Message Boards Digest

May 24, 2022

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

rblum50 created a topic in 401(k) Plans

Excluding a Highly Compensated Employee Who Is Not an Owner

"I have a client (100% owner) who maintains both a 40(k) plan and a defined benefit plan. He will be having an associate age 59 joining the company later on this year earning >$300,000 with no ownership in the company. The owner (age 49) wants to minimize the amount the company would have to put in either plan for this associate.

Here are a couple of alternatives:

[1] As a highly compensated employee, exclude him from both plans.

[2] Exclude him from the DB plan. Include him in the 401(k) (comparability plan). The plan currently allows for a discretionary contribution, salary deferrals and a Safe Harbor match. We can zero out his discretionary contribution, preclude him (agreement outside the plan) from making any salary deferrals which, in turn, would negate any safe harbor match.

Let's assume that in both cases discrimination requirements are met. Then, in both cases, there would be no employer contributions for him. Comments?"

7 replies so far   |    Click Here to Add a Reply

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EBECatty created a topic in 401(k) Plans

One-Year Holdout Rule

"I'm probably missing something obvious. A PS plan defines a year of service for eligibility as 1,000 hours. Actual eligibility for PS contributions is three months of continuous service. For purposes of applying the one year holdout rule, does a rehired employee have to complete 1,000 hours or three months to rejoin the plan?"

5 replies so far   |    Click Here to Add a Reply

ERISAGal created a topic in Mergers and Acquisitions

Corporate Acquisition via Asset Sale -- Use of Seller's 401(k) Plan Deferral Elections?

"Have a plan sponsor who is acquiring another business in an asset sale. The seller's 401k plan will be terminated. The buyer's plan has been amended to provide that service with the seller counts towards vesting/eligibility in the Bbyer's 401k plan. The buyer also wants to use the seller's terminating plan participant deferral elections (both pre-tax and Roth) to have the effect of immediately allowing the seller's plan participants to continue deferrals into the buyer's 401k plan (at least those meeting eligibility in the buyer's plan). Is that allowed?

I would think that one plan participant's deferral election cannot apply to another company's 401k, but I'm grasping. I'm hoping there is a workaround that I'm not thinking about though or something in the regs that would allow the buyer's plan to use the seller's plan deferral elections. Would the answer change if the seller's plan was merging into the buyer's 401k?"

5 replies so far   |    Click Here to Add a Reply

DMcGovern created a topic in Correction of Plan Defects

Correcting Over-Contributed QNECs

"Client has an auto-enrollment 401(k) plan. They did a QNEC for a group of participants for missed deferral opportunity a few months ago and just realized some of them received an amount that was too high. All impacted participants are NHCEs. I'm not finding a correction for this. Let the participants know of the error and forfeit?"

No replies yet   |    Click Here to Add a Reply

Tom created a topic in 401(k) Plans

Safe Harbor Plan Established Mid-Year

"6 doctors each had their own tax entity and shared employees who were all on the payroll of a separate tax entity. One of the doctors (Doctor A) maintained a 401(k) plan in 2021 and covered employees for the portion of pay allocated to her based on their time worked for her and all hours worked for all doctors were counted in meeting eligibility. I'm told none of the other doctors funded any type of plan, and there was no SIMPLE or SEP arrangement.

They were convinced to form a group in which they are equal shareholders and want to have one 401(k) plan covering all doctors and all eligible employees. It will provide only a safe harbor match. The plan has not yet started for 2022, so there has been no plan funded by any of the doctors yet for 2022. The goal is to have it set up by July 1, 2022.

A proposal is that the group would assume sponsorship of Dr. A's frozen plan. I wouldn't think there'd be any issue with safe harbor treatment for 2022 being adoption by a newly formed entity. I'm also wondering about the new plan tax credit available for each of 3 years. Seems that would require the start-up of a new plan and closure of the old. Yet for one of the 6 doctors, the plan is not new under her tax entity. I may just not mention the tax credit if it is questionable and leave that to their tax advisor, if he even has that on his radar.

Comments as to safe harbor treatment for 2022, the tax credit?"

No replies yet   |    Click Here to Add a Reply

ebjmls21 created a topic in Qualified Domestic Relations Orders (QDROs)

QDRO While Still Married

"A DC participant submitted a 'Domestic Relations Order' in which a six figure sum of his DC account will be transferred to his spouse. Participant and spouse are married, and are not seeking a dissolution of marriage. Further (as far as we know), it's not intended for spousal support.

A quick Google search shows there are some practitioners promoting while-married QDROs as a means of gaining access to pension or DC funds (likely without those pesky plan terms getting in the way).

I'm just scratching the surface of my review, but it's hard for me to imagine that this has never been tried before, during the past 30 some years. I seem to recall that there might have been cases of fake divorces just so people could access their pension accounts -- so why bother going through a fake divorce if you could simply claim a marital property transfer?

Have you seen one of these?"

11 replies so far   |    Click Here to Add a Reply

Christopher Wilson created a topic in Communication and Disclosure to Participants

Court Rulings Regarding Failure to Disclose the Value of Each Investment to Which Assets in the Participant's Account Have Been Allocated

"Section 508 of PPA requires the value of each investment to which assets in the participants' account have been allocated to be disclosed for all defined contribution plans. Can anyone steer me in the direction of court rulings regarding this subject matter?"

1 reply so far   |    Click Here to Add a Reply

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