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January 28, 2021

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

austin3515 created a topic in Form 5500

Merger Effective Date vs. Transfer Date

"Merger date per legal documents is 3/31/2020, but assets did not transfer until the end of July. No extension was filed by 10/31/2020. Is it reasonable to say that short plan year ended July 31, 2020? That gives until 2/28/2021 to file the extension. Interestingly the plan merged into ADP Total Source and as such my presumption is ADP will only report activity on its own platform, not anything before the transfer date."

12 replies   |    67 views   |    Add Reply

st3rv created a topic in SEP, SARSEP and SIMPLE Plans

Thinking About Funding a SEP Arrangement for My Employees But Not for Me

"I am a small business owner (sole proprietorship/Schedule C) interested in opening a SEP plan for my 2 employees. I understand that I have to contribute a similar percentage of their salaries, but I would prefer not to make contributions for myself as the owner/employer. Would that prevent me from helping my two employees equally with their SEP?"

11 replies   |    82 views   |    Add Reply

austin3515 created a topic in Cross-Tested Plans

Running Component Plan Testing

"When running component plan testing, we're supposed to make sure the separate plans would pass coverage testing as though they were separate plans. The divvying up of participants would generally not satisfy the nondiscriminatory classification test.

1.401(a)(4)-9 (c)(4) indicates that the average benefits percentage test is deemed to pass for each component plan if the test is passed for the plan as a whole. However, this 'deemed passing' does not cover the nondiscriminatory classification test. As a result (so the story goes) the Average Benefits Test is not available to pass coverage for the component plans and therefore they need to pass the 70% ratio percentage.

I'm curious to see if others have found differing interpretations. In reading through the ERISA Outline book for example, you would have thought there would be a big disclaimer 'Average Benefits Not Available for Coverage!' -- but nothing....

So for example, Component Plan Testing is being run for nondiscrimination, so perhaps one could argue that the reasonable business classification test doesn't apply (perhaps the IRS came to the same conclusion when they didn't mention this in aforementioned 'deemed to pass' reg). I note that my 'normal coverage testing' of course is passing no problem. That's the kind of interpretation I am curious to know is out there.

Now as many of you have likely discovered, because of the patterns of including/execluding HCE's and NHCE's to pass things, getting the ratio percentage above 70% is not particularly challenging, but I do question whether it is even necessary."

3 replies   |    38 views   |    Add Reply

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

Distribution Hierarchy for Designated Roth Withdrawals?

"I know there is no distribution hierarchy for withdrawals from Designated Roth 401(k) plans, unlike for Roth IRAs (contributions, rollovers, then gains). But on a withdrawal from a Designated Roth 401(k), if the Roth is comprised of, say, $10,000 salary deferral, $10,000 gains and $10,000 IRR (Internal Roth Rollover), and then a client does a distribution of $3,000, would the distribution source be required to be $1,000 from the salary deferral, $1,000 from gains, and $1,000 from the IRR even though the IRR has not satisfied the 5-year rule? Or could the distribution source be $1,500 from salary deferral and $1,500 from gain?"

0 replies   |    19 views   |    Add Reply

BG5150 created a topic in 401(k) Plans

Mistaken About Having Made a Mistake -- Now Get a Refund of Already-Paid Excise Taxes?

"Hypothetical situation: 2019 plan fails the ADP test. They correct it with refunds in August 2020. The Form 5330 tax is $1,050 and was paid. Then, in January 2021, they realize that some HCE comp was lower than in reality. With the new numbers, the plan passes. What happens to that $1,050 excise tax? The plan didn't really need to be corrected. Can they ask for a refund of the excise tax?"

1 reply   |    35 views   |    Add Reply

thepensionmaven created a topic in Form 5500

Show Brokerage Firm as Payor on Form 1099-R?

"We're doing 1099-Rs for some clients who have brokerage accounts because their brokerage firms refuse to prepare the forms. (No surprise.) Should we be getting the name, address and TIN of the brokerage house -- because they prepared the check -- and note them as the the Payor on a Form 1099-R, or use the Trust ID number for the Plan and make the plan the Payor?"

3 replies   |    36 views   |    Add Reply

PLHart created a topic in 401(k) Plans

Is Top-Heavy Minimum Required for This Situation?

"We have a new 401k/PSP plan with an effective date of 1/1/2020, but a special effective date of 11/1/2020 for 401k deferrals and safe harbor (3% non-elective) contribs (it was adopted late in the year), so the 401k and SH provisions were just effective for the last two months of the year (from adoption date forward). Note -- the plan will be top-heavy.

If the only contribs for the year are the two months of deferrals and the SH 3%, will the plan be deemed to satisfy top-heavy minimum? Or will the employer need to top off all employees at 3% of comp for the entire year?

We don't know whether, as long as the 401k deferrals and SH 3% for 11/1-12/31 are the only plan contribs for the year, the plan will be deemed to satisfy top-heavy minimums, or whether they still need to do 3% top heavy min for entire year because overall the plan has a 1/1/2020 effective date. Our hope is that the entire year TH minimum would only be due only if the employer decided to add any additional profit sharing. Is that correct?"

1 reply   |    31 views   |    Add Reply

Jakyasar created a topic in Form 5500

Can I Use 5500-EZ for 2020 Even Though My Son Is an Employee?

"I own 100% of an S-Corp. My adult son is my employee and participant. The 2020 Form 5500-EZ instructions for who can file EZ: '[2] Covers only one or more partners (or partners and their spouses) in a business partnership (treating 2% shareholder of an S corporation, as defined in IRC 1372(b), as a partner)'

Section 1372(b): '(b) 2-percent shareholder defined. For purposes of this section, the term "2-percent shareholder" means any person who owns (or is considered as owning within the meaning of section 318) on any day during the taxable year of the S corporation more than 2 percent of the outstanding stock of such corporation or stock possessing more than 2 percent of the total combined voting power of all stock of such corporation.'

Can I file an EZ when my son owns my stock by attribution?"

2 replies   |    45 views   |    Add Reply

LoriLeigh created a topic in Retirement Plans in General

Are Payments Under a 100% Joint and Survivor Pension Affected by Using Wrong Date of Birth for Survivor?

"My father recently passed away and had a pension that pays my mom the same monthly payment that he had been receiving for the past 30 years. When we notified Fidelity (plan administrator for BP) they questioned my mother's date of birth because their system indicates 1948 -- but her actual DOB is 1938. They can look back at the original paperwork from 30 years ago and see that her DOB was correctly reflected as 1938 in writing, but still their system says 1948. They requested a copy of her birth certificate to change their system. Could this incorrect date affect the monthly pension my father received over the past 30 years and the amount my mother would receive going forward? I want as much information as possible before bringing this up with Fidelity."

7 replies   |    57 views   |    Add Reply

pensiongeek created a topic in Retirement Plans in General

Employer Missed Annual Additions Deadline for Profit Sharing

"I have a scenario where the employer declared the 2019 discretionary profit sharing contribution before the tax filing deadline for 2019, signed and filed the 5500 with the contribution on it, and provided the participant statements showing the contribution. Due to a change in bookkeepers, the check never got issued and is still outstanding today. I believe the plan is owed the contribution and it should still be paid, but deductible in 2020.

Are there thoughts on whether the missed contribution can/should be paid to the plan because the participants were notified and it was declared? The current CPA is going to amend to remove it from the 2019 tax return and believes is CANNOT be made to the plan now and that the 2019 5500 and participant statements should be amended as well."

1 reply   |    30 views   |    Add Reply

Gilmore created a topic in Retirement Plans in General

Coverage Question -- Entry Dates for Otherwise Excludible Employees

"I know that there are multiple (I think three) different options when it comes to entry dates for otherwise excludable employees (not satisfying statutory entry requirements).

My question is, can you choose a different entry date when testing coverage in different plan years, as long as you treat everyone the same in the individual plan year being tested?

For example, let's say you normally use statutory entry dates when determining the otherwise excludable group. Then one plan year an HCE is in the otherwise excludable group and is messing up testing, but if we used, say the plan's actual entry dates to determine the otherwise excludable group, can we make that change for the plan year as long as everyone is treated in the same manner?"

1 reply   |    29 views   |    Add Reply

ratherbereading created a topic in 401(k) Plans

Refund Needed for One HCE But Not the Other?

"Plan has 3 HCEs (2 are contributing) and 12 NCHEs. Doctor/owner has until his tax filing deadline to contribute. Last year I gave him $11,000 and $6,000 was categorized as catch up. Test passed. This year I gave him $8,850 and the test passes (the $11,000 wouldn't work due to a change in demographics). But my Relius is showing a refund to HCE #2 in the amount of $550 (no SBJPA/Allocable Income/Total Refund Amount). Then it shows the $550 as catch up to the doctor. Does that make sense?"

7 replies   |    46 views   |    Add Reply

Kat created a topic in 401(k) Plans

Estate Is the Beneficiary -- But Where's the Estate?

"I have a 401k plan where the participant died in 1998. He has a small balance in the plan. The employer who sponsors the plan has been purchased several times through-out the years and does not have any records going back that far. The participant has a small balance and we were attempting to do a small balance cash out when we found he was deceased. There is no beneficiary designation on file with the recordkeeper or the plan sponsor. We have done searches and have not been able to determine if the participant had any family. The plan document states to distribute to the estate of the participant. Our dilemma is that we do not have any information on an estate to distribute to and the check will go uncashed. The recordkeeper refuses to escheat the balance. Does anyone have any guidance they could offer?"

0 replies   |    23 views   |    Add Reply

ceizeley created a topic in Cafeteria Plans

Dependent Care FSA - 2019 Service Declared in Form 2441 of Tax Year 2019 --- Paid in CY 2020

"While reviewing my tax form before filing, I realized the amount that was used to pay the 2019 service will be taxable (Box 29 of Form 2441). I never had this experience before since I always used up the $5000 DCFSA annual limit.

Scenario: *All amounts are not true amount.

  • DCFSA Plan Year 2020 - covers Sep 2019 to Dec 2020 (incl. grace period)
  • Contribution for Calendar Year 2020 - $3,000 as shown on Box 10 of W-2 (The other $2,000 was contributed from Sep to Dec 2019 that paid CY 2019 service.)
  • Total Paid for Calendar Year 2020 Service - $2,000 based on the statement by the day care each year-end (My kid stopped going to day care last March 2020 because of COVID.)
  • Year 2020 - Form 2441 - Box 29 - The $1,000 is showing as taxable. This $1,000 contributed in 2020 was actually reimbursed for 2019 Service Paid.

Please note that in Year 2019 - Form 2441, I declared $9,000 as qualified expenses based on the statement by the day care for that year. Part of that $9,000 is the $1,000 that is showing as taxable in my Year 2020 Form 2441. I did not get any credits as it was already over the $5,000 DCFSA annual limit.

Question: Can I claim the $1,000 as 2019 service paid in 2020 even though I declared it as qualified expense (part of the $9,000) in Year 2019)? Thank you very much. I appreciate any insights."

1 reply   |    23 views   |    Add Reply

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