Message Boards Digest

June 16, 2021

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

Basil created a topic in Plan Terminations

Vesting at Partial Termination of Multiemployer Plan Due to Shutdown of Large Employer

"Multiemployer Partial Termination occurred in 2020. Plan is more than 100% funded (no With Liab or 'to the extent funded' issues). Single large employer who was the only one in the region of the country, shut down. Plan's permanent break is 5-years. Must plan vest back to 2015? Hyperbole -- participant earned 501 hours (1/2 credit) in 2015 and quit. Must plan protect and vest his accrued benefit for the 1/2 year of service?"

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Kristi Driscoll created a topic in 401(k) Plans

Effect of Multiple Plans on 401(k) Safe Harbor Exemption

"The client has an existing 401(k) Safe Harbor Match plan where Key Employees participate. This plan has immediate entry. A Cash Balance plan and a Profit Sharing plan are added, where Key Employees also participate. The Cash Balance and Profit Sharing plans have a one-year wait for eligibility.

[1] Since Key EEs participate in all three plans, I believe all three plans are part of the 416 required aggregation group. The 416 required aggregation group is Top Heavy. Does the 401(K) Safe Harbor plan lose the Safe Harbor Top Heavy exemption, and now need to provide 3% of Compensation to those that are in the 401(k) Safe Harbor plan but not yet in the CB or PS plans? I believe the answer is no.

[2] The CB and PS plans only benefit employees of specific job classifications (i.e., dentists, hygienists and technicians), and would satisfy the subjective reasonable classification test. If each plan individually passes the 70% coverage ratio, then I think I'm good and there's no need to do ABT. However, it's not looking like that's possible and I'm going to need to do ABT. If I need to do ABT, I believe I'm required to pull in the 401(k) deferrals and Safe Harbor Matching contributions. Is this correct?

[3] If the 401(k) Safe Harbor plan is pulled in for ABT, have I blown the Safe Harbor TH exemption and now need to provide a 3% of Compensation TH Minimum to everyone who is in the 401(k) Safe Harbor plan but not yet in the CB or PS plans? I think the answer is yes because now I'm using the deferrals and match for coverage.

Side note-- If I include the deferrals and SH match I easily pass ABT, then also easily pass 401(a)(4)."

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Susan S. created a topic in Distributions and Loans, Other than QDROs

Multiple Partial Withdrawals in Excess of RMD

"A 401(k) plan with a Relius document allows 'partial withdrawals in excess of the required minimum distribution.' A retired participant took her RMD in February, plus an additional partial withdrawal of $2k. Now she wants another partial withdrawal. Can the document language be interpreted as allowing multiple partial withdrawals in the same year that are not distributed at the same time as the RMD payment?"

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David Olive created a topic in 401(k) Plans

Controlled Group Issue for Tax-Exempt Organizations

"Organization A is a tax-exempt organization under Section 501(c)(3) and maintains a 401(k) Plan. CEO of Organization A is a highly compensated employee for Plan Year 2020, which causes the Plan to fail minimum coverage testing. CEO wishes to lower his compensation so that he is no longer a HCE for future years, and instead receive the same amount of compensation from Organization B, which also is a tax-exempt organization. The two tax-exempt organizations are not under common control under the rules of 1.414(c)-5(b), and thus do not appear to be related employers. (80% of directors of one organizations are not representatives of, or controlled by, the other organization.)

If CEO of Organization A wishes to lower his compensation from Organization A, and receive that same amount from Organization B to make up for that (in an attempt to keep his compensation the same, but avoid violation of minimum coverage rules for Plan maintained by Organization A), does this violate the anti-abuse rule of Section 1.414(c)-5(f)?

That rule states as follows: 'Anti-abuse rule.-- In any case in which the Commissioner determines that the structure of one or more exempt organizations (which may include an exempt organization and an entity that is not exempt from income tax) or the positions taken by those organizations has the effect of avoiding or evading any requirements imposed under section 401(a), 403(b), or 457(b), or any applicable section (as defined in section 414(t)), or any other provision for which section 414(c) applies, the Commissioner may treat an entity as under common control with the exempt organization.'

I'm not finding any guidance on the subject. Does not appear I can get around the Anti-Abuse rule, but thought I would see if anyone had seen anything like this before."

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TPApril created a topic in 401(k) Plans

An Individual Owns Two Entities -- Can Have SEP for LLC, PS for Corporation?

"One owner has two entities, currently no employees. Can he have different plans for each one and contribute the maximum to each? One currently has a SEP the other is starting up a new 401k PS plan."

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Chaz created a topic in 409A Issues

Trevor Bauer's Contract with the Dodgers: Does It Run Afoul of Section 409A?

"In my daily perusing of employee benefits and executive compensation news, I came across an article discussing Trevor Bauer's contract with the Dodgers. The article stated: 'Bauer received a $10MM signing bonus, $5MM of which was paid in March. The other $5MM will be paid next month. Beyond that, his 2021 salary is $28MM, but with the quirk that it's all payable on November 1st of this year. Here's what happens if he opts out after the 2021 season, according to Cot's: Bauer may opt out of the contract after the 2021 season, receiving a $2M buyout, with Dodgers deferring $20M of 2021 salary without interest, paid in $2M installments each Dec. 1, 2031-40.' But doesn't Section 409A prohibit such an arrangement?"

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Tax Cowboy created a topic in Employee Stock Ownership Plans (ESOPs)

Filing a 5307 or 5300 for a New Plan That Uses a Pre-Approved ESOP Document?

"I'm a new user to ftwilliam software. I've drafted and worked with a number of S ESOP documents over the years. ftwilliam seems to be one of the few firms in 2021 having an IRS pre-approval letter, for their ESOP document, dated June 2020 (although ftwilliam didn't release the letter to users until March 2021). Even with the pre- approval letter, are you (as ESOP practitioners) still filing an application for determination of initial qualification? Form 5300? Form 5307?"

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PensionPro created a topic in Retirement Plans in General

For 5330 - Filer Tax Year for Off-Calendar Tax Year

"Here is the situation. We are filing Form 5330 for a prohibited transaction between a plan and the employer. The plan is on a 12/31 calendar year, and the employer is on a 6/30 fiscal year. Do we have the option to file the Form 5330 with either a 12/31 or 6/30 fiscal year end? The instructions seem to indicate that is the case. Thank you. Specific Instructions for Form 5330 Filer Tax year. Enter the tax year of the employer, entity, or individual on whom the tax is imposed by using the plan year beginning and ending dates entered in Part I of Form 5500 or by using the tax year of the business return filed."
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