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Message Boards Digest

August 27, 2020

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

Pammie57 created a topic in 401(k) Plans

Age 14 Eligibility Requirement?

"Does anything prevent a plan sponsor from lowering the age requirement to age 14? I know the maximum is 21. He wants to let his kid participate... not sure he'd work 1000 hours, but I guess if he changes it to NO eligibility requirements... as long as every employee is treated the same. Can he do this?"

2 replies   |    43 views   |    Add Reply

legort69 created a topic in 401(k) Plans

Withholding on Roth Distibutions -- Deduct from Gross or from Pre-tax?

"Client is told by prior TPA that while they deduct pre-tax as a percentage of gross compensation, they withhold Roth based on Box 1 W-2 (or at the least, Gross less pre-tax 401k). Per the plan document, compensation is defined as wages, tips and other forms of compensation (W-2 Box 1). Is this common? Any thoughts or concerns?"

2 replies   |    47 views   |    Add Reply

PFranckowiak created a topic in 401(k) Plans

Effect of COVID Furlough upon Entry as a Participant

"Plan has a three consecutive month eligibility. Dual entry. New Employee worked from February 14 through April 22, then got paid through May 6. Came back to work full-time August 8. He did not work due to COVID-related reduction in the business. I think he was put on furlough status and was still employed. He met his three months of service, so would have come in July 1 but for the fact that he was not at work on that date. Because there has been no actual severance from employment, though, he would seem to have met the service requirements and hence should participate upon coming back in to work. If someone only worked a month, would they also be treated the same way?"

1 reply   |    43 views   |    Add Reply

30Rock created a topic in 401(k) Plans

Newly Eligible Participants Don't Have Social Security Numbers

"A number of new hires do not have an assigned Social Security number due to the SSA are offices being closed. What's the normal method to set up a retirement account in a qualified 401k plan for these employees? I assume they are resident aliens. What's the recommended procedure for a recordkeeper and payroll department?"

0 replies   |    28 views   |    Add Reply

Belgarath created a topic in 401(k) Plans

Midyear Change to Safe Harbor Matching Plan -- with a Twist

"Safe Harbor matching plan - standard matching formula - plan definition of compensation EXCLUDES bonuses. Now they want to amend to include bonuses in compensation for the 2020 plan year.

From IRS Notice 2016-16, under the 'prohibited changes' section:

4. A mid-year change (i) to modify (or add) a formula used to determine matching contributions (or the definition of compensation used to determine matching contributions) if the change increases the amount of matching contributions, or (ii) to permit discretionary matching contributions. However, this prohibition does not apply if, at least 3 months prior to the end of the plan year, the change is adopted and the updated safe harbor notice and election opportunity are provided, and if the change is made retroactively effective for the entire plan year (which may require a plan that provides for periodic matching contributions as described in §§ 1.401(k)-3(c)(4) and (5)(ii) and/or 1.401(m)-3(d)(4) to be amended to provide for matching contributions based on the entire plan year).

Now, here's the twist. They are making this change because 2 HCEs already received bonuses early in the year. They may or may not pay bonuses to everyone else at the end of the year. At the time this amendment is made, it seems it would be discriminatory on its face, but, if they pay bonuses at the end of the year to the NHC employees, then subject to compensation testing, it could pass.

Edit -- of course, after thinking about it a bit, I now realize that it isn't a matter of compensation testing. If bonuses are INCLUDED, then there isn't any compensation testing for 414(s). I am concerned, however, that a mid-year amendment changing the definition of compensation when it benefits only HCEs in this situation is a nondiscrimination issue. Thoughts?"

0 replies   |    20 views   |    Add Reply

BG5150 created a topic in Retirement Plans in General

Cashout When Rollovers Are Involved

"Plan doc excludes rollovers when determining the cashout balance. Participant has $550 PS (100% vested) and $45,000 rollover account. Because the rollover account is disregarded, this participant is a candidate to be cashed out. Does the trustee just cash out the entire account and withhold $9,100? Or is the entire balance rolled over into an IRA? (The plan's threshold for IRA rollovers is $1,000.)"

1 reply   |    24 views   |    Add Reply

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