Message Boards Digest

October 23, 2020

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

SEM created a topic in Retirement Plans in General

The 'Bad Apple' Rule as Applied to Mergers & Acquisitions

"If an entity purchases another division and wants to merge the existing 401(k)/retirement plan into their existing plan, what steps can they take to limit the purchasing entity's fiduciary and liability exposure if the merging plan was not run correctly?"

5 replies   |    60 views   |    Add Reply

Jakyasar created a topic in Plan Terminations

How Soon Can I File Form 500 for a PBGC Standard Termination?

"Date of termination is 12/31/2020. Notice of intent to terminate given by 10/31/2020 - to satisfy 60 days. NOPB (notice of benefits) given by 11/9/2020. Can I file Form 500 with PBGC on 11/10/2020, or do I need to wait until after 2021?"

1 reply   |    15 views   |    Add Reply

Peter Gulia created a topic in Retirement Plans in General

Is There Any Reason Not to Provide That Each Participant Is a Distinct Allocation Group?

"In another BenefitsLink discussion, the originating inquirer described a plan sponsor's desire to change to a regime under which each participant is a distinct allocation group. Instead of asking about how to make such a change, I ask different questions:

[1] Does ERISA's Title I or the Internal Revenue Code impose any constraints on a plan sponsor's opportunity to specify that each participant is a distinct allocation group?

[2] For those plan sponsors that use IRS-preapproved documents to state the user's documents, do the documents available from mainstream providers impose any constraints on a plan sponsor's opportunity to specify that each participant is a distinct allocation group?

[3] Assume an employer has enough practical capacity to decide, allocate, and communicate a distinct contribution for each individual. Are there other reasons a plan sponsor would not want the flexibility to specify that each participant is a distinct allocation group?

(Assume that no nonelective contribution will be a subterfuge for what really is an individual's section 401(k) cash-or-deferred election.)"

7 replies   |    67 views   |    Add Reply

alexa created a topic in 401(k) Plans

401(k) Plan Running Into Annual Comp Limits

"Our CEO started in February of this year and was making 401(k) deferrals of 5% of pay. He is at $500k annual base comp. He has now hit the $285k comp limit for 2020 (September 2020) and both his match and deferral stopped. Match is $14,500 which is OK (5% of $285k). But 401(k) is capped at $14,500 as well. He is over age 50. If he had done, say, 10% when he started, he would have been able to do $26k in 401(k) contribution. Can we catch him up to $26k in 401(k) by suggesting he increase his deferral percentage from 5% to 14% for the final 2 months of the 2020 plan year? Or is it too late to do this?"

7 replies   |    47 views   |    Add Reply

Dougsbpc created a topic in Correction of Plan Defects

Number of VCP Applications Needed for Problem That Spanned Two Plan Years

"Have a takeover plan that failed 401(a)(4) for 2018 and 2019. No corrective amendment was done. Does a correction require a VCP submission at the shocking new fee of $3,000? If so, must we pay $3,000 to correct 2018 and another $3,000 to correct 2019, or could they be corrected at one time for one $3,000 fee?"

1 reply   |    11 views   |    Add Reply

Purplemandinga created a topic in 401(k) Plans

Confused About Different Document Rules for New Comparability Plans

"So, a profit sharing plan needs to define a 'Contribution Formula' and an 'Allocation Formula' in order for the plan's contribution to be 'definitely determinable.'

In many plan documents when you select a 'new comparability - each employee is own group' formula, no additional 'method' on how to allocate the contribution formula is required. For example, no additional input is required to establish if each group will receive a flat dollar, a percentage, or the greater of the two.

However, it's different when we select 'new comparability - groups' because such plan documents tend to make you specify in the plan document whether the contribution formula will be allocated via flat dollar, a percentage, or the greater of the two.

I can reason why this may not be required for 'new comparability - each employee is own group.' But is it actually required that the plan document define in 'new comparability - groups' situations that each group will be allocated the contribution based on flat dollar, a percentage of comp, or the greater of the two? Couldn't that simply be provided in writing to the plan administrator to satisfy the definitely determinable requirement?"

5 replies   |    33 views   |    Add Reply

cpc0506 created a topic in 401(k) Plans

Can a 'Community Land Trust' Sponsor a 401(k) Plan?

"We have a new client who has come to us to establish a 401(k) plan. The entity is a Community Land Trust. I have not encountered this type of entity before. Can they establish a plan?"

1 reply   |    15 views   |    Add Reply

jkdoll2 created a topic in 401(k) Plans

External Employees ('Contractors') Being Paid W-2 Wages

"I have a staffing firm that has internal employees (i.e., who work in the office) and around 200 external employees who work on jobs about 9 months out of the year and work over 1,000 hours. They all get W-2 wages and health insurance.

The staffing firm wants to start a 401k plan but wants to exclude the external employees (who are called 'contractors') and only have the internal employees be part of the plan.

I'm thinking they cannot do that because the 'contractors' are getting W-2 wages and work over 1,000 hours. The staffing firm says other staffing firms are able to have a 401k plan that does not include external employees even though they're paid W-2 wages. Am I missing something? Wouldn't they have to be included if they worked 12 months, 1000 hours (some leave and come back within 12 months)?

They would not pass coverage testing if they exclude the so-called 'contractors.' There are about 20 eligible and there are only 6 internal employees. I keep reading that contractors can be excluded, but aren't most contractors paid using Form 1099 rather than Form W-2?"

2 replies   |    27 views   |    Add Reply

panther created a topic in 409A Issues

Does 409A Allow a Deferred Compensation Benefit to Be Reduced?

"Employer wants to reduce the deferred compensation benefit paid at termination of employment from $2.5M to $2M. Is that permissible, if we keep the same time and form of payment and the parties agree? The 409A regulations (26 CFR 1.409A-1(c)(3)(vi)) envision that it's permissible to increase the benefit but I don't see any express approval of reducing the benefit."

4 replies   |    22 views   |    Add Reply

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