Übernerd

Correct, it's not required in other situations, but the agent said it's helpful to have the 5300 worksheet completed. I was sure that was the answer but I was getting pushback from a "consultant."

Thanks. I talked to an agent at the DOL and they confirm that the 5300 need not be filed with the IRS but can be filed as part of the paperwork substantiating an application for the PTE 2002-51 relief.

If a late deposit of elective deferrals is corrected under VFCP, the employer qualifies for PTE 2002-51 (as amended), and the 15% § 4975©(2) excise tax is waived. It seems like there is no need to file Form 5330 at this point, but I'm getting pushback on that decision. If there is no excise tax, why go to the trouble and expense of filing the 5330? Thanks for any wisdom. Cheers.

The general rule is that the QJSA must be at least as valuable as any other optional form of payment. The only exception is when the 417(e) factors, standing alone, cause a lump-sum to be more valuable. We've come across a plan that grandfathers a lump-sum for all pre-89 service. It's more valuable than the QJSA for the same service, but not because of 417(e)--it's because the lump sum is calculated with an early-retirement reduction factor that is twice as favorable as the ERF for any annuity form. I guess whoever drafted it took the position that the most-valuable rule simply doesn't apply to pre-89 accruals. It looks like the most valuable rule first appears expressly in the 1988 batch of regulations that added it to Q&A 16 of § 1.401(a)-20 and to the definition of "QJSA" in § 1.401(a)-11(b)(ii). Those regs were generally effective for plan years beginning on/after January 1, 1989. To my ear, the Preamble to those regs makes the most-valuable rule sound like a continuation of a previous IRS position, and of course the statutory definition hadn't changed after REA. Has anyone heard of an option to grandfather pre-89 benefits against application of the most-valuable rule? Cheers, Ü

Thanks again!

I am the proverbial ERISA counsel! But this is a new one on us. I also tend to agree. Thanks, guys.

Odd situation. Employee (Bob) terminates employment with Employer and begins taking distribution of a large benefit from Employer's nonqualified (stock unit) plan. That benefit is in 10 annual installments. If counted, each such installment is over the HCE comp threshold. Should those payments be counted when Bob is rehired to determine whether he's an HCE? If so, when? The question is crucial for Bob because Employer's qualified plan excludes all HCEs. The qualified plan's definition of compensation for HCE determinations is--by cross-reference to § 1.415©-2(d)(4)--wages reported in Box 1 of W-2 that are "compensation to an employee by his employer." (Are payments to Bob from the nonqualified plan payments from Employer, for this purpose?) Per the 415 final regs, post-severance payments are excluded from this comp definition. (Are the installments "post-severance" even after Bob is rehired? Do the payments from the nonqualified plan count in determining whether Bob is an HCE his first year he's back? The next? Ever?) I'm sure there's a rifle-shot answer to this that I'm not seeing. Thanks for any thoughts.

I don't think there would be any unique 415 issue. The account in pay status would remain subject to the annual benefit distribution limit (and would receive no new accruals), and accruals to the new account would remain subject to the annual accrual limits (i.e., the 401(a)(17) limit). Or am I missing something? Consider a participant who reached their maximum benefit limits, retired and returned to work. While 401(a)(17) determined compensation limits, it is irrelevant to my comments. New benefit accruals could commence only if they did not violate 415(b) limits. Yes, I agree that the combined distributions from both accounts would be subject to 415(b).

I don't think there would be any unique 415 issue. The account in pay status would remain subject to the annual benefit distribution limit (and would receive no new accruals), and accruals to the new account would remain subject to the annual accrual limits (i.e., the 401(a)(17) limit). Or am I missing something?

Assuming a pretty vanilla cash balance plan (age-weighted pay credits & fixed-rate interest credits), are there any special design considerations for rehired participants who have either (i) already received a lump-sum distribution on termination, or (ii) are receiving annuity payments when they are rehired? In the first case, the right approach seems to be simply to start over with a zero account balance. If so, does that approach work for the second group (those receiving annuities)? That is, can you simply leave the current annuity stream going (no suspension) and start them at zero in a new account? I don't see anything in the final or proposed regs, but I'm not sure what to make of the rules under 411(a)(7) in this context. The sponsor would like to apply the same rules to those who commence payments before and after normal retirement age (and doesn't want to implement a benefit suspension rule for post-NRA rehires). Cheers!

Thanks, that's helpful.

Let me put it another way. Assume Participants A, B, and C each take a loan on 12/1/2012, with the first payment due on 1/1. Participant A misses the first monthly payment (1/1) on his loan but makes each payment thereafter. Does he have a deemed distribution at the end of the Plan's cure period (6/30)? Participant B misses his first 5 payments, but makes his first payment on 6/1 and on the first of each month thereafter. Does he have a deemed distribution on 6/30? Participant C makes every other payment on her loan: 2/1, 4/1, 6/1, etc. When does she have a deemed distribution? On 6/30, because she never brought the loan current? Or on 3/31/2013, when her payments can no longer be "related back" (i.e., be applied) to a missed payment that is within the current cure period?

Can a participant keep "restarting" the cure period without ever bringing the loan current? For example, assume a plan provides for the maximum cure period. If a participant is behind on her loan, but is making sporadic payments (let's say 1/2 as often as required), when does the deemed distribution occur? A. The end of the calendar quarter following the calendar quarter in which she first got behind, or B. Not until she is so far behind that any payment she makes would be applied to a missed installment payment that was due before the beginning of the current cure period (e.g., such that a payment made after 6/30 would not be applied to a payment due after 1/1.) Client has a pile of loans that were set up to be repaid at 1/2 the rate they should have been. All comments appreciated. Ü

Participant took a loan in 2011, but sponsor's payroll department never set up repayments. Recordkeeper has already deemed the loan and issued a 1099-R, so the failure has been "corrected" as far as they are concerned. But sponsor and participant wanted to reamortize the loan instead. Two questions: 1. Can the reported deemed distribution be undone at this point? 2. If so, does the correction need to be made under VCP? §6.07 of Rev. Proc. 2008-50 suggests that the only way to correct this failure without reporting it as a deemed distribution is to file under VCP--is that the correct reading? If so, I don't see that undoing the deemed distribution is worth it because the compliance fee will be prohibitively high. Thanks for any insights. Ü

Plan A is a traditional, Taft-Hartley DB plan with an elective lump sum payment (LSP) option. In PY 2008, Plan A implemented the new PPA 417(e) rates. The amendment included an odd wear-away rule. Now we're concerned about that rule in light of the general rule that QJSA must be at least as valuable as any other benefit option that is payable at the same time (the most-valuable rule or "MVR"). Under Plan A's wearway rule, minimum LSPs are based either on (i) "frozen" service, i.e., service through a fixed date, using pre-PPA 417(e) factors; or (ii) the e'ee's total service, using post-PPA factors. The "freeze" date is the end of the 2009 PY. So a participant with 10 years of service as of the freeze date, who then retires at the end of the 2010 PY, would get the greater of the LSP calculated using: (i) his 10 years of service through the end of PY 2009 and the pre-PPA factors, or (ii) his service through the end of PY 2010 (11 years) and the post-PPA factors. Whether it was substantively permissible or not, the amendment was timely adopted during the transition period described in Notice 2008-30, and the dates line up with the period during plans were permitted to pay the greater of the LSP payable using pre- or post-PAA factors, without violating the MVR. The idea was simply to give participants a window to see what the rate would be for the upcoming stability period and then decide whether to retire and take the old LSP. Note that Plan A adopted an identical wear-away under the relief issued after the transition from the old PBGC factors to the GATT factors in 2000, and the IRS has issued favorable determinations following both amendments. The critical points of the law are: QJSA Most-Valuable Rule: A qualified joint and survivor annuity must be at least the actuarial equivalent of the normal form of life annuity or, if greater, of any optional form of life annuity offered under the plan. § 1.401(a)-11(b)(2). 417(e) Exception: A plan does not fail to satisfy the [MVR] merely because the amount payable under an optional form of benefit that subject to the minimum present value requirement of section 417(e)(3) is calculated using the applicable rate (and, for periods when required, the applicable mortality) under section 417(e)(3). § 1.401(a)-20, Q&A 16. PPA "Greater-of" Transition Relief: Expired at the end of the 2009 plan year. Notice 2008-30, Q&A 16. No one foresaw what would happen to interest rates, however, and the result is that the frozen LSPs, which are calculated using pre-PPA factors, are still greater than the all-service LSPs calculated using post-PPA factors. It looks to me like there's a problem here, because the frozen LSPs are more valuable than the currently-payable QJSA. Does anyone see this differently? A different answer is greatly to be desired at this point. Cheers.

I'm wondering if the revised language in the Code prohibits the payment of gap-period income or merely removes the requirement that it be paid. I'm looking at a plan that hasn't been amended to delete the requirement (for either ADP/ACP or 402(g)). Is that a nonamender failure, or have they just been doing more work than they had to? It's a significant question because, if it's a failure, the d-letter application has to go through VCP first. Has the IRS ever spoken to this question directly?

Grandfathered plans don't need to cover a participant's "adult child" dependents if the child is eligible for coverage under another employer-sponsored plan. Is TRICARE another "employer-sponsored plan" for this purpose? In other words, if the child is in the military, does the parent's plan need to offer corverage? Seems like TRICARE is an employer-sponsored plan, but I can't nail that down.

Well, not to be flip, but there's a lot of money at stake. The kids see the plan language that says mom loses any claim to the death benefit as an ex-spouse, and they are next in line. The only exception is for QDROs, and there wasn't one when the participant died. So they think the money is theirs and might well sue to get it. On the other hand, there's plenty of support for the proposition that the decree should be read as either a DRO that can now be perfected or, under the circumstances, a QDRO. The decree doesn't mention death benefits. The DB plan has a special lump-sum death benefit. The formula is complicated, but there will be nothing left after it is paid. Although the form on file names the ex-spouse as primary and the children as contingnent beneficiares, ex-spouses are deemed to pre-decease the participant and don't get this benefit unless the participant re-designates them after the divorce. That didn't happen here, so the kids are the now the designated beneficiaries. The only exception is for QDROs. As we've been discussing, there was no QDRO on file when the participant died, but the decree had just been entered.

Thanks for the responses. QDROphile - The property settlement is close to a QDRO in its specificity. It specifies dollar amounts under the 401(k) and a marital period portion of the DB benefit. It's at least as QDRO-like as the decree Posner accepted as a QDRO in Wheaton. Sorry, I should have mentioned that the 18-month period is specified as an outer limit on QDRO "holds" in the plans' QDRO procedures. mbozek - Plan admin (plan sponsor) is asking the questions. Whether the court can perfect what is, from a reasonable perspective, a DRO is a good question. I'll look into that. I think the real question is the threshold question of whether the decree should be treated as an imperfect QDRO or just a divorce decree. If it's an imperfect DRO, it triggers the exception to the plalns' rule that ex-spouses are deemed to predecase the participant and get nothing unless they are re-designated as contingent beneficiaries. My gut is that it should be treated as a DRO--even though noboy (neither ex-spouse, her attorney, nor the court) has never referred to it as a DRO. But there's enough gray here that the sponsor is nervous about getting sued either way.

Participant in Company's DB and 401(k) plans died two weeks after his divorce decree was entered. The decree wouldn't qualify as a QDRO under the terms of the statute, but would probably satisfy the requirements Judge Posner described in Wheaton (42 F.3d 1080); i.e., although the decree doesn't name the plans or include the necessary participant/alternate payee addresses, there is no ambiguity about who's who or what plan is at issue. Ex-wife now wants to enforce the decree against the plans, but didn't provide the divorce decree until after the participant died (i.e., there was no notice of an impending QDRO until after the participant died). The plans say that, except as provided under a QDRO, in the event of a divorce, ex-spouses are deemed to predecease the participant and get nothing, unless the participant designates the ex-spouse as a beneficiary after the divorce. Instead, the participant named the couple's children as beneficiaries. Kids now want to enforce the beneficiary designations, arguing that no QDRO is on file and that the divorce decree isn't a QDRO. I understand that post-death QDROs are permissible under the 2010 DOL regs, but the plans had no way of knowing a QDRO was possible when the kids asked for the money. Who wins? We're in the 8th Cir., and I haven't found a case on point. Company would prefer to avoid an interpleader action but is afraid of getting sued whichever way it goes. My gut is that, now the plans have the decree, the ex-wife has 18 months to perfect a QDRO.

BTW, near the end of Notice 2011-36, the IRS acknowledged that this is an issue, which presumably means there is no clear guidance available.

It seems to me that this rule doesn't really work for multiemployer plans. § 2708 of the PPACA prohibits "excessive" waiting periods: "A group health plan and a health insurance issuer offering group health insurance coverage shall not apply any waiting period (as defined in section 2704(b)(4)) that exceeds 90 days." 90 days from what? The cross reference isn't very helpful. § 2704(b)(4) defines "waiting period" as follows: "The term ‘‘waiting period’’ means, with respect to a group health plan and an individual who is a potential participant or beneficiary in the plan, the period that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of the plan." How do we apply this 90-day rule to a multiemployer plan, where eligibility keys off of details of the employee's work history, rather than merely the passage of time? For example, assume that the plan says an employee is eligible for benefits after an employer has been obligated to contribute on his or her behalf for 6 months. I don't think reducing that 6 months to 90 days will work (and would have to be bargained for, anyway). There are all sorts of other complications (probationary periods in the CBA, etc.) I can't find any guidance on this. Any comments would be appreciated. Thanks.

Hmm, I've just been schooled by someone so senior that he still looks at paper books, and the Code, no less. There's an exception to the prohibited transaction rules for "receipt by a disqualified person of any benefit to which he may be entitled as a participant . . . in the plan," so long as calculations are performed the same way for all participants. IRC § 4975(d)(9). So I guess there is no contemporaneous valuation required for a cash distribution from the ESOP.

I have a similar question and so am resuscitating (zombifying?) this old thread. Company A’s S-Corp ESOP distributes only cash and has an annual valuation date. Company A’s by-laws restrict stock ownership to the ESOP and current employees (who cannot receive distributions from the ESOP). § 54.4975-11(d)(5) says that for transactions between an ESOP and a disqualified person, the valuation date must be the date of the transaction. Is the liquidation of stock within the plan a "transaction" for this purpose, such that new valuation is necessary every time a disqualified person retires? This seems ridiculous, but I can’t find an exception to the general rule. Any comments appreciated.

I'm looking into a similar question (an employer paying 990T taxes on behalf of its VEBA, which has no checking account). It seems to me that PTE 80-26 ought to cover that payment. As amended (most recently in 2006), that exemption allows loans or extensions of credit from a party in interest to a benefit plan if all of the following are true: 1. The party in interest doesn't charge the plan interest or a fee, and no discount is relinquished by the plan, in connection with the loan or extension of credit ("loan"); 2. The proceeds of the loan are used only for ordinary operating expenses or for a purpose incidental to the plan's operation; 3. The loan is unsecured; 4. The loan isn't made by another benefit plan; 5. The loan isn't made to a certain kind of ESOP; and 6. If the loan term is more than 60 days, there must be a written loan agreement. These requirements all seem satisfied if all the employer is doing is extending unsecured, interest-free credit to the plan for the purpose of paying taxes that are incidental to the plan's operation. Anybody reason why the PTE shouldn't apply?