviously eliminate the two older NHCEs by job description rather than age). 410 and 401(a)(26) look like they pass but I'd appreciate any feedback on other issues. Also, would there be other issues if they had an ongoing 401(k) with the 3%-of-pay nondiscretionary safe-harbor with all 8 participating? In such event, would nondiscrimination testing be necessary?"

2 replies   |    37 views   |    Add Reply

srhall created a topic in 401(k) Plans

Timing of Matching Contributions and Deferrals from 132(j) Compensation

"What is considered a reasonable time for an employer to deposit a 401(k) contribution/match of an employee's compensation? Are there any exceptions/exemptions for 132(j) compensation? Sometimes 132(j) compensation is paid in advance and later the part that's not used by the employee is refunded."

0 replies   |    10 views   |    Add Reply

BG5150 created a topic in 401(k) Plans

How Far Back Would You Go to Correct Late Deposits?

"Year after year, client answers 'no' to the question 'were any deferrals deposited late?' The accounts are brokerage accounts for which we only get the 12/31 statements with the YTD figures. Often this is good enough to cobble together my 5500's. (Side note, this is my first year servicing this client.) They switch investment houses in 2019 so I needed some help from the client to reconcile the deposits. I got a list of all the remittances to the trust accounts by date and type. Turns out, they were transmitting funds once a month, but the employees get paid every other week. We are, of course, going to calculate lost earnings for 2019 and 2020 and try to right the ship going forward. I'm pretty sure that this has been going on for a while. How far back would you go to correct this stuff?"

3 replies   |    33 views   |    Add Reply

Dave Baker created a topic in SEP, SARSEP and SIMPLE Plans

Employer Wants to Pay Investment Management Fees on SEP Participants' IRAs

"Employer (an S corp) has two owner-employees who participate in a tax-qualified profit-sharing plan. The corporation directly pays an investment management fee to an RIA (a percentage of the plan's total assets, usually about $12,000 per year), rather than having the trustees pay the fee from plan assets. Employer pays about $1,200 in administration fees for the preparation of Form 5500 and other administration services. Employer pays for an ERISA fidelity bond covering the plan's trustees (who are the two owner-employees).

COVID-19 occurs, with general chaos and substantial drop in revenue. Employer looks for ways to save costs.

Idea: terminate the profit-sharing plan in order to stop the annual administration fee (no more Form 5500s). Also stops the need to pay for an ERISA fidelity bond. Each employee-participant takes their account balance and roll the distributed assets into an IRA at Schwab (for example).

The sun comes goes down and then the sun comes up. Employer sets up a new SEP arrangement, which covers all employees (being only the two owner-employees), using a document provided by Schwab (for example). The employer probably will need to set up two new IRAs at Schwab, into which the participants would transfer or rollover the funds that had been distributed from the terminating profit-sharing plan, but maybe Schwab will be happy to use the two existing IRAs.

As with most SEP arrangements, the employer will have no say in the selection of investments by the participants.

Drum roll, please ... Can the employer pay the investment management fees of the two IRAs (or 'SEP-IRAs,' if you prefer), and have the payments be deductible to the corporation and not counted as income to these two SEP participants?

On the one hand, it is an employer-sponsored retirement plan of a sort. So, like investment management fees on a profit-sharing plan's trust that are paid to an investment adviser directly by a plan sponsor, the payment of the investment management fees on the SEP participants' accounts arguably is similarly deductible.

On the other hand, there is no trust once the employer has made the contributions to the employees' IRAs.

If the payment is not deductible, then essentially the owner-employees are making the payments in their personal capacity, and I suspect there would be no deduction opportunity due to the new rule that eliminates the deduction for an individual taxpayer (even when itemizing deductions) for investment management fees.

(This feels a lot like a 403(b) plan under which contributions are made by an employer to employees' independently-owned 403(b)(7) custodial accounts or 403(b) annuity contracts, so maybe I should look into precedents in that regard.)"

0 replies   |    3 views   |    Add Reply

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