Message Boards Digest

April 27, 2021

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

#toomanyrules created a topic in 457 Plans

457(f) Plan + Constructive Receipt

"Background: A non-profit operates a 457(f) plan for a select group of management. Only Non-Elective contributions are permitted. The plan uses a 5-year graded vested schedule and participants are fully vested at NRA (age 65). The Plan's substantial risk of forfeiture risk (SRF) such that participants who terminate for cause will forfeit 100% of their account balance, even if already fully vested. Plan allows payment upon the later of separation of service or attainment of NRA.

Some questions to clarify my understanding:

[1] As I read the regs, a participant is taxed when the SRF lapses. In this case, then, a participant who may be 100% vested in his account is not taxed on that amount until he terminates employment in good standing (since the SRF doesn't lapse until he terminates).

[2] If a participant terminates in good standing at age 65, the participant is taxed on their vested balance, since the SRF lapses. Based on the timing of the payment of benefits (later of separation of service or attainment of NRA), then, there really is no constructive receipt doctrine, in this example.

[3] If a participant terminates in good standing at age 55, the participant is taxed on their vested balance, since the SRF lapses. But, the participant cannot commence payment until attainment of NRA (age 65). In this case, the participant is taxed, without actually having taken a distribution (constructive receipt doctrine).

Am I missing anything?"

2 replies   |    36 views   |    Add Reply

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SaraJames created a topic in Form 5500

Failure to File Form 5500 -- Sale of Assets

"We have a client who is purchasing the assets of a seller. In the purchase agreement, the buyer (client) has specifically excluded the welfare plans so that the client will not be purchasing the welfare plans; however, there is a transition period under which employees will remain part of the seller's welfare plans before being transferred over to the buyer's plans.

We've learned that the seller has failed to file a Form 5500 for its health plan for the past couple of years. Will our client (buyer) be at risk for DOL/IRS penalties if these delinquent Form 5500 are not corrected? I am having trouble finding sources to support whether successor liability will apply in this case."

1 reply   |    29 views   |    Add Reply

justatester created a topic in 401(k) Plans

Short Plan Year and Proration of 415 Limit

"We have a brand new start-up plan. The effective date of the plan is 9/30/2020. Calendar year plan. Document indicates a short plan year. Compensation is defined as plan year. So, I believe I need to prorate the compensation. The question is, do I use 3 months or 4 months? Or should I be using days?

For the 415 limit for contributions, there is language in the document that states: "The Limitation Year for Code 415 purposes will be the 12 month period ending on the last day of the Plan Year instead of the 'determination period' for compensation." Based on that language, do I need to prorate the 415 for contributions?"

0 replies   |    14 views   |    Add Reply

Chris123 created a topic in 401(k) Plans

If SH Is Removed Mid-Year Due to Acquisition, Do SH Provisions Apply for That Year and One Need Not Worry About ADP Testing?

"I never knew this but then the year before last in a conference call a client was stopping SH mid-year because they were acquired by another company. As a result, I was advised that the SH provisions continue to apply, even if the SH is removed mid-year, if it results from an acquisition. Again, I was never aware of this so I would appreciate it if someone could confirm whether it is in fact true if SH is removed mid-year because a company is acquired by another company, then the SH provisions DO apply for that year and you don't need to worry about ADP testing."

0 replies   |    14 views   |    Add Reply

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

Hardship and the DIY Guy

"I've got a hardship request for a casualty issue where the participant says that he and his buddies have the skills required to do the work themselves, but they need the hardship to cover the costs of the materials, and, hey, why shouldn't he be able to compensate his buddies for their time, too? OK, the materials I can see, but the rest of this is sounding alarm bells....

Assuming that the Plan Administrator wants to approve this as a true casualty situation hardship, is a fair recommendation to suggest that the participant get an estimate from a licensed contractor and use that for the hardship distribution amount? Technically, once the amount is paid to the participant, it's not on the Plan Administrator to ensure that the money is used for that purpose, anyway, but if the participant wants to do the job with his friends and pay them instead, as long as the amount isn't unreasonable (which is what the bona fide estimate is going to be used to substantiate), isn't the plan on solid ground?"

1 reply   |    24 views   |    Add Reply

Trisports created a topic in Form 5500

Plan Sponsor Also Acts as Plan's Asset Custodian -- Is the Plan Required to Be Audited?

"Our client (ABC bank) is sponsoring a pension plan with 85 participants. ABC bank also holds the investments and some of the assets are invested in the ABC money market fund. The auditor stated that because the ABC bank holds the investments (they are the trustee and custodian), the plan is required to be audited. More than 95% of the assets are qualified assets and there are less than 100 participants so we think the audit waiver requirements are met. The fact that the plan sponsor is also the custodian might be a potential fiduciary issue (prudent rule) but that should not preclude the plan sponsor from waiving the audit requirement. Do you agree or is the client required to have an audit?"

2 replies   |    36 views   |    Add Reply

Moosen14 created a topic in Cross-Tested Plans

Deemed CODA Concern -- Profit Sharing Contribution Taken Into Account for Partnership Distribution

"I've been lurking for awhile, getting great information, but decided to finally hop-on and pose a question. Apologies, if I missed any formalities or unwritten rules, let me know and I will make sure to address in the future!

I know the cross-tested profit sharing allocation being treated as a deemed CODA in a partnership setting has been addressed in a number of different posts, however, I had a question that I did not see addressed directly, and I wondered if anyone would like to opine on the below.

Assume a plan has a profit-sharing feature that is allocated to individual allocation groups and tested on a cross-tested basis. The sponsor is a professional group treated as a partnership for federal tax purposes, with more than ten partners. The question stated as summarily as possible is whether a deemed CODA is created (or could be arguable be determined to be created by the IRS) if the partners year end partnership distribution (or bonus) is reduced by amounts they received as a profit sharing contribution. Stated differently, the plan sponsor/employer takes into account the profit sharing contribution in determining the partner/participants year end partnership distribution/bonus. Assume that the plan sponsor fully complies with plan formalities in regards to declaring the profit sharing contribution amounts and directions to the Trustee as to the allocation of the contribution to each individual allocation group/account, and there is no paper trail showing individual elections/requests of the partners relating to the amount the would desire to have contributed to their account.

I have looked for agency determinations and formal/informal guidance on the matter and have not been able to find anything other than the 'we will know abuse when we see it' response. Was wondering if anyone had either (A) firsthand experience with a similar matter or (B) could point to any guidance informative on the matter."

3 replies   |    28 views   |    Add Reply

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