Message Boards Digest

February 4, 2021

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

BG5150 created a topic in 401(k) Plans

Missed Match for HCE But Would Have Caused a 415 Issue Anyway

"For some reason, payroll company stopped the matching contribution for everyone mid-2019. We only do the PS and just enter the match for (a)(4) testing. Owner HCE was maxed out to $62,000. They are going to make up the match for everyone else. Should they bother with the owner? Otherwise, he will have a 415 excess and get some of his deferrals refunded. (He's the only one with a 415 issue in either 2019 or '20.)"

2 replies   |    34 views   |    Add Reply

BG5150 created a topic in Cross-Tested Plans

Top Heavy-Only Plan Doesn't Need Gateway?

"I have a participant who was eligible for the 401(k) piece of the 401(k) plan in 2020. She had deferrals, got a match and a Top Heavy contribution equal to 3% of comp minus the match. Comes out to about 2% of TH. She is not eligible for the Profit Sharing component until 2021. It's a cross-tested plan. Gateway is 5% as an owner is getting a 22% contribution. My software is saying the plan passes gateway even though the participant above is at 2% ER contribution. Brain cramp right now. Is that right? TH only doesn't need a gateway? She shows up on the rate group test."

3 replies   |    42 views   |    Add Reply

susieQ created a topic in 401(k) Plans

Adding EACA -- Eligible for Tax Credit?

"I have a client with an existing 401(k) plan that wants to add EACA for 2021 to take advantage of the pension plan startup tax credit. My understanding is that they can add EACA for 2021, effective March 3, 2021, even though it won't be for a full year and that EACA will only apply to newly eligible employees. My question is, does 2021 count for the available tax credit because it is NOT a full year?"

4 replies   |    36 views   |    Add Reply

Vlad401k created a topic in Distributions and Loans, Other than QDROs

Participant Exceeded 402(g) Limit - Two Form 1099-Rs Needed?

"I have a question regarding processing a distribution for a participant who exceeded the 402(g) limit. Let's say he's $1,000 over the limit and he only has Roth contributions. The distribution has a gain of $200 and it is processed after the end of the year. My understanding is that you need 2 Form 1099-Rs - one with code BP (for $1,000) and one with code B8 (for $200, which is the earnings amount). [1] Is that correct? [2] If it is, what would you report as the Roth's basis on each of the 1099-R forms?"

1 reply   |    23 views   |    Add Reply

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

Cash Balance Formula for an Ex-Employee

"2 business partners started a cash balance plan for themselves a few years ago (no employees). Partner 2 was given a $35,000 contribution credit each year, well below his 415 limit. One year, Partner 2 decides to deposit $50,000 instead of $35,000, figuring (a) it's deductible within the cushion amount, and (b) we could always amend the formulas later when the plan terminates so that his benefit is exactly what's in the portfolio. And then, sure enough, corporate divorce between the partners at the end of 2019.

Partner 2 has contributed a total of $120,000 for himself, but his actual cash balance benefit is only about $114,000, which is what he got paid a few weeks ago. So at first glance, too bad for him, especially if Partner 1 (now basically a sole proprietor, I suppose) has no intention of paying us to amend formulas for the other guy.

But now, amid the 'divorce proceedings,' it sounds as though Partner 1 wishes he could have just paid the guy more from the plan. My question is, what's the typical methodology to increase a CB formula for someone who's an EX-employee? Assuming Partner 2 has no service for 2020, what would be the typical way to write up an increase for him?

He won't hit any kind of 'hours of service' requirement to accrue more. I'm using ASC's checklist-formatted CB plan document, if that matters.

Can I at this point increase his benefit either for 2020 (where there may be no service) or any of the prior years (where at least there was), such as to bring his benefits due up to an 'appropriate' amount based on the $120,000 he put in? (Not fully up to speed on what sort of retroactive benefit increases we can orchestrate in a CB plan.)"

1 reply   |    39 views   |    Add Reply

TPApril created a topic in Cross-Tested Plans

Individual Rate Group Flexibility for Part-Timer

"Cross-tested plan with individual rate groups requires 1000 hours and last day for contribution. With the individual rate group classification, is it fine to allocate employer contribution (above and beyond top heavy and gateway minimums) to someone who did not make 1000 hours but is still employed on the last day of the year? We have a generous business owner who doesn't want to leave a part-timer out of the PS contribution."

1 reply   |    31 views   |    Add Reply

Santo Gold created a topic in Retirement Plans in General

Does Sole Proprietor Need an EIN to Create a 401(k) Plan?

"I am talking with an attorney who has a practice with no employees, just him. He has a 'dba' business name and he puts all revenue through the dba which he reports as a sole proprietorship on his tax return. He has no EIN and seems reluctant to create one. He wants to start a 401k for himself. Can he do that without an EIN?"

3 replies   |    35 views   |    Add Reply

Stb84 created a topic in Health Plans (Including ACA, COBRA, HIPAA)

In-Network Provider Sued Patient for Balance of Bill -- Patient in Self-Funded ERISA Health Plan

"In-network health care provider successfully sued patient for balance of bill in state court despite a denial of benefits with non-liability and both appeals being adminstratively denied for improper billing with non-liability of the enrollee. Lawsuit was for breach of oral contract but the written ERISA contract had a hold-harmless, and included language to prevent any form of out-of-network contract unless the provider informed the patient with a written statement that services would not be covered under the plan. The provider did not. The judge ruled as if the patient had insurance and would not correct the order to state the plan was self-funded and hence subject to ERISA. Would this be a cause of action?"

0 replies   |    22 views   |    Add Reply

Dobber created a topic in 401(k) Plans

RMD Under SECURE Act -- Rollover of Distributions Paid After 70-1/2 But Before Age 72?

"The new age 72 RMD required beginning date is not required to adopted by a 401(k) plan, correct? So, could a participant who would then be required to take their 401(k) RMD at 70-1/2 (the rule under the plan) roll the funds (tax-free) into a traditional IRA, where they'd have roughly 18 months before before needing to take an RMD?"

3 replies   |    52 views   |    Add Reply

compliancecrazy created a topic in 401(k) Plans

HCE Aggregation for Participant in a U.S. 401(k) Plan and a Puerto Rico Plan

"If a plan sponsors both a US 401(k) and a Puerto Rico plan (not dual-qualified), do HCEs who participated in both plans need their compensation and contributions aggregated and tested in both plans for nondiscrimination testing?"

0 replies   |    17 views   |    Add Reply

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