Message Boards Digest

September 4, 2020

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

austin3515 created a topic in 401(k) Plans

Start-Up Credit for 401(k) When Employer Already Has SIMPLE IRA Program?

"If an employer has a SIMPLE IRA plan and starts a 401k are they eligible for the start-up credit?"

5 replies   |    30 views   |    Add Reply

Santo Gold created a topic in Distributions and Loans, Other than QDROs

Withdraw Roth Subaccount Before Pre-Tax Subaccounts?

"A participant is 63 years old. Per the plan, he can take an in-service withdrawal (minimum age 59-1/2) of all of his money. The NRA is 65. He has Roth, rollover, 401k, safe harbor and PS money in the plan. He is 100% vested. He wants to withdraw only from his Roth subaccount. Is he required to take the withdrawal from pre-tax accounts first, though? The recordkeeper says so, but I don't see such a rule in the plan document. Is it an IRS requirement?"

1 reply   |    28 views   |    Add Reply

Catch22PGM created a topic in Correction of Plan Defects

Error in Timing of Safe Harbor Match

"Four different 401(k) plans in a controlled group. The plan sponsors have always calculated and deposited their safe harbor match every pay period, since 2012. When the documents were restated for PPA their TPA (not me) did not check the box in the adoption agreements to indicate the safe harbor match was calculated and deposited every pay period. Instead they are shown as being calculated and deposited at the end of year. I don't have copies of the SPD or the Safe Harbor Notices but I assume they state the same. There's never been a true-up of the safe harbor match in any of the plans.

Their TPA had a new account manager take over all four plans for the 2019 plan year and the plan sponsors have been told that they need to go back to 2017 and provide true-up Safe Harbor Match. That's for several hundred participants each year, so we're talking about $100,000 or more. Per the TPA's instruction two of the four plan sponsors sent letters to the affected participants notifying them that they will be receiving an additional Safe Harbor Match due to the error. I don't know why they only went back to 2017 instead of when the document errors were created (2014-2016), but those were the instructions given.

My initial thought was to retroactively amend the plan documents to conform to its operations, but I could see 411(d)(6) issues. I believe the IRS has accepted retroactive amendments in similar situations. Has anyone had a similar experience that could share how the error was corrected?"

0 replies   |    24 views   |    Add Reply

JAS76 created a topic in Distributions and Loans, Other than QDROs

What's the Mandatory Withholding Here?

"Small payout to a beneficiary. No other assets distributed to this beneficiary before or after. $416.23 gross amount in pretax Code 4 monies. $425.03 gross Roth Code 4B monies, of which $329.75 is basis ($85.28 in Roth earnings). What's the mandatory withholding? Don't read anything fancy into the situation. It's just a basic, non-CARES Act-related payout to a beneficiary."

0 replies   |    16 views   |    Add Reply

401 Chaos created a topic in Form 5500

Wrong Count of Participants, So No Audits Filed, But Now Want to Terminate

"Company has had a 401(k) plan for a few years now. They have over 300 eligible employees/'participants' but have never had more than 50 active participants in the plan in a particular year. They have timely filed 5500s (5500-SFs, actually) for all the years but misconstrued how 'participants' are determined and counted and so reported only active participants. As a result, audits have never been conducted/filed for the plan. With even fewer people participating due to COVID and the employer facing financial issues, they have decided the plan is not worth the expense and want to terminate altogether.

Then, some helpful soul early on in the termination process commented on the need to file a final Form 5500 and an audit in connection with a termination, which got them to ask, 'what audit?' Without that helpful comment, they likely would have terminated the plan, filed a 5500 as in the past with no audit, and rolled along without obvious issues and been blissfully ignorant.

Now that they know the errors of their ways, however, nobody can sign the final audit-less Form 5500 without perjuring themselves. And they'll need to get audits for the prior years in order to get an audit for the 2020 final year. Which is, of course, all going to be very expensive for a company that headed down this path because of financial concerns. And my suspicion is that, like the mistake in counting participants, there are likely to be some other 'issues' that may surface as the result of audits.

Any ideas for coming at this in an appropriate but most efficient and least costly manner?"

10 replies   |    55 views   |    Add Reply

reader created a topic in Correction of Plan Defects

QNEC Doesn't Show Up on Form W-2, Right?

"I'm trying to make sure I understand a couple aspects of QNECs right. We're talking about the case where you need to do a 25% QNEC because you didn't adhere to a deferral election for an employee and it's been longer than 3 months (and you are sending them the required notice). Based on what I've read, the QNEC is included in determining the total deferrals for the year compared to the 402(g) limit. However, it sounds like the QNEC is not included as W-2 earnings. Do I have that correct?"

0 replies   |    6 views   |    Add Reply

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