Tag Archive for: 401(k) plan

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Too Late for a SAR?

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“My client has not distributed the summary annual report (SAR) for his 401(k) plan for 2021.  Is he past the deadline to provide the SAR to participants?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor in Florida relates to the timing of a plan’s summary annual report.

Highlights of Discussion

The date a plan sponsor must deliver a SAR to plan participants and beneficiaries is tied to the end of the plan year—unless the individual has an extension to file the plan’s Form 5500. (The SAR is a summary of Form 5500 information.) If your client had an extension to file the plan’s Form 5500 for the 2021 plan year, he may still have time to timely distribute a SAR.

The regulations require distribution of the SAR within nine months after the close of the plan year (or two months after the Form 5500 filing). The Form 5500 for a plan is generally due seven months after the end of the plan year (i.e., July 31st for a calendar year plan). So, generally, a calendar year plan has a SAR distribution deadline of September 30th following the end of the plan year.

However, if the plan sponsor has an extension to file Form 5500 for the year, the sponsor also has additional time to provide the SAR (i.e., two months after the close of the filing extension [DOL Reg. § 2520.104b-10(c)]. For example, if a calendar year plan has an extension to file Form 5500 until October 15th of the following year, the plan sponsor must distribute the SAR for the plan by December 15th.

Example:

Toy Time Inc., as a calendar year 401(k) plan that had an extension to file its Form 5500 for the 2021 plan year until October 15, 2022. That means, the SAR for Toy Time’s 401(k) plan is due to participants and beneficiaries by December 15, 2022.

Conclusion

A SAR is a summary of Form 5500 information that must be given to plan participants and beneficiaries annually and upon request. The regulations require distribution of the SAR within nine months after the close of the plan year or, if there is a filing extension for Form 5500, within two months after the close of the filing extension.

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Retirement Plan Benefits and Prenuptial Agreements Do Not Mix

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“My client asked me what effect, if any, a prenuptial agreement would have on 401(k) plan assets?

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with an advisor in California is representative of a common question related to spouses as retirement plan beneficiaries.

Highlights of Discussion

Generally, a prenuptial or antenuptial agreement  is an agreement made between a couple before they legally marry by which they forfeit future rights to each other’s property in the event of a divorce or death. The short answer is that a prenuptial agreement has no impact on a spouse’s claim to 401(k) plan assets because it does not satisfy the applicable spousal consent requirements of Internal Revenue Code Section (IRC §) 417(a)(2) and Treasury Regulation Section (Treas. Reg.) 1.401(a)-20, Q&A 28.

In most cases, spousal consent is required before a plan can pay out benefits in a form other than a Qualified Joint and Survivor Annuity. The Retirement Equity Act of 1984 (REA) added the mandate to obtain spousal consent before a plan participant could take a distribution so that the nonemployee spouse would have some control over the form of benefit the participant chose, and would, at the very least, be aware that retirement benefits existed. There are exceptions to the spousal consent rule when

  1. The payable benefit is ≤ $5,000;
  2. There is no spouse or the spouse cannot be located;
  3. The spouse has been legal abandoned or the couple is legally separated;
  4. The spouse is incompetent; or
  5. The plan must satisfy requirement minimum distribution rules.

Even if a 401(k) plan is drafted as a “REA Safe Harbor Plan” (meaning it meets the criteria to be exempt from the QJSA requirements)[1], the spouse must generally consent in writing to the naming of anyone other than the spouse as primary beneficiary.

For its reasoning on antenuptial agreements, the IRS relied on several court cases, which found that the antenuptial agreements were not valid because, in part, they were signed by the participant’s fiancée (not spouse), and the agreements did not comply with REA since they did not specify the nonspouse beneficiary who would receive the benefit [See Hurwitz v. Sher, 982 F.2d 778 (2d Cir. 1992), cert. denied, 508 U.S. 912 (1993) and Nellis v. Boeing Co., No. 911011, 15 E.B.C. 1651 (D.Kan. 5/8/1992)].

Conclusion

Based on numerous court cases and Treasury Regulations, the IRS has made it clear that a prenuptial agreement has no impact on a spouse’s claim to 401(k) plan assets.

 

[1] Treas. Reg. 1.401(a)-20, Q&A 3

 

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