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If it isn't a contribution, what could it possibly be?

Just want to add what a lot of people miss. FICA. Employer Contributions are really deferrals, even though the employer makes them, and are therefore subject to FICA like any other deferral. Therefore, the employer and the employee need to pay FICA taxes on the amounts contributed. If they don't, they will pay FICA taxes on the way out of the plan - on the whole amount distributed which includes all of the earnings! Nice way to lose a lot of your gains. So put the employer contribution as a bonus on the paycheck and process them like deferrals, then the taxation will be correct, and you can avoid going over the $19,500 limit. It took me a long time to figure this out because I've never seen it in writing anywhere.

No options.

EBECatty and Mr. Feldt, thank you for this explanation. Mr. Gulia, thank you for these citations. We did think that the employer contribution was more like the profit sharing contribution, but the fact that both the employee contribution and the employer contribution are referred to as "deferrals" made us question whether an actual deferral election for the employer contribution needs to be made. Mr. Feldt, thank you-- I had already found your response to a question in 2014 regarding what amounts apply toward the annual limit each year--"Employee deferrals, vested employer contributions, and any prior non-vested balances that now become vested during the year - all of these add together and count against the annual 457(b) deferral limit ($17,500 ignoring any last-3 years catchups)." [my emphasis] This statement has been added to our work-papers for this client, of course with respect to the current years' 457(b) deferral limit!

Wouldn't the 401(k) plan sponsored by the other controlled group member be a successor plan to begin with, making the first plan termination problematic?

Belgarath, the above was not in your original post. It could change things, and the no interest loan characterization might also be a valid approach, but be aware of the below from the preamble to 2006 amendment to 80-26. The key is that in theory you need to be sure that the employer's payment of the expenses, at the time it did so, was intended as a loan. Even though it would be the same expenses, and let's assume they are reasonable, if the employer intended to pay them, but then changes its mind, it's not a loan under 80-26. I realize the extreme hypothetical in the excerpt below from the preamble is extreme (years), but that's a straw man, and your facts are likely to file in between 3 days and several years. The rules seem clear when you have hypotheticals, but of course they become less clear when they come into contact with actual facts and circumstances. One of the commenters recommended that the class exemption expressly require that loans with durations that exceed a certain number of days be in writing. This commenter expressed concern that the removal of the three-day limit without additional conditions will raise the potential for abuse of a plan's assets. For example, the commenter describes a scenario in which a plan sponsor pays certain expenses on behalf of a plan without intending to be repaid. Years later, the plan sponsor seeks to re-characterize such payment as a “loan” covered by PTE 80-26, and, thereafter, causes the plan to “repay” the plan sponsor in reliance on the relief provided by the class exemption. The commenter states that the situation described above may arise where a plan sponsor experiences a change in personnel, including the plan's fiduciaries, and the “new” plan fiduciaries are unsure whether the payment by the plan sponsor was originally intended to be a loan covered by PTE 80-26. According to the commenter, it is also possible that a plan sponsor may seek to re-characterize a payment the sponsor previously made on behalf of a plan, notwithstanding the sponsor's full awareness that such payment was not intended to be repaid by the plan. The commenter states that, in the above situations, the Department may have difficulty demonstrating that the payments by the plan sponsor are not loans covered by PTE 80-26. The commenter recommends that the class exemption contain a condition expressly requiring that all loans of extended durations be made in writing, and that such written loan agreements exist at the time the plan enters into the loans. As noted in the preamble to the proposed class exemption, section 404 of ERISA requires, among other things, that a fiduciary act prudently and discharge his or her duties respecting the plan solely in the interest of the participants and beneficiaries of the plan. Accordingly, a plan fiduciary would violate section 404 of ERISA if such fiduciary transferred plan assets to the plan sponsor in the absence of specific written proof or other objective evidence demonstrating that the plan originally intended to enter into a loan transaction with the plan sponsor. In this regard, a written loan agreement executed at the time of the loan transaction and demonstrable evidence that the plan was experiencing liquidity problems, would alleviate the uncertainty regarding whether the parties actually entered into a loan or other extension of credit. Of course, any attempt to re-characterize past payments as loans after the fact would be outside the scope of relief provided by the exemption.

The March 2020 discussion describes what a plan might permit without offending ERISA § 408(b)(1) or Internal Revenue Code § 72(p). But a plan’s governing documents (whether a base plan, adoption agreement, trust agreement, or a procedure under a delegation or authority from a governing document or a fiduciary’s powers) might state provisions narrower than what the plan might allow under public law. A document might treat a plan administrator’s approval of a transaction as not final until the administrator’s instruction to its service provider is delivered to the service provider and by it determined to be in good order. That might help avoid a software constraint of the kind Pam Shoup describes (if the service provider processes an instruction on the same day the provider determined the instruction to be in good order).

Ok, thanks, but here's where I'm getting hung up, and I guess it hinges upon the interpretation of the language. Mine is probably wrong... back to 408(c)(2). Is it reasonable to look at it through the following lens: Since the fiduciary (the employer) has ALREADY incurred these administrative expenses, and they have been determined to be proper and reasonable expenses of the plan, why can't the employer be reimbursed? The employer/fiduciary has not contracted with itself to be paid for providing these services - the services have been provided by a third party, and the employer is being billed for them. If the employer pays the bill, then isn't reimbursement allowable under 408(c)(2) without having to rely on an exemption for the EMPLOYER providing the services? That's the interpretation I'd LIKE to take, but the regs on 2550.408c-2(b)(3) seem not to really support that interpretation. So perhaps one could rely on PTE 80-26? Appreciate your thoughts! P.S. - my own feeling on all of this is that it is, at best, the hard of way of doing something. Makes much more sense to simply have the plan pay the fees directly to the TPA, rather than messing around with trying to reimburse the employer. But the question was asked...

My statement was perhaps cryptically brief, BG5150. What I meant was that what they're calling a "gift" would never be treated as a gift by IRS. It would be compensation no matter what form it took (cash, trip to Disneyland, car, Bitcoin). That's what IRC sec. 102(c) says, i.e., you can't have gifts in compensatory context. Right in the Code.

It's a 415 violation, so code E. From the instructions to the 1099-R:

If he has $0 or negative earnings from self-employment his 415(c) limit is $0. The $17K in deferrals is an excess annual addition correctable EPCRS - usually involves a refund plus earnings and code E on the 1099-R. Check your document for 415 overage corrections. Since the deferrals need to be refunded, the related match of $7,500 (plus earnings) needs to be forfeited to the Plan. Since it was rolled out, the Plan is supposed to recover those funds. But with the Plan terminated that might be difficult. The fact that the Plan has been terminated and assets rolled out complicates things, especially with respect to the match that can't be forfeited back to the plan that I assume the trust is no longer in existence. I'm honestly not 100% sure on the correction but at minimum the $17K and $7.5K are NOT ELIGIBLE for rollover so you have excess IRA contributions that need to be corrected. Maybe someone else can add some thoughts or has come across this particular fact pattern in the past. It might be a situation where you might consider a VCP filing with the proposed correction being withdrawing the $24.5K plus earnings from the IRA as a taxable distribution to the partner.

The way I would approach this is to simply inform the participant that the money is no longer in the plan (and therefore not invested), the distribution is taxable and has been reported to the IRS (so that if his tax return does not reflect it, he risks the IRS crawling up his ...), and if he doesn't cash the checks (which are no long plan assets), he risks them being escheated to the state - which causes him to risk losing the money (depending on the unclaimed funds statute in the state he resides in). Bottom line, it's not the plan or the employers problem once the check is properly issued and delivered. And by the way, if this were my employee (and an HCE to boot) I would question why I had someone making a boat load of money on my payroll who is so STUPID.