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December 8, 2022

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

401king created a topic in 401(k) Plans

5-Year Rule on Roth, Beneficiary Distributions

"Client asked this and I'm hoping for someone to confirm my findings. Beneficaries of a Roth 401k are subject to the 5-year rule based on the decedent's first deposit year. Non-Spouse Beneficaries of a Roth 401k must withdrawal the funds within 10 years. Assume a participant converted funds in 2022, then passed away in 2023. The Beneficiary could make tax-free withdrawals beginning 1/1/2027, and the entire account must be distributed by 12/31/2023. In other words, I'm hoping to confirm that a beneficiary may only have a 5-6 year window for tax-free withdrawals in this example. OR, is the 5-year rule eliminated for beneficiaries?"

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ratherbereading created a topic in 401(k) Plans

When is First RMD Due?

"I need some help with this. Participant turned 70 1/2 on 11/16/2019. DOT 12/31/2003. Deferred RMD to 4/1/2020. RMDs were suspended in 2020. Did not take one in 2021. Should the first one have been in 2021? Thanks in advance!"

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

Cushion calculation due to increase in benefits to HCE's

"I have a question regarding the calculation of the cushion amount under 404 for a cash balance plan since the plan was amended to freeze and then to increase benefits (for HCE’s). The facts are as follows: - only 2 participants in plan are HCE’s - cash balance credits; 85% of salary for both participants; salaries for both participants have been in the 240K range. - plan was amended in early May 2020 to freeze benefit accruals (contribution credits); There is a 1,000 hour requirement and neither participant received an accrual in 2020. - plan was amended effective 1/1/2021 to unfreeze benefit accruals (adopted at the end of 2021); new contribution credits are a flat 250K for both participants. Since the plan was amended to increase benefits in 2021 for HCE’s, the cushion amount in the maximum contribution calculation cannot reflect the increase in benefit formula for 2 plan years. This would affect the maximum contribution calculation for the 2022 and 2023 plan years (the funding target for the 2021 valuation used the frozen accrued benefit). Please correct me if I’m wrong. With respect to the cushion amount for the 12/31/2022 valuation, my inclination is to use the 85% of salary formula through 12/31/2021 for the funding target (for the cushion calculation) with $0 cash balance contribution credit for 2020. My confusion comes from the fact that the plan was frozen before the increase in benefits to the HCE's. Any thoughts?"
2 replies so far   |    Click Here to Add a Reply

BG5150 created a topic in 401(k) Plans

Brokerage Accounts Setup Under Employer EIN

"What's the remedy? Is there any harm in keeping it that way? At the brokerage house, they would have to create all new accounts with a trust id and transfer them from the old accounts. Evidently there's lots of paperwork involved."

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BG5150 created a topic in Retirement Plans in General

Is a Top Heavy contribution subject to coverage rules?

"Situation: Plan is Top Heavy 2 HCE, one owner, one not )and non-Key) 2 NCHE owner defers max 2 NHCE defer enough to get 3% match Non-owner (N/O) HCE does not defer at all so no match N/O HCE is due 3% TH contrib. That gets contributed to the discretionary source. Is there a problem here? No NHCE getting a 401(a) allocation."

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Luke Bailey created a topic in Distributions and Loans, Other than QDROs

Decedent Was Receiving RMDs But Died This Year Before Receiving 2022 RMD; Dispute About Correct Beneficiary May Preclude Payment Before End of Year

"Treas. Reg. 1.401(a)(9)-5, Q&A-4 is pretty clear that the year of death RMD for an individual who was past his or her RBD must be paid to the decedent's beneficiary in the year of death. But suppose that the plan really can't determine who the beneficiary is, because there are competing possible beneficiaries each of whom raises significant fact issues against the other. These fact issues cannot be resolved by the end of 2022 and it would be imprudent to pay the 2022 RMD (which is a significant amount) to either party by the end of the year. So the plan probably won't pay it to anyone until 2023....

'My question is whether anyone is aware of any formal or informal guidance on this subject from IRS (I have not been able to find any) or faced the situation themselves and discussed with someone at IRS. If so, inquiring minds want to know what they said."

3 replies so far   |    Click Here to Add a Reply

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

Employer Premium Payment Outside Cafeteria Plan

"Forgive the very basic question, but is it permissible for an employer to pay, on a tax-free basis, all or a portion of one employee's fully insured group health premiums outside of the employer's cafeteria plan? Assume the one person is highly compensated. No nondiscrimination rules would be directly applicable because the group health plan is fully insured. Would the cafeteria plan nondiscrimination rules cover this type of payment? In other words, does the existence of the cafeteria plan (and the other non-HCEs' requirement to pay a larger premium under the cafeteria plan) eliminate the ability for the employer to make tax-free premium payments under section 106?"

2 replies so far   |    Click Here to Add a Reply

Gilmore created a topic in 401(k) Plans

Switch Next Year's Safe Harbor

"Calendar year 401(k) plan provides for a 3% safe harbor nonelective. Employer wants to change to safe harbor match for 1/1/2023. Discussions started weeks ago, but employer got side tracked with personnel changes, including board members who were supposed to be making this decision. They still want to make the change, but now that we are passed the safe harbor notice period what is the risk if they proceed with amending the plan and giving out the notice of the safe harbor match say, next week. The RK supposedly already sent the 3% notice, although that has not been confirmed."
2 replies so far   |    Click Here to Add a Reply

dabram09 created a topic in Other Kinds of Welfare Benefit Plans

Section 129 Dependent Care (DCAP) NDT Question

"Hi, similar to question below. Small headcount plan where only HCE's actually made DCAP contributions. Company does employ NHCE's. Not worried about 25% concentration test. Would this plan fail 55% Average Benefits Test just because zero of its NHCE's make contributions? I would also appreciate a source if anyone has one."

1 reply so far   |    Click Here to Add a Reply

Tom created a topic in Distributions and Loans, Other than QDROs

Offset Small Residual Balances Against TPA Processing Fee?

"95% of our our plan clients use record keeping platforms fortunately. But there are those with brokerage accounts. We normally charge $125 for a distribution (we provide election form and tax notice, letter to plan sponsor to request the funds from the custodian, we write the distribution checks or issue ACH, withhold taxes and pay through EFTPS and do the 1099-R. We charge more for EFTPS, each 1099-R and 945 if needed. Very time intensive obviously. We are struggling with residual balances that come in once someone's account has been closed. We provide the fee disclosure each year as participants pay the $125. We had a policy of reducing our fee so as to be no more than 10% of the distribution - didn't want any DOL attention. So I'm ready to write off balances less than our fee. I guess those funds would go into an unallocated suspense account. Curious what others do."

1 reply so far   |    Click Here to Add a Reply

Belgarath created a topic in Retirement Plans in General

PEP's

"Couple of questions on this, as we aren't a PPP. We are TPA on a plan sponsored by a corporation, (a controlled group with one other corporation which signed on as a participating employer) where a financial advisor convinced them to move all the funds to a PEP. Fine. This happened a couple of months ago. (Calendar year plan.) We have been asked to complete the plan administration for the 2022 plan year. Is it ok for the PPP to farm out the administration to a TPA like us? In addition, any thoughts as to why we might not WANT to do this admin, or is it just carry on as usual - We've never been involved with a PEP/PPP yet. All thoughts appreciated!"
3 replies so far   |    Click Here to Add a Reply

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