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Message Boards Digest

January 24, 2022

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

Belgarath created a topic in Retirement Plans in General

Ps Allocation and 415 Limits Where Forfeitures Are Reallocated

"Numbers don't really matter here, it's more a question of what is permissible.

So, let's say there's a plan where PS is allocated on an integrated basis--5.7 of comp plus excess comp, then pro-rata. For years, they have contributed based on an informal 'formula' of the 5.7%, plus an additional 10% pro-rata. Let's say this contribution amount would be $500,000.

This will cause several HCE's to exceed 415, to the tune of a total of, say, $50,000. The document language provides that any Participant's allocation will be reduced so as not to violate 415, and any amount in excess of the maximum 'may' be allocated to other participants. But instead of doing that, they just then reduce the $500,00 by each HCE's excess (collectively totaling the 50,000), resulting in $450,000 contribution. Any problem with that?

So, now let's bring in $25,000 of forfeitures. This, under the terms of the document, is to be added to the employer contribution and allocated in the same manner. Do they now start with an allocation breakdown of $475,000, and then reduce as necessary. Or do they start over at $525,000 and reduce for 415 as necessary? Can they just reduce the $450,000 employer contribution by $25,000?"

2 replies so far   |    Click Here to Add a Reply

Walter7020 created a topic in 401(k) Plans

Deemed Distribution of Participant Loan That Did Not Include Accrued Interest

"There was a change in the plan trustee/administrator. The new trustee distributed loans that were not current with payments but did not include any of the accrued interest from the prior trustee in the 1099-R (nor any interest through the date of distribution). I thought the appropriate correction would be to restore the loan balances equal to the accrued interest on date of transfer to the new trustee and distribute this balance (with accrued interest) to the participant. The new trustee says they 'cannot go back and establish loan balances for these participants' and 'they would have no way to track these loan balances in the future.' I think this is a plan failure and if you are not going to restore/distribute the balances that the employer would have to remit the accrued interest to the plan. I cannot find anything on point for this. Any guidance for this issue would be greatly appreciated."

5 replies so far   |    Click Here to Add a Reply

jd1433 created a topic in 401(k) Plans

Catch Up Contributions Allowed to Exceed 100% of Comp?

"I know this has come up several times on here with considerable back and forth. Any chance we can get some definitive answers on the topic of whether catch up contributions are allowed to exceeds 100% of comp? The argument relates to Internal Revenue Code Section 414(v)(3)(A)(i) not actually specifying a requirement for 100% of comp for catch ups.

So just to confirm:

- All 50+ year olds are able to tack on extra $6,500 to 100% of their comp (if comp is below the 415 specific dollar amount limit)?

- Some 50+ year olds are able to tack on the extra $6,500 to 100% of their comp and depends on certain facts and circumstances?

- No 50+ year olds are able to tax on the extra $6,500 to 100% of their comp and those that claim that 414(v)(3)(A)(i) allows for effectively excess of 100% of comp for catch ups are mistaken?

Here are a couple of examples as food for thought (if you were able to confirm treatment for each you'd be a rockstar):

- $10,000 self employed schedule C and 50+

- $0 self employed schedule C and 50+

- (negative $5,000) self employed schedule C and 50+

- $20,000 W2 and 50+

- $58,000 W2 and 50+ while using after tax contributions

- $61,000 W2 and 50+ while using after tax contributions

- $20,000 in a partnership"

3 replies so far   |    Click Here to Add a Reply

Jakyasar created a topic in Retirement Plans in General

What Is the 'Gross Salary' for Pension Purposes?

"Having a discussion with a CPA and not sure I understand what needs to be used. No 401k deferral. No exclusions listed in the document.

This is for 2021 and for an LLC filing as an S-Corp

W-2 Box 1 $92,000

W-2 Boxes 3 and 5 $75,000 - SS and Medicare wages

Earnings summary states:

Gross Pay $75,000

Plus S-Corp 2% Medical premium $17,000

Reported W-2 wages for Box 1 $92,000

Reported W-2 wages for Boxes 2 and 3 $75,000

What is the compensation to be used for pension purposes?"

1 reply so far   |    Click Here to Add a Reply

steve45 created a topic in Form 5500

Form 5500-SF Line 8e

"I'm working on a plan and am facing the following issue-- an employee made overfunded contribution in Deferral $1,500 & Safe Harbor Match $450 source in 2020 plan year and then it got corrected in 2021 plan year.

Now, do I need to report these amount under 8D or 8E in 2021's Form 5500-SF?

8 D - Benefits paid

8 E - Certain deemed and/or corrective distributions

John Hancock report stated these amount as In Service distribution."

3 replies so far   |    Click Here to Add a Reply

Christopher Wilson created a topic in 401(k) Plans

Catch-Up Contributions: Interplay of 402(g) and 415

"I would very much appreciate your feedback to confirm my understanding of the interplay between the 402(g) and 415 limit with respect to catch-up contributions.

I have a catch-up eligible participant who deferred $24,960 for 2021. Of this amount, $5,460 is considered a 402(g) catch-up. I believe I'm allowed to re-characterize the remaining $1,040 as a 415 catch-up correct? If so, the allocation for 2021 would be as follows:

1. Deferral: $18,460

2. Catchup: $6,500

3. Match: $11,232

4. Profit Sharing: $28,308

5. Total Annual Additions: $64,500

In order for our valuation software to do this calculation requires me to over-ride the participant's 415 limit, so I'm reluctant to do so unless I know for certain that my reasoning is correct."

2 replies so far   |    Click Here to Add a Reply

rodin011 created a topic in Retirement Plans in General

Plan Sponsor Changes from Sole Proprietor to Corporation

"Sole proprietor sponsor a qualified plan. Starting 1/1/22 it became a corporation. New name, new EIN. Besides restating the plan to reflect change in business structure, name, EIN, etc., is there any other paperwork required for the new entity to continue the existing plan? The 2022 5500 will also show the changes."

No replies yet   |    Click Here to Add a Reply

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