Message Boards Digest

August 24, 2022

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

pmacduff created a topic in 401(k) Plans

Normal Retirement: Service vs. Participation Years for Vesting

"Plan defines normal retirement as 'the later of 59 1/2 or 5 years of plan participation'. 100% vesting occurs at that point per the Plan. Plan defines a 'year of service' as '1000 hours during the plan year' for vesting. Plan does not separately define a year of participation.

Participant was hired in 2017 at age 66. Terminated employment as of 02/05/2021 (but had no hours or comp in 2021). Participant had 4 years over 1000 hours (2017, 2018, 2019 and 2020). Employer match has 2/20 vesting. Participant is 60% vested in the match upon termination on 02/05/2021 because he had not yet reached his NRD.

So far so good. Participant is rehired as of 05/17/2022, working approximately 16 hours per week. Re-enters plan on rehire per plan provisions. Participant needs another 2 years of participation to reach normal retirement under the plan definition.

If he ends up working over 1000 hours, he will become 100% vested by the vesting anyway? Because he's only scheduled for 16 hourse/week he probably won't make 1000 hours. Where I'm getting hung up is trying to figure out whether this participant will fully vest upon attainment of the plan's normal retirement definition regardless of his hours worked in the next two years."

5 replies so far   |    Click Here to Add a Reply

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user99 created a topic in Form 5500

Final Form 5500-EZ for Plan That Terminated in 2022 -- Use the 2021 Version of the Form?

"Somebody terminated a one-participant 401(k) early this year (and distributed all assets), and is filing the final 5500. The CPA is asking what the final plan assets should be for line 6(a). Plan assets are zero, but I guess the confusion comes from the fact that the current IRS 5500 is for 2021 (the 2022 version isn't out yet). The 7-month deadline is approaching, so there's not a lot of time to wait. Would they just use the 2021 form and indicate at the top that the plan terminated in 2022? Presumably they:

  • Check the box for a short plan year
  • Enter 1/1/2022 and the termination date as the plan year?

The plan was a calendar-year plan, but again, the plan terminated early in 2022."

2 replies so far   |    Click Here to Add a Reply

ERISA guy created a topic in 409A Issues

Elective Deferrals: Can Be Subject to a 409A Substantial Risk of Forfeiture, or Must Be Fully Vested at All Times?

"Under a nonqualified 409A plan, must elective deferrals be 100% vested at all times, and only nonelective contributions may be subject to a vesting schedule? Or may elective deferrals also be made subject to a substantial risk of forfeiture?"

1 reply so far   |    Click Here to Add a Reply

CA93619 created a topic in 457 Plans

457B Withdrawal Tax Implications?

"I'm retired and looking into purchasing real estate with some of my funds from my 457 account. I'm trying to figure out the federal tax rate if I make a withdrawal. Does it count as income that will it be added to our annual income between my retirement and my wife's salary? If that's the case it will probably bump us into a higher tax bracket.

Or is there straight federal tax rate when you make the withdrawal?

I live in California so I know they will want their share as well. I plan on talking with my CPA, but I thought this forum would be a great starting point and get advice from others here."

2 replies so far   |    Click Here to Add a Reply

Rita created a topic in 401(k) Plans

QNEC; Already Contributed $20,500 Limit to 401(k); Turned 50 Years Old in March 2022 -- Will QNEC Count Towards Catch-Up Limit?

"I contributed the maximum 401K limit amount of $20,500 from Jan 2022 to June 2022. Today, August 23, my 401K shows a QNEC contribution of $100.

[1] Will I have exceeded the 401K limit by $100.00 now due to QNEC contribution? Does QNEC count towards the $20,500 basic 401K limit?

[2] I turned 50 years old this year in March. Will the QNEC contribution count towards catch-up contribution even though I have not asked my company to deduct my paycheck for catch-up contribution? Should I start deducting for catch-up contribution (with limit of $6400+$100QNEC = $6500)?

[3] Does the QNEC contribution show up in my W-2 as 'Elective Deferrals' with a total of ($20,500 + $100 = $20,600 + $6,400 = $27,000 as one entry on W-2, or separate entries for Basic 401K limit of $20,500, separate entry for QNEC, and another separate entry for catch-up contribution?

[4] Do I need to fill out any special IRS forms when doing taxes for QNEC especially if it counts towards the basic 401k limit of $20,500 which I would have now exceeded by $100?"

2 replies so far   |    Click Here to Add a Reply

steve45 created a topic in 401(k) Plans

What Is ERISA's Bond Requirement at Year-End When Additional Employer Contribution Made After Year-End?

"I'm working on a plan with year-end assets (12/31/2021) of $125,000, at John Hancock. Plan made profit sharing contribution of $30,000. Do I need to consider bond amount to be based on $155,000 (with PS receivables) of 10%, or only count on $125,000 (John Hancock)?"

4 replies so far   |    Click Here to Add a Reply

Will.I.Am created a topic in Distributions and Loans, Other than QDROs

Hardship Distributions -- Rely on Employee Certification?

"If a plan has elected the safe harbor rules for hardship distributions, can the plan sponsor rely on employee certifications with respect to the amount to satisfy the financial hardship and the employee's need for the hardship distribution? I want to make sure we're OK to just have them sign a certification statement without having to also request documentation proving the hardship."

1 reply so far   |    Click Here to Add a Reply

David Olive created a topic in Plan Document Amendments

Discretionary Amendment - Amending Forfeiture Allocation Methods - Anti-Cutback Violation?

"The plan document currently provides that forfeitures may be allocated to Nonelective Contributions and to pay Plan Expenses. The employer would like to amend the plan to allow forfeitures to be allocated to, in addition to Nonelective Contributions and Plan Expenses, also to: (1) Additional Matching Contributions, (2) Applied to Reduce Nonelective Contributions and (2) Applied to Reduce Matching Contributions. My initial thoughts are this amendment should be effective the beginning of the next plan year to avoid a potential Anti-Cutback violation? Any other issues I may be missing?"

1 reply so far   |    Click Here to Add a Reply

PS created a topic in Plan Terminations

Retroactively Change Termination Date in Order to Avoid Sec. 415 Problem?

"Plan terminated due to asset sale and the termination date was 06/30/2022. The client failed 415 testing because the testing was done for the period 01/01/2022-06/30/2022. Because the plan failed testing they want to change the termination date to 09/30/2022. As per the client, if the termination date been set at September 30, 2022, the pro rata annual limit of $61,000 would have been $45,750 and the 415 Total Excess column on the far right of this calculation would have been $0 for everyone. The termination process has already been started and notification has been sent to participants and participants have already started requesting for distribution. Can they change the termination date now? What would be the repercussions?"

No replies yet   |    Click Here to Add a Reply

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