Message Boards Digest

September 21, 2020

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

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

Deduction Versus Minimum Funding Deadline; Showing Same on Schedule SB

"Sponsor is an S-corp. 2019 MRC is $150k and they deducted $200k. All fine, however --  as far I know, S-corp extended filing deadline is 9/15/2020 (not extended by any laws/guidance) but they made the deposit today (9/18/2010). They lose the deduction for 2019, correct? Deposit was done by wire transfer, so the 9/18 date is firm. For the 2019 plan year, assuming that they missed the deduction deadline, what should I use for 2019 Schedule SB? All $200k, or $150k plus a few days of interest adjustment, say $1k, for a total of $151k? I must be missing something here."

2 replies   |    51 views   |    Add Reply

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

Can a Terminated Participant Request CRD?

"A Terminated Participant would like to request a CRD in lieu of the Terminated Participant Distribution -- to waive tax withholding, I suppose. The plan permits CRDs. Are Terminated Participants who terminated prior to 2020 permitted to request a CRD?"

7 replies   |    54 views   |    Add Reply

ldr created a topic in 401(k) Plans

ADP Test Refund Going to Automatic Non-Deductible Contribution Bucket?

"A client just asked for something I have not heard about before -- not that this is unusual! They don't like failing the ADP test and making refunds to the owner of the business. They won't adopt a Safe Harbor contribution formula. Instead, they want to know if an ADP test refund can automatically become a non-deductible contribution and remain in the plan instead of being refunded to the owner. I've never heard of such an arrangement but that doesn't mean it doesn't exist. Does anyone have some insight on this?"

8 replies   |    73 views   |    Add Reply

Lucky32 created a topic in Distributions and Loans, Other than QDROs

Participant Owner With Two Businesses Seeks Distribution

"Owner owns 100% of Companies A and B; A has employees but B does not. Company A sponsors a 401k plan in which only the owner and her spouse have account balances (yeah, I know...), comprised entirely of pre-tax elective deferrals and safe harbor matching contributions. She wants to sell A and have B become the new Employer/Sponsor. The plan's ftwilliam document permits a participant to receive their benefit following their 'Termination of Employment', which is defined as 'any absence from service that ends the employment of the Employee with the Employer'. The owner would like to take advantage of her upcoming 'employment termination' by taking a distribution from the plan and rolling it into her IRA. Company B does a different type of work than company A did, but they are in the same general industry. I mention this because I recall something about a 'same desk rule' and am not sure if it still applies here. Can she receive a distribution like a terminated participant based on the above information?"

7 replies   |    51 views   |    Add Reply

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

Front-Loaded Funding -- Defined Benefit Plan

"I have a client who began a business this year. It is an S corporation and he is the only employee. He does not plan to have other employees. This year his salary will be $2 million. His profit after his salary will be $5 million. He is age 55 and he plans to work for this business for 10 more years. He does not have a retirement plan for this business or from any other employment or business. He would like to set up a defined benefit plan this year. He would like to know what the maximum amount is that he can fund and deduct this year. He feels certain that he will participate in the plan for 10 years and that his salary from this business will exceed $300,000 for 3 consecutive years. Could anyone tell me what provision in the Code or regulations would limit him from funding his entire life-time benefit in the first year? I am aware that under Code section 404(o), the deduction is limited to his 'target normal cost'. To my reading, Code section 430(b) and Regulation section 1.430(b)(1) define target normal cost based on the benefits provided in the plan. Is my reading correct? If a plan provides that the entire life-time benefit is earned in the first year of participation, can the present value of that amount be deducted in the first year?"

4 replies   |    56 views   |    Add Reply created a topic in 409A Issues

Severance and Specified Employee Compensation

"The 409A default rule for determining specified employee compensation uses 1.415(c)-(2)(a) compensation. Presumably, this includes the items in 1.415(c)-(2)(b) and excludes those in 1.415(c)-(2)(b). My question involves the 409A regulation statement that it is assumed there is no use of the special timing rules of 1.415(c)-(2)(e). Does this mean that severance and NQ payouts based on termination are included as specified compnsation, even though these two items are NEVER allowed as compensation for purposes of Section 415? The special timing rules of 1.415(c)-(2)(e) are of two types: one type is elective and one type (exclusion of severance and post-term NQ payouts triggered by termination) are mandatory. Example: Administrative officer terminates in January of a calendar testing year with small compensation that would not put him in the top 50. If large severance is included , he would be in the top 50 (and the result is that an administrative officer ranked #51 by compensation does not get on the list). Bottom line: does severance amd NQ payouts triggered by termination count as compnsation under the default rule of 1.415(c)-(2)(a) for measuring specified employee compensation."

0 replies   |    9 views   |    Add Reply

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