Message Boards Digest

November 17, 2022

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

ManUtdFan2013 created a topic in 401(k) Plans

Negative Overall 401(k) Withholding Question

"A client allows for its employees to be paid advanced PTO, and such advanced PTO is eligible for 401(k)withholding and employer match. If the employee leaves employment before earning additional PTO to cover the advanced PTO that was taken (thereby resulting in a negative PTO accrual balance), then the client takes a deduction for the negative PTO accruals from the employee's final paycheck. Sometimes the deduction is taken from severance and other final pay that is not eligible for 401(k) contribution and match. As a result, they sometimes end up with a negative overall 401(k) withholding/earnings/contributions on the employee’s final pay, because this is a 401(k) eligible pay code. I am wondering whether: (1) if the client is permitted to take this negative amount back from the employee's 401(k) account; (2) if the client needs to zero it out when this happens (in other words, zero out the negative YTD 401(k) eligible earnings and contributions); or (3) if there is something else that needs to be done? I would appreciate any feedback, IRS guidance, or hints as to how to approach this question."

7 replies so far   |    Click Here to Add a Reply

Jeff Kirtner created a topic in 409A Issues

Amount of Payment from Nonqualified Plan Based on Appraised Value of Company

"Company would like a deferred comp plan to pay an executive 10% of the value of the company in 5 equal annual payments beginning 60 days after separation of service, where the value of the company would be determined as of the date of separation by an independent appraiser.

Does this proposal violate 1.409A-3(i)(1), which requires that "objectively determinable amounts" be payable on the payment dates, and says an amount is objectively determinable if it is "specifically identified," or if the amount may be determined "pursuant to an objective, nondiscretionary formula . . . (for example, 50% of an account balance)?"

The regulations don't define "specifically identified." Is it broad enough to include the appraised value, or does it need to be an exact number or something close to it?

It wouldn't seem that the appraised value would satisfy the objective, nondiscretionary formula, unless the plan specifies how the appraiser is to come up with the value, which isn't the intent.

If the proposed plan doesn't satisfy 1.409A-3(i)(1), is there any way to argue that provision doesn't apply to payments based on separation from service?"

3 replies so far   |    Click Here to Add a Reply

kmhaab created a topic in Mergers and Acquisitions

Merge 401(k) Trusts Later Than Designated Plan Merger Date?

"When merging two 401(k) plans into a single plan, is it possible to merge the two trusts into a single trust after a designated plan merger date (i.e., corporate action taken to approve the merger and documents merged on the designated date, but trusts moved later)? Plan sponsor acquired a company with a 401(k) plan in 2021 and did not do anything about merging the plans until recently. Section 410(b)(6) transition rule ends 12/31/2022. Providers have said it's not possible to merge the two trusts by that date. Can the plan sponsor approve the plan merger and adopt a single plan document as of 12/31/2022 and merge the trusts in February 2023? Does this satisfy Section 410(b)(6)? Or do the trusts have to be merged to actually constitute a plan merger? Also, in what situations (if any) can two members of a controlled group maintain two separate 401(k) plans?"

2 replies so far   |    Click Here to Add a Reply

Jakyasar created a topic in Retirement Plans in General

DB plan - RMD related

"Owner just took the 2022 RMD in one shot based on 60% vested balance. Now decides to terminate the plan in 2022 i.e. becomes 100% vested. Does he need to get additional RMD or still based on 12/31/2021 vested percentage?"

4 replies so far   |    Click Here to Add a Reply

A Shot in the Dark created a topic in Distributions and Loans, Other than QDROs

Plan Termination Distribution Election Form Maintained on File

"Defined Contribution Plan is in termination stage. IRS Form 5310 has been submitted and the Plan is waiting for IRS determination letter. The Plan Administrator wants to wait for the favorable determination letter prior to processing distributions. However, the Plan Administrator would like to mail out distribution election forms for the Participants to complete sooner than later. How long can the administrator hold the completed distribution election forms on file prior to processing? Is it 180 days? For example, if the Plan Administrator receives completed distribution election forms and maintains them on file and the IRS determination letter arrives 7 months after receipt of the forms, would that require new election forms to be obtained."

2 replies so far   |    Click Here to Add a Reply

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

Cash Balance Plan Is Terminating -- Need to Purchase 5 Small Deferred Annuities

"A small CB Plan is terminating. 2 participants have elected deferred annuity. 3 participants with a balance of $5K did not return the forms. Cumulative value for those 5 is about $60K. Need a recommendation/reference/contact info -- who would underwrite this, if anyone? What are the options if no insurance carrier is interested?"

2 replies so far   |    Click Here to Add a Reply

Belgarath created a topic in 457 Plans

One-Person LLCs Are 'Disregarded Entities' -- OK to Participate in 457(b) Plan?

"Suppose you have a tax-exempt (non-governmental) corporation sponsoring a 457(b) plan. This corporation also has a couple of 1-person LLC's that are 'disregarded entities' for tax purposes. Can those employees (1 in each LLC) be allowed to participate in the sponsoring organization's 457(b) plan? (Assuming they otherwise qualify in the select group of management or highly compensated employees.) Common sense (to me) says yes, but does anyone know of anything concrete one way or the other? Or have an opinion?"

No replies yet   |    Click Here to Add a Reply

Tom created a topic in 401(k) Plans

Elimination of Annuity Options in a 401(k)

"We are taking over a plan that has an insurance company document. The document indicates spousal consent is not required for distributions (unless the plan includes a source that requires such - and there is no such source in the plan.) The plan offers 5 annuity options as alternative forms of benefit. We never have those in plans and I'd like to eliminate these with our restatement effective 1/1/2023. It's been awhile since I looked at this. Upon some quick research it appears that yes these can be eliminated prospectively with a 90-day advance notice and provided the plan has the lump sum option. I like to get the opinion of this group which is very trustworthy - more so than my own "research." Thank you, Tom"
1 reply so far   |    Click Here to Add a Reply

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