CEO (a highly compensated employee) and company are negotiating employment agreement.  The parties wish to provide that, if the CEO opts out of the company's medical plan, the CEO would receive additional cash compensation in the amount of the company's cost of coverage for that plan.  Assume that the individual's compensation is $200,000 plus he would receive an additional $20,000 if he opts out of coverage.  The company does not offer the opt-out/cash-out benefit to other employees.

I am fairly confident that this arrangement will fail the contributions and benefits portion of the cafeteria plan nondiscrimination tests set forth in 1.125-7 because it discriminates in favor of HCEs with respect to employer contributions for total benefits (which includes taxable benefits).

My question is what is the effect of failing the nondiscrimination tests in this circumstance.  1.125-7(m) provides that in such a case, the HCE must include in gross income "the value of the taxable benefit with the greatest value that the employee could have elected to receive."  In this case, whether the plan is discriminatory or not discriminatory, wouldn't the CEO have gross income in the amount of $220,000 either way?  That would mean that failing the nondiscrimination tests would be meaningless, wouldn't it?

I recognize that the agreement can be structured differently to give the CEO the same economic benefit as the above proposed structure but I wonder if anyone has any thoughts on the effect of this structure.  Thanks.

A small firm (about 30 employees) has a safe harbor plan where the 3% nonelective safe harbor contribution is made.  My understanding is the top heavy testing is deemed to pass for a safe harbor plan but what if the firm elects to make additional profit sharing contributions?  Under what circumstances, if any, would top heavy testing need to be done and how would the profit sharing contribution need to be allocated to avoid makin the plan top heavy (which it would be)?  Thanks for help.

A former partner in a law firm is now just a 1099 employee of the law firm as they are of counsel.

This former partner maximized his benefit in the cash balance plan of the law firm. Can we set up a new cash balance plan for him using his 1099 wages or are his 1099 related to the law firm somehow and therefore he has already reached him maximum benefit?

A company has a group of 80 employees that are part of a large union plan.  The contract has not settled and negotiations are not happening at this point.  What happens to these 80 employees?  Are they now non-union  employees and have to be included as not benefiting in the non-union 401(k) plan?  Do the employees have to first formally disavow the union in order to be considered non-union?

To provide a retirement plan’s participants an investment alternative they perceive as having no risk of investment loss, the plan uses an insurance company’s separate account and group annuity contract.  The separate account has the one plan as the account’s only beneficial owner.  The annuity contract provides each quarter-year a credited interest rate determined by amortizing investment gains, losses, and values over a duration that approximates an estimate of an average duration for the investments held for the separate account.  The contract has delayed payments or a market-value adjustment if the plan leaves the insurer when the separate account’s market value is less than the book value credited to participants.

The plan’s communications writer wants to label this participant investment alternative the stable-value fund.  Everything else in the plan’s menu is a registered-investment-company fund or a bank’s collective trust fund.  The writer thinks it’s less confusing if the communications use the word “fund” to refer to every investment alternative.

But another person (not me) says it’s misleading to call an investment alternative a fund if it’s not legally a fund.  She wants to use stable-value account.  She says “account” uses language that insurance law uses.  (She suggests also using “investment alternative”, which ERISA’s 404a-5 rule uses, as the general reference over the investment funds and the stable-value account.)

What do you think?

In considering whether to use or avoid the word “fund”, does it matter that amounts credited to a participant’s plan account can be more than or less than those that would result from the separate account’s recent investment results?

Do you think “fund” is misleading?

Is there a minimum rate that needs to be given as profit sharing? 

Facts and Circumstances

Plan Sponsor (C-Corp) has a 401(k) plan. the only contributions are typically 401(k) deferrals, discretionary match, and prevailing wage. 

Prevailing wage goes to everyone (stupid I know, but we did not write the doc), and the owner did receive a very very small (less than 1%) PW. 401(a)(4) passes, but 410(b) coverage does not. 

1. I'm not aware of any special rules for PW - but if there are any that would negate the need for 410(b)? Is average benefits good enough? I'm thinking no, because the allocation method and groups aren't a safe harbor or definitely determinable as in an older style new comp plan. 

2. the plan allows PS - on a pro-rata basis, and if a PS is given according to the document, and 410(b) is combined with PW it does pass. But how much PS should be given? 

- plan is not top heavy, and 401(a)(4) passes on an allocation rate basis, so no gateway minimum either. 

Surely someone has encountered this before? It is 10/15 so there may be something simple and stupid I'm not thinking about clearly. 

Happy October 15th!!  For those of you who work for, or own, a TPA and administer plans, what is the size of your caseload? The TPA for which I work keeps our cases around 45 for each admin, which is great, and manageable most of the time. My husband, who at 67, is quite a bit older than I, and also an admin is considering leaving his job because he has a case load of 120 plans, which he and I both find ridiculous.  He's not ready to retire since you don't get max SS until 70.  Curious to what others have as their caseloads.  Thanks in advance!

This may not be the most appropriate board to post the message, but I'll roll the dice. I cannot find anything specific on this topc. Even the regulations on 401(k) hardship documentation do not actually state what length of time the plan sponsor must keep these records - just that it must. Does that mean there is no time frame and records are to be kept indefinitely? Or would 7 years be sufficient? What my client really wants to know is what is the shortest amount of time that these records must be kept?

Before starting, I have read the helpful threads here about tip income.

My client pays out credit card tip income at the end of each shift.  None is run through payroll.  Obviously 401(k) deferrals cannot be withheld from cash tips. (the election percentage is based on gross wages including tips, yes, the cash cannot be paid back to the employer to cover that withholding)  The question is, is the employer responsible for withholding from credit card tips if they cash them out on a per shift basis?  Would they not have to be considered similar to cash tips in that case?

They have a safe harbor plan and cannot exclude tips from the definition of compensation or from salary deferral election without it being discriminatory.

Their auditor states that they are required to hold on to those credit card tips until sufficient withholdings are met.  There are obviously times when the net check is zero prior to being able to withhold 401(k) contributions, or where the full election cannot be withheld.

Thanks in advance for any advice.

Is anybody going to apply the new hardship rules January 1, 2019 or are you waiting for IRS guidance?   Our relationship managers are pushing to implement January 1 and our document provider (FTW) is not going to update the document until the IRS issues guidance.     Fidelity is implementing January 1.    What are other document providers like ASC, R.A., etc. doing?    Thank you

When will each of the recent pension relief rules we've been living under (MAP21, HATFA, etc.) expire?  Will it be a big deal? 

Employer had two late deposits during 2017.    If they correct it on their own, and deposit lost earnings, are they required to file a Form 5330 with the excise tax?   

5500s now ask for a MyPAA confirmation number for plans covered by PBGC.

What do you do if the plan is covered but you have no confirmation #?

What if you check Not Determined?  What if you force it through EFAST - will it accept it?

I am being asked if there is a legal requirement to produce notices in Spanish or other languages for people whose primary language isn't English.

Mind you the client agrees it is a good idea and is trying to get translations done.  They just want to know if there is a requirement and if so which notices. 

I'm looking at a plan currently with pro-rata allocation.  Plan includes both union and non-union employees.  Employer is considering giving different allocations to union and non-union.  If union employees are eligible for plan and allocation, can they still be excluded from 410(b) and 401(a)(4) as statutory exclusions?  Thanks.

When calculating the Age 70.5 Required Minimum Distribution on a participant account holding a life insurance policy, regarding the life insurance policy, does the RMD calculation include the value of the death benefit, does it use the cash value for the calculation, or does it include both?

Does anyone have any thoughts on what the likelihood is that the IRS will assess penalties under Code Section 6721 on a hypothetical ALE that failed (for no reason other than a lack of knowledge of the requirement) to timely file with the IRS Forms 1094-B and/or 1095-C for 2016?

Plan sponsor wants to reduce number of active investment vendors under the 457(b) plan from 5 to 3.  They will close the 2 discontinued investment vehicles to new contributions,  but will allow participants to keep their current balances in those investment vehicles (for now). Going forward, new contributions may only be made to the 3 remaining vendors. 

I can't find anything under federal, state or relevant local law that governs these changes or addresses any participant notice or timing requirements).  Other than any potential collective bargaining agreements, am I missing anything?

 Is there a required notice period?

A fiscal year TIAA plan was amended for the last plan year to change their 100% vested employer match to an enhanced Safe Harbor Match. The plan sponsor continued to deposit the SH Match in the match accounts instead of setting up a SH Match account.  Should they just approach TIAA to have them move the SH into its own account along with allocable yield?

For bankrupt employers, HATFA §2003(c) generally revised IRC §436(d)(2) to provide that the AFTAP is determined without regard to the adjustment of the segment rates under IRC §430(h)(2)(C)(iv) to determine benefit restriction under §436(d)(2) . For non-collectively bargained plans, the statutory amendment deadline was the last day of the 2016 plan year with the IRS having authority to extend this deadline. Question: Has this deadline been extended by the IRS, if so, to when? Also, what is the remedial amendment period that applies here if the deadline was missed. For example, even though non-collectively bargained, would this plan be eligible for the extended remedial amendment period under Notice 2016-80, i.e., 12/31/2018.