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Message Boards Digest

July 29, 2022

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

HCE created a topic in 401(k) Plans

Post-Severance Compensation: '75 Days' Works as Well as '2-1/2 Months'?

"The law says that post-severance compensation can be included if paid within 2-1/2 months of severance. Our TPA wants to put it in their system that post-severance compensation is included if paid within 75 days of severance. They says 2-1/2 months is vague and potentially variable (given leap years), so their system would work better if they use a set number of days. Is this allowed? Is '75 days' a good faith interpretation of the meaning of 2 1/2 months? Or should we insist on '2-1/2 months' as the appropriate time period?"

2 replies so far   |    Click Here to Add a Reply

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

Who Becomes 100% Vested At Plan Termination?

"I have a Cash Balance Plan that is about to terminate. Which participants become 100% vested at termination? Obviously anyone who is currently active in the plan becomes 100%. What about terminated, non-vested participants who have had less than a 5-year break in service? There are former employees who have anywhere from a 1-4 year break, but are not actively working."

2 replies so far   |    Click Here to Add a Reply

Towanda created a topic in 401(k) Plans

402(g) Excess -- Correction Options After April 15

"Client's wife (HCE) contributed $19,500 both to her husband's 401(k) plan, and the 401(k) plan for another company she works for in 2021. This was discovered in July 2022. As I understand it, while EPCRS permits the participant to distribute the excess even after April 15, it may not be the best outcome for the participant. Without going through EPCRS, any excesses remain in the 2 plans, a 1099-R is issued on the $19,500 principal for the year of excess (2021), and the funds, when distributed, become taxable again. Without EPCRS the spouse receives a 1099-R for 2021 reporting a taxable event in the amount of $19,500. Twenty years later, at age 65, she takes a distribution, and it is once again taxable to her (plus earnings), but without the 10% early withdrawal penalty ... correct?

Further question: Is this undistributed excess eligible for rollover, or must it be tracked separately and processed as a taxable distribution (with applicable earnings) when a distributable event occurs? With EPCRS The spouse has not attained age 59-1/2. Therefore she would be subject to the early withdrawal penalty for 2022 when she takes the distribution, and the client pays the TPA to do the painful work of preparing 1099-Rs for both 2021 and 2022. But, the money is out of the plan, and the problem disappears. Because the April 15 grace period has passed, does she pay an early withdrawal penalty for both 2021 and 2022? I know I'm overthinking this, but the more I research the worse it gets."

5 replies so far   |    Click Here to Add a Reply

PS created a topic in Plan Terminations

Allocation of Small Amount of Funds in Forfeitures Account at Plan Termination

"Terminating plans with forfeiture balance. There are couple of terminating plans with small balance in the forfeiture account (example: $500 or $1,000). The plan sponsor doesn't have any invoice, so the only option is to re-allocate to the eligible participants. The plan sponsor is required to determine the eligible participants for which they will require to refer the plan document, but because the dollar amount is less, they just don't want to do this. So they end up re-allocating the funds equally or on a pro-rata base to the ones who were active during the plan termination. Now this leads to a testing failure. How can this be avoided? Is there any exception on the re-allocation, so that they don't fail the testing?"

2 replies so far   |    Click Here to Add a Reply

KevinMc created a topic in 401(k) Plans

2022 Deadline for Form 5500/5558 -- Sunday July 31, or Monday Aug. 1?

"Is the deadline for calendar year plans Monday, August 1, because July 31 falls on a Sunday?"

1 reply so far   |    Click Here to Add a Reply

HCE created a topic in Employee Stock Ownership Plans (ESOPs)

Correction of 415 Violation for One Participant in 401(k)/ESOP Combo

"We have a 401(k) and and ESOP. We recently had a 415 violation (one participant) that we are trying to correct. The ESOP provides that, in the event of a 415 violation, allocations under the ESOP should be reduced as necessary to not exceed the limitation. The question is, do we have to correct that way? We would prefer to give the one participant his full allocation under the ESOP and instead correct the 415 violation by kicking out elective deferrals under the 401(k) Plan.

We realize this isn't in line with the plan document, but is this something we can correct by amendment (i.e., amending the plans so that a 415 violation is corrected by kicking out elective deferrals under the 401(k) rather than reallocating allocations under the ESOP)? Or do we even have to amend -- can we just kick money out of the 401(k) and say that there is no issue anymore that needs to be corrected pursuant to the ESOP language?

Please note, the failure is for the 2021 Plan Year."

2 replies so far   |    Click Here to Add a Reply

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