Message Boards Digest

February 28, 2022

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

BG5150 created a topic in 401(k) Plans

Handling 402(g) Excess When Running the ADP Test -- Must Be Removed for NHCEs?

"I have an HCE with a 402(g) excess of $500 for 2021 (he deferred $20,000). And I have a NHCE with a 402(g) excess of $135 (he deferred $19,635). Neither is catch-up eligible. I thought you kept the excess in the ADP test for the HCE and removed it for the NHCE. For some reason Relius is removing it for both. I just want to make sure I'm understanding the rules before I start bugging them."

2 replies so far   |    Click Here to Add a Reply

justatester created a topic in 401(k) Plans

Top Heavy and Safe Harbor

"We have a plan that has a Safe Harbor NEC contribution. Prior to 1/1/2020, the pretax eligibility was 60 days, SHNEC 1 YOS. With those provisions, they lost their top heavy exemption. (of course they are top heavy) 1/1/2020, they change the eligibility for both pretax and SHNEC to 1 YOS. So we thought all would be good. However, they rehired a participant at the time of previous employment met the pretax eligibility. Upon rehire, they are now eligible for pretax, but still have not completed a YOS for the SH contribution. How does this impact their top heavy exemption? Does it still apply or since they have a participant not SH eligible does it not apply? Would they need to give her a TH contribution? If so since the plan excludes comp prior to eligibility, would they have to calculate the 3% on gross comp for those that became newly eligible in 2021?"
4 replies so far   |    Click Here to Add a Reply

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

Plan Amended for In-Service Distribution NRA -- Frozen -- But Lump Sum Available

"If a plan is amended to allow in-service distribution (after NRA only, no early in-service commencement) and offers a lump sum, are there any restrictions (beyond high-25 and AFTAP related issues - neither apply here) that would prevent a full time participants reaching NRA (age 65 here) from taking a lump sum?

The amendment to the plan doesn't suggest there are any (as in, the amendment could've easily referenced the LS option as being excluded if it wasn't allowable) and the plan is long frozen, but it does seem a bit odd. I can't think of anything other than seeming odd, though. There's no need to suspend benefits because in-service distribution is allowed and the only real exposure to the participant (if they take the lump sum and don't roll it over) is understanding the tax implications of taking a lump sum (already covered in literature)."

2 replies so far   |    Click Here to Add a Reply

AmyETPA created a topic in Plan Terminations

Allocating In-Kind Distributions Among HCEs

"3 person plan, H/W owners and one NHCE. Owners retiring and business and plan closing. Client doesn't want to liquidate investments to transfer to IRA so are planning on doing in-kind rollover. NHCE is taking a rollover of cash to IRA. H/W owners only doing in-kind withdrawal. Does it have to be done as a percentage of each asset for each person? So, do H/W both have to get their percentage of each investment, or can they calculate the amount needed and move specific assets to one person? I'm inclined to say it needs to be a proportion of each investment, but then again, what does it matter as long as the correct amount is distributed to each because it's not the plan's concern what they invest in their IRA?"

4 replies so far   |    Click Here to Add a Reply

Logan401 created a topic in Cross-Tested Plans

Short Plan Year Pro Rata Rules Apply Even If Business Has Just Started?

"If a newly formed business started March 16, 2021 and adopted the plan effective March 16, 2021, is it subject to the short plan year proration rules? Or is it exempt from the rule because their business was formed later in the year?

The plan is a Volume Submitter MEP, and the client adoption agreement states: 'The initial plan year begins on the Effective Date of this plan and ends on the following December 31. If the initial plan year does not begin on January 1, the initial plan year shall be a short plan year.' I thought there may be an exception for newly formed businesses."

6 replies so far   |    Click Here to Add a Reply

Solo created a topic in Form 5500

Failed to File My Form 5500-EZ for More Than 10 Years

"I have failed to file form 5500-EZ for 10+ years. I always assumed my accountant took care of it. Can I qualify for the maximum fine of $1,500 through the penalty relief program? Also would i have to file a seperate return for every year my account was $250k?"

1 reply so far   |    Click Here to Add a Reply

rocknrolls2 created a topic in 401(k) Plans

Participant Took Coronavirus-Related Distribution in 2020 (Tax Spread Over 3 Years) -- Can Repayment of Amount Otherwise Taxed Be Deducted?

"Participant Z was a participant in the C 401(k) plan until she terminated employment in 2020. Z takes a coronavirus-related distribution during 2020 and elects to have the tax spread out over 3 years. During late 2021, Z starts a business as a sole proprietor and sets up a solo 401(k) plan. If Z repays the full amount of the one-third of the 2020 distribution that would otherwise be taxable to her in 2021, and contributes that amount to the solo 401(k) plan, can she deduct the amount of the 2021 repayment on her 2021 tax return? Assume that the total amount contributed to the solo 401(k) plan, including the amount repaid of the repaid coronavirus-related distribution, does not exceed the 402(g) limit on elective deferrals or the deduction limit under Code Section 404(a)."

2 replies so far   |    Click Here to Add a Reply

Gilmore created a topic in Retirement Plans in General

IRS Notice CP214 Seems to Say Form 5500-SF Can Be Used by One-Participant Plan

"One of our clients just received an IRS Notice CP214, which describes the circumstances under which a one-participant plan must file a Form 5500-EZ. The last line of the notice states, 'Alternatively, you may be able to file Form 5500-SF online using EFAST2's web-based filing system or through an EFAST2 approved vendor.' The 2021 Form 5500-EZ specifically states that a one-participant plan cannot file a Form 5500 or Form 5500-SF. Am I misinterpreting the CP214?"

3 replies so far   |    Click Here to Add a Reply

Belgarath created a topic in 401(k) Plans

Safe Harbor Mid-Year Amendment to Compensation Definition -- Nonelective Contribution Plan

"See the following excerpt from IRS Notice 2020-52. The situation at hand is this: SH nonelective plan, and the HCEs are excluded from receiving the SH contribution, although a 'discretionary' SH contribution may be made on their behalf. They want to amend plan to exclude bonuses for Non-owner HCEs.

No problem doing this with a 30 day notice, as the bonuses wouldn't be paid until close to year-end (2022) anyway. I'm curious as to opinions on whether the 30 day notice is required in this particular situation, if it ever came up. I think it is. Agree?


As described in section II.B of this notice, contributions made on behalf of HCEs are not included in the definition of safe harbor contributions. Accordingly, a mid-year change that reduces only contributions made on behalf of HCEs is not a reduction or suspension of safe harbor contributions described in Sections 1.401(k)-3(g) and 1.401(m)-3(h). However, a mid-year change that reduces only contributions made on behalf of HCEs would be a mid-year change to a plan's required safe harbor notice content for purposes of section III.B of Notice 2016-16. Therefore, in order to satisfy the notice and election opportunity conditions of section III.C of Notice 2016-16, which apply generally to changes that affect required safe harbor notice content and are not reductions or suspensions of safe harbor contributions, an updated safe harbor notice and an election opportunity must be provided to HCEs to whom the mid-year change applies, determined as of the date of issuance of the updated safe harbor notice."

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