Message Boards Digest

March 23, 2022

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

cathyw created a topic in Retirement Plans in General

Can a Child Be an HCE Through Attribution If the Child Is Not an Employee?

"Section 318 attribution applies for determining ownership for ASG and HCE purposes. Can a child be an HCE through attribution if the child is not an employee? Example: Company A is owned 95% by father, 5% by unrelated individual. Company B is owned 100% by adult son. Company A and Company B are both service organizations. Company B receives 80% of revenue from Company A. Child is not an employee of Company A. Under the B-org definition of ASG, child is deemed a more-than-10% owner of Company A (the FSO) but is he deemed an HCE of Company A? He is deemed a 5% owner for HCE purposes but he's not an employee. All other requirements of B-org are met. Is there an ASG?"

1 reply so far   |    Click Here to Add a Reply

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Peter Gulia created a topic in Operating a TPA or Consulting Firm

Can a Recordkeeper Change a Plan's Fund Without Telling the Plan's Sponsor?

"Following Vanguard's announcements about renaming and reorganizing Vanguard Prime Money Market Fund as Vanguard Cash Reserves Federal Money Market Fund, a recordkeeper and the custodian it works with processed the changes for their retirement plan customers-- without advance notice to those plan sponsors.

A retirement plan's sponsor/administrator received no prospectus or other fund document from any Vanguard service provider. (That happens because a fund's duty is to deliver a document to its record shareholder. Even if a fund might volunteer to send some communications to beneficial owners, often a fund cannot do so because it might lack names and addresses for beneficial owners.)

About this reorganization of a Vanguard fund, neither the custodian nor the recordkeeper asked for their customer's approval or acceptance, not even as an implied-assent 'unless you instruct us otherwise' email. Further, neither the custodian nor the recordkeeper did anything even to inform a plan's sponsor/administrator about the change before processing it. (Arguably, a diligent fiduciary ought to have asked a question after reading the first employer report that showed the new fund name.)

I recognize the practical needs for a recordkeeper and custodian to follow a fund's change (if the plan's sponsor/administrator has not delivered a different instruction). But is it usual for a recordkeeper to process a fund's change with no advance notice? Is this the common practice for all or most recordkeepers? Or do some provide more service? If a recordkeeper's standard service does not include informing employers about fund changes, in what circumstances is it feasible to negotiate an extra service?"

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Dalai Pookah created a topic in Defined Benefit Plans, Including Cash Balance

401(a)(26) Failsafe Removed in PPA Pre-Approved Document

"The EGTRRA volume submitter DB plan had a failsafe provision that covered both 410(b) and 401(a)(26) failures. The PPA document only addressed 410(b). I couldn't find any guidance from the IRS in the Cumulative List that addressed this change. Does anyone have any cites or guidance as to why the reference to 401(a)(26) was eliminated from the VS document?"

2 replies so far   |    Click Here to Add a Reply

thepensionmaven created a topic in Retirement Plans in General

COVID Withdrawal Could Have Been Taken from a SEP?

"Accountant is checking as to whether his client could have taken COVID distributions from his SEP as well as from his defined benefit plan. Distributions both taken prior to 12/31/2021. Client was talking about taking a plan loan, which we thought never materialized; I can only assume the client had taken a loan prior to September 30th and has not started repaying. Too late to do anything about it now."

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PS created a topic in Plan Terminations

Plan Participants Continue to Make Deferrals Despite Asset Acquisition of Plan Sponsor

"I have a plan that is terminating due to asset acquisition. The sale date was 12/31/2021 but they had a transactional service agreement, under which the participants will be contributing until 04/30/2022. Then, on 05/01/2022, they will become part of the acquiring company's plan. The termination date is 04/30/2022. Because the participants are still contributing, we can't start the termination process. When there is a TSA I thought it's only for administrative reasons. Is it allowable to have participants who continue to contribute?"

8 replies so far   |    Click Here to Add a Reply

WCC created a topic in 401(k) Plans

Auto-Enrollment Into a Roth Account Rather Than a Pre-Tax Account?

"This post is intended to gather the group's thoughts about auto enrollment to pretax or Roth. Let's assume the document allows for either choice.

Among our clients who auto-enroll, 100% auto-enroll with pretax. At the time of making the decision to auto-enroll to pretax, there is no analysis done to determine if it should be pretax or Roth. The decision is always made solely based on the idea that pretax is most common and therefore must be the right decision.

I feel like no one wants to be the first one sued over a Roth default. Even though pretax is the most common default and little thought goes into the decision, a decision is still being made by the sponsor to determine that pretax is better and more prudent than a Roth default. Either choice impacts the participants' tax situations.

Does anyone see auto-enrollment to Roth among your clients?

I think there is a valid argument to say Roth auto enrollment may be better for certain employers. Are there any publications that suggest auto enrolling to Roth is not a prudent decision?"

1 reply so far   |    Click Here to Add a Reply

austin3515 created a topic in 401(k) Plans

Lifetime Income Disclosures Due by June 30 for Self-Directed Brokerage Accounts?

"There is a rumor going around that those disclosures are due by 6/30/2022. Is that correct, and how is that even possible? For some of those plans, we don't get census data in a timely manner, etc. so we might not be in a position to issue statements until, say, October 14. Thoughts?"

2 replies so far   |    Click Here to Add a Reply

JGordon created a topic in 401(k) Plans

Participating Employers in a 401(k) SHNEC

"So I have a client where the owner earns wages/self-employment income from all 3 companies (a construction company, an architectural firm, and a real estate firm) in a controlled group. This is the first year that all 3 companies have adopted and become participating employers in this SHNEC 401(k) plan. The construction company was the original plan sponsor and is where the owner has always (and did this year) made his deferrals.

My question is whether the owner will end up with a SHNEC in each company because he has income from each company and is a participant per the document and participating employer agreement for each company.

I know for testing purposes he wouldn't have to, but to comply with document provisions it certainly seems as if he does. There also are a handful of overlapping NHCEs in the 3 companies, each of whom receives income from each company. I assume they would also each receive a SHNEC for each participating employer. Agree? I certainly don't think this is the result the owner was anticipating when he and the advisors decided to have the other companies adopt the plan (especially as it relates to the handful of NHCES)."

2 replies so far   |    Click Here to Add a Reply

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