If our Administrator cuts a check for distributions, does the Administrator issue a 1099 or a W-2?

[ERISA-Bubs]

We have a NQDC Plan.  When a distribution comes due, the Administrator sends the money we have set aside to us, we cut a check to the participant, and we issue a W-2.

The Administrator said it can cut the check to the participant itself, but since the check will be coming from them, they will have to issue a 1099.

I've always understood that NQDC distributions are to be issued with a W-2, since the money represents compensation earned from an employer for work performed.  Would it be appropriate to allow the Administrator to cut the check and issue a 1099?  Can the Administrator legally issue a W-2?  

Another option might be for the Administrator to cut the check, send any withholdings to us, and then we issue a W-2 from that point.  But the point of the change to to have the Administrator take over the entirety of the distribution process, so that is not ideal.

[jpod]

Did the person who told you they could issue a 1099 have a lot of experience with that Company and spoke with confidence?  If so, get a new Administrator.

[david rigby]

This might also depend on the definition of "we" and "Administrator".

[ERISA-Bubs]

Thanks jpod.  In your experience, how does it normally work?  The Administrator doesn't issue any tax document?  In which case, they give us the withholdings and we issue a W-2?

[ERISA-Bubs]

Just now, david rigby said:

This might also depend on the definition of "we" and "Administrator".

I see what you mean.  "We" are the employer of the participants / the company that runs the NQDC plan (a single entity).  Administrator is the outside company that we hired to run the plan -- perhaps "record keeper" would be a better word?

[EBECatty]

I always wonder about this question. All the NQ plans I've encountered with outside recordkeepers, rabbi trustees, or employer-owned custodial accounts usually run the distributions through the employer's payroll. Often I'll see the employer request a check from the trust/account payable to the company, and the company in turn issues a check to the employee through the company's payroll. Or sometimes issues the check first and then requests reimbursement from the trust or custodial account.

[hr for me]

I would not expect the outside administrator to be able to do the w-2 withholding calculations without being provided at the very least the w-4 and the year to date FICA withholding amounts (in case the limit has already been reached). To me, this is 100% a payroll function and my experience matches that of EBECatty.  I would not expect the administrator to do either a 1099 or a W-2.  I don't see how this would be a good process to outsource at all, nor do I know of any companies that do so (especially since the administrator is giving you bad advice on how they could do it if you force them to do so)

[CuseFan]

NQDC is always reported via W-2 unless it's a death benefit paid to a beneficiary, then 1099R is appropriate. There should be no FICA/Medicare issues because that should have been applied along the way - unless amounts did not vest until just before payments were to begin (or it was a DB SERP where the PVAB was not reasonably ascertainable until commencement). Regardless, it is more a payroll function than a TPA or trustee/custodian function as HR stated.

[david rigby]

Caution.  The Employer should not assume that FICA has already been applied.  Check your records.