So I've always been under the impression that vesting on death or disability retains a substantial risk of forfeiture under 409A.

For example, a nonqualified plan says employee will be paid $100,000 provided they are still employed in five years. If they remain employed but there's a death, disability, involuntary termination without cause, or change in control before the end of the five-year period, they vest in the $100,000 upon the first of those events. Payment in any case is made within the short-term deferral period.

I've assumed all these conditions would result in short-term deferrals. Five years of service clearly imposes a SROF under the regulations. Involuntary termination is explicitly mentioned in the regulations as creating a SROF. Change in control is a condition related to the business or organizational goals.

But the regulations are silent on death and disability. They are not service requirements, and are not conditions directly related to the "business" or "organizational" goals of the employer. They strike me as "personal" contingencies, not business-oriented contingencies related to the purpose of the compensation.

I've found guidance under 457(f) and 83 confirming death and disability are SROFs under both sections, but the 409A definition is narrower and I don't see clear authority blessing either death or disability as a SROF.

A prior thread, with a few others unsure of any authority, is here:

http://benefitslink.com/boards/index.php/topic/41317-short-term-deferral/

Thoughts?

EDIT: After some further thought, maybe I'm looking at this particular example from the wrong angle. The SROF here is the requirement that the employee continue performing services to have any chance of payment, i.e., employee only gets paid $100,000 upon the intervening events provided he remains employed on the date the event occurs. He can't voluntarily quit in year 1, then get paid in year 3 if he happens to become disabled or there's a change in control. So in that sense the SROF remains until the end of year 5 (in which case he is paid within the short-term deferral period). Better?

Plan uses 415 Compensation (Simplified) as definition of plan compensation. Usually this is the same as Federal Taxable wages plus pre-tax deferrals (401(k) and café plan), right?

What about a minister's housing allowance that is not included on his W2 for Federal withholding purposes (Box 1), but is included for FICA and Medicare wages (Boxes 3 and 5)? Should this be included or excluded to determine allocation comp?

Thank you

I'm sure the answer is out here somewhere, but I'm in sort of a hurry.

Sponsor acquired another organization in a 410(b)(6)© transaction. The acquired company has a Safe Harbor Plan (QACA), and the sponsor has a regular safe harbor match plan.

Is there anyway these plans can be merged mid-year? My initial reaction is "NO" because of the mid-year amendment rules around safe harbor plans, but the sponsor pushing to merge to save administrative expenses. Obviously, they'd get the benefit of the 410 transition rules for coverage purposes.

Any wiggle room here?

There is some rule affecting RIA's which was in response to Bernie Madoff that increased an RIA's responsibility when they have "custody" of client assets.

I understand the point of the rules with respect to RIA's who have access to their client's money. I have a client who is an RIA who is suggesting that they are subject to these rules with respect to the Trustee of the plan covering the RIA's employees. I tried to explain that in this situation, invoking this rule would involve protecting the Trustee (who happens to be the sole owner) from himself.

The requirements that one must deal with in this situation are quite onerous - either appointing a corporate trustee or engaging an audit firm to conduct "surprise audits."

Can someone point to something where it has been documented that this does NOT apply to RIA firms where the owners of the firm serve as Trustees?

A plan has a calendar plan year. The employer is moved from an individually designed plan (timely signed an 8905) and is using a pre-approved document. The PPA restated document is effective 1/1/2016.

When the employer got their PPA restatement they notified the document provider that they made a change in operation mid-2015 plan year but failed to request an amendment to the plan document.

Did the employer need to sign an amendment by 12/31/15 for the change or can the change be incorporated into the PPA document and signed by 4/30/16 (i.e., under PPA remedial amendment period). If it can be incorporated into the PPA document would is be under varying effective dates or would the PPA restatement date need to be the effective date of the change in operation (e.g., 10/1/15).

Thank you.

Our ESOP has hired a number of attorneys to assist in resolving legal issues with some of our ESOP plan participants.

Does this legal cost have to be paid by the ESOP or can the company (who sponsoring the ESOP) pay for these legal costs?

If the ESOP must pay – Then, would these legal costs need to be reported in the 5500 form?

Thank you.

For 402(g) excesses taken BEFORE April 15 after year in question:

Gross amount: taxed for year in question. If distributed before Dec 31, 1099-R code is 8. Between 1/1 and 4/15, it's P.

Earnings: taxed in year of distribution. Code 8.

For 402(g) excesses taken AFTER April 15 after year in question:

Gross amount: Taxed in year in question AND year of distribution. 1099-R codes P and 8.

Earnings: taxable in year of distribution. Code 8.

Does this also apply to impermissible deferrals (eg before becoming eligible) or if going over a plan limit (eg deferring 11% when plan limit is 10%)

An employer has 5 employees, all of whom are officers earning over the 416 compensation requirement and none of whom are owners. Therefore, only 3 of them would be key employees due to the limit on number of officers that are treated as key employees (greater of 10% of employees or 3). Those 3 would be determined by ranking them by compensation for the determination year in question and selected the highest paid.

These employees are all equal in decision making & responsibilities regarding the operation of the business. Also, all of them are highly compensated employees.

They have a safe harbor 401k and are exempt from the top heavy requirements. However, if they wanted to allow after-tax employee contributions, the would lose that exemption. If any of the employees made such a contribution, it appears the two non-key employees would be required to receive a top heavy minimum.

Unless my analysis is wrong, this is a crazy result that would preclude the employees from making such after-tax contributions without requiring a top heavy minimum for the two non-key employees.

Anyone disagree or have any comments?

Thanks.

I am never sure when trying to determine who is an HCE - for 5% owners - do we count people who own exactly 5% or people who own more than 5%. I seem to see it described loosely in my reference material. I think it is the latter. (more than 5%).

In an ADP test I am running. I have an employee who owns exactly 5% and earned 124,000 in 2015. She is an officer and earned 180,000 in 2014. She is in the process of retiring and socked away the maximum...which if she is still an HCE makes them fail big-time. I think she still belongs in the HCE group for 2015, but am hoping I am wrong.....

Any thoughts/guidance/what am I missing here comments would be welcome.

NQDC plan benefit is a percentage of the employee's annual compensation. In 2015, as a result of a 27th pay period, Employer ended up paying him more than it has in 2014 and prior years. In 2016, they will adjust what they plan on paying him, in order to account for the extra payment in 2015. In 2017, they will be back on schedule to pay 26 pay periods for the same total as he was given in 2014 and prior years.

Is this an impermissible acceleration in 2015 and potential under payment in 2016? If so, is there an exception under 409A that the company can use? Do you have any other suggestions for how the company could handle the extra payroll/payment and subsequent adjustment?

We submitted a form 5308 to the address provided on the instructions included below and it has been returned twice. Does anyone have the proper address? Thanks!

Internal Revenue Service, Commissioner, TE/GE, Attention: SE:T:EP:RA, P.O. Box 27063, McPherson Station, Washington, DC 20038,

P.S. - this is a SIMPLE-IRA.

You wouldn't think there is room for any interpretation here, but...

The model salary reduction election provides for a flat dollar amount or a percentage to be withheld "...from my pay for each pay period..."

Suppose you have someone who has elected a flat dollar amount - say $50.00. Once a year, they are paid a bonus, which is paid in a separate paycheck.

Clearly the bonus must be considered when determining total compensation for purposes of calculating the 3% matching contribution and limit. But is (A) withholding $50.00 required, or (B) is it not required since the bonus was paid during a "pay period" when $50.00 was already withheld from "regular" pay?

I'm inclined to think this could reasonably be argued either way. It matters in this situation because the employer botched the SIMPLE for years for a whole bunch of employees, and needs to file a VCP correction. So I can submit using interpretation (B) to see if the IRS approves, and fall back to (A) if they don't, but I don't want to bother with attempting (B) if I know it is a losing proposition. So, I just wondered if anyone has encountered this before, and if so, with what interpretation/results?

Thanks.

In a controlled group of corporations, Company A is the current plan sponsor and Company B is a participating employer. We are restating the document for PPA and they want to make Company B the sponsor and Company A a participating employer. I thought this would be fine as long as the change was on the 5500. Their attorney says that if we change the sponsor, it is not considered a restatement. Is that right?

Simple terminated in 15 and converted to a 401k in 16. Two questions, can the 2015 employer contribution for simple be funded in 2016? If it is a partnership (k1's for partners - not w2) can the employee deferrals be deposited for the partners in 16 for 2015?

Hi Everyone. New to BenefitsLink.

Where and how do I post a topic? I have question on funding of Simple IRA Plans.

Thanks very much!

Owner of company is deceased; wife wants to rollover his money to her IRA. This is permissible, is it not? (Just double checking)

Employer X maintains group health plans for its employees. For 2015, it chose to offer affordable coverage providing minimum value to 70% of its otherwise eligible full-time employees, choosing reasonable classifications to exclude as part of the 30%. X applies the look-back measurement method for purposes of determining the amount of any penalties under Code Section 4980H. For 2016, X is extending coverage to the other 30% due to its awareness that the rule requires it to offer coverage to 95% of its otherwise full-time employees. For purposes of applying 4980H to 2016, would the newly eligible ongoing full-time employees, how would Employer X treat them? Are they treated as newly eligible full-time employees, even though they are in fact ongoing employees? Or would it not be able to do anything but treat them as ongoing full-time employees since 4980H is applied on an ALEM by ALEM basis?

I would be most interested in getting your thoughts on this. Thank you.

The Plan was amended in mid-2015 to allow one employee to enter the Plan early. The employee was described as a newly employed employee and not a Highly -Compensated Employee. Now in 2016 it is discovered the new employee is a spouse of a Key Employee (they have different last names).. We need to correct as the new employee made 401k and received matching contributions during 2015. I believe this is a Demographic Failure requiring VCP, not SCP. Has anyone had a similar problem?

We have a plan that improperly calculated participant entry dates for a small subset of employees. The miscalculation essentially pushed back each participant's entry date from the correct date until the next entry date six months later. For example, participants eligible on January 1, 2014, were not enrolled until July 1, 2014. The error was just recently discovered.

I'd like to use the reduced 25% QNEC under Rev. Proc. 2015-28 because we're still within the "greater than three months but less than two years" period for many of the affected employees. However, the safe harbor requirements include notifying the affected participants "not later than 45 days after the date on which correct deferrals begin."

Read literally, if the normal plan entry process started "correct deferrals" on, say, July 1, 2014, we would have had to notify the participant within 45 days after their plan entry date, which we obviously cannot do (and couldn't have done).

Interested to hear thoughts on whether we should still aim for a 25% QNEC and give notice within 45 days of discovering/correcting the error? I get that the reduced QNEC is supposed to provide an incentive to self-correct errors early, but we're still within the eligibility window, we just didn't realize at the time of plan entry it was a "correction."

A participant took a partial distribution from a Roth 401(k) account in 2015 and it was a qualified distribution. The 1099r instructions state that box 5 can exceed box 1. If box 5 included all contributions (less any basis previously distributed) and the participant took another distribution in 2016, what would be in box 5 for the 2016 Form 1099r?