Message Boards Digest

January 13, 2023

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

Jewels0110 created a topic in 401(k) Plans

How Do You Handle 401(k) Catch Up on the Payroll Side?

"We use Fidelity as our 401(K) Administrator that allows those age 50 or older to elect pre-tax/Roth and catch-up. The problem is that many of our employees are electing catch up when they will not be maxing out on their pre-tax/Roth IRS limit. We only match on pre-tax and Roth. This leaves us with the issue that what should be regular pre-tax or Roth is being captured as catch up in the payroll contribution side of things. We do not true up at year end or termination to ensure the match is correct so this is one issue. However, I believe this can be corrected with some rule built in to only deduct regular pre-tax and/or Roth until capped out and then catch up deductions would begin. But I am not having much luck selling this. Could anyone share how this is done in your system to avoid this type of issue? We use Workday payroll. Thank you!"

5 replies so far   |    Click Here to Add a Reply

D Lewis created a topic in 401(k) Plans

Participant Died After Taxable Distribution Processed But Before Check Is Cashed - Beneficiary Wants Rollover Instead

"A woman suffered a stroke a year or so ago. She needed cash ... In late December 2022 she took a $450,000 cash distribution -- $90,000 was W/H. A couple of days later, but still in 2022, she unexpectedly died. The money is no longer needed and the husband would rather it not be taxed. Normally she would have 60 days to roll it over if she came up with the withholding. Husband said he could afford the $90k, but the wife is deceased, so I don't think there is a way to do that. If it was in the plan, he could roll it to a spousal IRA, but I don't think that can happen without having the distribution reversed first. The check for the $360,000 has not been cashed. Husband has it in his possession. I doubt the plan can reverse it. Can the plan limit the damage by voiding the $360k check and making the distribution $90k -- 100% withheld? Any other options, or are they stuck?"

No replies yet   |    Click Here to Add a Reply

waid10 created a topic in Other Kinds of Welfare Benefit Plans

Employer Provides Employee Discount on Its Physical Therapy Services: Does That Create an ERISA Plan?

"A physical therapy practice offers all employees (doesn't matter full-time, part-time, HCE, NCHE) and their families a workplace perk. They have a policy where employees and families receive a discount on any physical therapy services they need. The employee provide insurance information and insurance is then billed. The employee is responsible for paying all cost share amounts. After that, the employee pays no more than $75 per visit. My questions are: [1] Is this structure permissible? [2] Does this policy create an ERISA-covered plan that would require a plan document, 5500, etc.?"

3 replies so far   |    Click Here to Add a Reply

Rg created a topic in 401(k) Plans

One-Time Irrevocable Election Not to Participate

"I have a small business 401k and PSP which has language which allows a one-time irrevocable election not to participate. An older ex owner executed this election after disclosure of the plan, but before it became effective. I assume they did this because the money would be subject to RMDs soon, and they didn’t want to have to manage another account. They received no compensation or other consideration for electing not to participate? Is this valid? I am worried that they may claim they should have been covered, especially on the profit sharing side after some time has gone by. Is the proper way to confirm this by requesting a private letter ruling?"

1 reply so far   |    Click Here to Add a Reply

cheersmate created a topic in Correction of Plan Defects

Minimum Required Distribution Rolled Over Accidentally

"A Balance Forward Profit Sharing Plan had an age 72+ non-owner Participant retire in late November 2022. The Participant Elected a Rollover to an IRA for the rollover eligible portion, and waived all tax withholding from the Minimum Required Distribution portion. Total Vested Account approximately $25,000, Minimum Required Distribution portion is approx $1,200, leaving approx $23,800 rollover eligible. The Employer requested a single check from the Plan Account made payable to the IRA FBO the Participant for the entire Vested Account Balance. This check was issued in December 2022 and mailed to the IRA custodian. The 2022 Form 1099-R is not yet issued. Question 1 A and B: Since the tax filing deadline has not come to pass and the 1099-Rs have not yet been issued, A. can the Plan issue two [2] 1099-Rs, one reporting a taxable distribution in the amount of $1,200 with zero taxes withheld (because they were waived by election) and distribution code 7, and, a second reporting the Rollover Eligible portion (approx $23,800) as a non-taxable amount, with rollover code G, while the Participant requests the $1,200 be removed from the IRA account? B. If completed before the tax filing deadline it may be removed with out penalty -- correct? To note, the Plan is a balance forward plan with a 1/31 plan year end. From the plan's perspective there is no interest adjustment necessary since all was paid prior to the last day of the Plan Year 1/31. Question 2: Is a VCP filing required? If yes, is there a defense not to do so given the amount involved that would stand up to review, e.g. the User Fee exceeds the amount involved? Question 3: if by chance the IRA custodian has yet to settle the check, could the Plan put a 'stop payment' on it and have the checks reissued as elected by the Participant?"

2 replies so far   |    Click Here to Add a Reply

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

DB Plan Limits Salary for Certain Employees

"How does the following provision in a DB Plan document sound to you? ' For Employees paid both on a commission and base pay basis, compensation shall be limited to $60,000.' "

1 reply so far   |    Click Here to Add a Reply

Belgarath created a topic in 401(k) Plans

Yet Another LTPT Question

"Many plans revert to calendar year for service counting after the initial eligibility period. If you handle the LTPT employees the same way, then they could come in even faster than strictly required? Suppose DOH is 11/1/2023. From 11/1/23 -- 12/31/2023, works 100 hours. From 1/1/24 -- 10/31/24, works 600 hours. So if service counting reverts to plan year, then employee would have two years of service crediting, and enter on 1/1/25. Alternatively, if plan uses anniversary years, this employee likely wouldn't end up being eligible until 1/1/26. I'm not clear as to whether the plan can 'carve out' these employees via the SECURE 2.0 Amendment, and use anniversary years just for LTPT? I'm assuming the answer is no, but I haven't done any analysis on that question. Assuming it is not possible (or even if it is possible) would you change your plan (or LTPT portion of the plan, if permissible) to anniversary date service crediting?"

3 replies so far   |    Click Here to Add a Reply

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