Message Boards Digest

July 28, 2022

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

metsfan026 created a topic in Defined Benefit Plans, Including Cash Balance

Share a Sample 204(h) Notice?

"Does anyone have a sample 204(h) notice? I have a Cash Balance Plan terminating, so it is required to be sent 15 days prior to termination correct? Thanks in advance!"

4 replies so far   |    Click Here to Add a Reply

WDIK created a topic in Form 5500

Penalty for Filing Exempt Form 5500-EZ After Deadline

"Plan assets are well below the $250,000 filing requirement, but Form 5500-EZ has always been filed. For the 2020 plan year, a filing was made after the extended due date. The IRS has assessed an extremely large penalty. My colleague, who is helping the plan sponsor, spoke with the IRS. He was told that because the form was filed (even though it was not required), the penalty applies. The IRS representative did offer the option to write a letter asking for the penalty to be waived but gave no guarantee of relief. This makes little sense to me. What do you think?"

4 replies so far   |    Click Here to Add a Reply

cpc0506 created a topic in 401(k) Plans

2 Safe Harbor Plans in the Same Plan Year

"1. Client currently has a safe harbor match plan (Plan 001) that was restated for Cycle 3 effective January 1, 2022. Document was executed December 2021. I am not aware that this plan has been frozen any time in 2022.

2. Client has decided to add a Cash Balance Plan for 2021 but determined that the profit sharing formula in the current 401(k) Plan for 2021 would not work.

3. Initially, the client requested a new profit sharing only plan (Plan 002) effective for 2021.

4. They have now come back and ask that we add deferrals to Plan 002 effective October 1, 2022 and add safe harbor nonelective at the same time.

My observations:

I agree that the client can establish a profit sharing only plan effective January 1, 2021 so long as the document is executed by the due date of the client's extended corporate tax return.

Client is an S-corporation, so document would need to be signed by 9/15/22.

I know that it is allowable to add safe harbor to a current PS only plan so long as you allow for 3 months of deferrals. So, under normal circumstances, deferrals and safe harbor could be added no later than October 1st and would need to be executed by 10/1/2022, which is not an issue since the document for Plan 002 will need to be signed by 9/15.

My concern is the existence of Plan 001 and that the same employees would be covered under both plans in the same plan year. Can a client sponsor both a safe harbor match plan (Plan 001) and a safer harbor nonelective plan (Plan 002) in the same plan year? Any guidance and support you can provide would be greatly appreciated."

1 reply so far   |    Click Here to Add a Reply

david rigby created a topic in Estate Planning Aspects of IRAs and Retirement Plans

Keeping Separate Retirement Accounts

"The following may or may not be hypothetical. HE and SHE are considering becoming Husband and Wife. Second marriage for both. Both have adult children from first marriage. Both age 70. Both have investments that fall into the common categories:

a) individual investments, such as stocks, bonds, mutual funds, none of which are part of an IRA or qualified plan.

b) small cash accounts (checking, savings, CDs).

c) retirement accounts, including all of the following: traditional IRA, Roth IRA, 403b plan (governmental), and 401a plan (ERISA-covered). All retirement accounts are individual accounts, not defined benefit. None of these accounts have reached Required Minimum Distribution age. All accounts existed long before HE and SHE met each other and have no potential beneficiaries other than children. There are no real or potential QDROs. All current accounts have named children as beneficiary(ies).

There may be other property with small (but non-zero) value such as vehicle, artwork, real estate, antiques.

Both parties want the following to happen:

  • Current retirement accounts will not be commingled.
  • Upon the first to die, the retirement accounts and investments of the deceased will remain in existence and the income (and/or RMD) will be payable to (for the benefit of) the survivor. The principal of the retirement accounts and investments would NOT be available to the surviving spouse unless the spouse's investments become exhausted. Non-investment property (i.e., items that do not produce income) of the first-to-die (such as a car) might remain with the surviving spouse or go to the surviving children of the deceased (to be determined).
  • Upon the death of the second, the ownership of all remaining investments (in all categories above) will pass to the children of the original owner. For example, if HE dies first, at the time SHE dies, all of HIS investments and IRAs and accounts will become owned by HIS children, and all of HER investments and accounts will become owned by HER children.

What method(s) can be used to accomplish this? Would the marriage automatically alter any beneficiary designations in effect for any of the above investments or accounts? Does it require both pre-nuptial and ante-nuptial agreements to document the intent and actions? What have I forgotten?"

2 replies so far   |    Click Here to Add a Reply

TPApril created a topic in 401(k) Plans

Plan Adopted, No Action Since June 30. Still Effective?

"401(k) plan was adopted 1/1/20. There have been no deposits through 6/30/22. How long can a plan continue to be a plan without any actual plan activity?"

4 replies so far   |    Click Here to Add a Reply

AJC created a topic in Retirement Plans in General

Keeping Fiduciary Insurance Policy (Because of QRP) After Selling or Closing a Business

"Should a business owner keep fiduciary insurance policy (because of a Qualified Replacement Plan while business was active) for a few years after closing or selling their business? This could include ERISA bond coverage, employment practices liability, and a fiduciary and crime policy. Any related thoughts?"

3 replies so far   |    Click Here to Add a Reply

Belgarath created a topic in 403(b) Plans, Accounts or Annuities

403(b) Plan Sponsor Purchases the Stock of a For-Profit Corporation

"A 501(c)(3) non-profit (let's call it Loquacious Lumberjacks) intends to purchase 100% of the stock of a for-profit corporation (let's call it Anteater's Anonymous). Clearly a controlled group under 1.414(c)-5(g), example 1.

LL sponsors a 403(b) plan which includes a match. AA sponsors a 401(k) plan, about which I know nothing at this point.

Now, LL can continue to satisfy the Universal availability requirement of 403(b) by excluding employees of AA as permitted under 1.404(b)-4(ii)(B). However, when it comes to coverage/nondiscrimination testing, I'm not 100% sure how it works.

It appears that under 1.410(b)-6(g)(3), for coverage testing, AA is permitted to treat the employees of LL as excludable employees, as long as they meet a couple of requirements -- (1) no employees of LL are permitted to participate in AA's plan, and (2) at least 95% of AA's employees are permitted to participate in AA's plan.

Let's suppose they meet these requirements. And under 1.410(b)-7(f), for AA's purposes, contributions to LL's plan are disregarded if AA makes profit sharing contributions (although oddly, the reverse does not appear to be required). LL does not make PS contributions, so that leaves only matching contributions.

For the matching contributions under LL, it would seem that nothing in testing would change, since AA's employees are excluded for Universal Availability purposes, so cannot receive the match.

I'm not at all certain that I'm not missing something. Any comments would be VERY appreciated."

2 replies so far   |    Click Here to Add a Reply

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