Message Boards Digest

September 6, 2021

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

JenniferOhio created a topic in Estate Planning Aspects of IRAs and Retirement Plans

Qualified Plan Distribution to Non-Designated Beneficiary

"We've had several deaths (post-SECURE Act) in different defined benefit plans, unfortunately, by participants who did not have designated beneficiaries on file. Our defined benefit plan (volume submitter master) document identifies the following hierarchy for distributions to non-designated beneficiaries:

  • surviving Spouse;
  • children, per stirpes;
  • surviving parents, in equal shares;
  • estate.

My overall question is-- Under current regulations, is a defined benefit plan permitted to make a distribution to an Inherited IRA (via direct transfer) to a non-designated beneficiary?

If yes or maybe, does it matter who the non-designated beneficiary is? We have the following true scenarios to deal with:

  1. Terminated Participant A (died age 64 before NRA) has a surviving Spouse, and the distribution amount is over $5000. Also, the plan is terminating.
  2. Active Participant B (died age 32) only has one minor child, and the distribution amount is under $1000. The plan is ongoing.
  3. Active Participant C (died age 56) only has surviving parents (both older than age 72), and the distribution amount for each parent is between $1,000--$5,000. The plan is ongoing.
  4. Terminated Participant D (died age 64 before NRA) has no Spouse, no children, nor any surviving parents, so his estate will receive the distribution; and the distribution amount is between $1000-$5000. Also, the plan is terminating.

All participants were 100% vested at termination or at death. NRA = Normal Retirement Age as defined by the plan.

In addition, these participants were also in 401(k) plans sponsored by the same Plan Sponsors as the defined benefit plans. Does your answer to any scenario change depending on the plan type?

I think the answer for all four scenarios for both plan types is: No, none of these non-designated beneficiaries can elect to direct transfer their distributions to an Inherited IRA.

If I'm reading the Inherited IRA rules and plan document correctly, the reason none of these scenarios can result in a direct transfer to an Inherited IRA is because none of the beneficiaries were designated as beneficiaries by the Participants. However, I rarely need to handle distributions due to death, so I am seeking input from more knowledgeable retirement plan practitioners. Thank you for your help."

3 replies so far   |    Click Here to Add a Reply

MGOAdmin created a topic in 401(k) Plans

Company Acquisition and HCEs

"I have a client (Company ABC) that is in the process of purchasing another company (Company XYZ). I's a Stock Sale set to close on 9/30/21

Company XYZ has a plan but they are terminating before the sale. Company ABC has a plan but it excludes HCEs (except for age 50 for catch-up only) due to failing ADP test. Since it is a Stock Sale, are the HCEs of XYZ, HCEs from day one in ABC?

I would think yes since it is a Stock Sale, the employees of XYZ are treated as though they were always employees of ABC. Is there some grace period for those employees?

The client is wondering if the HCEs of XYZ would be able to participate in the 401k until 12/31/21.

Additionally, if the HCEs from XYZ are HCE after the sale, would they be allowed to roll money into the ABC plan even if they are not 50? The plan does permit rollovers for eligible employees or foreseeably eligible employees. Could we draft an amendment that would allow the under 50 HCEs to roll their retirement into the ABC plan?"

No replies yet   |    Click Here to Add a Reply

SSRRS created a topic in 401(k) Plans

RMD Needs Election Form?

"The owner (active) of a corp took his RMD from his Profit Sharing Plan (his prior year end assets divided by age factor). Since this is an RMD, and he is not electing a benefit etc., is an executed distribution election form not required?"

7 replies so far   |    Click Here to Add a Reply, Inc.
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