Kevin C

One of our clients is asking questions about FICA for a SERP she will be receiving a benefit from. The SERP benefit is the difference between what her benefit would be in the DB plan if no limits applied and what she has accrued in the DB. The SERP document does not have any references to vesting or forfeiture of benefits. She is approaching retirement and has been told that FICA applies at retirement to the present value of her plan benefit. The amount of the FICA amounts to about 15 months of payments. She is being told the plan will offset her monthly benefits by the amount of FICA paid until the entire FICA amount has been recouped. Then, she will start receiving monthly payments in about 16 months. Does this information sound correct?

We don't map funds with takeover plans, so I've never worked through the issues involved. For those that map, is there any particular guidance you've found that says notifying a participant of how the funds will be mapped, even if mapped to unlike funds, means a participant who lets the mapping take place is considered to exercise control over the investments in his account? Or, is there some other reason you think there is no fiduciary liability if the funds are mapped? I found something today that makes me question whether any fiduciary relief would apply in the OP's situation even if a notice was provided. Footnote 1 of Rev. Ruling 2000-8 says: The same language is in the preamble to the proposed QDIA regulations, but it adds a discussion that using a QDIA in compliance with the regulations is an exception.

1.401(a)(4)-5(a) still applies if the timing of the amendment has the effect of discriminating significantly in favor of HCEs or former HCEs. Of course, a newly hired non-owner executive would be an NHCE for the year they were hired.

To me, the situation you describe is comparable to the situation in the Q&A question you are referring to (Q#37 at the 2012 ASPPA annual conference).

If one or more of the old funds being used doesn't have a similar fund in the new line up, why would a rational fiduciary map funds? So, the investment advisor decided how the mapping was done?

I agree with Austin that it is more likely you were defaulted into the current investment, not mapped. The notice you threw away would have told you which it was. You might want to ask for another copy of the notice. Default: The plan changes investment options and notifies everyone that they have to select new investments from the new menu. Those who do not make an election from among the new investment options are defaulted into the new qualified default investment alternative (QDIA) described in the QDIA notice sent to the participants. If this is what happened and they followed the DOL's QDIA regulations, you'll have an uphill battle trying fight it. Here is a page on the DOL website dealing with QDIAs. http://www.dol.gov/ebsa/newsroom/fsQDIA.html Mapping: The plan changes investment options and a plan fiduciary decides that balances in fund A get moved to fund J, balances in fund B gets moved to fund K, etc. I would expect notices to be sent to the participants, too. Since the decision of which fund maps (is moved to) which fund is a fiduciary decision, your statement that your funds were moved from a gold/silver mining fund into a long/short stock fund makes me think your funds were not mapped. The bigger the differences between the old funds and the new one, the more potential liability the fiduciary has for the mapping decision.

I agree it sounds like they were discussing a non-qualified plan. For a qualified plan, in addition to the above cite regarding ACP testing, 1.415©-1(b)(6)(i)(B) would apply:

If A is a member of an affiliated service group with B, they are treated as a single employer. That doesn't mean they can't have a plan only covering employees of A. It means coverage testing has to be done to determine if Plan A can stand on its own. If they try to only cover HCEs in Plan A, it won't work. There must be more to the relationship between A and B than just payroll and insurance for the employees for them to be an affiliated service group. That's something B's ERISA attorney should have worked through when they started with this structure. If A has questions, I would suggest they ask B for a copy of the ERISA attorney's opinion that the various entities in this relationship are an ASG. The opinions I've seen were very clear about why they are or why they are not an ASG.

Which entities does B consider itself to be an Affiliated Service Group with? What did B tell A their options are? So far, you've mentioned insurance and payroll for A's regular employees being done by B. To me, that screams PEO relationship and you haven't said anything that changes that impression. Are the regular employees still common law employees of A? Who hires and fires them, tells them what to do and when, etc. It wouldn't surprise me to find that a PEO is still running a plan as a single employer plan in spite of Rev. Procs 2002-21 and 2003-86. We came across one in 2009 or 2010 that was still operating as a single employer plan. They pitched to one of our self-employed clients (with no employees) and promised he could do employer contributions as high as 35% of compensation in their plan.

Not sure I understand the facts. Did A somehow join an affiliated service group with B, or did they hire B as a PEO?

My first thought is that you should read 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1) for the rules prohibiting certain mid-year amendments to safe harbor plans. It's not an easy read, but once you put the pieces together, you may find that what you "know" doesn't match what the guidance says. My second thought is that with the company already being closed, does the timing of the amendment really affect anything? If anyone from that company were still employed, there are rules for suspending the SH contribution mid-year that would need to be followed.

Which fiduciary duties are you concerned about? Usually when someone mentions fiduciary liability, they are referring to issues related to the plan's assets. In this case, the plan is unfunded.

First of all, is there any chance all the companies are part of an affiliated service group? When non-related companies sponsor the same plan, you have a multiple employer plan. The first thing to look at is the plan document. Prototypes can't be used for multiple employer plans. Volume submitter documents can. Does the document used have multiple employer language? If it has an adoption agreement, does the way it was filled out prevent the multiple employer rules from applying? You may or may not need a plan document correction. With a multiple employer plan, some testing (for example ADP/ACP testing) is done at the employer level. Other rules (for example 415 limits) apply at the plan level. Would all of the testing pass if it is done at the appropriate level? If not, that will need to be corrected. If the plan and trust documents have multiple employer provisions, I wouldn't expect any corrections to be needed there. But, without seeing the trust document, it's impossible to tell. I would also suggest getting an ERISA attorney involved.

Jim, from post #34, the discretionary match applies to all deferrals with no limit. That kills the ACP SH. Another issue is that post #29 says the client wants to do a 100% match on deferrals not in excess of 4% of comp. The discretionary match has to be allocated under the terms of the plan. As described, the discretionary match applies to all deferrals with no limit.

I found the following page with a web search. It has links to cites for each state listed as recognizing common law marriage. http://www.ncsl.org/research/human-services/common-law-marriage.aspx Another search found a recent court case where someone received death benefits from an ERISA covered plan due to a common law marriage despite the participant later marrying someone else. http://www.gpo.gov/fdsys/pkg/USCOURTS-kyed-5_12-cv-00201/pdf/USCOURTS-kyed-5_12-cv-00201-0.pdf

I think what Bird is referring to is that capping the match at $2,500 means it doesn't satisfy the safe harbor match requirement of 1.401(m)-3©. I agree you would also have a problem with the paragraph you cited dealing with limitations on the match, so you would need to run the ACP test. It also makes me wonder what contribution is being used to satisfy the ADP safe harbor. Unless there is another safe harbor contribution being made, I think you lose the ADP SH as well when you cap the otherwise SH match.

Maybe I'm reading too much into the original post, but I don't read it as saying they are providing the flat $1,000 pay credit only to a select group of lower paid employees. If all of the rank and file who have met the age and service requirements and reached the entry date are receiving the $1,000 credit, that isn't the situation discussed in the Gold memo. Regardless of whether you think the memo has any merit, it shouldn't affect the discussion if the memo doesn't apply to the situation under discussion. From the memo: If the plan excludes most of the NHCEs except those with low comp or short service, then it's time to discuss whether the memo has any authority and whether it applies.

Does the plan limit the deferrals that are considered for the discretionary match to some other level? Or does the discretionary match apply to all deferrals with no limit?

If the plan sponsor wants the fiduciary protection normally afforded to plans using a QDIA, the timing requirements for the QDIA notice are in §2550.404c-5©(3). In this case, the applicable timing is "at least 30 days in advance of the date of any first investment in a qualified default investment alternative on behalf of a participant or beneficiary ..."

I've never had to deal with H-2B workers, so forgive me if this is a silly question. Would excluding the H-2B workers run afoul of any of the variety of other laws prohibiting discrimination based on national origin or immigration status? http://www.dol.gov/dol/topic/discrimination/immdisc.htm

Over the years, I've heard several IRS representatives say that IRS concerns about sponsors providing a SH notice and then changing the rules are the reason the regulations have the mid-year amendment prohibition you cite. I've never heard anyone from the IRS say you can't amend anything that is mentioned in the SH notice. Several ASPPA speakers and at least one ASPPA comment letter have suggested that should be the standard. Some of them are still asking the IRS to give formal guidance that is is ok to change the Trustee or change the sponsor's address mid-year in a SH 401(k) plan. The regulations section you cited clearly identifies the kind of plan provisions that can not be amended mid-year as those provisions that satisfy the rules of this section, meaning 1.401(k)-3. I've read through 1.401(k)-3, including (d) the SH Notice requirements, several times and can not find a single rule in it that any of the plan provisions dealing with the PS allocation method must satisfy. If someone decides that their firm's standard for mid-year amendments will be to not amend anything at all, or to not amend anything referenced in the SH Notice, that is their decision and I respect that. But, speakers claiming that either of those is the IRS standard for mid-year amendments is another matter. If the IRS wanted either of those to be the rule, I firmly believe they would have written it into the regulations. They did not. I'll get off the soapbox now.

I doubt it will surprise anyone, but I pick door A. There is nothing in published guidance prohibiting mid-year changes to the PS allocation method simply because the plan is a 401(k) SH. While I have heard some ASPPA speakers claim there is a total prohibition of mid-year amendments to SH plans (except for published exceptions), I've never heard anyone with the IRS make that claim. Quite the opposite, we have a growing list of mid-year amendments to SH plans that the IRS has informally stated are ok. If you read 1.401(k)-3(e)(1), it is very specific about what provisions can not be amended mid-year. It is also clear that adopting an improper mid-year amendment means that the plan does not satisfy 1.401(k)-1(b), which is a qualification requirement. If the IRS has really taken the draconian position the ASPPA speakers claim, there should be thousands of disqualified plans by now.

It may be allowed, but it could make your 415 limit testing interesting. The 4th quarter 2015 match will be an annual addition for 2016.

I'm not sure I understand your question. If you asking if a plan that provides for the basic SH match and a discretionary match that satisfies the ACP SH timely distributed a SH notice that described the basic SH match, but referenced the SPD for information regarding the discretionary match, I don't see a problem as long as the SPD has been provided to all participants. The discretionary match is covered in the SH notice content requirement under 1.401(k)-3(d)(2)(ii)(B). 1.401(k)-3(d)(2)(iii) has the rules for including content by reference to the relevant portion of the SPD and it specifically says it can be done for content described in paragraph (d)(2)(ii)(B).

It might be easier to use the de minimis change in timing rules in 1.411(d)-4 Q&A2 (b)(2)(ix) to change distribution timing to be after the match has been funded. You are allowed to change the distribution timing by up to 2 months.