I initially thought an employer could freeze their "old" Non-qualified Deferred Comp Plan, thereby preserving the participants' ability to make elections under the "old" Plan as to time and form of payment, then start a new Non-qualifed Deferred Comp Plan effective 1/1/2005 for post-2004 deferrals. And, that only deferrals under the new Plan would be subject to new Section 409A.

But, as I read Q-18 of Notice 2005-1, it says that a "new arrangement" after 10/3/2004 is presumed to be a material modification of the pre-2005 Plan.

I think this means that if the Employer wants to continue a non-qualified deferred comp plan for employees after 12/31/2004, the pre-2005 deferrals have to be brought under the new rules, i.e., the pre-2005 deferrals won't be grandfathered.

Is this correct?

I've always "understood" that 415 limitats applied to distributions out of a DB plan whether or not some/all of the benefits is coming out of a 414k account within the DB plan. In other words, if a participant segregates his benefit in a 414k account and self-directs the investments which do so well that the ultimate distribution would exceed 415 limits, can he receive the full 414k account if as of the time he segregated the assets into the 414k account the 415 limit was not violated back then. I think 415 limit still applies to the current 414k account. Any thoughts or disagreement on this ?

Is there any transition relief for elections in the case of new (rather than amended) plans? We intend to freeze existing deferred compensation plans and adopt new plans (to be effective as of 1/1/05) in compliance with 409A once most, if not all, of the guidance is issued; however, since we will be adopting new rather than amending plans, does that mean that initial elections will have to be made within 30 days of 1/1/05, the date individuals become eligible to participate? Is amending a plan the only way to be eligible for the March 15, 2005 transition relief? I'd appreciate any thoughts.

Notice 2005-5 says that the automatic rollover rules apply to governmental plans.

However, it says that a governmental plan "will not be treated as failing to satisfy the requirements of § 401(a)(31)(B) if the automatic rollover provisions are not applied to mandatory distributions from such plans that are made prior to the close of the first regular legislative session of the legislative body with the authority to amend the plan that begins on or after January 1, 2006."

Question: What about a governmental plan that isn't sponsored by a governmental employer that has a "legislative session," such as a governmental hospital that is controlled by a local board? Would that type of governmental plan have the delayed compliance date, or would it have to comply by the date applicable to ERISA plans (March 28, 2005)?

A question, a note, and a comment on the interplay between 457(f) and 409A -

1. Question - Notice 2005-1 says that 457(f) arrangements are subject to 409A - that the requirements of 409A are in addition to the requirements of 457(f).

So far as elections to defer, this would seem to require that the arrangement would have to provide for the election to defer to be made prior to the year the compensation was earned.

But I don't know what this means regarding the payment rules because 457(f) controls the timing of the taxation, not the constructive receipt rules that applied before 409A.

My question - So really - 457(f) plans aren't affected by 409A that much, are they? Because the timing of the taxation is governed by 457(f) not 409A. The primary changes that would have to be made include: the initial deferral election, and conformity with the new definition of "substantial risk of forfeiture" if there is one.

2. Note - Rolling vesting schedules seem to be gone under Notice 2005-1, which says: . . . any extension of a period during which compensation is subject to a substantial risk of forfeiture . . . is disregarded for purposes of determining whether such compensation is subject to a substantial risk of forfeiture." Q-10

3. Comment - 409A has liberated the IRS on these deferred compensation plans. I only do a handful of these arrangements each year, and I'd always taken a conservative approach - pretty much in line with the IRS ruling position. Personally, I was surprised at how aggressive lawyers and consultants had become with these arrangements - financial triggers, haircuts, acceleration clauses. I saw one law firm's newsletter that said that rolling vesting schedules were the "norm" - well they weren't for my clients, and this makes me feel like something of a chump. I suppose this firm now has a lot of extra work - fixing all the 457(f) plans it's put into place all these years.

Comment 2 - When will Congress allow the IRS to be effective again?

Locust

What are the required disclosure obligations to participants investing in Employer stock as only one of the alternative investments in a 401(k) plan. For example, under the Securities Act, participants must receive prospectuses of investments in a mutual fund. Are there similar obligations to participants who are investing in ER stock?

At this point, I don't believe there are, but I would like some confirming info., if someone would be so kind.

I understand calculating COBRA rates isn't as easy as using the 4 tier rates and adding 102%. Any feedback regarding a practical method to determine COBRA rates for a partially self-funded group would be greatly appreciated. This group does not have high turn-over. Currently group has 280 employees and only 3 COBRAs....

Is the common "rolling vesting" technique in 457(f) plans eliminated by 409A? I've heard varying opinions on this, with the most prevalent being "wait and see". I'd be interested in your opinion. Thanks,

Joe

If a performance based bonus is paid to an employee by March 15 of the year in which it is earned, is the arrangement exempt from 409A; i.e., can the parties dispense with the otherwise-applicable requirement that the deferral election precede the end of the performance period by 6 months?

I am working on a Safe Harbor 401(k) plan where the employer has elected to contribute the 3% SHNEC.

The plan allows entry into the plan on the first day of the month following the date of employment for the 401k deferral portion of the plan only. All of these people will receive the 3% SHNEC.

Forfeitures are reallocated in the plan. In order to be eligible to receive a profit sharing contribution or fofeiture reallocation, the person would have to have the standard eligibility of age 21, 1 year of service and employed on the last day of the plan year.

Do you have to run separate 410(b) tests - one for the 3% SHNEC and another based on the PS cont/FFT reallocation?

Thank you for any insight.

I have a client who wants to know if a participant with a 401k loan and is in default as he is out of work on Workers Comp (and cannot be fired), whether there are any provisions or regulations to prevent issuing a 1099R for the outstanding loan balance at the end of 2004. I believe that for military leave, the loan cannot be defaulted, but thats a separate issue. The participant was having loan payments deducted from their paycheck which there are not currently receiving. He did not make alternate arrangements in repaying the loan.

Happy New Years!

Due to a programming error, the payroll provider for one of our clients failed to take any 401(k) deferrals out of the final 2004 paychecks.

I searched thru prior threads and didn't see anything exactly on point, but I am thinking that the correction will need to be an employer contribution equal to the missed deferrals (for which they would obviously expect to be reimbursed by the payroll provider).

Is there any less onerous correction that would be correct? The expectation is that it will be revenue-neutral to our client, but I am sure the payroll provider will try to argue for something less costly to themselves.

What is the 2005 maximum contribution (employee and employer combined) for a 457(b) governmental plan?

Can a Rabbi Trust created to hold 415(m) assets be invested under the same investment contracts (and in accordance with the investment choices) of the qualified government plans in order to leverage better costs and investment choices? The trusts are separate and will not be co-mingled.

Does anyone have any guidance on whether a Rabbi Trust estabished as part of a 415(m) plan can be invested in accordance with the same investment contract as qualified government plan assets to obtain better investment choices and investment rates? We are not going to combine the plan assets. They are separate trusts.

We have a participate who, as the story goes, left his wife and moved to another country, leaving her with no money or support. The judge issued temporary orders giving her the ability to "liquidate" his account balance in our 401(k) Plan. I informed her that we could not distribute his account without a QDRO, which I assumed could not be issued until the divorce was final.

However, I did receive a proposed QDRO from her attorney that is based on the temporary orders that were issued. My question is - Is a QDRO that is issued prior to the final decree valid and are we obligated to comply with it? Since our participant has disappeared, he is not being represented in this matter and therefore, will not have any say in the division of the property.

When are deferrals on a tax exempt organization's 457(b) deferrals held in a Rabbi Trust due? When deferred or when distributed?

I have a p/s plan that has not made a contribution since 2000. Again, he is not making one for 2004, which will be the fourth year in a row with no contribution. I could swear that there is a lenth of time (ie # of years) that can go by with out a contribution, but I am having a difficult time trying to find an answer. With Sal's book in my lap, I have some regs I am looking for - Treas. Reg. Section 1.401-1(b)(2) and IRC Section 411(d)(3) - but I can't seem to find them of the web.

Any thoughts? Thanks!

Anyone know where I can get a copy of the guide, handbook, or any other tools that IRS agents use to conduct their plan audits?

I have 3 DB plans in a controlled group that merge mid-year ( i.e. it's not a business purchase situation).

For FASB 87 purposes would you just take the results of 3 separate developments of NPPC and Disclosure items and then just combine like-kind items ?

Or is there special treatment of certain items ( e.g. unrecognized gains and losses) ?

Also, if one of the plans experienced a large settlement before the merger, would this have an impact on the accounting ?

It seems too simple to just add together similar items .