Message Boards Digest

April 9, 2021

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

bhodge113 created a topic in 401(k) Plans

Missed Deferral and Catchup Opportunity

"I have a 401k plan with a 3% safe harbor that has two participants that missed having deferrals for the entire 2020 year. Their payroll department 'turned them off' in the year prior because they hit the 402g limit and neglected to restart the deferrals in 2020. The issue is that one of the participants would have had catch up deferrals while the other didn't. Therefore, using the average deferral percentage to calculate the QNEC seems not appropriate for both. I did find a newsletter online that indicated that a missed catch up should be 'fixed' with a 50% QNEC. Does anyone have any documentation that addresses this specifically? It is not addressed in the EPCRS Fit it Guide."

2 replies   |    30 views   |    Add Reply

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Stash026 created a topic in Defined Benefit Plans, Including Cash Balance

Cash Balance + Profit Sharing 6% Deductibility

"Can someone please point me to the regulation that limits to the 6% deductibility on the Cash Balance? I have someone questioning me, so I want to show them the actual regulation."

7 replies   |    74 views   |    Add Reply

t.haley created a topic in Distributions and Loans, Other than QDROs

In-Service Distribution of Rollover Account Only

"401k plan currently allows for in-service distribution of rollover accounts only (i.e., plan states that distribution of 'Rollover Account' can be made at any time but no in-service distributions are allowed other than hardship distributions). Plan sponsor did not intend to allow in-service distributions of any amounts, including rollovers, and wants to eliminate this going forward. Any anti-cutback issue?"

4 replies   |    40 views   |    Add Reply

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

Non-Quantitative Treatment Limitation Comparative Analyses -- What Are You Doing to Ensure Compliance?

"The DOL published FAQs last week. For self funded medical and pharmacy plans, how are you going about preparing the comparative analysis and ensuring compliance? I understand that (at least the PBMs) are not planning on providing this analysis to plan sponsors. Are you looking to law firms, your H&W consultant or elsewhere to make sure the analysis is complete?"

0 replies   |    16 views   |    Add Reply

cheersmate created a topic in Cross-Tested Plans

New Plan Design Too Aggressive?

"New Plan Effective 1/1/2020 to be adopted by due date of business return, as per SECURE Act. For 2020 it will be a cross tested Profit Sharing with individual allocation rates; 2021 will include 401k with Safe Harbor in addition to the Profit Sharing. NRA is 65+5 Participation, The Plan will exclude service prior to its Effective Date for Vesting credit purposes (actual hours credited basis).

Owner wants to waive the eligibility waiting period as of the Plan's effective date (1/1/2020) for any employees actively employed on that date to enable his son to be a Participant (otherwise eligible 1/1/2021). This will make for three (3) HCEs for 2020. In doing so, there are four (4) NHCEs who will also be eligible as a result of this provision (note 1 of the 4 would otherwise be eligible as of 7/1/2020). Concerns are as follows:

1. The owner is 79 years old and will of course be subject to Required Minimum Distributions. Though the entire contribution is receivable for 2020, would the owner be required to receive a 2021 Minimum Distribution based on his "12/31/2020 valance" including the receivables (up to his vested account balance, note NRA is 65+5P to avoid 100% vesting)?

2. The owner is able to maximize his Profit Sharing allocation (allocation rate is 100% of eligible pay) with a 5% Gateway to all NHCE staff. This same 5% Gateway to all NHCE staff affords the son a PS allocation rate of about 18% and the third HCE (unrelated) a PS allocation rate of 3%. Total PS contribution is well within the deduction limitation, all rate groups and Average Benefits Test pass. Concern here is two (2) of the four (4) NHCEs that come in under the "eligibility waiver" are terminated during the 2020 Plan Year - since the Plan excludes service prior to the Plan Effective Date all Participants are zero vested. Is this a concern, or not since all receiving same 5% allocation rate? One of the two who terminated is counted in the owner's and his son's Rate Group testing -does this impact the answer? Both, of course, are in the ABT. Finally, I will add, even if past service is counted (actual hours 2019 and 2018), the referenced two who terminated would still be zero vested due to short service/insufficient hours."

5 replies   |    69 views   |    Add Reply

Purplemandinga created a topic in Retirement Plans in General

Foreign Company Sponsors 401(k)

"Let's say a company in Abu Dhabi sponsors a 401(k) plan for all of its employees who work in Abu Dhabi who are US citizens. There is no connection to a US company -- purely a foreign entity. If this plan ran coverage, would it be required to include all of its US citizens in coverage, or could it include only employees who are actively participating? I'm not even sure this is a legitimate question, honestly."

3 replies   |    37 views   |    Add Reply

John Feldt ERPA CPC QPA created a topic in Defined Benefit Plans, Including Cash Balance

Very High Paid HCE, Terminates, Under 3 Years -- What 'Average Compensation' Here for 401(a)(17) Limit?

"Company has a traditional DB plan (X% x Years of Participation x 3-year Average Annual Comp) and hires 'Guy' 9-1-2017. Wages paid for 4 months in 2017 are $195,000. Paid $500,000 in 2018. After 8 months in 2019, Guy terminates. 2019 wages were $300,000. Vesting is 2-20, so Guy is 20% vested.

Comp before entry is not excluded and comp in the year of termination is not excluded. Document says if Guy has less than the 3 years of compensation, the average annual compensation will be the average of 'whole and partial years (whole months) of compensation.'

I think that means we sum the compensation and divide by Guy's 24 months. That produces a higher average for short service employees, but after limiting each year by 401(a)(17) comp limit, the result here is essentially ($195,000 + $275,000 + $280,000) / 24 = $31,250. Well, $31,250 is an annual compensation of $375,000, which exceeds the 2019 comp limit.

What is Guy's Average Compensation? The plan has has no prior employee with this fact pattern. Two possibilities:

[1] We limit Guy to the comp limit in the year of termination ($280,000 annual or $23,333.33 monthly average)

[2] We prorate the comp limit for each year for periods of employment (4/12 x $270,000 + $275,000 + 8/12 x $280,000) / 24 = $22,986.11

I read Treasury Regulation section 1.401(a)(17)-1(b)(3)(iii)(A) and (B), 'if compensation for a period less than 12 months is used for a plan year, then the otherwise applicable annual compensation limit is reduced in the same proportion as the reduction in the 12-month period' and 'a plan is not treated as using compensation for less than 12 months for a plan year merely because the plan formula provides that the allocation or accrual for each employee is based on compensation for the portion of the plan year during which the employee is a participant in the plan.'

Based on that, I think #2 above is incorrect because a 'plan year' is defined in the document, not by the participant's service.

Would #1 be your choice? If so, someone with over 36 months at the comp limit each year who terminates in 2019 would have a lower average compensation, since the 2017 and 2018 limits drag down the average: $270,000 + $275,000 + $280,000) / 36 = $22,916.66 or $275,000 annual. The plan document lacks the detail I'd like to see to clarify this. Any comments are welcome."

0 replies   |    20 views   |    Add Reply

AlbanyConsultant created a topic in 401(k) Plans

8955-SSA and 'Gap Year' for RMD

"Participants who were terminated but receiving RMDs didn't need to be reported on the 8955-SSA because they were receiving at least some portion of their benefits. With 2020 and the RMD waiver, many RMD-eligible participants did not take their RMD. So when we're working on the reporting this year, they need to be reported on the 8955-SSA for 2020 because the 'payment of the deferred vested retirement benefit cease[d] before ALL of the participant's vested benefit is paid to the participant...." (from the 8955-SSA instructions).

I'm wondering if there was something covering this specific situation out there. Otherwise, there are going to be a bunch of additional people reported.... and we know how well the SSA maintains this list, even when the Code D is properly reported at the time of payout. *cough* not overly well *cough* I certainly don't want to make the decision for my clients and not report people and run the risk of incurring the $10/person/day penalty, and it's not like it's a particularly large amount of work for the typical-size clients we service, but I just figured I'd check the hive-mind since I didn't see anything addressing it myself.

Yes, I know that if the participant has taken their 2021 RMD by the time of the 8955-SSA filing, that would put them back in 'pay' status and make them not need the form.... but sometimes, getting that information is harder than just completing the form!"

5 replies   |    26 views   |    Add Reply

aginsber created a topic in 401(k) Plans

401(k) Institution Refusing to Cut Two Checks for Pre-Tax and Roth Rollover

"I finally chose to consolidate an old 401k from a previous employer from about 5 years ago. Making this more complex is that I had started contributing ROTH into this 401k in addition to pre-tax, another previous rollover, and employee match. I'm trying to move it into my current employer's plan, which I have confirmed multiple times will accept ROTH. I had called both banks at least 10 times each to ensure this process would go smoothly. I filled out the request for separation distribution form paperwork with someone on the phone who ASSURED me that I would receive two checks -- one with pre-tax and one with ROTH, because that is standard operating procedure and the rollover-into institution insisted on two checks. of course, I only got one check, for the full account balance. So I called and asked them to void the check and send two checks. They called me back yesterday to let me know that a supervisor had 'rejected my request.' The other institution will not accept the check and this institution is refusing to write two checks. Now I have a large check written out to an institution (F/B/O me) that cannot be accepted. Without getting an attorney involved, do I have any recourse? This is extremely stressful and again I would appreciate any insight or help. Thank you."

0 replies   |    22 views   |    Add Reply

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