Message Boards Digest

April 8, 2021

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

Kac1214 created a topic in 401(k) Plans

Form 8881 (Rev. December 2020)

"Has anyone looked at the Form 8881 to use for the Start Up Credit? What would you enter into line 6? Line 8 adds 5 and 6 and would seem to double the credit -- or what am I missing?

1 Qualified startup costs incurred during the tax year 4,500.00

2 1/2 of the startup costs 2,250.00

3 Enter the number of employees eligible to participate in the pension plan 15 $ 250.00 3,750.00

4 Enter greater of $500 or the amount from line 3 (not to exceed $5,000) 3,750.00

5 Enter the smaller of line 2 or line 4 2,250.00

6 Credit for small employer pension plan startup costs from partnerships and S corporations ???

7 Reserved for future use

8 Add lines 5 and 6, Partnerships and S corporations, report this amount on Schedule K. All other, $ 2,250.00 report this amount on Form 3800, Part III, line 1j PART II

9 Enter $500 if an auto-enrollment option is provided for retirement savings

10 Small employer auto-enrollment credit from partnerships and S corporations

11 Add lines 9 and 10. Partnerships and S corporations, report this amount on Schedule K. All others, report this amount on Form 3800, Part III, line 1j"

0 replies   |    16 views   |    Add Reply

ASC Webcast: All You Need To Know About the SECURE / CARES Acts

Sponsored by ASC
Do you have questions on the implementation of the new rules applicable to retirement plans in the SECURE and CARES Acts? ASC’s John Griffin, JD, LLM will discuss the latest guidance, issues and developments with regard to these acts. Learn More!

EBECatty created a topic in 409A Issues

Change Non-Account Balance to Account Balance

"Say an employer has a deferred comp agreement in place that provides a retired employee a fixed amount per year for a defined period. Call it $100,000 per years for the next five years. The employer wants to add an earnings component by basically converting the payments to a $500,000 'account balance" and allowing the retired employee to select investments. The amounts would be paid out in five installments over the next five years (same time and form as the original terms) but instead of being a fixed $100,000 per year, it would be 1/5 of the account balance in the first year, 1/4 in the second year, and so on.

Would this be simply a change of 'amount' (and not a change in time or form) such that they could amend during the payment period without violating 409A? If not, could they add a new earnings component that says on the date of the last fixed payment, the employer will pay the employee an additional amount equal to the (positive) earnings accruing on the total remaining benefit amount as if it were invested in, say, the S&P 500 over that period (and that the employee would forfeit any negative earnings)?

It seems like adding only an earnings component would generally be acceptable, but I'm having a hard time squaring it with the existing nonaccount balance status."

1 reply   |    30 views   |    Add Reply

401 Chaos created a topic in Defined Benefit Plans, Including Cash Balance

15-Day Special Notice Period for 204(h) Notices in Connection with Business Transaction

"Would appreciate any experience or guidance around the special 15-day 204(h) notice period rather than the usual 45-day notice period when an amendment reducing benefits is adopted in connection with certain qualifying business transactions. The 'in connection with' language seems fairly broad and flexible but I can't find any guidance on how broadly that is to be interpreted or applied. For example, is it possible to freeze a plan using the special 15-day rule before a pending deal is signed up?

The deal is proceeding and expected to close soon and will expressly require that the seller freeze and terminate its cash balance plan but if the plan is not frozen using the 15-day rule (and thus in advance of closing) additional benefits will accrue for 2021."

1 reply   |    19 views   |    Add Reply

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

ESOP Balance Restoration Timing

"When should a previously forfeited ESOP balance be restored to an employee's account? Should the forfeited balance be restored upon return? After a year of service? Retroactively to the day of return after a year of service?

I've confirmed with the Admin that it's eligible for restoration. I left at 0% vested and my entire balance was forfeited. I returned a year and a half later, and have put in a full year of service since.

There is nothing specific that I can find in the document. It states, 'Forfeitures: Some participants will terminate employment before they are fully vested in all of their Accounts. The portion of those Accounts that is not vested is called a 'forfeiture.' Forfeited benefits will be used to pay Plan expenses or added to the Company's contributions and allocated to eligible participants' Accounts. If you are rehired by an Employer after your non-vested Account has been forfeited but before you have five consecutive one-year breaks in service, you are eligible to have the amount of the forfeiture restored to your Account. If you received a distribution of the vested portion of your Account, you must pay back to the Plan the amount of your distribution to have the forfeiture restored. Whether you repay the distribution or not, your prior vesting service will be counted for vesting your Account."

The timing of the restoration makes a rather huge difference in this case, since the appreciation of the balance through 2020 is significant. I returned in February 2020 but my shares were only restored in March 2021. My thinking is since I didn't receive a distribution at termination, I would have been fully 'repaid' upon rehire and immediately eligible for restoration.

If not specified in the document, is there a standard to follow? Is there somewhere else in the document I should check?'

1 reply   |    27 views   |    Add Reply

chibenefits created a topic in 409A Issues

Termination of Phantom Stock Arrangement Before Triggering Event

"If an employer terminates a phantom stock arrangement before any triggering payout events and no payments are made as a result of the termination, is the employer still subject to the 3-year prohibition on adopting a new plan of a similar type under 1.409A-3(j)(4)(ix)(C)(5)?"

1 reply   |    14 views   |    Add Reply

Madison71 created a topic in Retirement Plans in General

CARES Act Loan Refinance

"I received question about a loan that was suspended under the CARES Act by a qualified individual. The loan was reamortized in January 2021 and one year was tacked on to their original final repayment date. Let's say it was suspended upon initiation of the new loan with a 60 month term and once reamortized it was to be repaid over 72 months. Participant made three monthly payments since January 2021 and has 69 months left. He is looking to refinance the loan, which is permitted under the plan. The new replacement loan will be within the 50%/50,000 loan limit and HOLB. Question -- do you think they can refinance the loan (replacement loan with a new loan amount) over the 69 remaining months, or are they subject to no more than 60 months on a non-principal residence loan because it is technically a new loan?"

2 replies   |    29 views   |    Add Reply

Santo Gold created a topic in Communication and Disclosure to Participants

Would This Satisfy the ERISA Section 404(a)(5) Fee Disclosure Requirement?

"I have a small investment group (5 people) looking to start a new 401k plan. They will want individual brokerage accounts for each participants. In general, would they receive a 404(a)(5) notice from the brokerage account company? For example, Schwab or Fidelity? If not, would the prospectuses they receive, as well as the contract information that details what their account fees are, be enough to satisfy the content requirements of 404(a)(5)?"

1 reply   |    17 views   |    Add Reply

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