Message Boards Digest

January 17, 2022

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

sbuck created a topic in 401(k) Plans

401(k) Matching Contribution on Retroactive Pay for Deceased Participant

"An employee died in late 2021. At the time of his death a review was being conducted of his pay. It was later determined that he had been underpaid and a retroactive pay order was going to be necessary (a large retroactive pay order). A portion of this pay will be in the form of 401(k) plan employer 2% contributions. Because final wages to the employee will not be paid during the year he died, the wages aren't subject to FITW. We are unsure how this affects calculating 401k contributions. I do not know where to begin. I appreciate any and all input."

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cathyw created a topic in Correction of Plan Defects

Sole Proprietor Took Too Many RMDs

"Our client, a doctor with a one-person cash balance and profit sharing plan, took his RMDs for 2021 in January/February 2021. Then heforgot, and took duplicate payments in October 2021.

We are proposing correction differently for the two plans:

[1] There is no provision under the pension plan that allows an ad hoc in-service distribution. Although distribution can commence after NRD while in-service, the form of payment would have been either an annuity or a lump sum of his entire vested accrued benefit. Pursuant to EPCRS, we are planning on treating this as an overpayment (i.e., a payment not authorized by the plan) and having him repay the distribution.

[2] The profit sharing plan does allow for in-service distributions, so I can't think of any way this can be treated similarly (even though the participant did not complete any election form or waive withholding). We'rere planning on correcting this via a 60-day rollover back to the plan (for which repayment is now extended until 2/15/22 due to Hurricane Ida). Is there any other way to handle this?

How do we prepare the Forms 1099-R for 2021? The initial RMDs will be reported properly for both plans. Does the pension plan report the second distribution as a normal distribution, or not? If yes, how does the participant reflect the repayment to the plan in 2022? With respect to the profit sharing plan, I assume the second distribution is reported as a normal distribution and then the participant reflects the rollover on his Form 1040 for 2021 even though it was completed in 2022. How is this ever reconciled with the IRS if they only receive the 1099 but no 5498 (that an IRA trustee would file)? Any other suggestions on how to resolve?"

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BG5150 created a topic in Distributions and Loans, Other than QDROs

Looking for Basic Information on Distribution of Insurance Policies

"I can count on my ten fingers (and not use all of them) the number of plans I've dealt with that allow participants to purchase life insurance. And even less experience in what to do when it comes time to distribute those policies when they terminate employment. Are there good resources that explains when needs to, or can be, done in these situations? I'm not sure if this participant wants to keep the policy or cash it out."

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