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Message Boards Digest

April 27, 2022

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

KEC79 created a topic in 401(k) Plans

Carryover of Deferral Elections to QACA? Uniformity Requirement?

"Company A acquired Company B in stock acquisition in 2021. Each entity sponsors its own 401(k) plan with calendar year plan year. Company A's plan is a QACA safe harbor with a 3% non-elective contribution. Company B is not safe harbor.

Company A wants to freeze Company B's plan as of 12/31/22 (end of 410(b)(6)(C) transition period), add Company B as participating employer under Company A plan as of 1/1/23, and merge Company B's plan into Company A's plan sometime in 2023. (No bandwidth to do a year-end plan merger.)

Company A wishes to carryover the deferral elections under Company B's plan to Company A plan as of 1/1/2023.

I am concerned that this doesn't satisfy the uniformity requirement under QACAs/EACAs (that eligible employees be automatically enrolled at a uniform percentage of compensation). Am I being too conservative? Would such carryover be okay for a QACA?

Would your opinion differ if the plans were merging as of 1/1/2023, given that the merged plan would be a continuation of both Company A and Company B plans?"

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

Rollover Distribution Request Processed as Cash Distribution

"A plan participant requested a rollover of his $40,000 account balance. Due to a processing error on the TPA side, the distribution was coded as a cash distribution when entered, so federal and state taxes were withheld when the recordkeeper processed the distribution. The net amount was paid directly to the IRA Custodian, and taxes were remitted to the IRS and state.

The distribution was processed in December 2021 and the participant notified us in March when he received his 1099-R's that something did not seem correct.

We contacted the recordkeeper with fingers crossed that the entire transaction could be reversed, but they said it could not, as it crossed tax years and the taxes had already been remitted to the IRS. And, since it was not their error, they could not "front" the tax funds back to the participants account as it could not stay on their books.

The original 1099-R was issued showing the $40,000 as a cash distribution with taxes withheld, and since the participant is age 35, the form was coded with a 1, so the 10% early withdrawal penalty also applies.

The participant had not yet filed his taxes, so the recordkeeper reissued the 1099-R as two separate forms: one shows the amount that was deposited in the IRA as a non-taxable distribution, coded as a rollover; the second shows the amount of the taxes withheld as a taxable distribution coded as a 1.

There has been a lot of discussion now regarding how to make the participant whole, and talk about how this will play out with his taxes regarding whether he gets a full refund of the taxable amount, and what will be due for the penalty. To me, the participant should wind up with the full amount in his IRA that he asked to be deposited in his IRA.

Does anyone know a way this can be accomplished? Should a 1099-R have been issued to show the full amount of the distribution, zero should have been taxable, show the actual taxes withheld and code as a G so no early penalty? Will this result in the taxes being returned?

The participants broker also feels that since the participant never actually received any funds, the 60 days does not apply for the participant to change his mind and deposit the tax amount into his IRA. I do not even know if the participant has access to enough cash to be able to deposit the amount withheld for taxes.

I am hoping someone has had this situation and it came to a happy resolution."

3 replies so far   |    Click Here to Add a Reply

ratherbereading created a topic in Form 5500

Having Trouble with Relius -- Trying to Prepare Schedule D

"I have a plan for which I have to do a Schedule D. I cannot get it to take my entries past page 2. I keep adding page 2 (page 3 is not available apparently), but it still only fills out the first 2 pages no matter how many I add. Just spent 45 minutes imputing the info to see that most of it didn't take. How do you keep adding so it shows up?"

1 reply so far   |    Click Here to Add a Reply

Roxie99 created a topic in Correction of Plan Defects

Missed Deferral Opportunity -- QNEC Needed for Both Pre-Tax and After-Tax Contributions?

"Our plan allows both pre-tax deferrals, Roth deferrals and after-tax contributions. If an otherwise eligible employee was excluded from participation in the plan, do we need to provide a QNEC for the missed pre-tax deferral opportunity and the missed after-tax contribution opportunity?"

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

Plan's Bank Account Labeled in Company's Name Only

"An owner-only DB Plan (100% owner; no partners, etc.) opened an account with Bank. Bank did not want to open a pension account so owner opened the account in the corporate name only -- i.e., it does not say anything like "Defined Benefit Pension Plan" on the account name. It's a checking account with no interest, so there are no issues as to the bank issuing a Form 1099 for interest earnings. Is this a big issue?"

3 replies so far   |    Click Here to Add a Reply
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Gilmore created a topic in Retirement Plans in General

Sole Non-HCE Employee Did Not Reach 501 Hour Threshhold for Allocation of PS Contribution

"A husband and wife in a common law state (so a controlled group) have separate businesses and separate calendar year profit sharing only plans. The husband has no employees. The wife has one employee that is eligible for her plan effective January 1, 2022. The wife's plan requires 1,000 hours and last day to be eligible for a profit sharing allocation. The husband's plan requires last day or 500 hours of service to be eligible for a profit sharing allocation. The wife's sole employee terminates in 2022 with less than 500 hours. Am I correct that we can exclude the employee from coverage because they did not earn more than 500 hours of service, and thus not have to provide a profit sharing allocation?"

4 replies so far   |    Click Here to Add a Reply

TPApril created a topic in 401(k) Plans

Trustee Being Removed -- Can Plan Be Amended Without Their Express Approval?

"Plan has two trustees. One of them has retired and is simply no longer involved or around. There is no board for this small company. Can plan be amended to only the one remaining trustee by this one remaining trustee and not involve the outgoing one?"

1 reply so far   |    Click Here to Add a Reply

BG5150 created a topic in 401(k) Plans

How to Correct Failed Match Coverage Test?

"Plan utilizes Fail Safe provision for coverage (so no ABT, here).

Plan (just) fails coverage for the match by three people.

The plan document says who the plan needs to cover, but it does not say what benefit these people must get.

Unlike a non-elective contribution failure, a match benefit would seem to be based on deferrals. Often, the people not benefitting don't ahve any deferrals. So, does the ER give them some sort of QMAC? To what level? The groups ACP? (ACP including voluntary after tax? yes, it's still a thing!)"

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