Message Boards Digest

June 16, 2022

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

Jakyasar created a topic in Retirement Plans in General

Target Benefit Plan -- 415(c) Issue Plus Possibly Incorrect Contribution Calculation

"Taking over a target benefit plan with some issues for the 2020 plan year. Participant had $1,000 salary and got an allocation of $3,000. They did not comply with the 415(c)/100% compensation limit even thought the report clearly stated a 415 violation. They simply applied the contribution based on the formula without looking into the 415(c) limit. The owner was allocated $0 but I think should have had an allocation due to the incorrect calculations. The owner had $10,000 in salary.

[1] The contributions were made after the end of 2020 plan year so I can fix the 415 issue, but the fact that the deduction was taken is another issue. What to do with the excess deduction (assume no allocation to the owner for this scenario)? Cannot allocate to others because all TBP calculations are based on a formula.

[2] If I determine an allocation was due to the owner, I can use a portion of the excess from above but still would be short. Because the contributions are mandatory, how to correct the missing contribution? For argument's sake, let's say $5,000 is short for 2020. They probably will need excise tax of 10% for each 2020 and 2021, i.e., 5330.

Any suggestions, especially for a self-correction?"

2 replies so far   |    Click Here to Add a Reply

Pam Shoup created a topic in Retirement Plans in General

Losing Anti-Alientation Status by Dropping to Owner-Only Coverage?

"Doctor 1 sells their practice to Doctor 2 and lawsuits ensue. Doctor 2 wins a judgment against Doctor 1. Doctor 1 sponsors a Target Benefit Plan that's being terminated.

A non-ERISA attorney for Doctor 2 thinks he can get a court to force some action that would allow the participants to be paid out of the TBP while leaving Doctor 1's account (investments) in the plan. Then, the attorney syas, the plan would be a one-participant plan and hence Doctor 1 would lose anti-alienation protection provided by ERISA, such that Doctor 1's account could be attached, meaning his client would get paid some amount of liquidated damages that Doctor 1 apparently owes to his client. An attorney for the trust company holding the assets agrees with the attorney.

I don't agree. Am I missing something?"

2 replies so far   |    Click Here to Add a Reply

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