Is an ESOP holding shares of an S-Corporation permitted to convert the accounts of former participants into cash immediately upon the participants' termination of employment eventhough the participants aren't entitled to distributions for five years?

In 2000, there were two posts on the message boards which dealt with this issue. However, at that time, the only guidance in the area seemed to be a 1999 article in the Journal of Taxation, but no IRS guidance. I was told that the IRS had issued guidance with regard to the above issue sometime in the last few years. Is anyone aware of this guidance?

I understand that many ESOPs have included similar force-out provisions on the reliance of their favorable determination letters. I've also learned that this issue has twice been the topic of breakout sessions during the annual ESOP association meeting.

Can anyone help bring light to this issue?

What is the distinction between employer contributions to a 457(b) plan and a 401(k) plan that makes the employer contributions to a 457 reportable as earnings and taxable for FICA/Med/FUTA but not employer contributions to a 401(k) plan?

I'm attaching a copy of IRS Notice 2003-20 that seems to indicate that employer contributions to 457(b) plans are included as earnings and subject to FICA/Medicare. I don't see anything that indicates that the same might be true for employer contributions to a 401K are similarly subject to those reporting requirements but I don't want to assume that to be the case.

Can someone please explain what is behind this apparent difference?

457B_IRS_Guidelines.pdf

What is the distinction between employer contributions to a 457(b) plan and a 401(k) plan that makes the employer contributions to a 457 reportable as earnings and taxable for FICA/Med/FUTA but not employer contributions to a 401(k) plan?

I've attached a copy of IRS notice 2003-20 for reference. See section VI - pp 9-12.

457B_IRS_Guidelines.pdf

Are 401(k) catch-up contributions considered along with deferrals, match, & profit sharing allocations when aggregating with a DB for the General Test ?

I am working on a DB plan that had a change in eligibility back in 2001, so some employees entered with no service requirement and others had a 2 year service require. The entry age that has been used for several years in the past to calculate the EANC and EAAL is the age at participation as if the current 2 year eligibility rules had always been in effect. I know that the employment age can be used or the participation age can be used, but can find nothing that tells me that this method is acceptable. Any thoughts?

Can an employer vary the amount of its HSA contribution based on class? The intent is not to favor HCE's, but to provide a class of employees who are losing a benefit (life insurance) with a financial replacement (the HSA contribution) for that benefit. I am thinking about the eligibility test, the C&B test? The class is a reasonable class. ANyone?

When is a H&W plan with less then 100 participants required to file a Form 5500? I understand that if the less than 100 participant plan is fully insured or pays benefits out of the assets of the employer (or a combination of both), then a 5500 would not be required. However, I'm a little confused as to when a plan is considered unfunded.

The instructions say an unfunded welfare benefit plan has its benefits paid as needed directly from the general assets of the employer or employee organization that sponsors the plan. But then go on to say that plans that are NOT unfunded include those plans that received employee contributions during the plan year and/or used a trust or separately maintained fund to hold plan assets or act as a conduit for the transfer of plan assets during the year. There does appear to be an exception where a welfare plan with employee contributions that is associated with a cafeteria plan may be treated as unfunded if it meets certain requirements. However, what if the plan does not have a 129 plan? Also what about HSA's? Would either of these two things change the plan to being "funded" and therefore require a Form 5500?

PAL

Assume a company has financial difficulties and does not contribute participant deferrals to the 401(k) plan for about one year. Has anyone had experience with the VFCP under similar facts?

An ESOP loan was taken in 1997 with a ten year term of payment.

The initial share price was $150.

The methodology used to release shares was to divide the annual principal payment by the original share price.

At some point during the ten year term, additional shares were purchased. Later the loan was reamortized (into a variable interest rate loan). Through all of this, the methodology of releasing shares stayed the same, as well as the end date of loan payments.

I have been asked to work on the 2007 allocation, which reflected the final loan payment. Unfortunately, due to the way shares were released, not all shares will be released for 2007 by continuing the same method. Shares released in 2007 are 1000 and remaining shares are 500.

I feel like prior plan years need to be revised to reflect correct methodology of share release, but I hope to find another option available out there. Is it possible to release those remaining shares in later years, even though there will be no additional payment on the loan? Or, can we go ahead and add those shares to the 2007 release since that was the last payment? Or, it appears that there may be an additional sale in 2009 of more shares to the plan, can those remaining shares not be allocated for 2008 and start to be allocated in 2009 with payments on the brand new loan? Any other idea?

I'm familiar with the categories of plans for the purposes of plan aggregation, however, I have a question regarding the scope of plan aggregation with respect to non-qualified stock options. As I understand it, the plan aggregation rules under Section 409A provide that deferrals of compensation with respect to an employee, to the extent such plans are stock options or stock appreciation rights subject to Section 409A, are aggregated and treated as if deferred under a single plan.

I'm trying to clarify what exactly that means with respect to other stock option grants to the same employee. For example, ABC company grants employee Z a non-qualified stock option that is granted with an exercise price below grant date fair market value. That NQSO would be subject to Section 409A. For the purpose of income inclusion, would that stock option be aggregated with: (1) all other stock option grants to employee Z from ABC company, or (2) only the stock options granted to employee Z that are subject to Section 409A because they were granted with an exercise price less than grant date fair market value, or similar failure to comply with Section 409A?

I just received a child support income withholding order from a state agency. We are a welfare fund and the participant is currently receiving a disability check. Our plan doc has an anti-assignment/anti-garnishment clause. Does this provision trump the child support order? It seems like it would be against public policy but I cannot find anything out there on the issue.

Does any one have any insight?

Thank you.

Company A (which has a 401k plan) is potentially going to be purchased (asset purchase) by a company that does not currently have a 401k plan. This purchase will happen very quickly. Is there a legal way to allow the employees to continue to defer into this plan after the purchase while they are working on starting up a brand new plan for the purchasing company? The purchasing company does not want to take over the plan as is, they want to terminate and roll the assets to a new plan. Any thoughts?

My employer sets its health FSA annual maximum at $3,000. When I asked why they don't use the $5,000 maximum I've worked under at 2 previous jobs, the response was that they are limited to $3,000 per year because of their number of staff. They have about 25 staff. Contributions to the FSA are by the employee only; the employer doesn't make any contributions to it.

Could this $3,000 be an IRS limit? I'm thinking that there is some financial drawback for my employer to go to $5,000 max employee contribution.

the employer can't locate most of the actual salary deferral agreements from the current participants in the plan. to fix this problem, they want to revoke all the existing agreements and get new ones from all the participants. my thinking is this is the only solution. however, i am concerned that one might come forward later. is there authority that allows a plan adminsitrator the ability to cancel salary deferral agreements at any time and get new ones?

If an employer (40 participants) had been offering health insurance to all it's employees who worked at least 20 hrs/wk., then realizes that the carrier has a 25 hrs/wk underwriting guideline....can they offer those employees who had been previously working less than 25 hrs. AND participate in the health plan COBRA coverage?

Plan terminated and sponsor no longer exists (and business completely dissolved), so that all employees have terminated employment and would be eligible to receive distribution of entire account balances. Termination amendment limits distributions to a specified percentage of account balances, and the remainder distributable after receipt of favorable determination letter. Would the distribution be an impermissible cutback? Or is there an exception for terminating plans, which have an interest in preventing mass withdrawal before all plan expenses have been identified and allocated to accounts?

Does anyone know how long it typically takes IRS to process a Form 5310 that is filed with a VCP non-amender submission?

Here's the question: Can a qualified retirement plan provide for accelerated vesting for all participants on a change in control, assuming the surviving entity continues to maintain the plan? For example, a 401(k)/(m) plan provides six-year graded vesting for matching contributions, but on a change in control, all participants become immediately fully vested. It doesn't seem to run against any of the minimum vesting requirements, but maybe there's a problem with the exclusive benefit rule? I just can't seem to find any discussion of such a vesting trigger in the context of qualified plans. I'm not that interested in corporate law/shareholder rights issues, just the ERISA and tax code qualified plan rules. Anyone have any insight on this point?

My father passed away recently and although he had married within a year of his death, he still had his father listed as the beneficiary of his retirement account. I helped my grandfather complete the beneficiary paperwork and sent it in along with my father's death certificate. My grandfather received the disbursement of benefits (appx $108,000), but I am now worried about his potential liability since I have just learned about ERISA.

I fear that my father's new wife is automatically considered the beneficiary under ERISA stipulations, although my grandfather was listed as the beneficiary. I don't want the wife to come along and sue my grandfather to recover these funds. So where does the responsibility here lie when it comes to recovery: with the beneficiary or with the plan administrator? My father's death certificate clearly listed his marital status as well as his spouse's name, so it's not as though the plan administrator is unaware of his marriage.

If the wife were to sue, would she sue the plan administrator? Could my grandfather be named in a suit? If she were to file suit and ultimately prevail, would the plan administrator have responsibility to pay her claim (ultimately paying it twice) or would recovery come from the benefits that my grandfather received? And is there a statute of limitations as to her opportunity to file suit?

I appreciate any help. I do have an attorney, but he doesn't seem to be well-versed with ERISA.

I'm covered up with EPCRS submissions among other things, and I received a quick email from a tax colleague.

Can a closely held corporation (owned 51% by wife, 49% by husband) put in place a NQDC plan to benefit themselves? They are the sole directors and officers. They are both employees of the corporation. They are also the sole owners, directors and officers of other related corporations that employ between 100 and 200 employees.

Is there an issue of not having an independent board voting to put into place a NQDC?

Many thanks -