Message Boards Digest

December 17, 2020

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

Millie created a topic in 401(k) Plans

Lost My 401(k) Matching Contributions

"I just found out I lost my 401k company match since September because I have reached the IRS maximum on September 4.

The details are: I adjusted my 401k contribution in Q4 (24%) last year because I didn't put enough at the beginning. When I did a calculation beginning of this year, it seemed it would be fine to use the large contribution. Then the Company sent us WFH in March, and soon the company had to reduce all employee payroll 20% for a few months, but we'll get back by Q3. So I did see the net pay number on my paystub increased in September. I thought, well that's a good thing, company kept its word, and I need the money, so I didn't really dig into the details, or ask HR. Well, in September, I see my paycheck increased because there was no money into my 401K plan. I rolled to put 24%. Company match 6%. So I lost the 6% since September until now. And HR told me that they'll start to match from 2021. Of course I adjusted the 24 down to 15 for 2021. I realized this is my fault, because I put too much into my 401k from January. I didn't realize I'll be over the IRS limit at all, which never happened before, and the consequences. Moreover company issued bonus (10%) in April, which brought a few thousand dollars into my 401k plan too. I didn't consider that.

It's a lesson I learned. My question: is it the normal practice for corporate HR, when an employee reaches the IRS limit in the middle of year, to just stop the payment, and the employee loses their company match -- without any notice? Any possible way the employee can get the company match? I was thinking the whole situation last night, even I had found out right away when the paycheck changed in September, it was too late to basically unable do anything, right? My company only offers 401K pre-tax match. I do my own Roth IRA through Vanguard.

It's a very expensive lesson -- I not only lost the company match, I'm also pay higher tax. Thank you all for any suggestions."

2 replies   |    34 views   |    Add Reply

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Benefits 101 created a topic in 401(k) Plans

Enrolling In 401(k) Plan After 5 Years of Employment

"Company has a 3-year cliff vesting schedule. Employee has been working at the company for 5 years. Then, decides to enroll into the 401K, but leaves 9 months later. Is he fully vested? I think yes, because he has more than 3 full years of service. Agree?"

2 replies   |    30 views   |    Add Reply

kmhaab created a topic in Form 5500

Wrong Plan Name, Sponsor Name and Form?

"This is a wacky situation -- Subsidiary had a 401(k) and filed Form 5500-EZ correctly for many years through 2013. In 2014, Parent Company adopted a new ESOP with 401(k) features (KSOP) and merged Subsidiary 401(k) into KSOP.

For 2014-2019 they continued to file Form 5500-EZ using the name of the prior 401(k) plan (instead of KSOP), listed Subsidiary as plan sponsor (instead of Parent Company), but correctly used Parent Company EIN. Participant information and financial information on the filings was KSOP information. Clearly several issues here, including that the wrong form was used for the KSOP filings as ESOPs can't file a 5500-EZ and there was never a final filing for the 401(k).

So it's the correct EIN, plan number, participant information and financial information, but the wrong wrong form filed and the wrong plan name and sponsor name.

Specific to the KSOP, would this be considered a failure to file 5500s for the affected years, or would the filings described above be considered incorrect (but filed) 5500s? I would lean toward incorrect filings, but am unclear of the impact of filing a 5500-EZ instead of a 5500."

0 replies   |    14 views   |    Add Reply

ldr created a topic in 401(k) Plans

Timing of Plan Termination When Employer Ceases to Exist Mid-Year

"We have a client who sold his business and ceased making payroll as of 10/06/2020. He let us know that we needed to terminate his calendar year 401(k) plan and we made the termination date of the plan 10/06/2020, which means we had to prorate the 415 limit and thus the client will not get to put in the full amount for himself that he would have had if the plan had run up until 12/31/2020. He's not happy, and believes the limitations are our fault.

Did we make a mistake in terminating the plan to coincide with the business being sold and ceasing to make payroll? We've never done it any other way, but then again we've never had a complaint before. Could the plan have run through 12/31/2020?"

4 replies   |    50 views   |    Add Reply

Rose created a topic in 401(k) Plans

402(g) Excess with Off-Calendar Year Plan

"We have a plan with a plan year of 4/1/2019--3/31/2020. One HCE exceeded the 402(g) limit for 2019 and we processed a refund for him (he is not catch-up eligible yet). In a calendar year plan, the excess for the HCE would be included in the ADP test because it is the year of deferral. What happens with the off-calendar year plans? Do you just ignore the excess for ADP testing because the testing is for the plan year ending in 2020 and not the year of deferral (2019)?"

1 reply   |    28 views   |    Add Reply

Dougsbpc created a topic in Cross-Tested Plans

Accrued-To-Date Testing After Fresh Start

"Suppose you had a small DB and PSP (each covers 5 participants). Suppose both of these plans have been in place for 8 years and the plans are expected to be active for 2 more years.

The business owner is 60 and assume all employees are NHCEs age 30. For 8 years all participants in the DB have received a benefit of 3% of average compensation. All employees have gotten a 7.5% contribution in the PSP for 8 years and the business owner has gotten $0. There has been light turnover in the past 8 years.

Now the business has experienced a windfall and will this year and next year. Clearly the business owner has received less than employees for the past 8 years. Could the DB plan be amended to provide 15% of average pay for shareholders with the same 3% of average salary to remain for all non-shareholders? A fresh start would be used of course. Then, is it possible to use accrued-to-date testing under this scenario? The idea is that the business owner has not accrued that much on an average basis."

1 reply   |    27 views   |    Add Reply

Roger created a topic in 401(k) Plans

Suspension of 401(k) Loan Payments

"I have a 401k plan client with a participant who went on leave April of 2019. His 401k loan payments were suspended then. By rule, these payments can be suspended for up to a year (April 2020). Employee is still sick and still on leave. Client has NOT defaulted loan yet (yikes, should have been defaulted April 2020). All the employees of this company were affected by COVID from a financial standpoint. Some were furloughed, others had hours cut, etc. The employee in question eventually will come back.

Client and I are trying to see if it would be wise/legal to use the CARES Act loan payment suspension relief to give this participant another year (from April 2020 when original one year suspension was over) maybe until April 2021 to begin payments again vs defaulting loan. Any suggestions/thoughts? Tax on defaulted loan will obviously be a burden."

4 replies   |    39 views   |    Add Reply

Stash026 created a topic in 401(k) Plans

Cycle 3 Restatements -- What Amendments Are Needed?

"Does anyone have a summary of what changes are being made to documents for the upcoming required restatement? I've been searching but can't seem to find one."

2 replies   |    40 views   |    Add Reply

Ben B created a topic in 401(k) Plans

Contributed Too Much to My Traditional IRA

"[1] I contributed this year $6,000 to a traditional IRA, but it turns out I ended up earning too much for it to be deductible. Will there be any issues if I withdraw the money? And does it need to be done in 2020 or can it be done some time before I file? (It has about $600 in earnings which of course I won't withdraw.)

[2] I'm also thinking I could leave the money in there, but convert it to a Roth IRA. To avoid the pro rata rule, I will first roll over all my pre-tax funds to my 401k. Is there any downside if the rollover (and the Roth conversion on what's left) happens in 2021 vs 2020? My IRA provider (Betterment) is asking for snail mail documents to roll over the funds out to the 401k, so it won't happen until January, but if that would cause me issues I could do an indirect 60 day rollover, withdraw the funds and deposit them myself in the 401k by December 31. I'm not well-versed in the 60-day rollover rules so I'd rather not go that route unless it's necessary. It appears it's beneficial to fund the Roth IRA in 2020 as to start the 5-year clock. But because I'm not eligible for a Roth IRA due to my income, the only way to get funds into it would be to convert the $6,000 after tax IRA funds, which, if I understand it correctly, I can't do until I roll over the pre-tax balance (to avoid the pro rata issue). So, is an indirect rollover my best option?

[3] If I roll over funds from a Roth 401k into a Roth IRA, are they treated differently than funds contributed directly to a Roth IRA?

[4] How about rolling over voluntary after-tax 401k contributions to a Roth IRA? Are they treated differently than funds contributed directly to a Roth IRA? I appreciate your input."

0 replies   |    31 views   |    Add Reply

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