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Thanks, Bill. Appreciate the candor. Not sure there's a good one. If not, the most surprising thing is that does not seem to be addressed in the articles promoting qualified plans for cannabis businesses.

Some IRS-preapproved documents include a subsection about what is required for a distribution following a TEFRA § 242(b) election. If so, the plan’s administrator or other fiduciary would follow those provisions, even if they constrain the distribution more than is otherwise necessary for the plan to tax-qualify. And you’d want to apply TEFRA’s transition rule: The method of distribution elected under TEFRA § 242(b) “would not have disqualified [the] trust under paragraph (9) of section 401(a) of [the Internal Revenue] Code as in effect before the amendment made by [TEFRA § 242](a).” Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97–248, § 242 (Sept. 3, 1982), 96 Statutes at Large 324, 521 (1982) [cited page attached]. TEFRA section 242.pdf

Santo Gold, in my experience the type of business, size of employer, and compensation levels will make a difference. If this is a successful small medical practice, you could be looking at a more significant number than, e.g., a hair salon, although I'm just guessing as to the latter, which probably tells you something in and of itself. My experience has been (maybe others will see it differently) that at least in a larger case you do have to negotiate and make a principled written argument, sometimes in a couple of back and forths, to get the number down, e.g. prove in writing how well the plan was run and that the law (not out of date plan document was followed), plead the equities, etc. The exam agent needs to have stuff in the file to justify the ultimate number to his/her boss. You might think that it would just save a lot of time to cut to the quick and throw out a reasonable number, on the low end, for the agent to grab so he/she can get the audit over, but while you can start with that, I don't think it's how you'll end up.

This is NOT a 411(d)(6) issue. Continued participation if you no longer satisfy eligibility is not a protected benefit. It may be a document/operational issue if you dont word the amendment correctly or if you document automatically grandfathers such an employee. It may be a discrimination issue if part of a pattern of amendments that are in effect discriminatory.

The problem with those elections is that they were supposed to specify how the money was to be taken out, and few of them do. You're probably ok to just start with regular RMDs as if he were a non-owner (assuming he is an owner otherwise current law would allow him to do exactly that anyway). For the record those elections were at least a little before my time...but I've had a bit of experience with them. None are perfect to say the least.

Per Section 4.72.9.3.3 of the Internal Revenue Manual: Terminating profit-sharing and stock bonus plans that don’t offer annuities and aren’t subject to the IRC 417 requirements may distribute a participant’s accrued benefit without his/her consent if the employer and its controlled group don’t maintain any other DC plans other than an ESOP. It cites 1.411(a)-11(e)(1). See also 1.411(d)-4, Q&A 2(b)(2)(vi).

If it's an ACA, not EACA or QACA, yes.

Ever the optimist.

Is this an individually directed Plan or Pooled? Assuming it's an individually directed plan and the life insurance policy is part of his account, then if he purchaces the policy from the Plan, the funds would go to his individual account just like if the policy was surrendered for Cash Value.

Presumably this was something elected by the participant, and paid for from the participant's money, so...no.

kmhaab, first, I completely agree with EBECatty's analysis. What you describe seems to me also to be a short-term deferral (STD) with two different substantial risks of forfeiture (SRFs). As to the language (which of course I am not seeing in the context of the entire agreement or surrounding facts, and so treating as a hypothetical), if this is all there is I would read it literally. The second payment is the easier of the two, because you can interpret it as saying simply that a lump sum equal to 40% of the total amount will be paid 18 months after the CIC, provided the executive is still employed on that date. (I said, "you can interpret it," because of course there is an argument that "within" applies to the 18-month period as well as the 12.) This implies that it is to be paid immediately after the expiration of the 18-month period, so as long as it is paid within the STD period following the end of the 18th months, it would be an STD, whether it states the STD period formulaically or not (here of course, it does not). The first, 60%, payment is harder because "within" seems to give the payor leeway to vest and pay at any time within the first 365 days after the C in C (although it seems unlikely that this is what the draftsperson had in mind). This gets you into the slightly murky area of acceleration of vesting vs. acceleration of time of payment. The reg clearly says you can accelerate vesting, but not payment, and opinions may vary on what that means in this or any other context. I think it probably means that if you had an agreement with a fixed payment date ("We'll pay you $X on the fifth anniversary of today") and a vesting event (", but only if you're still working for us then"), you could accelerate the vesting date, but not the payment date, i.e. you could vest the amount after a year, or a month, but could not pay until the end of year 5, whereas if you have an agreement that is an STD and you accelerate vesting, you can pay within the STD period calculated based on the accelerated vesting date.

My initial reaction is to look at both fact patterns ("12 months following" and "within 12 months following") as two or more independent conditions that each constitute a substantial risk of forfeiture. Per the preamble to the 409A final regulations: A right to an amount deferred may be subject to the satisfaction of two or more different conditions that each independently would be a substantial risk of forfeiture. In that case, the substantial risk of forfeiture generally would continue until all of such conditions had been met. Remaining employed until the CIC is one condition. Remaining employed for 12 more months is a second condition. Both are required to receive payment, so the substantial risk of forfeiture does not lapse until 12 months following the CIC, provided the employee remains employed. Assuming payment is very soon after the 12-month anniversary, it would be a short-term deferral. I think payment "within 12 months following" a CIC, provided the employee remains employed until the date of payment, is a similar analysis. The payment is still subject to a substantial risk of forfeiture until 12 months following the CIC. Removing the CIC condition from the example, say the employer tells the employee "we'll pay you a bonus at some point within the next 12 months, but if you leave before payment you forfeit the bonus." I think, again, you have a substantial risk of forfeiture until the date payment is actually made.