Message Boards Digest

August 22, 2022

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

Santo Gold created a topic in Correction of Plan Defects

Missed Deferral Opportunity: How Far Back Do We Go?

"We have a 401k plan that has excluded certain employees when they should not have and as a result, quite a few never were given the opportunity to contribute to the plan. The plan sponsor wants to go through EPCRS, make the participants/plan whole. But how far back do they go on this? The plan was effective back in the 1990s and as far as we know has always excluded a certain group of employees (when they shouldn't have). Do we have to go all the way back? Do we go back 3,4,5,or 6 years, go through EPCRS and wait for the IRS to determine if we need to go back further?"

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Peter Gulia created a topic in Retirement Plans in General

If a Company Had Only One Owner-Operator, Who Administers Its Retirement Plan After Her Death?

"A recent BenefitsLink discussion points out a potential difficulty when a retirement plan's named fiduciary is the plan sponsor's sole proprietor and her death leaves doubt about who has power to administer the plan. (The inquirer described an investment custodian's unwillingness to accept, absent a court order, instructions from a person many would treat as the sole proprietor's successor.) Imagine another business similarly controlled and managed by its only owner. It is organized as a corporation or limited-liability company, but no one beyond the sole shareholder or sole member had been named as a director or officer, or as a manager. Is a difficulty about who has authority to administer the retirement plan avoided if the employer/administrator is a corporation or a limited-liability company? Does State law -- whether about a corporation or company, or for decedents' estates -- provide enough authority for someone to manage the corporation or company, and its retirement plan? What are your experiences about whether investment custodians and recordkeepers will accept instructions from someone who shows some reasonable explanation about the source of her authority? What evidence or information is enough to persuade a custodian or recordkeeper to take instructions?"

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Jakyasar created a topic in 401(k) Plans

Starting New Safe Harbor Plan

"Hi A corporation wants to start a new 401k/SH plan (basic match) for 2022. The only non-owner employee was fired early in the year as was stealing money from the company and worked over 500 hours during the year. If the owner sets up a 401k/SH plan today for 2022 and makes no profit sharing contribution i.e. deferral plus safe harbor match, I see no issue, correct? How about, adding profit sharing? As the employee would need to get an allocation for 2022 to pass 410b, would the employee need to be vested at all? Thanks"

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Tax Cowboy created a topic in Employee Stock Ownership Plans (ESOPs)

Preventing Plan disqualification - ESOP 20% Leased Employee Limitation

"Group: In reviewing a client's ESOP Plan docs adopted 2013 the employer excludes leased employees from participating. However, then I read the payroll and employee census and see a leasing company was the employer of record and issued W2's in the leasing Co name. At the time of adoption there were approximately 22 employees including 2 HCE. IRS has begun to audit the plan and we have already received IDR's asking about the leased employees. My research thus far is as follows: Under TEFRA, leased employees are not subject to the same pension rules if the leased employee is covered by a plan maintained by the leasing organization that allows for immediate participation, full and immediate vesting, and employer contributions of at least 7.5 percent of the employee's salary. In other words, Leased employee are subject to employer/plan sponsor pension rules if lease Co doesn't allow immediate participation, full and immediate vesting and employer contributions at least 7.5% employees salaries. Then TRA of 1986 seemed to modify the 1982 law by adding the following: Additionally, IRC Section 414(n)(5)(A) states that the safe harbor provisions do not apply if leased employees constitute more than 20 percent of the recipient's nonhighly compensated workforce.

Q: To prevent the plan from being disqualified is there any argument that the leased employees are under control and direction of plan sponsor and the leasing company doesn't provide a money pension plan with immediate vesting and participation? (I may be getting the rules confused) The '86 law seemed to remove the safe harbor and no other work around to prevent disqualification.

Q: Would the result change if instead of leasing company there was a PEO? Any cases or other treatise to review for my research would be greatly appreciated."

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HCE created a topic in Correction of Plan Defects

Elective Deferral on a Bonus That Is Later Clawed Back.

"A participant made an elective deferral election of 25% of his bonus. The bonus was $4,000, so $1,000 was deferred under the 401(k). However, the bonus was subject to the participant remaining employed with our company for at least one year. The participant has chosen to leave the company after 6 months, and is required to pay back $2,000 of the bonus. How does this affect the $1,000 deferred under the 401(k)? Since half the bonus was forfeited, does that mean we have to remove half the deferral that was based on the bonus before forfeiture? In other words, do we kick $500 out of the plan? *Please note: The numbers are made up, so to the extent some de minimis rule applies to the figures above, it is probably not applicable in this situation. Some other facts:

  • The Bonus was paid this year and is being clawed back this year.
  • The Bonus is going to be paid back directly by the employee (we aren't reducing any compensation payments).
  • On the participant's 2022 tax statement, it will be reported that she earned a $2,000 bonus (not the full $4,000, half of which was clawed back)."
2 replies so far   |    Click Here to Add a Reply

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