Leaderboard

I agree that it could be done, but I would recommend against it. A better approach is to exclude all HCEs from the safe harbor, and rely on the plan's individual-groups allocation formula for nonelective employer contributions to make an allocation to some or all HCEs, if desired. This is a little bit more complicated (but only a little bit) and it gives the employer much greater flexibility.

I think you'd have to know the nature of the complaint and the basis for the settlement. If (as seems unlikely) the settlement said, "Yeah, you were employed for X period and we should have been paying you all that time," then there would be a basis for saying the plaintiff was an employee entitled to plan benefits. But if it said, "We disagree with your allegation that you were wrongfully terminated, but we're going to throw $20k at you anyway to get you and your lawyer to go away, and because of the IRS rules we'll put it on a W-2," then I would question whether you wouldn't just follow the specific agreement of the parties that there should be no plan contribution.

If the independent qualified public accountants delivered an “unmodified” report the IQPA authorizes the plan’s administrator to upload in the Form 5500 report, that the administrator received a management-weaknesses letter (see below) is not itself a distinct disclosure item in Form 5500. What is a management-weaknesses letter? Under certified public accountants’ professional standards, an auditor must communicate to “management”—for an ERISA-governed employee-benefit plan, the plan’s administrator—about “significant deficiencies” and “material weaknesses” in the plan’s internal control. (Internal control is auditor-speak for ways of making sure you do things correctly, and ways of preventing, or at least detecting, what someone does wrong.) If the accountants during their audit of a plan’s financial statements found an internal-control problem, the firm typically sends a “management weaknesses” letter. The letter usually includes at least the deficiencies and weaknesses the CPAs’ professional standards require them to tell you about. Also, the rules permit an auditor to tell “management” about other control-related matters. Why you should read the management-weaknesses letter Instead of just filing away the letter, read it. First, receiving information and failing to consider it likely is a breach of a fiduciary’s duty of care. And one might as well use something the retirement plan or its sponsor already has paid for. Look for a “false positive” When you read the auditor’s letter, use some prudent skepticism yourself. Even a careful auditor obtains only an incomplete, and sometimes incorrect, understanding of a plan’s provisions and operations. A finding about a deficiency or weakness might be wrong. If you have even a slight doubt about a finding, check the source documents and records yourself, or get a careful worker to test the auditor’s finding. If you see a mistake, don’t ignore it. Instead, write an explanation of your plan’s procedure for the task involved. Or if the mistake is that your auditor’s finding is that you lack a control that’s unnecessary for your plan, write a cogent explanation about why the control is unnecessary. Respond to every mistake; doing so can help avoid wasted time and effort in the next audit. Look for procedures that need improvement On some points, you might concur with your auditor’s finding that a procedure or control could be tighter. If so, start work on the needed improvements. Aim not only to design but also to implement the improvements before the next audit engagement begins. (Many auditors use the preceding years’ management-weaknesses letters, and a client’s responses to them, as tools to help evaluate risks the auditor must consider in planning an audit.) But if making a new procedure or control would require the retirement plan to incur an expense, you must as a prudent fiduciary evaluate whether the value of the improvement makes the expense worthwhile. Get help from your advisers A plan’s administrator might ask its lawyer for advice about the management-weaknesses letter and how the administrator should act on the information. After considering the lawyer’s advice, an administrator might consider sharing the auditor’s letter with its third-party administrator, recordkeeper, and other service providers. They might suggest ways to improve the plan’s procedures. A TPA’s or recordkeeper’s way to fix a problem might be more efficient than a method the employer/administrator alone would have found. Using good sense Even if a list of problems feels unwelcome, an employer/administrator can evaluate and act on an auditor’s management-weaknesses letter to keep making improvements in how one administers the retirement plan. This is only general information, and is not advice to anyone.

obviously a DC plan might have an exception to its last-day rule for retirees. An ERA definition can inadvertently trigger an allocation you weren't expecting, especially when the allocations aren't "individual groups." But otherwise, yeah, what benefit is that definition bestowing upon anyone?

Early retirement in the DCP - no harm, no foul for combo testing - and there may be employer objectives for having as David notes. CBP - do NOT include early retirement in the plan and test the combo as you would otherwise.

I would just eliminate the ERA in the DC plan. What is it even doing there? Since you can already have distributions at age 59½ without needing an early retirement feature, you should be able to remove it without it actually being a cutback. No need to add an ERA in the DB plan. Your testing age will still be NRA. I don't think I've ever seen a DB plan with an ERA that is combo-tested with a DC plan. I believe that in that case, you would need to test the MVAR at every early retirement age to see if it is more valuable. So my recommendation is, don't do it.

I will be so glad when these silly forms can be done electronically. What a PITA they've been just the last few years.

I wonder if divying up the horse when time comes for a distribution is where the term "quarter horse" comes from.

The following cases hold that if a divorce Participant has remarried and retired before a QDRO has been perfected, Federal law holds that the Participant's new spouse vests in the right to receive the survivor annuity and the former spouse (prospective Alternate Payee) irrevocably(?) loses the right to receive that survivor annuity. Hopkins v. AT&T Global Information Solutions, 105 F.3d 153 (USCA 4th Cir. 1997) - at http://scholar.google.com/scholar_case?case=9954117838131396049&q=hopkins+at%26T+global&hl=en&as_sdt=2,9 followed by Rivers v. Central and South West Corporation, 186 F.3d 681 (USCA 5th Cir. 1999) at- http://scholar.google.com/scholar_case?case=2296953953561556363&q=rivers+central+and+south+west&hl=en&as_sdt=2,9 Dahl v. Aerospace Employees' Retirement Plan, a 2015 case from the U.S. District Court for the Eastern District of Virginia (and cases cited therein) - https://scholar.google.com/scholar_case?case=3487596170773082469&q=dahl+v.+aerospace&hl=en&lr=lang_en&as_sdt=20000003&as_vis=1 See also Vanderkam v. PBGC, 943 F. Supp.2d, 130 (2013) setting forth a thorough discussion of this issue. And the 2015 case of Dahl v. Aerospace Employees' Retirement Plan, No. 1:15cv611 (JCC/IDD), United States District Court, E.D. Virginia, Alexandria Division. https://scholar.google.com/scholar_case?case=3487596170773082469&q=dahl+v.+aerospace&hl=en&lr=lang_en&as_sdt=20000003&as_vis=1 But I come across statements from time to time that if the new spouse consents to waiving her right to survivor annuity benefits (how that happens is never addressed), then a QDRO can be effective to restore survivor annuity benefit to the former spouse. I also have contemplated what would happen is the new spouse predeceased the Participant, or if the Participant and the new spouse divorced, whether not a new QDRO could restore QJSA rights to the former spouse? Any ideas? Case law? Statutory references? Thanks, David

Follow up - from Justice Kagen's dissent in Loper Bright Enterprises v. Raimonda. "In particular, the majority’s decision today will cause a massive shock to the legal system, “cast[ing] doubt on many settled constructions” of statutes and threatening the interests of many parties who have relied on them for years. 588 U. S., at 587 (opinion of the Court). Adherence to precedent is “a foundation stone of the rule of law.” Michigan v. Bay Mills Indian Community, 572 U. S. 782, 798 (2014). Stare decisis “promotes the evenhanded, predictable, and consistent development of legal principles.” Payne, 501 U. S., at 827. It enables people to order their lives in reliance on judicial decisions. And it “contributes to the actual and perceived integrity of the judicial process,” by ensuring that those decisions are founded in the law, and not in the “personal preferences” of judges. Id., at 828; Dobbs, 597 U. S., at 388 (dissenting opinion)."

The Employee Retirement Income Security Act of 1974 does not govern a governmental plan. If a governmental plan’s sponsor seeks the Federal income treatment of Internal Revenue Code § 401(a), § 401(k), § 403(b), or § 457(b), a condition about nonforfeiture varies with the particular subsection one seeks to meet. Those conditions often involve a different rule, transition rule, or variation for a governmental plan. Some Federal tax law conditions relate to law as in effect on September 1, 1974. Consider also that a governmental plan is governed by the State’s constitution, statutes, and other State law, which, under some States’ laws, might include a political subdivision’s law. For more information, read Governmental Plans Answer Book https://law-store.wolterskluwer.com/s/product/governmental-plans-answer-book-pension3-mo-subvitallaw-3r/01t0f00000J4aDTAAZ.

My only comment is that once the new spouse has “vested” because the participant has retired, anything that would defease the new spouse or “restore” the survivor annuity for an alternate payee could be adverse selection. The plan would look disfavorably on it and could assert that any attempt to add a benefit through a QDRO would force the plan to pay a benefit that the plan is not otherwise obligated to pay —,thus disqualifying the DRO. This is most starkly illustrated by your suggestion of the death of the new spouse as an opening to award some benefit to the former spouse (other than sharing the life payments to the participant, which can always be done). The untimely death of the new spouse is a great thing for the plan from an actuarial perspective. Why would the plan give that up?

A Labor department rule describes some partial interpretations for some situations you mention. 29 C.F.R. § 2530.206 https://www.ecfr.gov/current/title-29/part-2530/section-2530.206#p-2530.206(a). But consider these cautions: Those interpretations are profoundly incomplete. Some of the interpretations might be contrary to the statute. Whatever deference this agency rule might get could become obsolete tomorrow or in the next few days. To the extent, if any, that Chevron deference continues, some of the rule’s interpretations might not be a permissible interpretation of the statute. As always, a court order that would call the plan to pay something the plan does not provide is not a qualified domestic relations order.

Plan is correct, his tax situation is correct, and he essentially owes the employer those funds as Bri noted - like an interest free loan from the employer, which they can arrange how to have it repaid, in my opinion.

The new company's formation mid-year by itself will be a limiting factor since service and compensation will be earned during the less-than-full calendar year of the new company's existence. This narrows down the question to whether the plan can use full applicable calendar year limits - by defining the first plan year as the calendar year - even though the company and the plan existed for less than the full calendar year. There are other analogous situations that support the notion that this is acceptable. For example, the relatively new rules that allow a company to create a new plan retroactive to the beginning of the prior year (and use the prior year limits for that year) seem to support it. As you noted, adopting a new plan mid-year with a calendar year plan year effective as of January 1st of the year of adoption is common. Similarly, 402(g) limits are always based on calendar years and are not pro-rated. One nice feature about the first plan year for a new plan for a new company is, other than more-than 5% owners, there are no HCEs. Unlike the rules for the first determination date for top-heavy testing, the IRS did not go out of its way to define a special rule to determine HCEs in a new plan based on compensation earned in the company's first year of existence. I take this as an example where the IRS could have created a special rule if it wanted to, but they didn't. Sometimes (or should I say often), when we see a situation where the IRS could have created a rule but didn't, we wonder "Did we miss something?!?"

Wait, isn't the problem just that the guy has too much take-home pay, but the correct plan amounts were deposited? Seems like the plan is actually in good standing but that the guy's next paycheck needs to have six months' of deductions properly taken off the gross.

No, matching contributions do not count towards (or "trigger") gateway minimums.

A Form 5500 report should factually state information according to what happened, or didn’t. To help someone discern what might (or might not) have changed, and how it might have changed, and when: Was the business purchase a purchase of assets from the company? Or a purchase of shares of the company? Recognize that documents governing the plan might include some that don’t look like what many employee-benefits practitioners call a plan document. Might the buyer corporation, limited-liability company, partnership, or other organization have adopted a resolution, written consent, or other act that changed the seller’s plan’s sponsor or administrator? While the instructions for line 3 are ambiguous, some practitioners assume one reports the administrator that is duly appointed and currently serving on the day each signer signs the Form 5500 report’s jurat, not the organization or other person that served as the plan’s administrator on or as of the last day of the reported-on period. The instructions for lines 1 to 4 [pages 16-19], include details about what to do if: ÿ the plan’s name changed, ÿ the plan’s sponsor changed, or ÿ the plan sponsor’s EIN changed. Again, some practitioners assume this refers to changes up to the day the administrator signs the Form 5500 report. It might be possible that nothing changed. This is not advice to anyone. To answer your query, I’ve seen situations that called for reporting short plan years that end and begin with or around the business transactions’ closing date. But that sometimes happens when the m&a deal teams for both seller and buyer include not only business lawyers but also employee-benefits lawyers, who think carefully about the provisions.

Does the "legal settlement" differ from plan provisions? If so, does that mean the plan should (must?) be amended to remove any conflict? Can it be amended without violating any safe harbor requirements? Can it be amended without violating any non-discrimination issues?

A plan can exclude employees by classification, and an employee scheduled to work at least 20 hours a week is a classification. The plan will have to pass 410(b) coverage testing. Without getting too technical, there are multiple ways to conduct coverage testing, and most plans start out running the Ratio Test. At the most fundamental level, the plan would need to allow at least 70% of the NHCEs to participate in the match. So, yes, it is possible, and it adds another layer of compliance to test. This is a very high level response, and the details will matter significantly.

Maybe, but why? Seems like a difficult plan to administer. 4 of 5 weeks works greater than 20 hours and then receives match? And 1 week the don't get match? Ugh!! Plus notices each year. No thanks. Just give them the match and move on. My two cents.