Randy Watson

What really gets me is that this plan is a safe harbor plan that actually makes an additional contribution. So even though this HCE has no right to the safe harbor contribution he has a right to a top heavy contribution. I trying to stop making sense of these rules.

Is there any way around having to make a top heavy contribution to an HCE that also happens to be a very, very well paid non-key employee? Can they somehow elect out of that contribution?

I changed my mind. ISOs should be exempt from 409A. Only the ISO valuation rules should apply, BUT . . . aren't there several situations where ISOs can become NQSOs, such as exceeding the 100K first exercise rule or exercising more that 3 months after termination of employment. If you are going to issue ISOs without following the 409A valuation rules, you better make sure there is NO POSSIBILITY of any ISOs turning into NQSOs. Agree?? You're not allowed to change your mind.

Someone informed me that they had a conversation with Dan Hogans. Apparently, Hogans said both rules apply. An ISO must meet the 422 rules and the 409A valuation rules.

Is this common? Is it a given that the employer would be free and clear of any future funding problems after the single payment is made?

Upon withdrawal from a plan, can an employer simply make a lump sum payment to satisfy its withdrawal liability never to be bothered again or is there some catch in doing this (i.e., is the plan potentially entitled to an additional contribution later on if, for example, the plan assets decline?)?

Has anyone heard anything recently about the final regs? What's the likelihood that the regulations will be finalized any time soon? What about the termination provisions...think they'll make it into the final version? Has anyone sought a ruling on terminating a 403(b)?

My confusion stems from the commentators' question about whether the "valuation rules applicable to incentive stock options be applied for purposes of the exclusion from section 409A." As you know, the IRS/Treasury said no, those rules are inappropriate. Is the commentator asking whether you can apply the good faith valuation rules under 422 for purposes of the 422 exclusion or the general exclusion for other stock rights?

So an ISO that is issued below FMV, but continues to satisfy Section 422 because it was valued in good faith will fail to satisfy the 409A exclusion?

I posted this on the nonqualifed deferred compensation board. As everyone knows statutory stock options under Section 422 are excluded from the reaches of Section 409A. What I'm not so sure about is whether you have to use a 409A valuation method to keep those statutory options out of 409A or whether you can still use the Section 422 regs to value the stock. The following paragraph from the preamble seems to contradict itself: "Several commentators expressed concerns regarding the determination of the fair market value of the underlying stock. Some commentators requested that the valuation rules applicable to incentive stock options be applied for purposes of the exclusion from section 409A. Under those rules, if the stock option would otherwise fail to be an incentive stock option solely because the exercise price was less than the fair market value of the underlying stock as of the date of grant, generally the option is treated as an incentive stock option if the issuer attempted in good faith to set the exercise price at fair market value. See section 422©(1). The Treasury Department and the IRS believe that this is not the appropriate standard for determining whether stock rights are subject to section 409A. Incentive stock options are subject to strict limitations on the amount of such options that may be granted to a particular employee. See section 422(d). In contrast, there are no such limits applicable to nonstatutory stock options, and grants of nonstatutory stock options often far exceed the limitation applicable to incentive stock options. In addition, section 422©(1) explicitly provides for the good faith standard with respect to incentive stock options, while no such provisions exist within section 409A or its legislative history."

I didn't realize it moved. I'm used to seeing it near the top of the Retirement Plans board and when it wasn't there I thought you eliminated it. Since 409A is not limited to retirement it makes sense to have it on on the General board. However, someone new to the board with a 409A issue might skim down and stop on this nonqualified deferred comp board. Just a thought....I don't care where it is as long as I know it's still here.

Is there no longer a 409A message board? Anyway, as everyone knows statutory stock options under Section 422 are excluded from the reaches of Section 409A. What I'm not so sure about is whether you have to use a 409A valuation method to keep those statutory options out of 409A or whether you can still use the Section 422 regs to value the stock. The following paragraph from the preamble seems to contradict itself: "Several commentators expressed concerns regarding the determination of the fair market value of the underlying stock. Some commentators requested that the valuation rules applicable to incentive stock options be applied for purposes of the exclusion from section 409A. Under those rules, if the stock option would otherwise fail to be an incentive stock option solely because the exercise price was less than the fair market value of the underlying stock as of the date of grant, generally the option is treated as an incentive stock option if the issuer attempted in good faith to set the exercise price at fair market value. See section 422©(1). The Treasury Department and the IRS believe that this is not the appropriate standard for determining whether stock rights are subject to section 409A. Incentive stock options are subject to strict limitations on the amount of such options that may be granted to a particular employee. See section 422(d). In contrast, there are no such limits applicable to nonstatutory stock options, and grants of nonstatutory stock options often far exceed the limitation applicable to incentive stock options. In addition, section 422©(1) explicitly provides for the good faith standard with respect to incentive stock options, while no such provisions exist within section 409A or its legislative history."

Assume that a class action suit has arisen and certain participants in an ERISA plan potentially qualify as members of the class. Would it be sufficient for the fiduciaries to simply disclose this information to the plan participants to give the participants the opportunity to join the class if they wish? Could this be considered to be acting in the best interest of participants, or would the fiduciaries need to join the class on behalf of the participants? I'm sure it's difficult to come up with an answer without knowing more details, but any comments would be welcome. Also, is anyone aware of commentary or case law addressing this issue? Thanks.

In order to satisfy the "good reason" safe harbors for purposes of separation pay, the service provider must terminate within a predetermined limited period of time after the safe harbor condition arises. The preamble says this is a one year period and the final regs refer to two years. The regs would control in this situation, but perhaps this is a technicality that will be corrected soon. One year seems to make more sense considering the required 90 day notice period and 30 day cure period. Anyone hear anything about this discrepency yet?

So you use the entire account balance ($10,000 in my example).

Loans from plans subject to QJSA require spousal consent. Spousal consent is not required if the $5,000 cash out applies. When applying that exception, do you use the total account balance or just the portion of the account used to secure the loan? For example, assume a participant has a $10,000 account balance (fully vested) and applies for a $3,000 loan. Is spousal consent needed?

The participant is free take a distribution without spousal consent. He can then go to the track and spend it all or roll it to an IRA and name his girlfriend as the beneficiary. But, if it stays in the plan it must go to the spouse. Not very logical to me.

Thanks, Plan Man. We know the rules and the reasoning behind requiring spousal consent to name a non-spousal beneficiary. My question is about the fact that you don't need spousal consent for the actual distribution. If what you say is true and Congress was "very concerned" about the interests of non-working spouses why does this gaping hole exist?

Does anyone know of any articles or commentary addressing the definition of "executive officer" under SEC rules for purposes of determining who the Named Executive Officers are? Of course, the definition of executive officer is helpful, but what do they look to determine what a "principal business unit, division or function" is?

"Manipulate" is such a negative word. My suggestion with the IRA appears to be perfectly fine from a qualified plan perspective. Participants in community proerty states might encounter some issues, but it's still within the rules. In my opinion, the difference between that and the participant making misrepresentations is more than a stretch....that is crossing the line. But you are right that they could do it and in a large plan might be able to get away with it.

I personally don't think spousal consent is a bad concept. With that said, I'm guessing that there are a few hundred thousand qualified plan participants who would disagree with me.

Maybe it's just me that can't grasp the reasoning behind this or maybe I could have been clearer in identifying the issue. Let me try again. The plan does not require spousal consent for a distribution since the plan makes distributions in the form of a lump sum. However, a participant would need the spouse's conent to name a beneficiary other than the spouse. It doesn't make sense to me why a consent is needed to name a non-spousal beneficiary. Tell me if I'm wrong, but couldn't the participant receive a distribution, roll that amount to an IRA that names someone other than his spouse as the beneficiary and do all of that without the spouse's consent?

Section 401(a) reuqires spousal consent when a participant wants to name a beneficiary other than the participant's spouse where the plan's only form of distribution is a lump sum. I'm not sure that makes much sense when no consent is required to receive a distribution. I doubt there is a way around this requirement, but I'd like to hear any suggestions.

Rcline 46, any reason why you chose 3 months? It seems like it would be easier to defend the correction method if you used a period of time after the close of the first tax year since you have the distribution of W-2s and the "participant's" filing of their tax return within the next few months. For those who think the participant has no responsibility, what would you say if this went on for 15 or 20 years? Does that change anything?

For those of you who believe the participants have some responsibility in this, how would you suggest making the correction? I think we would start with the participants' deferral agreements and use that percentage instead of the percentage contained in EPCRS for missed opportunities. Just not sure how we attribute responsibility from there.