MoJo

2/5. Operate the plan on a cash basis.

What exactly do you mean "being run through payroll"? I get "reimbursements" through "payroll" but they aren't considered comp for plan purposes.

I'd restate immediately (even for free - as we do) because: 1) it's easier to use our document; 2) the plan sponsor probably no longer has reliance on the old provider's opinion letter; 3) the plan sponsor may be in breach of contract (pretty much everyone I worked for had a provision in their contract that said you could only use the document (which was copyrighted) only as long as you were a client); and 4) "maintenance" amendments would no longer apply and the plan could potentially get out of compliance.

Have you considered negotiating a contract modification? The company I work for (also in the group annuity plan business) would rather change (older) contracts than lose a client.

First, neither of our document (major modifier Relius, off-the-shelf ASC) have any provisions for POAs. In fact, I've never seen such a provision in a document. Second, an appropriately drafted POA puts the agent in the shoes of the grantor of the power (participant), and so the agent may act consistent with the powers granted - which is a STATE LAW issue - and I'm not aware of anything in ERISA or other federal law that would allow a plan fiduciary to ignore a "properly drafted" POA. Third, we get POAs all the time, and we do review them (as a courtesy to our clients) and specifically look for a specific grant of authority to manage plan assets. Sometimes that is difficult to ascertain. We prefer a POA that specifically mentions retirement plan assets and authorities listed in dealing with it (some may allow investment selection - as in the case of a financial advisor with a POA, and some with respect to a distribution or other actions). We are cautious with respect to things like distributions - and seek to verify specific authority to do so (not just a "general" power to do anything the grantor/participant could do). We provide our analysis to the sponsor who makes a final determination (usually consistent with our analysis). Just as an aside, we recently got one from Germany - written in German along with a provided English translation. It was unique to say the least, and we actually had to find someone to verify the English translation was accurate - and then still rejected it because it didn't contain sufficient specificity. We got an earful from the German lawyer - apparently the POA would have been more than sufficient under German law to allow the agent to do anything they darn well pleased. We didn't see it that way.

Sorry, but I disagree. The money spent in configuring a compliance mechanism is money that needed to be spent. If the industry had self-policed, the burden wouldn't have been so great, and would have been incremental over time instead of all at once - but it is money that needed to be spent. The White House report pegged the losses to participants at $17 BILLION, ANNUALLY. The costs are a pittance - even if halve or even quarter that number.

Lots of talk - I'll believe it when I see it. In the case of the company I work for, it's full steam ahead to comply REGARDLESS of whether the rule is repealed, delayed, modified, or any combination of the foregoing. It is perceived as "the right thing to do" and is expected to be a competitive advantage in the marketplace against those who do otherwise.

Yea. I agree FIS is being "conservative" - but we have a business to run and clients who have heard about this and want to use forfeitures NOW. So, we make business decisions, and frankly, no one has poked holes in the analysis, yet.... I agree - I can't remember another issue generating this much conversation - BUT this one is one people have been scratching their heads over the IRS' position for a long time - so the change generated excitement ... and then questions....

Not really - although the choice of service providers may be somewhat limited (unbundled is certainly an option and the choice of TPA's (more critical in many ways) may be greater).

Just curious if you have been successful in getting existing b plan sponsors to switch to a k plan? My experience is that they aren't interested (or don't understand).

Austin: We are a major modifier of the Relius document, but I don't think we modified this section. Here's the analysis: It’s 4.3(e) of the BPD, which provides in pertinent part: Notwithstanding above, effective for Plan Years beginning after the Plan Year in which this Plan document is adopted, Forfeitures may not be used to reduce any Employer contributions which are required pursuant to the Code to be fully Vested when contributed to the Plan (such as QMACs, QNECs and "ADP test safe harbor contributions" other than QACA "ADP test safe harbor contributions.") The first part of that, by way of limitation, prohibits the use of forfeitures as an offset to contributions which must be fully vested at the time of contribution (which until the IRS proposed changes included QNECs & QMACs – which are the types of contributions used to satisfy safe harbor requirements. Since the proposed regulation (and given that it explicitly allows retroactive reliance) QMACs and QNECs are no longer required to be fully vested, when made, so the limitation in that plan provisions (can’t use forfeitures to offset contribution required to be fully vested when contributed) is still an effective limitation – it just no longer applies to QMACs and QNECEs (hence, no amendment necessary). The parenthetical that provides “such as QMACs, QNECs…” is explanatory, and not a limitation, so this change makes that language superfluous and of no effect.

Well, answered or not, we've determined our ASC document needs no amendment and forfeitures can be used to fund SH contribution for 2016 but not yet paid. We've concluded that in good faith our Relius document needs no amendment (although Relius says they will be drafting one) and that forfeitures can be used to fund SH contributions for 2016 but not yet paid. Relius, being BUT ONE SOURCE of expertise, disagrees, and we considered that, but we have more "ERISA" attorney's on staff than they do.

My standard recommendation for a "start-up" is a 401(k) - for the very simple reason that you have considerably more choices in service providers (for now) than you do for 403(b) plans. I would add to that a few caveats - just for consideration. First, your choice of 401(k) plan providers for a "start-up" are much more limited - but depending on growth, that could change as more providers vie fo rthe business. Second, while I don't mean to pan insurance companies (I work for one), but many of the start-up 403(b) options are going to be group annuity products, and while they are light years better than contracts of years ago, the mere fact that it is an insurance contract adds some complexity (and maybe back-end misery, depending on the terms of that contract). To this day, I fight with co-workers who use "contract" and "plan" interchangeably - AND THEY ARE IN THE BUSINESS. Third and finally, there are still differences between k's and b's - and some like the special catch-up provisions in a b plan (but if they never had them, would they miss them in the future when it actually might be useful?)

Carefully simply means drawing a bright line between income sources and "playing by the rules" with respect to his own business (business formality, etc.) to ensure no complications. I was involved in a similar situation that required an (expensive) accountant to sort out in the face of an IRS audit. That "agent" sold certain lines as an employee, but sold other lines from the same insurer as an independent. The IRS challenged whether the "commissions" he received from the "independent" side was actually comp from the insurer as an employer, and not income to the side business. It didn't help that he commingled funds and didn't maintain good records. Otherwise, I do this all the time (but usually with respect to very different "businesses," a doctor who runs some non-medical business on the side, etc.)).

I would only add "carefully" - lots of details....

Yea. Not actually answering the questions - except to the extent that *if* the plan needs an amendment, the amendment must be done by the plan year in which it is to be effective (so, if done by the end of 2017, then arguably it is effective only for 2017 and after). The question is, if the doc doesn't need an amendment (ASC, possibly our major modifier Relius) then can you for 2016 rely on the retroactive reliance provisions of the proposed reg?

Yes, it says taxable years beginning on or after. It's already to late for 2017, as even if the final regs are published this year, the start of 2017 has already past ("beginning" being the operative language). A non-calendar year that "begins" after the final regs are published could come under that provision. But... We've got "retroactive" reliance so the prospective effective date is less relevant - unless the final regs are materially different from the proposed.

Always best to go to the source. The explanation of the proposed regs say (verbatim) in the Proposed Effective/Applicability Date" section: These regulations are proposed to apply to taxable years beginning on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. Taxpayers, however, may rely on these proposed regulations for periods preceding the proposed applicability date. If, and to the extent, the final regulations are more restrictive than the rules in these proposed regulations, those provisions of the final regulations will be applied without retroactive effect. First, I read the first part of that to say that WHEN FINAL, the regulations will apply only to taxable years beginning after publication. So, if they are finalized in 2017, that would be 1/1/18. Simple enough. The part after the "however" says we can rely on these "proposed regulations" (without subsequent consequences if the final regs differ from the proposed) for "periods preceding" (emphasis added) the proposed effective date. Now, words have meanings and "legal" interpretation says you use the ordinary meaning of words when interpreting them (unless the context requires otherwise). The proposal talks about "periods" preceding the effective date (i.e. it uses the plural) and it does not restrict those "periods" to only those occurring coincident with (2017) or after publication of the proposed regs. In other words, literally read, it could apply to any periods all the way back to the big bang. I'm not advocating any position here - we are still evaluating how this applies (or how we want it to apply) to our book of business, but an argument certainly can be made that you can rely on the proposed regulations for periods in the past - such as a 2016 contribution that has not yet been funded (to the extent there isn't some other prohibition against the underlying act of funding a contribution to the past period). I consider myself a "recovering" ERISA attorney (I work in-house with a service provider and not as part of the corporate legal department).

I agree with RBG. The rule really isn't a "late deposit" rule - it's a "late segregation" from employer assets rule. Not allocating (and then investing it) is more a general fiduciary problem rather than a PT.

Yes, they've indicated further guidance to us as well - but we already have clients (through their advisors) wanting to consume forfeitures sooner rather than later. We also have an AA version of the VS.

Just an FYI: Our version (major modifier) of the Relius VS says (paraphrasing) forfeitures may not be used to offset contributions that must be non-forfeited when contributed - which in my mind says since the safe-harbor contribution per this guidance no longer needs to be non-forfeitable when contributed but only when allocated, we can do this - BUT it goes on to say "such as" QNECS, QMACS and a few other things (not including safe harbor contributions). I read that as examples that under this guidance are no longer applicable, and therefore superfluous (and not limiting the preceeding clause). Relius' preliminary answer is that they think an interim amendment is necessary. We also support the off the shelf ASC document, which indicates it's not allowed" "unless" further regulatory guidance permits it - so that document appears ready at this time.

Being "included" for testing purposes is different than being excluded from participation. Yes, unless there is a "statutory" exclusion, they must be included for testing, but in any event, absent a specific "protected" class designation (through some legislation), you can exclude them from participation. I've not seen undocumented aliens defined as a protected class anywhere.... Bottom line, if you employ them 1) yes, you have to play by the tax collection rules; 2) you are breaking the law; and 3) you can, if you want to admit to item "2)" you can exclude them from participation (at the risk of testing issues).

I respectfully disagree. I could LEGALLY draft a plan to exclude all "redheads" - although I'd have a coverage test to perform. Why couldn't I exclude those not authorized to work in the US? It isn't a protected group (far from it - THEY AREN'T AUTHORIZED TO WORK HERE - which is what raise the issue I posited above). There are very distinct protected classes against of people who against whom you may not discriminate against. Not be authorized to work in this country is NOT a protected group.

I don't think the line is drawn between those who are of US "national origin" and those who are "not of US national origin" because the line only excludes those who are NOT in this country "legally." You may actually INCLUDE some people from Mexico who are here LEGALLY and yet exclude those from Mexico who are here ILLEGALLY. The distinction is not based on national origin AT ALL, but rather on a different criteria.. But, I still think you are confessing to the crime of employing those not in this country legally, and that is a problem....

The way I see this - yes, you can exclude a group of employees for a variety of reasons (as long as your exclusion does not violate some other law - like age, race, etc.). The problem with this request is that it BY DEFINITION seeks to exclude a group of employees that IT WAS/IS ILLEGAL TO HIRE/EMPLOY. Want to put into a document an exclusion of people you shouldn't have hired, and then CONFESS that you did so by actually excluding them in practice (thereby admitting that you KNOW they are employed illegally)? Yea. Good luck with that.