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Just my opinion, you should NOT be posting your personal information on this public site.

The issue here is the DOL nonenforcement policy for holding plan assets (typically employee contributions) in trust. This primarily is derived from Technical Release 92-01. Failure to meet the trust nonenforcement relief would mean the plan is funded and can't take advantage of the small plan exemption. In the context of MLR rebates, Technical Release 2011-04 provides that employers need to allocate the portion of the rebate attributable to plan assets (typically employee contributions) in one of the approved ways within three months to rely on that trust nonenforcement relief with respect to the rebate. Failure to act within three months would cause the plan to lose the trust relief, and thereby be subject to the 5500 requirements regardless of size and a whole host of other concerns. If they act within three months by following one of the permitted allocation approaches, there will be no issue. I've been writing about this recently in the context of the new J&J class action case: https://www.newfront.com/blog/j-and-j-case-practical-considerations-the-erisa-trust-rules-for-health-plans-part-2 Why Employers Typically Want to Avoid the ERISA Trust Requirements for Health Plans Establishing and maintaining a trust for the health plan can require additional documentation (trust agreement), procedural policies (trustee processes), fiduciary duties (assets must be held in trust for the exclusive benefit of participants and beneficiaries), administrative burdens (deadlines to deposit employee contributions into trust), and accounting and reporting obligations (loss of the small plan Form 5500 exemption and the requirement for an independent qualified public account’s opinion reported in Schedule H of the Form 5500). For more details: Newfront ERISA for Employers Guide While employers are generally accustomed to these burdens on the retirement side—where no similar trust nonenforcement policy applies—the industry norm has developed around standard single-employer health and welfare plans being unfunded and operating without a trust pursuant to the DOL’s nonenforcement policy. The J&J Connection: The plan in the J&J case was funded by a voluntary employees’ benefit association (VEBA) trust. In some situations, typically limited to very large employers, companies choose to fund their health plan through a trust to address accounting and other similar considerations. ... How Employers Could Inadvertently Lose Technical Release 92-01 Trust Relief: MLR Rebates The DOL’s guidance for how to address the medical loss ratio (MLR) rebates required by the ACA provides that the portion of a rebate received by the employer that is attributable to employee contributions is considered ERISA plan assets. Those plan assets must be held in trust for the exclusive benefit of participants and beneficiaries, unless an exception applies. The DOL piggybacks on the Technical Release 92-01 relief in its MLR guidance by providing that employers can avoid the trust requirement for such plan assets (i.e., the portion of the rebate attributable to employee contributions) provided those assets are spent within three months of receipt on refunds to participants, premium reductions, or benefit enhancements. Failure to expend the plan assets on one of those purposes within three months of receipt would cause the employer to lose the ERISA trust relief. For more details: How to Address MLR Rebates

It would help to get clarification on the relationship between the worker and the Employer of Record (EOR) and the relationship between the worker and the prospect. Some EORs are independent companies and some are PEOs. Under the PEO structure, the prospect could be a co-employer of the worker and the prospect should have provisions in the plan to specify if the worker meets the plan's eligibility requirements. If the EOR is the worker's employer and the prospect is not, then the EOR may have a US retirement plan and the worker may be eligible in the EOR's plan. One possible indicator of the prospect/worker relationship is whether the prospect gets a tax deduction for the compensation paid to the worker, or the prospect only gets a business tax deduction for the fees it pays to the EOR.

The IRS seems to be content with remaining ambiguous about 457(f) rules rather than being prescriptive which leaves the consideration of facts and circumstances as a primary tool for determining the validity of the deferral of compensation. Fundamentally, they do not seem to be able to get their head around what would motivate an employee to agree to put compensation at a substantial risk of forfeiture unless the employee was reasonably certain that the risk was not substantial. The Proposed Regs 1.457-12(e) and in particular subsection (iv) provide some insight into IRS-think about SROF and non-compete provisions, and the sort of facts and circumstances the IRS may consider. You may wish to point the client to this section for their own enlightenment.

Maybe there is a second plan that ONLY covers NHCE with identical BRF?

Applying different points of law, there are several differing counts of participants—at least two for Form 5500 reports, and a few more for other ERISA title I or tax law purposes. Maintaining distinctions and records about those who are participants with an account balance and all participants, including those with no account balance, might matter for many purposes. Think about how many ERISA title I and tax law notices and disclosures a plan’s administrator must furnish to participants, often including all or many with no account balance. For ERISA § 104(b)(4) rights to request information and for other provisions that refer generally to a participant (which ERISA § 3(7) defines), that term includes (at least) “‘employees in, or reasonably expected to be in, currently covered employment’” [and] former employees who ‘have . . . a reasonable expectation of returning to covered employment’ or who have ‘a colorable claim’ to vested benefits[.]” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117, 10 Empl. Benefits Cas. (BL) 1873 (Feb. 21, 1989) (citations omitted).

I haven't come across anything like this before, but I think it's (at a minimum) a very aggressive interpretation. The current and proposed 457(f) rules both at least implicitly contemplate post-employment restrictions in order to delay vesting. Under the proposed regulations, one of the factors in determining whether a non-compete constitutes a SROF is the employee's bona fide interest in, and ability to, engage in future competitive services. I'm not sure the IRS would consider an employee getting a second full-time job with a direct competitor to meet this standard (although I don't know the specific dynamics at issue with your situation).

The core issue from a participant's perspective about is the stock is or is not company stock is whether the participant can take an in-kind distribution of the stock from the plan and be able to exclude the stock's net unrealized appreciation from taxation at the time of distribution and also get favorable capital gains treatment upon distribution of the stock. If you have access to the EOB, I suggest reading CHAPTER 7 TAXATION RULES Article 1. Calculating NUA. The topic as it relates to corporate transactions is too complex for a simple post here. You will see in the discussion that there are rules that are applicable to spinoffs and to acquisitions where employer securities are swapped out or are transferred in-kind. Under certain circumstances, the character of the stock as employer securities is preserved and NUA treatment remains available. For the most part, the circumstances involve both employers to structure their plans to preserve the status of the stock as employer securities and to coordinate any movement of employer securities. This is not something an individual participant can do (with a possible exception if leaving the participant's total account balance and employer securities in seller's plan.)

I'll play devil's advocate to be feisty and get you riled up. Apologies in advance. Excluding NHCEs from a 401(k) plan might be advisable where they do not work 1000 hours ever for YOS eligibility but the plan wants eligibility determined on elapsed time. Of course, as soon as one NHCE becomes non-excludable you have a coverage failure. We see NHCEs excluded from small employer DB/CB plans many times when aggregated with DC to satisfy coverage and nondiscrimination AND the DB/CB covers enough HCEs to satisfy minimum participation. BUT I agree with your WTF, and would grill the drafters of these plans as to HTF they satisfy coverage, nondiscrimination and for the DB minimum participation.

After reading Calavera's comment, I realized I had earlier replied under the assumption that Joe and Mary were (or at some point had been) married. I re-read the original question and that was not part of the facts. So, my mistake. Anyhow, whether or not Mary's company has to be aggregated with the partnership for purposes of 415 depends on whether or not the partnership is a "predecessor employer" with respect to Mary's company under 1.415(f)-1(c). This is a facts-and-circumstances determination, but I would lean towards yes since she is continuing to do the same business with the same clients. Maybe she knows an ERISA lawyer who can give her an opinion.

First, if you were a lawyer who advised the could-be alternate payee not to object to a divorce decree entered before he had obtained payment from the participant’s retirement plan or at least had obtained the plan administrator’s approval of an order as a qualified domestic relations order, you might your lawyer’s advice about your professional conduct. Also, you might want your liability insurer’s guidance about what steps to take or avoid to not prejudice your defenses against claims. If the could-be alternate payee’s divorce lawyer was someone else, you might consider whether the scope of your engagement includes or omits evaluating your client’s claims against that lawyer. If it’s omitted, consider some writing to inform your client that it’s omitted, and to suggest that your client get that advice from another lawyer. About a repair, consider seeking a court’s order that names as the alternate payee the former spouse (using only that person’s name), and recites that the order relates to the former spouse’s marital property rights. But consider this after considering the advice and guidance from the preceding steps. This discussion is not advice to anyone.

A few court decisions about a fiduciary’s decision-making regarding a security that is no longer an employer security after a spin-off are: Young v. Gen. Motors Inv. Mgmt. Corp., 325 F. App’x 31, 32 (2d Cir. May 6, 2009) (a fiduciary’s duty of diversification applies to the plan as a whole). Usenko v. MEMC LLC, 926 F.3d 468 (8th Cir. June 4, 2019) (applying a presumption that a publicly-traded security trades at efficient-market prices; allegations were insufficient to make plausible an assertion that it was imprudent to continue a security, no longer an employer security, as an investment alternative). Schweitzer v. The Investment Committee of the Phillips 66 Savings Plan, 960 F.3d 190 (5th Cir. May 22, 2020) (Construing the present-tense word “acting” in ERISA § 3(5)’s definition of an employer, the former employer’s stock no longer was employer securities of the spun-off employer) (For a plan that provides participant-directed investment, a fiduciary need only provide investment alternatives that enable a participant to create a diversified portfolio; the fiduciary need not ensure that participants actually diversify their portfolios.), cert. denied, No. 20-1255 (Dec. 13, 2021). Stegemann v. Gannett Company, Inc., 970 F.3d 465 (4th Cir. Aug. 11, 2020) (The complaint alleged enough facts to assert a plausible claim that a fiduciary failed to monitor a nondiversified investment alternative.), petition for rehearing en banc denied, No. 19-1212 ECF No. 48 (Sept. 22, 2020), cert. petition filed sub nom. Gannet Co. Inc. v. Quatrone, No. 20-609 (Oct. 30, 2020) {On April 19, 2021, the Court invited the Acting Solicitor General’s brief. On November 9, 2021, the United States filed a brief arguing that the Fourth Circuit’s decision was correct (at least on the particular alleged facts), and that what the fiduciary described as a circuit split did not need review.}, cert. denied sub nom. Gannett Co., Inc. v. Quatrone, No. 20-609, 142 S. Ct. 707 (Dec. 13, 2021), Civil Action 1:18-cv-325-AJT/JFA, 2023 U.S. Dist. LEXIS 216644, 2023 WL 8436056 (E.D. Va. Dec. 5, 2023) (by Judge Anthony J. Trenga) (after a bench trial, finding no breach of diversification or prudence) (“[A] prudent fiduciary considering the timing and other circumstances of divestiture would have weighed the risks of single stock fund holdings against the risks of forced and/or rapid divestiture.”). Snider v. Administrative Committee, Seventy-Seven Energy, Inc. Retirement & Savings Plan, No. Civ-20-977-D, slip op. pages 14-17 (W.D. Okla. Oct. 8, 2021) (Rule 12(b)(6) permits a dismissal of a claim as barred by an affirmative defense only when the complaint and properly considered materials admit all elements of the affirmative defense by alleging the factual basis of those elements.).

There is no issue with using accrued to date testing, but in the first year with a typical cash balance/profit sharing combo, it's going to be equivalent to doing annual testing. You only count years in which the employee was eligible to accrue a benefit under the plan, so unless you have a DB plan that grants accruals for prior years of service, your years for accrued-to-date testing are just years of participation, which will be 1.

Obviously the employer was in error. But I don't believe the participant asserting that she doesn't look at her pay confirms. Anyone on a tight budget does. And anyone that is 62 and a Luddite, I guarantee is reconciling her checkbook constantly. She knew. If I was the employer, I would let it stand. But I would offer to give her an employer loan of $X to cover the extra federal taxes to be paid back over the next year.

I think it would depend on how you drafted the amendment for their eligibility and whether or not you pass testing.

I just wanted to share a WTF moment that I think many of you can understand. Mostly rhetorical - but feel free to chime in, especially if you think my indignation is unfounded. This week in reviewing an existing 401(k) plan document there was a written in class exclusion for Non-Highly Compensated Employees. In the Other line option in the adoption agreement. I could not believe a service provider, and and large national one at that, would let a sponsor include it. But it is a lower cost one, so I really shouldn't be surprised. It is a small plan, likely owner only, but still. A few weeks earlier I saw a similar exclusion in a defined benefit plan for a small employer. Though that class exclusion did not use the term Non-Highly Compensated Employee. It was something like 'everyone except two of the owners, Jack Smith and Jill Smith are excluded' that employer definitely had plenty of employees that are NHCE that have plenty of service and cause the testing to fail. And no, there did not seem to be any other plan with this one combined for testing and benefits. Setting up a plan that on its face fails non-discrimination before any benefit accruals or contributions are even considered is terrible! Even if those exclusions are ultimately considered void, there were document providers, service providers, financial advisors, and probably a TPA or recordkeeper involved in setting those plans up! They never should be there in the first place! Two in such a short time, from two different places, I just felt like was worth sharing. Maybe these exclusions are written in more than I realize and I've just been fortunate enough to not see them up until now.