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Message Boards Digest

August 10, 2021

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

nkaufman created a topic in IRAs and Roth IRAs

How to Handle Excess Roth IRA Contribution?

"Made a Roth IRA contribution in April 2021 for Tax Year 2020. Got an extension to file taxes. Found that I have made $1K contribution more than allowed. I thought Fidelity could just reduce the amount for 2020 by $1K and put $1K as contribution for 2021 because this is Roth IRA and the contribution was made in 2021. But it seems that they cannot do it past filing deadline of May 31 this year. What's the best/easiest way to handle this? Age 56."

4 replies so far   |    Click Here to Add a Reply
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EBECatty created a topic in 401(k) Plans

Pay a Bonus to a Terminated Participant Equal to the Amount Forfeited under Their Retirement Plan?

"In a profit-sharing only plan, is anyone aware of a problem with paying a terminated participant an amount equal to any account forfeitures upon termination? For example, a company hires a 'turnaround' CEO with all parties planning on, say, a three-year employment period with immediate eligibility in a PS-only plan with a six-year graded vesting schedule. As an incentive, the company offers to pay the employee a bonus upon termination of an amount equal to the unvested portion of the employee's PS account that is forfeited upon termination. The payment would be taxable and paid entirely outside the plan. The forfeitures would stay in the plan and be used according to its terms. There are no deferrals (or elections not to defer) so the contingent benefit rule would not come into play. I don't think the BRF rules would apply as the payment would take place entirely outside the plan. All contributions, vesting schedules, etc. are applied according to the plan's nondiscriminatory terms. The bonus payment itself would become nonqualified deferred compensation subject to 409A, but one payment upon termination is straightforward. On a quick pass, the linked plan rules seem manageable. Am I missing anything that would make this problematic?"

2 replies so far   |    Click Here to Add a Reply

K-t-F created a topic in 401(k) Plans

Controlled Group Member's Plan Merges Into Plan of Another Member

"Companies A and B are in a controlled group. Both had their own plans, which were exactly the same design (hey, they wanted 2 separate plans). I was handling the 2 plans up to the point where ADP stepped in with a bigger better way to handle everything. My services were terminated. This all occurred in December 2020. I pressed them to let me finish 2020 and let ADP take over at the first of the year, nice and fresh. I was told, in writing, that it wasn't necessary to wait because ADP would handle the 2020 Form 5500. Come to find out-- they terminated Company A's plan and rolled it into Company B's plan. All assets were liquidated and transferred. Thing is.... Company A's plan was not yet whole. The assets were moved even though the SH Match hadn't yet been deposited. Is that OK? Because A's plan merged with B's, can B's plan accept the receivable SH Match?"

10 replies so far   |    Click Here to Add a Reply

LisaLiza created a topic in Cafeteria Plans

Legality of Contributing to Cafeteria Plan Without Reasonable Expectation of Its Use

"Can someone point me towards any applicable rules prohibiting cafeteria plan contributions without a reasonable expectation of use? I feel sure this can't be allowed, but I'm struggling to find specifics. Obviously, the goal is to increase compensation on paper to allow for a larger profit sharing distribution annually. The non-ERISA plan funds would typically all be forfeited back to the business each year. You could argue that anyone could 'acquire' a dependent any given year, but I wouldn't try to argue that's a reasonable expectation. It doesn't seem to pass the sniff test, but I can't even find what sniff tests might apply."

2 replies so far   |    Click Here to Add a Reply

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

Sole Proprietor's Combo: DB Plan Plus 401(k) Plan

"DB Plan adopted for lawyer back in 2010 and used prior service to establish high-3 EI comp, which is $175,000.

Current yr is 2020, EI after 'salary'of $80,000 and before pension=$200,000.

2020 DB MRC is $225,000. The company contributes 200,000 by due date for 2020 tax year (4-14-21) and $25,000 after 4-15-2021.

Company will deduct $200,000 for 2020 and $25,000 for 2021 under 404(a)(8), with the total $225,000 contribution reported on 2020 SB. (covered at '16 EA meeting.) This will reduce the 2020 taxable Earned Income (after pension deduction) for 2020 to zero.

Nevertheless CPA recommended client to also make a 25% profit sharing contribution for 2020 based on the estimated EI of $200,000 and pay and deduct it for 2021.

Questions: The MRC is based on the original high 3 EI per the plan doc and unrelated to 2020 EI, at least as far as pension contribution is concerned. But how does this impact the current EI for DC benefit computations? Wouldn't the EI be zero and therefore no DC contribution possible?"

2 replies so far   |    Click Here to Add a Reply

MYMYMY created a topic in 457 Plans

457 Beneficiary Fraud

"I am working with someone who was named as the primary (non-spouse) beneficiary of a 457 Plan. Two (2) days after the plan owner's death, the mother phoned Human Resources of the deceased employee's business and had them (Human Resources) submit a beneficiary change to her -- the mother... and they did! Is there a scenario where this is actually legal? "

1 reply so far   |    Click Here to Add a Reply

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

When Is the RMD Due for This Newly-Eligible Participant?

"Company A had a DB plan which terminated 12 years ago and paid out all during that time. It was PBGC termination. They started a new CB plan effective 7/1/2019 with plan year ending 6/30/2020. Vesting service started with the inception date, i.e., 7/1/2019. It is 3 year cliff vesting. Owner's husband was in the old plan and had been working without any salary for the past 10+ years. Suddenly they've decided to include the husband, effective with the 7/1/2020 plan year. I did the amendments and even added a special eligibility clause to add him effective 7/1/2020. DOB is 7/15/1950. When is his first RMD due?"

9 replies so far   |    Click Here to Add a Reply

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