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Ease of administration. The Plan covers multiple employee groups, but only some of the employee groups are VEBA trust funded. The claims administrator intakes and pays all claims, regardless of the employee groups and invoices the employer. This allows the plan sponsor to promptly reimburse the claims administrator for claims paid without having to bifurcate the process into trust-payable and non-trust-payable amounts. They can determine the trust-payable amount on the back end and seek any applicable reimbursement. Claims administrators often do not want to deal with seeking payment from multiple sources, especially in cases where there are multiple different VEBAs and associated subaccounts that fund the plan. Prohibited Transaction Exemption 80-26 (PTE 80-26) allows for certain interest free loans to employee benefit plans. The plan sponsor has a reimbursement agreement between itself and the trust that allows the plan sponsor to pay trust-eligible claims and the trust to reimburse the plan sponsor. Under this structure, there are no assets revering to the employer and no prohibited transaction - the trust is simply repaying an interest-free obligation of the trust (which happens to be to the plan sponsor) incurred by the pre-payment of trust-eligible claims. We have had informal (non-binding) discussions with the IRS regarding this process, during which they agreed that such an arrangement would not constitute a reversion.

Corey, tx for your comments. No one worked 1000+ hours

 1.401(a)(4)–5(b)(3)(ii). What makes you think it might have been revoked? The Code says, "After taking into account payment to or on behalf of the restricted employee of all benefits payable to or on behalf of that restricted employee under the plan, the value of plan assets must equal or exceed 110 percent of the value of current liabilities, as defined in section 412(l)(7)." The "problem" is that Section 412 no longer exists and therefore the reference to "current liabilities" is undefined. Through dialogue between actuaries and the IRS (Gray Book), "any reasonable and consistent method may be used for determining the value of current liabilities and the value of plan assets.”

Not sure I follow your comment about top heavy. Are you saying that none of the XYZ employees have EVER worked 1000 hours in a year, meaning they are all otherwise excludable and therefore don't have to receive a top heavy minimum contribution under SECURE 2.0 rules? If so, then I agree. However if any of them ever do work 1000 hours then they will have to receive a top heavy minimum because the DC plan does not consist SOLELY of deferrals+safe harbor, and therefore doesn't qualify for the top heavy exemption. If this is a concern that there might be XYZ people who work 1000 hours in the future, I'd recommend separating the 401(k)+safe harbor and the profit sharing into separate plans so that you can maintain the top heavy exemption. Anyhow, use $500k for your deduction limit calc. None of the XYZ employees are benefiting in the plan so you can't count their comp.

Thank you for your thorough response, I appreciate the perspective. My question on “legacy” was more historical than operational, as older individually designed DB documents did include explicit NHCE carve outs tied to restricted payment provisions. I haven’t found post-PPA regs explicitly preserving or revoking those carve outs, and that is why I am questioning. If you’re aware of a specific Code section or regulation addressing that point directly, I’d really appreciate having that information. I also appreciate your comment that there may be different liability measurements that could be used in evaluating the 110% requirement. If you’re willing to elaborate on how those alternative measurements are applied in practice, that would be very helpful.

It’s not necessarily Internal Revenue Code § 403(b) that sets up unusual provisions; sometimes, it’s a TIAA, CREF, or other contract that sets up provisions many other insurance, investment, or service providers don’t typically use. Or an interaction between an employer’s plan and one or more TIAA-CREF contracts. Don’t rely on the summary plan description; there are many reasons an SPD might not accurately describe the plan. Don’t rely on what TIAA’s service people say about beneficiary defaults; there are many ways they might be mistaken (usually, innocently). But circumstances might it make it impractical for you to read the plan and contracts. If a beneficiary is the participant’s estate, some providers might help an estate’s personal representative arrange to treat that estate’s ultimate taker as if she were the plan’s beneficiary or at least a distributee. To do so, the plan’s administrator, each insurer or custodian, the recordkeeper, the paying agent, and other service providers get releases, satisfactions, and indemnities. To arrange this requires that the personal representative’s advocate have a practical ability to get the attention of the service providers’ lawyer who has enough legal knowledge, time and willingness to listen, and discretionary authority to commit the service providers, and to ask for the plan’s administrator’s approval (or make the service providers’ risk decision to proceed without the administrator’s approval). Also, the indemnitees might want their indemnities from people with enough money and other property to pay at least the indemnitees’ defense expenses. Do you have an in with TIAA? Is the difference between a rollover and receiving money from the decedent’s estate enough to support an effort? This is not advice to anyone.

1. Is it correct that the legacy top-25 restricted payment rule does not apply in an HCE-only plan? NO, Top 25 rule applies to all DB plans. There are no exemptions. Also, just for clarification, the rule is 110% funded AFTER the distribution. 2. How would you view the risk of allowing distributions in a less than (110%) funded HCE only DB plan. The plan sponsor is risking plan disqualification. If you are an actuary, you cannot recommend or condone that they do something illegal. Their attorney can explain the risks and the sponsor can make an informed decision. 3) More generally, is this just a known but acceptable feature? Not sure what you mean? The top 25 rule is a statutory rule required to be in all plan documents. It is not a left over "legacy" issue that was accidently left in the document. 4) Is it still legally required to not allow a top 25 paid employee to take his full lump sum? YES This is a really good example of where good actuarial consulting is required and sponsors need to understand what they are getting involved with. Cash balance plans, including market based cash balance plans, can still be underfunded and it can cause these types of problems. They can also be overfunded in which case you will be having the participants wanting their benefits increased to capture the excess, which is also problematic. There are other designs (variable plans) where these issues can be minimized, but the Top 25 rule can still be a problem even for those. One consideration is that there is no clear guidance related to what the 110% funded requirement is measured against. It isn't necessarily the sum of the benefits. There are other liability measurements that possibly could be used to satisfy the 110% rule. Another answer is to pay the lump sum over time or to pay it to an escrow account that the plan could attach if it terminated without sufficient assets. Not saying any of these are easy, but there are options in the regs.

Friday afternoon, no brain activity as usual. Combo CB/DC. CG with ABC corp and XYZ corp ABC sponsors both plans and XYZ is an adopting employer for DC plan only DC is 401k with SH match CB excludes all XYZ employees. All ABC employees participate in both plans and get PS allocation as well. None of the XYZ employees defer and none get any PS allocation either (401k/SH has 3 months and PS has 12 months+1000 hours). None of the XYZ employees work 1000 hours but all eligible for deferral+SH and since no one defers, no one get SH thus T/H is satisfied. ABC eligible compensation is 500k and XYZ eligible compensation is 100k Need to use 31% rule for deduction. Do I use 500k or 600k? Thanks

I'm looking for perspective on the issue of the Top-25 restricted payment rule in DB plans, or specifically in this Cash Balance Plan. We have a participant who is among the Top-25 highest paid employees and would be restricted from taking a lump sum under these rules under normal circumstances. The relevant facts are as follows: Individually designed DB Plan effective July 1, 2009, restated July 1, 2021. Plan has only ever covered HCEs (NHCEs have never been covered; professional medical group). There are approximately 60 participants, but about 70 employees total. Currently less than 100% funded, but still above 80% threshold. Benefits include interest credits tied to actual market returns, subject to anti-cutback rules (participants effectively "fund" their own benefit). Plan Document includes legacy restricted payment language referencing: Top-25 highest paid HCEs Current liabilities Escrow arrangements An explicit exception stating the restriction does not apply if the plan never benefited any NHCEs. Here are my two specific questions: 1. From a technical standpoint, is it correct that the legacy top-25 restricted payment rule does not apply in an HCE-only plan, consistent with the "never benefited NHCEs" carve-out found in older individually designed documents? 2. Setting aside funding level thresholds which are not currently triggered, how would you view the risk of allowing distributions in a less than fully funded HCE only DB plan, where early distributions could materially shift funding risk to remaining participants due to anti-cutback provisions? Particularly when the participant seeking the distribution is among the Top-25 highest paid? More generally, is this just a known but acceptable feature? Is it still legally required to not allow a top 25 paid employee to take his full lump sum? Is this a fiduciary concern requiring discretionary limits? Or if this is not a legal issue, is this something that should be voluntarily adopted to prevent funding issues? I appreciate any insight you can provide.

Hi all, it's been over a year or more since I've in. I'm retired but trying to help someone out... a 403(b) participant passed away and TIAA/CREF is saying that he named his widow for a portion of his account/certificate, but did not name a bene for another portion, and that portion is to go to his spouse 50% and his estate 50%. If in fact there was no bene des that checks out with the SPD (confirming my long-held belief that 403(b)s are a different world). I'm familiar with the idea of a see-through trust, but is there any such thing as a see-through estate? She is the only beneficiary of his estate so she is ultimately entitled to all of the benefits, and of course would prefer to roll them over rather than open an estate and have the estate treated as the direct beneficiary. I don't think so but thought I would take a shot.

An employer wants to amend their plan to adopt QACA. Can they have QACA apply to just employees hired after a certain date or does QACA have to apply to everyone? They currently have a basic safe harbor match plan. The QACA match differs from the SHM and having 2 different SHM formulas in the plan is not permitted (I think). The employer would prefer not to have existing employees have to go through any enrollment process or have anyone currently employed defaulted into the plan. But if everyone currently employed has an affirmative election to participate or not in the plan, would those employees really need to complete anything for the QACA? I would think not. Thank you for replies

Re followups - we were late to the party for implementing electronic signature software. I'm not sure what the technical name is (that's for the systems wizards - I'm just a user). It is an Adobe system, and OMG, the time it saves! When you send the document to be signed and dated, you input the need=by date, and the follow-up frequency - once every week, for example. System does it for you, and sends you the signed and dated document once the client does it. I love it!

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My note above mistakenly suggests one might undo a before-the-month provision. I apologize; § 457(b)(4)(B) continues the before-the-month provision for a plan of a nongovernmental employer. About minimum-distribution provisions, all or some changes might be unnecessary to the extent that the written plan states a provision by reference to Internal Revenue Code sections. If that doesn’t obviate a need to consider a plan amendment about a required beginning date’s applicable age, whoever drafts a plan’s amendment or restatement might ask an employer whether it prefers to allow a delay up to age 73/75 or to compel a distribution based on some earlier age (for example, age 70½, or even the first day of “the calendar year in which the participant attains age 70½” [I.R.C. § 457(d)(1)(A)(i)]) or an earlier occurrence (for example, severance from employment). Likewise, a plan sponsor might prefer to restrict a distribution to a period shorter than ten years. Internal Revenue Code § 457(b)(5) refers to § 457(d)(2), which refers to § 401(a)(9). Accord 26 C.F.R. § 1.457-6(d) https://www.ecfr.gov/current/title-26/part-1/section-1.457-6#p-1.457-6(d). I see nothing there that precludes delaying a required beginning date until what follows from “[t]he calendar year in which the employee retires from employment with the employer maintaining the plan.” 26 C.F.R. § 1.401(a)(9)-2(b)(1)(ii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-2#p-1.401(a)(9)-2(b)(1)(ii).

Right, it can be funded as after tax only up to the lesser of 100% of compensation or the $70,000 dollar limit. The extra $7,500 catch-up is only available as a deferral.

It’s now 20 years since I last had an inside-the-service-provider responsibility about scheduling plan amendments. So, other BenefitsLink neighbors might help you with current thinking about business interests in organizing the work. Consider plan sponsors’ preferences. Although some might like delay, some might prefer to avoid being time-pressured or feeling burdened in a cycle or season of the plan sponsor’s business. If some of your clients use a lawyer’s review to supplement yours, consider a courtesy of allowing time before the last months of a year. Many lawyers, including employee-benefits lawyers, face increasing work compressions as a year’s close nears. If a December 31 is a relevant due date, time in November and December can be heavily pressured, or even no longer available. If some of your clients neglect to respond promptly to what you send, consider how many reminders and warnings you want to build into your work process.

Hello, My employer has done quite a few layoffs this year and has offered those former employees COBRA subsidies as part of their severance agreement. My question is: if an employee is offered a COBRA Subsidy for a certain number of months, but does not actually elect COBRA, does that amount still need to be reported on their w2 for informational purposes? Or does it only need to be included if they elect COBRA?

Agreed. It seems to be 12/31/2025, so you should at least include the later RBD ages. If you offer installments to beneficiaries, you need the to be sure that installments are limited to 10 years for non-spouse adults and annual withdrawals are required. If anyone is still interested in RBDs for non-governmental 457(b)s can someone tell me why the RBD is not the later of the age or termination of service. I have read in various places that the RBD must be the April 1 following the applicable age, with no exception. I just can't find that in the Code or the regs.

I wanted to follow up on the comments regarding whether Schedule C, line 5 needs to be completed when there are not multiple disqualified persons involved. What's odd is that Line 4 states that if "you" have corrected all prohibited transactions reported on this return, then "complete Schedule C, line 5 on the next page." If you answer "yes" to Line 4 and do not complete anything on Line 5 will the IRS be content that you have contemplated/completed Schedule C, line 5? I didn't know whether a N/A would be appropriate for 5(b) and 5(c). Appreciate additional insight to this question!

Curious? Why the reimbursement process? That's strikes me as violation of the VEBA trust - assets reverting to employer? Why not pay claims directly from the trust? What's the purpose?

From DOL website https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/efast2-form-5500-processing

I have had it where it was an NHCE who wanted to do it. It was a married couple, and the NHCE was married to someone who made a gazillion dollars so they were looking to contribute the full 415 limit. And the plan sponsor was willing to accommodate (small employer).

Unless you’re also in the business of providing tax or legal advice we only provide a recommendation to seek such professional counsel.

QDROphile, thank you. My question presumes an adviser has advised her advisee to do the right thing. And that the adviser is not a preparer of, or otherwise associated with, a tax return or other act that supports an incorrect thing. Others’ observations?

Not to aid and abet the actions that the client chooses to pursue that the advisor has declared unlawful? It depends. Inter alia, see “zugzwang” and, for fun, the definition of “lawyer” in The Devil’s Dictionary.