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Message Boards Digest

October 12, 2022

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

BG5150 created a topic in Form 5500

5500 for a PEP -- Must Use Full Form 5500 Rather than 5500-SF?

"First time filing for a PEP. Small plan filer. Am I right that they can't use a 5500-SF and have to use 5500 w/ Schedule I? And all we need to do is provide the same attachment as a MEP, with listing the companies and the contribution percentages? And mark 5500 as Multiple Employer Plan?"

2 replies so far   |    Click Here to Add a Reply

RPP2001 created a topic in 401(k) Plans

Application of State-Sponsored Retirement Plan Mandate to Employer's Remote Employees

"A company has remote employees in a state that has a state-mandated retirement plan but the employer itself is domiciled in a state that does not have such a requirement. If the employer does not provide a retirement plan of its own in the private marketplace, and if it does not want to start one, does that mean the employer has to work with the state plan for those applicable remote employees?"

1 reply so far   |    Click Here to Add a Reply

Cassopy created a topic in Correction of Plan Defects

Is EPCRS an Option Here? Plan Not Amended to Reflect More-Generous Terms Required Under Collective Bargaining Agreement

"Employer entered into a new collective bargaining agreement a couple of years ago that provided additional non-elective contributions and full vesting under the 401(k) plan (more generous than what the plan provides). The plan was not amended to incorporate these negotiated terms of the CBA. What is the fix?

Technically, there is no plan failure. Rev. Proc. 2021-30 states that 'VCP provides general procedures for correction of all Qualification Failures: Operational, Plan Document, Demographic, and Employer Eligibility.' The plan has been operated in accordance with its terms, so there is no 'operational' failure, and it doesn't violate Code Section 401(a) by its terms, so there is no 'plan document' failure. And there is no failure to satisfy the requirements of Section 401(a)(4), 401(a)(26), or 410(b) (a 'demographic' failure). The employer is eligible to establish a 401(k) plan, so there is no 'employer eligibility' failure.

Thus, I read EPCRS to say that there is no relief available for this scenario. Is that accurate?"

3 replies so far   |    Click Here to Add a Reply

dragondon created a topic in 401(k) Plans

Non-Elective Safe Harbor vs. QNECs and QMECs

"Can you please explain the difference between a safe harbor plan which makes a nonelective 3% distribution to employees vs a QNEC or QMEC in order to pass ACP and ADP testing? To me it seems that they are basically the same means to an end which is making the plan compliant, so what would be the benefits and disadvantages of using each?"

3 replies so far   |    Click Here to Add a Reply

austin3515 created a topic in 401(k) Plans

CARES Act Amendments -- Deadline Has Been Extended, or Not?

"So I keep getting all of these email blasts about CARES Act amendments being extended. But apparently that only applies to the RMD waivers and not all the loan/distriubtion rules.

Why in the world would anyone do half of a CARES Act Amendment? This must be an oversight. Has anyone confirmed that this was intentional? This is really not an extension at all!"

9 replies so far   |    Click Here to Add a Reply

June Shoji created a topic in Defined Benefit Plans, Including Cash Balance

Pension Money Has Been Paid Back Retroactively: 1099-R Issues

"When pension distributions are requested to be paid back retroactively due to policy change, etc. how are the pay backs treated at tax time?

I didn't see any prior year adjustments on the 1099-R. Some employees had the option of reducing future pension distributions until paid back. Others had the option of paying back in a lump sum. How would previously paid taxes be adjusted on the lump sum payback? Would the 1099-R show a reduced gross income in box 1 or would another document be issued for this pay back?"

5 replies so far   |    Click Here to Add a Reply

Nate S created a topic in Litigation and Claims

Effect of the Mandatory Victims Restitution Act on ERISA's Anti-Alienation Provision

"Background: ERISA provides anti-alienation protection to qualified retirement plans; early Supreme Court cases deferred exemptions back to Congress, 1984 Congress allows QDRO's, 1997 Congress allows reimbursement for fiduciary breaches or criminal activity involving the Plan.

Mandatory Victims Restitution Act ('notwithstanding' any other Federal law) has otherwise been used as end-around of anti-alienation for variety of other restitution-based claims against 401(k) accounts.

[1] Has a MVRA-based appeal been heard by the Supreme Court and what was the result if so?

More recently, appeals have sprung up concerning the mandatory 20% withholding and the 10% early withdrawal penalty. Apparently, the IRS has opinioned that the 10% penalty does not apply in instances of forced distributions, easy enough to understand since that's a facts and circumstances determination anyway. However, the caveat with MVRA is that the government is only 'standing in the shoes' of the participant, meaning the participant directs the withdrawal to themselves, but the government receives the monies so demanded by the restitution order. In general, the plan is required to withhold 20% for federal income tax withholding, which shorts the restitution order; and since the participant is still the 'recipient' before remanding the funds to the government, they're also stuck holding the bill for the taxable income! So, where the participant is following court-ordered direction, they are then triple-penalized: [1] the restitution payment itself, [2] the restitution order is now short 20%, and [3] the participant now has to recognize taxable income often reaching hundreds of thousands of dollars, at a time when they are incarcerated, or otherwise destitute following liquidation of any available assets before reaching into their 401(k)

[2] Is anyone aware of a final resolution to any of the 20% withholding appeal cases? Anything I saw noted them being remanded back to the originating district court by the circuit court to address these deficiencies. (I fully recognize that these are actions to correct a wrong committed by a convicted individual. I'm merely looking for commentary or known resolution to the issues of MVRA abuse to circumvent the sacred anti-alienation provision and basic justification for ERISA; and any procedural establishments for handling the 20% mandatory withholding.)"

1 reply so far   |    Click Here to Add a Reply

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

Employee Premiums for Self-Insured Health Plans: When Do They Become 'Plan Assets'?

"My understanding is that employee premiums paid toward self-insured group health coverage are considered ERISA plan assets, but may be held in the employer's general assets due to the trust-requirement relief. However, the other ERISA rules (fiduciary obligations, prohibited transactions, reversions, etc.) continue to apply to the employee premiums.

Say the total premium for a month is $1,000, of which the employee pays $200. The employer sets aside $1,000 in an account in its name and EIN and there is no other indicia of ownership or rights by the plan. How do you determine the portion of the account that is plan assets subject to, say, the PT rules? Can you treat the account as using employee contributions first? Would this accounting restart every payroll cycle when new employee premiums are withheld?"

4 replies so far   |    Click Here to Add a Reply

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