Randy Watson

Plan sponsor wires elective deferrals and loan payments to the trust within 7 days. The wire does not show up on the trust's statement until a day later. There was a footnote in the preamble to the old plan asset regulations that stated the Department was of the view that amounts were considered to be segregated from general assets on the day the check was mailed. It seems like the same would be true for amounts wired to the trustee, but the focus in the new regulations is on the date the amounts are "deposited". Has anyone had to deal with this issue of remittance vs. deposit under the new regulations?

If a corporation has a "stock split" that results in a greater number of outstanding shares, does the aggregate number of shares available for issue under the ISO need to amended to reflect the split if they want to have the option of issuing more shares based on that split? Can they simply award from ISOs based on the split? Assume 100,000 shares were approved for issuance under the ISO. Two years later there is a stock split and there are now 2 shares to every 1 share there was at the time the ISO was approved. Do we need to amend the plan if we want to be able to issue 200,000 shares under the ISO plan? What if over 100,000 shares were awarded under the ISO but the plan was never amended to reflect the greater number of shares available due to the split?

Found my answser.

An ISO plan is required to designate the number of shares available for grant under the plan. If the corporation has a stock split, does the plan have to be amended to reflect a change in the number of shares available? For example, assume a plan is written so that 500,000 shares can be issued under the ISO plan. After adoption and approval, there's a stock split which doubles the shares that can be issued by the corporation. Does the plan have to be amended and do the shareholders need to approve the availability of 1,000,000 shares under the plan? Seems like the answer to that would be yes, but looking for thoughts on that. Thanks.

No problem. Thanks everyone!

It does, but this is one of those odd rules where you may actually "change your mind" about making the contribution you just funded to your IRA. After changing your mind (for whatever reason), you may remove the funds (plus earnings) by the tax filing deadline of the year for which the contributions were made. The taxability of the earnings will depend on the year of actual deposit. Good Luck! But the taxpayer in my situation is not changing his mind about a contribuition he made. He is changing his mind about a distribution he received. He wants to put the distribution he received back into the IRA. The 60 day rollover rule would work, but I was hoping for something that we could do beyond 60 days.

Can you give a breif explanation?

Is there a window of opportunity for an IRA owner to return a distribution to his IRA without incurring any tax?

Small company (one man plan) establishes and maintains a defined benefit plan for many years. The plan is fully funded and no more deductible contributions can be made. The plan is terminated and the benefit is rolled over to an IRA. A full tax year goes by and the owner wants to establish a new defined benefit plan. Is there anything that prohibits this or will limit the owner's ability to establish and fund that new plan?

During an IRS audit the agent discovered that the employer deducted an amount greater than the 404 limit. The accountant clearly dropped the ball on this one. In addition to the tax deficiency, the IRS is imposing excise tax under 4972. The employer is going to pay the tax deficiency, but it does not want to pay the excise tax since it reasonably relied on its tax professional. Is there any such exception to the 4972 excise tax? Is the IRS open to waiving excise tax in unique situations, or should the employer just pay it and attempt to collect from the accountant?

This definitely isn't a QP. It's a 162 bonus plan, so the "reasonable compensation" rules apply. There is a Revenue Ruling or PLR or two on these plans, but I wasn't sure if there was anything else that I may have missed. In a nutshell, the employee directs the employer to use a portion of his taxable compensation (typically a bonus) to pay premiums on a whole or universal life insurance policy. Some executives may not be able to secure a whole or universal life insurance policy due to their health conditions. In that case, an annuity would be a nice option. I wasn't aware of anything that would prohibit the use of an annuity, so I was just checking here.

Does anyone know whether you can use compensation under an executive bonus plan to purchase an annuity, rather than whole or universal life?

What I'd really like to know is whether an impermissible distribution (e.g., a distribution when the participant is not entitled to one) is an "Overpayment". As you noted, an Overpayment is generally defined as payment in excess of the amount payable. If a participant isn't entitled to a distribution, would any payment be in excess of the amount payable (which technically is zero) and thus be an Overpayment or does an Overpayment occur only when they receive more than they should have? The method of correcting an Overpayment under EPCRS would require the employer to reimburse the plan when collection efforts fail. This seems like an unreasonable correction method when a participant receives their entire account balance (and not a penny more), but just received it prematurely.

Did you ever find an answer to this?

A defined benefit plan pays benefits to a surviving spouse in the form of a lump sum distribution only if the amount is under $5,000. There is no other form of benefit available to beneficiaries...this is mandatory. Can the lump sum form be eliminated under 411? Death benefits are ancillary benefits, unless they are part of an optional form of benefit and I see no reason why this wouldn't be an optional form of benefit under the regulations. Any thoughts?

I submitted a determination letter application for a cash balance plan. The document had a 414(k) provision in it that basically says that if the plan ever permits employee contributions then the contributions will be treated as annual additions to a DC plan pursuant to Code Section 414(k). The IRS agent responds to the submission and claims that 414(k) accounts are not permitted in a DB plan and that I need to submit a new DL application if I want a ruling on that 414(k) provision. Since when are 414(k) accounts not permitted in a DB plan? Isn't that the sole purpose of Code Section 414(k)? Also, why would I need to submit a new application for a 414(k) ruling when that does not appear to be something you need to specifically request a ruling on when you submit a 5300? Am I missing something?

I came across an EPCRS phone forum from 8/24/10, which was presented by Avaneesh Bhagat. During that forum he said that you can use forfeitures to "fund the QNCs required to replace the missed deferral opportunity of an excluded employee". I've never heard this before. Has anyone done this? I was under the impression that you couldn't do this because QNECs had to be 100% vested when contributed to the plan and forfeitures clearly weren't 100% vested when they went into the plan. I can see using forfeitures to correct the match or nonelective contribution, but missed elective deferrals?

Great comments as always. Thank you everyone!

We have a new client that has a tax exempt 457(b) plan that has not been updated for about 10 years (before the 2003 regulations). How strict is the IRS with regard to document compliance in this area? Would a retroactive amendment be in order here? Does anyone have any experience with 457(b) document issues and the IRS? I'm trying to get a sense of how much leeway we have with the document.

The regulations under Code section 410(d) tell you how to make an election for a church plan to be subject to ERISA and the Code provisions from which a church plan is otherwise exempt. The regs are specific about how to do that, and there isn't an "inadvertent" election concept built into them. In PLR 8536041, the IRS determined that a prototype retirement plan adopted by a church was a church plan despite the fact that the plan document was written as if the plan was covered by ERISA. The DOL, in Advisory Opinion 85-32. determined that a pension plan adopted by a Catholic hospital was a church plan despite the fact that the plan administrator had filed a 5500 for the 1982 plan year and paid PBGC premiums in 1982 and 1983. So, there's some authority that supports the notion that an employer can't inadvertently make a 410(d) election. Now, here's a caveat, and it's a big one: The IRS, DOL and PBGC have been meeting for the last several years (since 2003) on church plan ruling issues. Without going into all the whys and wherefors as to why those discussions are taking place, I recently learned that the concept of an inadvertent 410(d) election has been/is being discussed, and that, if an employer has acted like its plan is ERISA-covered in plan language, filling 5500s, etc., it may be treated as having made an election to be subject to ERISA. So, stay tuned. Church plan guidance is on the IRS guidance plan for its guidance fiscal year ending 6/30/09, so we'll have to see what comes out of the IRS, DOL and PBGC discussions. Presumably a decision that there is such a thing as an inadvertent 410(d) election would be applied prospectively. But you never know. Hope this helps. I can't seem to find a copy of 85-32 anywhere...not on the DOL website or even on BNA. Does anyone have a copy or a link to it?

I know this is the "ESOP" board, but this seemed to be the most appropriate place for this question. The regulations under 1.423 state that an ESPP must provide that options can be granted to employees of the corporation or to employees of a related corporation. This seems to suggest that offerings to employees of related corporations is optional, but it is not perfectly clear to me. Can you exclude the employees of related corporations, and if so, where can I find that authority?

I have an endorsement split dollar agreement where the only benefit is the death benefit (there's no element of deferred compensation, the employee is unable to access any cash, receive a loan etc...) I believe it is an ERISA welfare plan. Although it's technically a welfare plan, I thought this NQDC board was the best place to post the question since split dollar arrangements are typically established for executives. I'm trying to figure out how to deal with the ERISA claims procedures that need to go in place. I haven't seen the insurance policy, but I can't imagine claims reivew process of the insurer will be consistent with ERISA. Maybe I'm wrong about that. Does anyone have any experience with this or thoughts on how to deal with inconsistencies between ERISA claims procedures and those of an insurance policy? Do insurers typically agree to follow ERISA claims procedures? Any insight would be greatly appreciated. Thank you.

How about a situtation where the market tanks and the assets securing the loan are valued well under the 50% threshold? Or what about a QDRO awarding 100% of a participant's account to an alternate payee? Would those lead to PTs?

No. I believe the correct reasoning for this is a) a loan to a participant is a prohibited transaction, b) there is an exemption for participant loans meeting certain requirements, c) you blow the exemption when the participant holds a note that doesn't meet the requirements, and it would in fact fail to meet the requirements, the 50% rule being the first one that comes to mind. It was my understanding that the 50% rule had to be satisfied at the time the loan was made.

That's a good point. Are you saying that the only snag in this is that the fiduciary must act prudently? In my proposed set of facts we have a participant who is taking an in-service distribution and will continue to make loan payments through payroll deduction. The risk imposed on other participants is not as great (or possibly nonexistent in a DB plan where the employer is solely responsible for funding). Any thoughts?