mariemonroe

Is there any prohibition on amending a benefit formula in a NQDC Plan subject to 409A?

thanks

Participant terminated employment on 12/31/17 and immediately rolled her plan account to IRA. Participant is entitled to a profit-sharing contribution for 2017. Employer is ready to make the profit-sharing contribution but no longer has an account in which to deposit participant's allocated portion. Should employer open an account to hold participant's contribution and ask participant to fill out new paperwork requesting a rollover? Is there a simpler alternative?

I think you ignore the one year requirement pursuant to 414(n)(4)(B).

Employer fails to withhold salary deferrals on 2016 Christmas bonuses. Client discovers error in 2017. Can client use the correction method set forth in Appendix A, Section .05(9)(b) (Safe harbor correction method for Employee Elective Deferral Failures that extend beyond three months but do not extent beyond the SCP correction period for significant failures)? The following 3 conditions must be met to use this method (which requires an employer contribution = 25% of the missed deferrals, adjusted for earnings) 1. corrective deferrals begin no later than the earlier of the first payment of compensation made on or after the last day of the second plan year following the plan year in which the failure occurred. 2. Notice of the failure is given the affected participants not later than 45 days after the correct deferrals begin. 3. Corrective allocations are made in accordance with the timing requirements under SCP for significant operational failures. I believe we meet requirements #1 & #3. I am hung up on #2. Deferrals since the first payroll after the Christmas bonus have been correct. However, more than 45 days have passed since the date “corrective deferrals” began and no notice has been provided because we did not know about the missing deferrals until recently. It seems like we should qualify for this safe harbor treatment but I don’t think we can meet the notice requirement. Am I misinterpreting the requirements of this safe harbor?

Thanks for your replies.

I have a client who did a ROBS (rollover business start up). His entire retirement savings is now invested in a company that is on the brink of bankruptcy. If the company files for bankruptcy, what happens?

See reg 1.421-1(i)(1) - the term "corporation" includes a LLC that's treated as a corporation for all tax purposes.

I don't think I explained myself very well. This is a non-Social Security State. Assuming a participant is receiving a spousal benefit or had a job prior to the one with current employer, then the participant may be entitled to a social security benefit. As I understand it, that social security benefit may be reduced under either WEP or GPO. I think my question boils down to: is the amount of the reduction affected by the fact that the participant made an elective deferral into the FICA Alternative Plan. For example, if the FICA Alternative Plan had two participants with identical work histories in terms of employers, DOHs and DOTs at each employers and compensation at each employer. Both participants work at a governmental entity offering a FICA Alternative 457(b) Plan that includes a mandatory employer contribution of 13% of compensation and optional employee salary deferrals up to the statutory limit. One participant defers an additional amount of salary and the other does not. Would the participant who defers his or her salary get a greater reduction in social security benefits that the participant who does not defer his salary?

I have a client with a 457(b) FICA Alternative Plan. The employer contributes 13% of compensation to each employee's account and the employee has the option to defer more (up to the applicable limit). Employees are starting to realize their social security benefits (primary or spousal) are reduced below their expectations. The employer understands the reduction due to the employer contribution, but is having a hard time understanding the reduction due to the employee's discretionary deferrals. My understanding is that: 1. the discretionary elective deferrals are not subject to FICA when deferred 2. the reduction in benefits is determined by either WEP or GPO and doesn't really delineate between what the employer contributed and what the employee elects to contribute. Am I missing something?

Let's say a participant makes an installment election on existing balances if he separates from service. The 1 year/5 year rule applies. Plan's distribution events are first to occur of death, disability or separation from service. Participant can't know for sure whether he will comply with 1 year rule because he might get fired within a year of making the installment election. So if he gets fired before the 1 year is up, then his installment election is not effective and he gets a lump sum payment. However, what if he passes the 1 year mark and the election becomes effective. Then he separates from service, he must then wait 5 years after his separation from service to get the first installment payment. Am I thinking this through correctly?

Client just unearthed 24 year old salary continuation plan that states employee is entitled to 10 years of monthly payments upon earliest of: 1. death 2. disability (with a 409A acceptable definition) 3. "retirement" after age 65 but before age 70. Is there any way #3 could be construed as "separation from service" within 409A? Or is #3 akin to a payment election that must comply with 409A rules? If so, did employee make an election by giving notice of his retirement? Any thoughts are appreciated. Marie

I have a client who wants to increase normal retirement age from 55 to 60 in its 401(k) Plan. Does the anti-cutback rule apply? Can this change only apply to new hires?

The plan says to pay out after separation from service "as soon as administratively feasible." I don't think a pending VCP filing that may ultimately affect the account balance is a justification for not proceeding with the distribution. I am just curious what others think and whether anyone knows of guidance on this point. It seems to me this would be a common occurrence (i.e. distribution events during VCP) and that employers probably don't discontinue all distributions during a VCP that may last for several months.

I have a client who needs to correct some plan errors pursuant to VCP. One of the errors may require the employer to make an additional contribution to the plan. An employee has just terminated employment and is entitled to a distribution. Can (or should) the employer pay the employee out or retain the employee's account balance pending resolution of the VCP matter (bear in mind the application has not yet been submitted). Any thoughts are welcome.

Yes, I am aware of that. However, the plan in question currently doesn't allow payment change elections. All distributions are simply lump sum. I am just wondering about the limits of amending plans subject to 409A. For instance, if I amend the plan to allow for participants to (1) make payment elections and (2) add installment payments as an option, then can a participant elect installment payments for all of his vested account balance? or can he only elect installment payments prospectively? Will the election only be effective if made 12 months before he would otherwse be entitled to payment and only if deferred at east 5 years beyond when he would otherwise receive payment?

Plan has lump sum distribution only. Can employer amend plan to add installment option? If so, would installment option only be available for amounts deferred after effective date of amendment?

Husband owned company which sponsored a profit-sharing plan and money purchase pension plan. The only 2 participants in the plans are husband and wife. Company went out of business and company was administratively dissolved due to not making annual filings with Secretary of State. Husband has now died. There is no plan document for either plan. These are orphan plans and I am familiar with EPCRS and DOL guidance on how to handle. My question is, is there another way to go about terminating an orphan plan? For instance, could wife create a new entity to "adopt" the plans, sign new plan documents and then terminate the plans?

If a Plan allows participants to direct their investments on their deferrals, but the Plan trustee retains the power to direct the employer contributions (which are valued annually), is there any authority that states the quarterly statement should include the portion of the participant's account balance that is not directed by the participant?

I assume you are inferring that this is acceptable. I did many google searches before posting here and could only find plans which allowed employees to opt out of core benefits and receive cash. Also, can anyone confirm that such employer contributions would be subject to nondiscrimination testing?

I have an employer who wants to reward employees who do not need to be covered by the employer's group health plan because they have coverage through a spouse's plan or retiree benefits from a former employer. The Employer would like to make a contribution to the Health FSA for each of these employees. The employees would not have the option of receiving the cash outright. I am having a hard time figuring out if this is OK. Reg 1.125-2(b)(2)(ii) seems to permit an employee to opt out of health coverage and receive cash: The cafeteria plan provides for an automatic enrollment process: Each new employee and each current employee is automatically enrolled in employee-only coverage under the accident and health insurance plan, and the employee's salary is reduced to pay the employee's share of the accident and health insurance premium, unless the employee affirmatively elects cash. Alternatively, if the employee has a spouse or child, the employee can elect family coverage. Is there any reason an employee can't opt out of health coverage and receive an employer contribution to a Flex FSA instead of cash? I assume the employer contributions must pass nondiscrimination testing, correct? I appreciate any assistance.

Plan permits in service distributions at age 65. Plan also provides for annuities. Must a spouse consent to a participant's request for in service distributions?

Thanks

Can a 3% safe harbor plan have a 1 year wait on allowing employees to enter the plan for purposes of making elective deferrals and a 2 year wait for purposes of receiving employer contributions (profit-sharing and safe harbor)?

Company adopted amendment terminating DB plan effective 1/1/09 (a standard termination). Company will not request a favorable determination letter on the plan termination. Company would like to prolong making distribution as long as possible - preferably until the 1st quarter of 2010. My understanding is that the Plan administrator must file Form 500 with PBGC no later than 180 days after the proposed termination date and must provide a notice of plan benefits to the participants no later than the day its files the Form 500 with PBGC. The notice of plan benefits may include estimates of the plan benefits so long as it is explained that the amount is an estimate and the actual amount may be higher or lower. The PBGC has a 60 day review period beginning on the date it receives the Form 500. After this review period expires, Company has 180 days to complete the final distribution of plan assets. Company would like to distribute plan assets on 2/15/2010 which fits withing the timeline outlined above. The Plan's actuary has told us he must wait for interest rates to be published in January 2010 before he can compute the benefit amounts for participants. This throws a monkeywrench into how to handle the elections forms for participants. My questions: 1. In general, is it feasible to wait until 2/15/2010 to make a distribution under these circumstances (or is it overly ambitious)? 2. Mustn't election forms be sent to participants at least 30 days before the distribution commences? 3. May the election forms contain an estimate of plan benefits (assuming the actual amounts are not capable of being computed by the 30 day deadline)?