Message Boards Digest

July 8, 2022

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

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

408(b)(2) Disclosure and 404(a)(5) Disclosure -- Required for CB or DB Plans?

"Is a 408(b)(2) and 404(a)(5) disclosure required for Cash Balance and Defined Benefit plans?"

3 replies so far   |    Click Here to Add a Reply

hsctpa created a topic in 401(k) Plans

Mid-Year Safe Harbor Match True-Up?

"We have a client that allows for the true-up of the safe harbor match. There are a few participants that have maxed out their deferral contributions early and the match stopped. The payroll provider is calculating what the match should be based on the deferrals and YTD compensation and funding it through the year. Does anyone see an issue with this because the document allows for True-Up? Or should the funding be done at year end?"

2 replies so far   |    Click Here to Add a Reply

Craig Schiller created a topic in Defined Benefit Plans, Including Cash Balance

Deduction Question When Plan Year Different Than Tax Year

"I feel guilty asking a question when I've never answered any. I've always had to give all of time to getting everything done, and usually much too close to the deadline.

The question involves a cash balance plan year end 9/30/2021. Tax year ending 12/31/2021. There was no minimum funding required, and no contributions were made by June 15, 2022. So the Schedule SB will show no contributions for the 9/30/2021 plan year. The company nevertheless wants to make a contribution and be able to deduct it on the 12/31/2021 tax return.

The question is, if a contribution is made by the due date of the 9/30/2021 Form 5500 -- 7/15/2022 -- and we therefore show this as applying to the PYE 9/30/2021, would that make it deductible for the 12/31/2021 tax year?

The issues are:

[1] The general rule is that when the plan and tax years don't match, the deduction limits can be based on the plan year ending in the tax year (plan year 10/1/2020 to 9/30/2021), the plan year beginning in the plan year (10/1/2021 to 9/30/2022), or a combination based on the overlapping months of each. That method needs to be selected the first year the tax and plan years differ, and keeping the same method each year.

[2] Here, we have followed the method of the deduction for the tax year being based on the plan year ending within the tax year, so for the 12/31/2021 tax year, the deduction is based on the 9/30/2021 plan year.

[3] Because the Schedule SB will not show any contributions, would a contribution made by July 15, 2022 actually be applicable to the plan year ending 9/30/2021, or does the fact that it is being made after the minimum funding deadline and will be shown on the 9/30/2022 Schedule SB, make this a contribution for the 10/1/2021 to 9/30/2022 plan year, despite it being reported as for the 9/30/2021 on the 5500 form? If this must be considered a contribution for the 9/30/2022 plan year, then the deduction would need to be reported on the 12/31/2022 tax year return.

(There is a chance the rules are that the timing issues in #1 above, only apply to how the deductible amount is determined for the tax year, and unconnected to what year the contribution is made. Another words, if a contribution is made by the due date of the 12/31/2021 tax return (9/15/2022), it doesn't matter which plan year it applies to, as long as the amount being deducted is not more than the deduction limit for the plan year ending in that tax year (the 9/30/2021 plan year in this case)."

No replies yet   |    Click Here to Add a Reply

401 Chaos created a topic in Health Plans (Including ACA, COBRA, HIPAA)

Transparency in Coverage Rules -- Public Website Requirement

"Just curious as to whether anybody has seen any regulatory guidance or discussion around steps to comply with the transparency in coverage (TiC) rules' requirement to post a link to required rate information on an employer's publicly accessible website in a situation where the employer has no website at all.

I understand that employers can contract with third parties to have them host the information on other websites but under the rules the employer still has to post a link to the other third-party website on the employer's own website so that doesn't solve the issue.

I have seen a few articles that touch on this question and simply advise that employers with no website should consult ERISA counsel. Unfortunately, the company's ERISA counsel was apparently absent the day they covered this topic in law school. I don't know what it might cost to create a basic public website for the company that might at least link to a third party site if need be but it strikes me that may be a better way to come at this rather than looking for some exception. Appreciate any thoughts or suggestions."

6 replies so far   |    Click Here to Add a Reply

Carol V. Calhoun created a topic in 403(b) Plans, Accounts or Annuities

Distributions from Individual Annuity Contracts After 403(b) Termination

"Any thoughts on whether individual annuity contracts distributed when a 403(b) plan terminates must limit distributions to one of the events that would permit a distribution from a 403(b) plan (e.g., termination of employment)?

On the one hand, Rev. Rul. 2020-23 indicates that 'The distributed ICA is maintained by the custodian as a Section 403(b)(7) custodial account that adheres to the requirements of Section 403(b) in effect at the time of the distribution of the ICA until amounts are actually paid to the participant or beneficiary.' (While this ruling relates only to a plan funded with custodial accounts, not one funded exclusively by annuities, presumably similar rules would apply under Rev. Rul. 2011-7 relating to plans funded by annuities.) This might be interpreted to suggest that the individual contract must adhere to the distribution requirements of a 403(b) plan, e.g., distributions are available only upon certain events including termination of employment.

However, I see two arguments against this interpretation. First, the participant is entitled to take a cash distribution upon termination of a 403(b) plan. Thus, allowing a participant to take a cash distribution from the annuity contract after termination of the plan would appear to adhere to the requirements of Section 403(b).

Second, the revenue ruling provides that 'the employer has no material retained rights under the distributed ICA after it has been distributed.' If the participant's right to a distribution is contingent on the employer certifying that the participant has terminated employment, that would seem to be a material retained right.

We are currently dealing with an annuity provider that claims the employer must continue to provide it with notices of when employees terminate employment, and that distributions will not be made under the individual annuity contracts until termination of employment occurs unless there is another basis (e.g., age) for allowing a distribution. Are other providers taking this position? And has anyone ever encountered the IRS taking this position?"

1 reply so far   |    Click Here to Add a Reply

Roxie99 created a topic in 401(k) Plans

Amend Mid-Year to Add Last-Day Employment Requirement for Discretionary True-Up Match?

"Our plan currently has a discretionary true-up match with no allocation service requirements. Is it OK to amend the plan for the current plan year to add a last day of employment rule or do we have to wait until next year? We want to exclude terminated employees from receiving the true-up match for 2022, if the company decides to make one."

3 replies so far   |    Click Here to Add a Reply

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

What Happens to a 401(k) Loan to a Participant Who's Also a Trustee But Subsequently Terminates Employment?

"A participant who also happens to be a Plan Trustee took out a plan loan a couple of years ago. The participant terminated in 2020, but was not removed as a Trustee until 2022. The documents specifically provide that a party in interest under ERISA section 3(14) who terminates employment with an outstanding loan will be treated as an employee whos employment has not terminated and for any other applicants, the loans become due and payable at termination. At the point this former employee was removed as a Trustee, is that loan due and payable?"

2 replies so far   |    Click Here to Add a Reply

Bulldogs5445 created a topic in Form 5500

Large Welfare Plan Paid DFVCP Payment But Never Submitted Filings

"Large welfare plan client submitted DFVCP payment in 2020 but has never submitted a filing (we do not have a service preparation contract with this client). The group likely crossed 100 participant threshold in 2013 or 2014, but not 100% sure without doing more research. What is their best course of action in this situation? Should they reach out to an ERISA attorney to assist?"

No replies yet   |    Click Here to Add a Reply

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