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From http://www.ccactuaries.org/archives/meeting-materials Released annually at the Enrolled Actuaries Meeting between 1990 and 2015, the "Gray Book" was an essential compendium of questions from actuaries and answers from the IRS. The Super Gray Book consolidates these materials on a USB with searchable indices for the each set. Note: Due to reallocation of resources at the IRS & Treasury, competing priorities, and government concerns surrounding reliance upon responses in the Gray Book, the Gray Book will no longer be produced.

Seems to me that if the participant is still receiving a W-2 or K-1 from the Employer, the participant is not retired.

Owners (such as partners in a law firm) present particularly sensitive circumstances. One aspect to consider is whether or not: 1) the post full-time work is performed at the request/demand of the employer/firm or is fully discretionary with the individual. If the performance of services is not regular and substantial and is at the discretion of the individual, it should be given a hard look. Hobby employment should not be treated as a block to required distributions. The IRS would be faced with the other side of the coin: What is meaningful employment for the benefit of the employer/firm? Law firms and other professional service firms often give nonproductive partners various privileges that allow them to dabble, mostly for social reasons, in a way that yields token compensation. I think that amounts to retirement in many instances with respect to section 401(a) (9). Other clues can help, such as start of nonqualified deferred compensation and unavailability of certain other pre-"retirement" perquisites. I would go easier on a rank and file employees because an employer would be more likely to take a no-nonsense approach. If such an employee is keep on at a low or irregular level of work/compensation, then the employer is probably engaging the person for benefit of the employer. Yet we have all seen sham employment for various purposes convenient to the employer, whether the employer likes it or not.

Of course they know. What is the alternative, tax participants on the fees paid by money they never got?

Larry had this strong opinion in a thread I posted called "Retirees, Working but not Much". Similar context. "Umm.... they are NOT retirees if they are still working! They have simply gone to a more part time status. You have already been told they have to get the SH. As to making them 1099 employees, that is a very bad recommendation and something that can get your clients in big trouble. If they are employees, they are employees. You cannot MAKE THEM 1099; they either are independent contractors or they are not. In your case, they have been employees and they still will be employees and will have to be treated as such." Thanks

Great questions - welcome to the facts and circumstances nebula, also known as the Twilight Zone. We often have these arguments with clients. It would be nice if IRS and/or DOL would just draw a line in the sand that everyone could see and abide by. But, if you need facts and circumstances, we usually suggest looking at how the employee is treated (retired vs. employed/not retired) with respect to all the other employer's plans and benefits - life, health, etc. (still covered, offered COBRA). If the person is treated as retired (or not) for all other purposes by the employer, chances are you can justify same for retirement plan(s) - consistency over accuracy - that's what the actuaries kept telling me for years!

I sometimes encounter similar questions in contexts about nonowner workers. Perhaps BenefitsLink mavens will help me with some reasoning. If a retirement plan’s administrator were deciding this question about a nonowner, how would we analyze whether a part-timer is “retired”? If someone works one day a month, is she retired? Or does any work at all mean the worker is not yet retired? Does the analysis vary based on whether our question is: Whether the participant has “retired” enough that the plan’s IRC § 401(a)(9) provision compels a distribution? Whether the participant has a severance-from-employment to permit a distribution the plan otherwise does not provide?

For what it worth from Gray Book 2004-42: Treas. Reg. §1.401(a)(9)-2, A-2(a) provides that except in the case of a 5%-owner, the “required beginning date” is April 1 of the calendar year following the later of the calendar year in which the employee attains age 70-1/2 or the calendar year in which the employee retires from employment with the employer maintaining the plan. If December 31, 2003 is the employee’s last day at work, and the last day for which he is paid or entitled to payment of wages, is that the date of “retirement”. Or is January 1, 2004, the first day he is not employed, the retirement date? When is the employee’s required beginning date? RESPONSE “Retirement” is the last day worked, not the definition of retirement date in the plan. What date is an employee’s last day worked is a facts and circumstances determination. The facts and circumstances are based on the employer’s practice concerning the last day an individual is considered an employee.

If you take the position that the plan was never terminated in the first place, what are the implications with respect to the distributions made to active employees (if any) at the time it was thought to be "terminated"?

my understanding is #1, all get top heavy, though the safe harbor counts toward top heavy, so, at least in the case of a 3% SHNEC it doesn't make a bit of difference unless you have mid year entrants. (who would get part 100% vested and part subject to vesting.

The other "cost" of being a 501(c)(3) is that some very old GCMs say that a governmental entity that obtains 501(c)(3) status becomes subject to UBIT.