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December 14, 2020

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

mariemonroe created a topic in 409A Issues

Phantom Stock Vests Upon Change in Control Unless Grantee Has Been Removed

"I have a client who wants to give phantom stock to a director. The phantom stock will vest and pay out upon a change in control. However, the client wants to be able to remove the director at any time before the liquidity event but the director (now former) will still get paid out upon the change in control provided he hasn't violated his non-compete/non-disparagement, etc. agreement. This feels problematic but I can't really pinpoint why except I don't know how the company can deduct any payment to this guy if he is no longer a director. What am I not seeing?"

3 replies   |    49 views   |    Add Reply

JOH created a topic in 403(b) Plans, Accounts or Annuities

Internal Roth Rollovers -- TPA Needs to Approve?

"A recordkeeper is asking for approval from a TPA in order to process an Internal Roth Rollover. TPA is saying that it's not warranted because they view it similarly as an asset-reallocation. I disagree. I believe the TPA needs to provide the approval because IRRs are governed by the plan, has reporting requirements, and tax implications, while an asset-reallocation does not. Any thoughts?"

1 reply   |    25 views   |    Add Reply

kmhaab created a topic in 409A Issues

'Become a Party to Sale Agreement' as Payment Trigger?

"I'm reviewing an existing document that so obviously does not comply with 409A that I feel like I have to be missing something. [1] 'Becoming a party to an agreement' providing for the sale of all or substantially all the company's assets is not a permissible payment trigger, right? Doesn't it have to be the actual transaction? The regs read that way. [2] Is it permissible to amend a retention bonus agreement to extend the retention/payment date by 2 years? Not unless the bonus is increased by at least 125%, correct?"

2 replies   |    27 views   |    Add Reply

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

Death Claim and Spousal Assumption/Rollover

"I have a sole spouse beneficiary of a qualified plan worth around $500,000. She wants to take $200,000 and move it to a Roth IRA (so do a spousal assumption of $200,000 into a IRA and then do a conversion once the funds are in a Traditional IRA in her name) and move the $300,000 and keep it as a beneficiary designation so she wants it moved to a Inherited Traditional IRA FBO her benefit. Can a sole spouse do a partial spousal assumption of the account?"

0 replies   |    24 views   |    Add Reply

KaJay created a topic in Retirement Plans in General

Designated Beneficiary Is 'Ministry' That No Longer Exists

"Susan dies and has left her 403b to a specific 'Ministry A' within a religious denomination. The named 'Ministry A' no longer exists. In the words of the religious denomination: 'Ministry A' is now 'Ministry B' -- a likeminded ministry who also serves the mission of 'ministry A'. To my knowledge there was not a formal merging of entities but rather maybe a reorganization in which Ministry A dissolved and Ministry B took over some of roles of Ministry A.

Susan never named a contingent beneficiary. In the absence of a living/existing primary beneficiary and there is not a contingent beneficiary, the Plan's default is to push to the estate. What does the plan need to know about Ministry B to determine if it can serve as the beneficiary of Susan's account?"

3 replies   |    55 views   |    Add Reply

Catch22PGM created a topic in Defined Benefit Plans, Including Cash Balance

Short Initial Plan Year Cash Balance/401(k) Combo

"Defined contribution guy here hoping for some clarity from a cash balance expert or two. A small business owner with 5 employees has decided to start a 401(k)/cash balance combo in 2020. The 401(k) is safe harbor and he got it in just under the deadline -- the plan effective date was 10/1/2020, however the limitation year and the compensation computation period are both set to calendar year so we can include full 2020 compensation and limits.

We have proposed to do the exact same with the cash balance plan -- 10/1/2020 plan effective date with the limitation year and compensation computation period set to calendar year. It is my understanding that the plan years must be identical for the plans to be aggregated for testing so we would have to use 10/1/2020 for the cash balance plan effective date. The actuary I am working with is telling me the benefits would have to be reduced by about 75% of what was originally projected for 2020 because of the short plan year. The cash balance plan document is from the same provider as my 401(k) document and the language regarding the limitation year and the compensation computation period are consistent in both.

I trust the opinion of my actuary but I am having a hard time accepting this. Does 401(a)(17) force a cash balance plan to prorate compensation in a short initial plan year even if the plan document permits us to use the full calendar year compensation? I don't see that it does (although I could be wrong) so is there something else that forces proration of compensation or contribution limits?"

3 replies   |    54 views   |    Add Reply

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

Looking for 1099-R Software Recommendations

"We are a small TPA firm that services pooled plans. Now that Relius is no longer sponsoring 1099 software, was wondering if anybody had any recommendations. For 2020, we have between 25-50 1099-R. We also need to print the 945's and 1096's."

3 replies   |    34 views   |    Add Reply

Jakyasar created a topic in Retirement Plans in General

RMD from Defined Benefit Plan -- Effect of Change in Plan Year During 2020

"This question involves a 2021 RMD. Plan year changed during 2020. 9/30/2020 AB: $2,000/monthly. 12/31/20 AB: $3,000/monthly. Short plan year from 10/1/20 to 12/31/20. What is the AB used for 2021 RMD?

Another scenario: 9/30/2020 AB: $2,000/monthly but 20% vested at $400/month. 12/31/20 AB: $3,000/monthly. Again, a short plan year from 10/1/20 to 12/31/20 but 40% at $1,200/month. What is the AB used for 2021 RMD?"

0 replies   |    20 views   |    Add Reply

Sunny Gupta created a topic in Cross-Tested Plans

Floor Offset Plan

"Floor Offset Plan. Top heavy minimum of 5% Profit Sharing (PS). Highest HCE Allocation rate comes to 25.12. Resulting PS testing Minimum Gateway will pass with total PS 7.50% (PS 4.50% plus SHNE 3%).

But if I reduce the PS to owner to total 4.50% (PS 1.50% plus SHNE 3%), then highest HCE Allocation rate comes down to 24.92% and Minimum Gateway passes at Total 5% (PS 2% plus SHNE 3%).

Am I required to offset in 5% or 4.5% for all participants in DB plan?"

0 replies   |    17 views   |    Add Reply

austin3515 created a topic in 403(b) Plans, Accounts or Annuities

For-Profit Subsidiary Wants to Participate in 403(b) of Parent (a 501(c)(3) Non-Profit)

"The sub is NOT a wholly owned LLC. It's a for-profit corporation. What are the rules concerning whether or not they can adopt a 403(b) Plan sponsored by the parent?"

4 replies   |    29 views   |    Add Reply

Robin Wilson created a topic in 401(k) Plans

Vesting Still Applies After Removing QACA?

"Plan currently has a QACA provision (3% nonelective -- 2-year cliff vesting). They have amended the plan to remove the QACA provision. Client made a 3% nonelective contribution. Does vesting still apply?"

0 replies   |    18 views   |    Add Reply

ntv created a topic in 401(k) Plans

Starting 401(k) But Notice of Termination of SIMPLE Plan Not Given

"I have a plan sponsor that wants to start a 401(k) effective on January 1, 2021. However, they have had a SIMPLE, and did not give proper termination notice to the employees. If they just stop contributing to the SIMPLE at the end of 2020, and start contributing to the 401(k) -- even though it's not allowed -- what are the repercussions? If the IRS doesn't require to be informed of the termination, how would they even know? The violation would the failure to file proper SIMPLE notices, but the 401(k) would still be valid, yes?"

0 replies   |    17 views   |    Add Reply

ABeach created a topic in 401(k) Plans

Safe Harbor Matching Contributions Used in ACP Test

"We have a plan with after-tax contributions. The only participants making after-tax contributions are HCEs. The employer makes a basic safe harbor match. Can a safe harbor match be used in the ACP testing in order to pass/help the ACP test that would otherwise fail and require refunds?"

3 replies   |    32 views   |    Add Reply

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