Message Boards Digest

December 15, 2020

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

kmhaab created a topic in 409A Issues

'Year of Failure' Under 409A -- Vesting Date or Payment Date?

"If deferred compensation was supposed to vest on December 31, 2019 and be paid out within the next 10 days (per plan document), and it wasn't paid, is the 'year of failure' 2019 or 2020?"

0 replies   |    17 views   |    Add Reply

Johanna created a topic in Cafeteria Plans

Failed DCAP 55% Test at Year-End -- Does Box 10 on Form W-2 Need to Be Modified?

"We tested our cafeteria plan late in the year and found that it has failed the DCAP 55% test. We have just one pay period left in the year, and we're working with our payroll vendor (ADP WFN) to create an imputed income code to include the amounts that caused the plan to fail in HCEs' gross income. Does Box 10 of the employee's W-2 need to be modified as well? We've been scrambling to find assistance with how to make the corrections, but we haven't found any guidance on how this would actually appear for employees on their W-2s."

1 reply   |    39 views   |    Add Reply

RockyMountain created a topic in 409A Issues

Stock Appreciation Rights Triggered Upon Asset Sale?

"My employer is undergoing an asset sale. A number of employees are fully vested in Stock Appreciation Rights. The buyer will pay out all debt and wants specific amount of left over proceeds to be paid as an earn-out based on company performance in the next year. How are Stock Appreciation Rights treated in a case like this? Are they paid in full, or do they become part of an earn-out? It's confusing because the company is doing an asset sale rather than a stock sale."

0 replies   |    24 views   |    Add Reply

Cardscrazy created a topic in Employee Stock Ownership Plans (ESOPs)

CARES Act -- Application to ESOP Distribution with Net Unrealized Appreciation

"In the case of a 2020 regular taxable ESOP distribution with NUA reported in box 6 of Form 1099-R, if you self-certify for COVID relief from taxation, Form 8915-E does not allow you to claim beneficial capital gains tax treatment on your COVID distribution. Capital gains on an ESOP distribution with NUA are normally reported on Form 4972, line 6, and the instructions for Form 8915-E (page 2, left column at the very bottom in the 'Note') specifically mentions no capital gains from Form 4972 are allowed.

Accordingly, from what I can tell, COVID-impacted recipients of 2020 ESOP distributions with NUA will have a choice to make with respect to claiming COVID relief on Form 8915-E: [1] file Form 8915-E and forego capital gain treatment, but pick up the waiver of the 10% early withdrawal excise tax (plus get 3-year ordinary income tax spread & ability to rollover); or [2] don't file Form 8915-E for COVID relief and keep capital gain treatment, but pay the 10% excise tax if applicable (and lose the 3-year tax spread & ability to rollover). In my opinion, if the CARES Act is going to allow taxes to be spread over three years, then spread the taxes normally due over three years. I doubt the CARES Act contemplated the IRS recharacterizing capital gains into ordinary income as a consequence of getting COVID relief. If any income tax preparers out there can think of a workaround like attaching a Form 8275 statement or similar, please let me know."

0 replies   |    13 views   |    Add Reply

Pam S. created a topic in Form 5500

Client Gets Letter from IRS About Filing 5500-EZ or 5500-SF

"One of our clients, who historically filed a 5500-EZ Form, filed their final 5500-EZ Form for their 10/31/2019 plan year. The form was marked as a final form. The client received a letter from the IRS dated 12/7/2020 with a heading: Filing Requirements Reminder: Review to determine if you must file Form 5500-EZ or 5500-SF. The letter references the Plan period ending 10/31/2020, for which the client will not be filing a form. There doesn't seem to be anything in the letter that requires a reply of any sort. It appears to just be a reminder to the client that if they are required to, they must file either an EZ by mail or an SF via EFAST2.

Has anyone else had clients receive such a letter, and is it safe to just file this in our records for future reference? Anyone know why the IRS is sending these? Are more to follow?"

0 replies   |    13 views   |    Add Reply

Becky Schwing created a topic in 401(k) Plans

21-Year-Old Child Causes a Controlled Group to Exist Here?

"Company 1 has a 401k plan -- although plan allows form employer match all they do is allow for 401k deferrals -- no match has been made to plan over the years.

Owner Company 1 Company 2
1 (Husband) 50% 100%
2 (Wife) 50% 0%

Husband recently acquired Company 2 -- only has 5 employees and he is only HCE. Wife has no part of company 2.

Husband and Wife have one child under age 21.

Am I correct that because they have a child under age 21, there is a controlled group situation here? And, if they did not have a child under 21, there would not be a controlled group?"

2 replies   |    37 views   |    Add Reply

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