Message Boards Digest

March 10, 2023

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

415 Limit created a topic in 401(k) Plans

Spin Off & Safe Harbor / ADP Test Question

"An Employer is in the process of establishing a new single employer plan (401(k)) effective in 2023. They will spin off (not terminate) from a PEP that they are currently in and transfer the assets from the PEP into the new plan. They do not have a safe harbor provision in place in the PEP, but they would like to add a safe harbor provision to the new plan for 2023. Is this permissible? How would the ADP testing work for 2023, would they need to test separately in the PEP for the short period and correct via refunds / QNEC (assuming the test fails for the short period), or are we permitted to test the entire year under the new plan (and the safe harbor provisions, assuming this can be added to the new plan in 2023)? Any input would be greatly appreciated."

4 replies so far   |    Click Here to Add a Reply

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

Credited Service for 415 Purposes

"Self-employed person/1099 contractor has a DB plan. The person contracted with one employer which no longer needed the services. The person provided no services and received no income for the year. The plan document defines credited service as elapsed time. Does this person get credited service or not? Compensation was zero so we aren't concerned for benefit accruals but need to know if service can be credited for 415 service and participation. My thought is that because the person did not provide any services that no service should be credited. I think this is different than if services were performed but expenses exceeded revenue resulted in zero net income/compensation, in which case I think you could/should credit service. I looked in the regulations but could not discern an answer, nor could I locate guidance elsewhere. Is my thinking correct/reasonable or flawed. Also, this is more than a one-year situation."

2 replies so far   |    Click Here to Add a Reply

Steamboat created a topic in Nonqualified Deferred Compensation

Correcting W-2s: Former Employee Died But Spouse Continued to Cash NQDC Checks

"A former employee had been receiving annual payments from her NQDC plan, and we were issuing her W-2s. We just learned the former employee died a couple years ago. The spouse has continued to cash her checks. How do we correct the tax reporting from W-2 to the deceased former employee to 1099-MISC to her spouse?"

3 replies so far   |    Click Here to Add a Reply

Dug29 created a topic in 401(k) Plans

Automatically Enrolled in 401(k) After I Opted Out

"I was automatically enrolled in a 401k by my employer without my consent, and after I filed a form to opt-out of their automatic enrollment program. What can I do to get the money they deducted from paychecks returned?"

4 replies so far   |    Click Here to Add a Reply

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

DB Plan Termination with Big Drop in Distribution Amount from 2022 to 2023

"Plan terminated as of 12/31/2022 (PBGC). PVAB as of 12/31/2022 was 710k (based on 417e rates), just calculated as just got the census. Based on this the plan was 200k underfunded due to aggressive investing. Ran the termination numbers as of 6/30/2023 and now PVAB dropped to 450k, a 36% drop. Believe it or not 5% GAR94 yielded higher PVAB than 417e. Initial estimated calculations done in 2022 showed approximately 25-28% drop. Now I have plan that is suddenly over funded by possibly 75-100k. I did the 1% safe harbor allocation method for the excess but the results were terrible (owner got only 35%) Current plan document states reversion to company for any excess. I believe one of the following can be done rather than reverting to company:

  • Generate a spreadsheet with using 1% of average compensation and allocate the excess pro-rata based on PVAB's as of 6/30/2023. This can be done now with an amendment.
  • Make an amendment now (after termination date) and allow the excess to be transferred to a qualified replacement plan.
  • Undo the freeze, create a new benefit structure (possibly discriminatory allocation and test it). Restart the termination sometime in August and distribute the assets prior to 12/31/2023.
  • Amend the plan to have a higher mortality table where everyone will get a higher PVAB
  • Amend the plan to change the look back month -- August 2022 would yield much higher results

Anything else?"

1 reply so far   |    Click Here to Add a Reply

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