Message Boards Digest

January 14, 2021

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

figure 8 created a topic in Defined Benefit Plans, Including Cash Balance

What Would You Do? Sketchy Accountant

"There's an advisor who's been bringing me plans, and he works closely with a CPA. From what I can tell, this CPA is a somewhat big name in the CPA world, if there is such a thing (or at least, google search makes it seem like he's somewhat known, though his internet presence comes off as very 'sales-y.'). I'll admit I'm not a tax expert, but a lot of the stuff the CPA does doesn't pass the smell test. I suspect that, best case scenario, this guy is setting things up that push the very edge of gray areas; worst case, he's breaking laws. Seeing a client have like 40 companies set up that they own, some of which are co-owned by the client and the CPA, just doesn't pass the smell test to me. But, I won't comment further on that right now, because my main concern at this moment is the DB plans we work on together.

Example of one case -- this owner and spouse own a professional firm with employees, but then they also have a side company with no employees. They made sure that their ownership in the side company was small enough that there would be no controlled group or affiliated service group issue (so no employees to consider). However, the side company (which is a corporation) never paid any W-2 income for 2019 (and from what I've been given, has never paid out any income). So, there was no plan compensation and therefore no retirement benefits for 2019. Despite this, they made a large DB contribution (over $250k), and I believe they maxed out PS too (though I don't remember if this was ever confirmed to me or not, since the CPA's office is handling admin for the PS plan). I've told them probably a dozen times that PS has to be limited to 6% of comp in this situation, but it appears that they didn't heed this on any of the other owner/spouse plans we work on together either. I also told them that they had to file a 2019 5500 for the PS plan, but they said they didn't since the PS plan was under $250k (which is incorrect, since you use combined plan assets). After repeated emails and contacting various people at this firm over the course of many months, the last thing I've heard was a question asking about what would happen if they re-file 2019 taxes as a partnership. I answered that question but have since heard no more updates. I just strongly suspect that they aren't going to make any changes, and I'm wondering how others would handle the situation if it comes to that. For what it's worth, I sent over 2019 reports showing that the maximum deductible contribution was $[0] But of course, they made their contributions during 2019 (year of plan setup) before I was given the actual data and facts and circumstances of what happened (which took a very long time to get, by the way; probably because they are setting things in these complicated tax-avoidance schemes and it's therefore hard for the advisor to track down the exact things I need)."

11 replies   |    136 views   |    Add Reply
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thepensionmaven created a topic in Form 5500

Due Date of Form 945 for 2020

"Participant received a distribution in December. Client has until the 15th day of the following month to pay the withholding. Accountant paid the withholding electronically on January 8, 2021. For which year would the Form 945 be due? I'm attempting to think ahead of a possible problem with IRS."

4 replies   |    41 views   |    Add Reply

Vlad401k created a topic in 401(k) Plans

Allocation Condition -- 1,000 Hours Unless 'Retires' During the Plan Year

"For Profit Sharing contributions, a plan has an allocation condition of 1,000 hours and employment on last day of the plan year, unless 'Participant retires during the plan year'. What does 'retires during the plan year' mean in this case? My interpretation is that the employee must reach Normal Retirement Age (NRA) before terminating service. Would you agree or is there a more subjective interpretation of retirement? I looked at the plan document and it does not specify what retirement means in this circumstance."

3 replies   |    35 views   |    Add Reply

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

In-Service Distribution Impermissibly Rolled Over Into IRA?

"The owner in a 1-life profit sharing plan took an in-service distribution and rolled it over directly into his IRA; no taxes were withheld. He's under age 59-1/2 and hasn't yet attained NRA. The ftwilliam document used by the plan allows such distributions. The Form 1099-R, however, shows that code 1 (early distribution) should not be used with code G (direct rollover), or vice versa. I recall that such distributions aren't allowed before age 59-1/2 from pension plans, but this is a profit sharing plan. Was this an impermissible rollover?"

3 replies   |    36 views   |    Add Reply

cheersmate created a topic in 401(k) Plans

Can the Reallocation of Transferred DB Surplus in DC Plan Be Over and Above the 25% Deduction Limitation?

"In a Defined Contribution Plan, can the transferred Defined Benefit surplus assets being released for 2020 Plan Year (received into it on account of prior DB termination), be allocated in addition to the employer's contribution equal to the 25% of eligible pay or must the 25% deduction limitation be reduced by the amount of DB surplus being allocated?

Example: DB Surplus Suspense Account must release at least $35,000 for 2020

Total Eligible Payroll $500,000 therefore 25% Deduction Limitation is $125,000. There are multiple participants. It is understood the maximum any one participant may receive in annual additions is $57,000 (+ catch-up if any).

Can the Employer contribute and deduct the full $125,000? This would mean a total of $160,000 ($35,000 DB surplus released plus $125,000 employer contribution) will be allocated for 2020. OR, must the employer's contribution and deduction be reduced to $90,000 (the $125,000 deduction limit reduced by the $35,000 DB surplus to be released and allocated this year)?"

5 replies   |    53 views   |    Add Reply

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

Excess Contributions and W-2 Corrections

"I have an employee that had an excess contribution in 2020. We will be assisting in getting the amount refunded by Fidelity using their Return of Excess Contribution form. It's my understanding that the employee will receive the amount directly from Fidelity and a 1099-R will be issued by Fidelity. My question is, are we required to correct the employee's 2020 W-2? This is a new role for me and I am a one person show. I appreciate any guidance."

1 reply   |    32 views   |    Add Reply

AlbanyConsultant created a topic in Retirement Plans in General

Participant Under Threshold to Get Allocation in 2020; Options?

"We still have a lot of plans that prefer to have allocation conditions hard-coded in the plan (probably so that the SPD shows them). For plans with an hours threshold, there are going to be a bunch of participants who normally cleared the bar that don't for 2020 because they were temporarily laid off, or were furloughed, or whatever for part of 2020 and didn't work enough hours to meet the plan threshold in 2020.

Do these plans/participants have any options (other than the plan sponsor giving them what they would have given them as a contribution outside the plan as a bonus)? Possibly a one-year-only amendment that says that for 2020 only, the hours of service required for a contribution is lowered to X hours?

This is just speculation at this point (for me, at least), but I can see that it might cause coverage issues (in which case, we can start bringing participants back based on highest hours first, but only until 410b is passing and then no further)."

1 reply   |    24 views   |    Add Reply

matthny created a topic in 401(k) Plans

Timing and Funding of 'Solo Conversion'

"Client is participating in a solo 401(k) and would like to terminate it. If they have already funded the account during 2021, are those EE/ER contributions valid, or does the account need to remain open for the entire fiscal year in order to qualify them?

Edit to explain title: they wanted to convert the plan to a broader 401(k) but haven't been able to find a good option for this, so they are exploring whether they can just close out the solo plan and restart in 2022 with a different plan provider. I'm sure there's options to help them solve that part of it, but as we do so, they have asked about the impact of closing in a year that they have funded it."

5 replies   |    26 views   |    Add Reply

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