Message Boards Digest

August 5, 2021

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

Tom created a topic in 401(k) Plans

Amend Plan to Prospectively Exclude Employee Group Currently Covered by Plan?

"Can a plan be amended say effective 1/1/2022 to exclude employees who previously met eligible and were covered under the plan? Specifically the employer wants to exclude a defined class of employees, some of whom worked 1000 hours in a past year and became eligible in a prior year. Now the employer wants this group excluded even if they previously met plan entry. I'm thinking this is OK. Coverage testing of course would need to pass. I believe anyone who EVER worked 1000 hours even if many years ago would be in the testing group. That's unfortunate because they have many employees who worked 1000 hours in one year many years ago but I believe that will cause them to be in the coverate testing group."

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AlbanyConsultant created a topic in 401(k) Plans

Providing Participant Statements to Participants in Brokerage Accounts

"I've re-read ERISA 105, and we're debating whether it's necessary to send annual participant statements (from our recordkeeping system) to participants who are fully invested in self-directed brokerage accounts.

What they are not getting from those accounts are (a) vesting by money type and (b) information about their loan balance (where applicable). At the moment, that's all that they are functionally missing. While it might be nice to know how much of their balance might be in the deferral money source vs. the profit sharing, if it's all vested, it doesn't matter as much.

So we're thinking that if a plan is by design fully vested, then we can skip the statements; we'd still provide statements if the plan has sources subject to vesting, even if all participants are fully vested due to accruing enough years of vesting service.

As for loans... I don't see that as being a requirement anywhere, so we're on the fence about it. Any comments, ideas, etc.?

And I know that this could or will or may change once we get new rules on lifetime income wording, as I suspect that the brokerage accounts won't put that on their statements (I will be happy to be wrong about this, though) -- since many of them aren't even set up as 'retirement plan accounts,' why would they follow retirement plan rules? Thanks for your thoughts."

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Basically Green created a topic in Retirement Plans in General

Softball Pension Questions on 5500 Filing Requirements

"I have been tasked to understand/learn some pension basics. This site was recommended to me as the authority when it comes to all things pensions. Thank you for your help.

  • A one participant plan is one where there are no employees other than the owner (and spouses and partners). If there is an employee but they just don't meet the eligibility requirement of 1,000 hours to enter the plan, is it still a one participant plan? And if that's true, then a Form 5500-EZ is only required? And as long as that one employee stays under 1,000 hours the plan will continue to be a one participant plan?
  • If a one participant plan has an employee who has met the eligibility requirements, regardless of whether they have made a salary deferral, the plan must file a Form 5500-SF, correct? They would be a participant, just no plan balance.
  • If the employee defers compensation in 2021 (meaning they have a plan balance) and they terminate in 2022, as long as their plan balance is in the plan, do they need to file a Form 5500-SF?
  • Is it safe to say that any plan that is required to file a Form 5500-SF is entitled to Title 1 ERISA protection?"
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cwallace created a topic in Defined Benefit Plans, Including Cash Balance

Can Minor Receiving a Participant's Death Benefit Designate Her Own Beneficiary?

"We have a 16-year-old who is now receiving the remaining stream of pension benefits of her deceased father (the plan participant). There's a custodian in place to make the payments to. Just wondering about the minor beneficiary naming her own beneficiary in case something happens to her. It's my understanding that custodians generally do not have the authority to do that on behalf of a minor. Anyone dealt with this before?"

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Jeff Kirtner created a topic in 457 Plans

457(b) Plan's Normal Retirement Age Must Be Based on Terms of a Concurrent Money Purchase Pension Plan

"A government 457(b) plan defines NRA as age 55. I'm trying to figure out whether that age is allowed under the facts.

The employer does not sponsor a defined benefit plan, but does sponsor a Money Purchase Plan. Under the applicable 457(b) regulations, an NRA of 55 is only allowed if age 55 is an age at which MPP participants 'have the right to retire and receive, under . . . a money purchase pension plan in which the participant also participates . . . immediate retirement benefits without actuarial or similar reduction because of retirement before some later specified age.' See 1.457-4(c)(3)(v)(A).

The MPP never has actuarial reductions. The MPP has cliff vesting after 5 years of service. The MPP allows distributions of the non-forfeitable account balance at age 45 after termination of employment. The MPP allows in-service distributions of the non-forfeitable account at age 62. The MPP provides for full vesting at age 65, even without 5 years of service (thus age 65 is the earliest age at which every participant is guaranteed not to have a forfeiture).

Under those facts, what is the earliest NRA allowed under the regulation cited above? There's never an actuarial reduction in the MPP, but there can be forfeiture reductions before age 65. Is a forfeiture a 'similar reduction' to an actuarial reduction making 65 the earliest allowed NRA? Or is age 45 the earliest allowed NRA, because forfeiture is not a 'similar reduction' to an actuarial reduction, and the participant can get their full non-forfeitable balance at age 45?"

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52626 created a topic in 401(k) Plans

EPCRS -- Handling Small Excess Matching Contribution for Owner

"For 2020, the owner received $150 above the match formula. We're being told that because it's less than $250, EPCRS allows the excess to remain in the account. In other words, the the plan sponsor does not need to forfeiture the excess amount.

Does the $150 remain in the account and then get used to offset the 2021 match? Or does the owner get the benefit of the excess contribution for 2020?

I'm trying to wrap my head around the fact that the owner would be receiving an allocation higher than the NHCEs. If the excess were used to offset the 2021 contribution I could understand leaving the money in the account. Needing to remember to track the excess as an advance for 2021 could be a nightmare."

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kmhaab created a topic in Qualified Domestic Relations Orders (QDROs)

Problems with QDRO Identified After Plan Termination -- Benefits in Pay Status

"I'm hoping QDRO experts here might have some ideas on how to address this situation. A QDRO was accepted by the DB plan in 1998. In addition to dividing the interest under the plan between husband and ex-wife, the QDRO required the husband to select a form of benefit providing a survivor benefit equal to at least 25% of husband's benefit under the plan and name ex-wife as the sole beneficiary of the survivor benefits. QDRO also stated ex-wife was to be treated as the 'spouse' for all purposes under the plan. Plan accepted the QDRO as written.

Husband retired in mid-2000s, selected a joint and survivor annuity and named ex-wife as beneficiary. In 2019, pension plan is terminated and benefits transferred to an annuity provider. Participants were given the option of taking a lump sum upon plan termination. Husband was not allowed to take a lump sum due to the QDRO requiring he select a form of benefit with a survivor benefit. He was upset and wanted to 'take his ex-wife off the pension.' Plan sponsor tells him they can't do anything due to the court order (the QDRO) and that the husband would need to go back to court to change it. So, in December 2020, husband gets a court order modifying the QDRO in which both husband and ex-wife agree to remove ex-wife from the pension entirely (what?), designate a new beneficiary for any survivor benefits, and agree that the remaining balance of the pension should be released in full to the husband.

Plan sponsor explains the plan is terminated and these changes cannot be made, even if ordered by a court (except beneficiary maybe). Husband and the husband's current wife are extremely upset.

[1] Was the law was different in 1998? Could a QDRO put restrictions on a participant's future benefits earned after the date of the QDRO (i.e. requiring form of payment with survivor benefits following divorce)? If not, I don't believe the QDRO should have been qualified and accepted by the plan as it was written. [2] What liability does the plan sponsor have for accepting the DRO originally? What about for not allowing husband to select a lump sum when the plan was being terminated? [3] What do we do now that the plan has been terminated and benefits are in pay status with an annuity provider? Any ideas on what the plan sponsor can and/or should do in this situation?"

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

Is a 'Qualified Disability Benefit' Protected Under Section 411(d)(6)?

"What is a Qualified Disability Benefit under IRC Sec. 411(a)(9)? An example would be appreciated. Is such a benefit considered an 'ancillary benefit' that doesn't need to be 'protected' under IRC Sec. 411(d)(6) or not an ancillary benefit (e.g., a 'retirement-type' benefit) that's protected under that IRC section?"

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TPApril created a topic in Retirement Plans in General

One Owner, Multiple Companies - So It's a 'Single Employer' Plan?

"One owner has 4 separate businesses, all somewhat related, working at the same location, but separate employees. Single or multiple employer plan? I'm thinking single."

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coleboy created a topic in 401(k) Plans

Client Changes Mind After Making Contributions, Doesn't Want 401(k) After All

"A client's advisor convinced her to start a 401k plan. She made 2 contributions to it then decided that she didn't want it. I tried to tell her that it will now have to go through the termination process but she's demanding that her contributions be returned to her. Am I wrong? Won't she get taxed and penalized on her such a 'refund'? Or is there another way?"

4 replies so far   |    Click Here to Add a Reply

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