mariemonroe

Eligible employers for 457(b) purposes are: 457(e)(1)(A): a State, political subdivision of a State, and any agency or instrumentality of a State or political subdivision of a State, and 457(e)(1)(B): any other organization (other than a governmental unit) exempt from tax under this subtitle. My client is a tax exempt organization and also has an attorney general letter from our state attorney general opining that client is a "political subdivision of ____ County" for purposes of local law. I know my client is an eligible employer, but I don't know which one. Any ideas?

I have a Profit-Sharing Plan in which the employer has been making annual contributions = 100% of compensation and deducting the full amount on its tax return - basically ignoring 404(a)(3) which states that deductions are limited to 25% of compensation. Has anyone experienced correcting this type of failure before through VCP or otherwise? There is a technical operational failure (failure to follow plan document) because the plan document states that the employer contribution can not exceed the deductible amount. However, there is no example of this type of failure in the Rev Proc so I am not sure what the proposed correction would be. I would like the proposed correction to be something like this: allow the employer to take back the contributions in excess of the deductible limit without violating the excess benefit rule and waive (or compromise in some way) the excise taxes (which are significant). Any ideas?

An employee may agree to defer $10,000 of salary to a future year if the employer promised to match it 50 cents on the dollar. For instance, an employee would choose to take $10,000 now or take the chance that the employee will continue to work until some vesting date and receive $15,000 later. An employer may want to provide this opportunity to its employees as a deferral opportunity in addition to 401(k) and 403(b) plans.

The salary deferrals and employer matching contributions would be subject to a SROF in the form of a vesting date - i.e. the participant would chose a distribution date and would have to be employed on that date in order to be entitled to receive distribution of his or her account. If participant's employment terminated before that date, the participant would forfeit his or her account.

I am looking at Notice 2007-62 which states: "The Service and Treasury anticipate that upcoming guidance under § 457(f) will generally adopt the rules relating to substantial risk of forfeiture that are contained in § 1.409A-1(d)... Section 1.409A-1(d)(1) provides that an amount is not considered subject to a substantial risk of forfeiture beyond the date or time at which the recipient otherwise could have elected to receive the amount of compensation, unless the present value of the amount made subject to a risk of forfeiture is materially greater than the present value of the amount the recipient otherwise could have elected to receive absent such risk of forfeiture. This is because, absent tax considerations, a rational participant normally would not agree to subject a right to amounts that may be earned and payable as current compensation, such as salary payments, to a condition that subjects the right to the same payments to a real possibility of forfeiture. Accordingly, in this situation, agreement to subject the amount to a substantial risk of forfeiture indicates that the recipient of the compensation is confident that there is not a real risk of forfeiture and is only subjecting the amount to the purported risk of forfeiture as a means of avoiding taxation. Thus, amounts that an individual could have elected to receive under a salary deferral election generally cannot be made subject to a substantial risk of forfeiture under the rules of § 409A beyond the date or time the salary would otherwise have been received." If a participant defers salary and the employer provides a generous match, does anyone think that both the salary deferral and match could be subject to a substantial risk of forfeiture?

I know that salary deferrals are generally not subject to a substantial risk of forfeiture such that a 457(f) plan cannot provide for salary deferrals. However, what if the plan provides that the employer will make matching contributions on the salary deferrals? Does this sound like it will work?

Employer sponsors DB plan and 401(k) Plan. Employer terminates DB plan and wants to amend 401(k) plan to provide that 401(k) participants who were former DB participants are entitled to an extra contribution. Is this OK as long as the plan passes 410(b)?

I think I have it all covered except for the HEART amendment. Thanks.

A DB Plan was submitted for an EGTRRA determination letter on 1/31/08. Favorable determination letter was received. Are there any plan amendments required to bring the plan up to date with current law if the plan is terminating 12/31/08? If so, what are they?

Thanks everyone.

VCP is complete, compliance statement is signed, and employer has made an additional contribution to the plan as required. Participants are now starting to ask questions along the lines of: what is this extra money doing in my account? Can anyone tell me of a short simple way to inform participants of why the contribution has been made, without going into too many unnecessary details? Does anyone have a reference to a notice of this type?

401(k) Plan utilizes a popular Retirement Plan Service Provider. Retirement Plan Service Provider is a subsidiary of Big Time Insurer. Big Time Insurer isn't doing too well and may file for Bankruptcy (though financial analysts seem to think Big Time Insurer is too big to fail - a la Bearn Stearns). Should participants in Plan be worried? Could Big Time Insurer's bankruptcy have any effect on Plan participants' accounts? Should Plan Fiduciaries think about changing providers?

Company owned 7 life insurance policies on the life of a shareholder. The purpose of the insurance was to fund the company's repurchase obligation of shareholder's stock upon shareholder's death. Shareholder died, and, of the 7 company owned policies on his life, only 3 (non group term) policies named the company as beneficiary. Shareholder had designated his family members as beneficiaries of the remaining 4 (group term) policies. According to surviving shareholders, the intent was that company be named as beneficiary of all 7 policies. Attorney for insurance carrier of group term policies responded that "it is against ERISA" for company to be named as beneficiary of group term policies on the life of an employee. Anyone familiar with such a prohibition?

I realize this is confusing. Here is how it operates: The period over which an employee must meet the deductible starts on 1/1 and ends on 12/31. For example, the deductible for 2008 is $1500. But the employer must renew its health insurance effective 9/1/08 and decides to renew it at a higher deductible of $2000 (presumably to reduce its costs). The deductible increases from $1500 to $2000 on 9/1/08. So if an employee has paid $1500 of his deductible as of 8/31/08 and incurs additional expenses after 8/31/08, he must meet an additional $500 deductible (because the deductible is now $2000 and he has only met $1500). On 1/1/09, the deductible period begins anew, meaning that the employee is back to square 1 as far as meeting the $2000 deductible. I can't agree with you more about getting a deductible year that matches the insurance year that matches the plan year. Unfortunately I think that is easier said than done. I think as far as having deductible increases in the middle of a year but having the deductible start over on the calendar year is actually pretty common. Here is a link to a related issue on the cafeteria plan context. http://benefitslink.com/boards/index.php?showtopic=25494

I am curious if anyone else has encountered this situation: Employer offers a self-insured medical reimbursement plan pursuant to 105(h)(6). (This plan is not part of a cafeteria plan.) The terms of the plan are relatively straightforward: Once an employee pays the first $500 toward their health insurance deductible, the employer will pay the next $1000. The employer's goal is to pay the balance of the deductible after the employee pays the first $500, so in this example the deductible is $1500. The plan operates on a calendar year. The problem I am encountering is this: the health insurance renews on 9/1 at a higher deductible, but the deductible operates on a calendar year. In my example, the employees have a $1500 deductible for 1/1/08 - 8/31/08. Then on 9/1/08 the deductible increases to $2000 meaning the employees have an additional $500 deductible to meet starting 9/1/08 and ending on 12/31/08. On 1/1/09, the $2,000 deductible starts anew. My problem is how to address this in the context of the plan. The only solution I can think of is to have a series of short plan years whenever the deductible increases. I don't think changing the plan year to coincide with the renewal period will work because of the fact that the deductible starts over every calendar year. I have received a suggestion to amend the plan to provide that the employer will pay the balance of the deductible after the first $500 is paid by the employee (the plan currently states that it will pay a specific dollar amount of the deductible). Does anyone have a suggestion?

The QDRO applies to a 401(k) Plan. Thanks for the advice everyone. I think I will just do the math myself and put a nice dollar amount in the QDRO instead of a long, drawn-out formula.

I am drafting a QDRO based on a separation agreement that describes the amount to be distributed to the alternate payee (Wife) as follows: Wife's IRA balance as of Date X is added to Husband's plan balance as of date X. The sum is divided by 2. Half of the combined balance is further decreased by various debts of Wife and finally by one-half of Wife's IRA balance as of date X. The description of how the amount is to be determined is actually pretty clear. My question is: are plan administrators comfortable having to determine the QDRO amount by reference to a plan other than the plan they administer? Is this unusual? How have other handled this? I would rather get it taken care of before submitting the draft QDRO to the plan administrator. Thanks.

It is my understanding that if a taxpayer adopts the model rabbi trust and wants to obtain a ruling on the tax consequences of the underlying nonqualified deferred compensation plan, then the taxpayer must follow the guidelines of Rev Proc 92-65 which require, among other things, that the trustee be an independent third party that may be granted corporate trustee powers under state law, such as a bank trust department. Is there any other rule or requirement out there regarding who can or can not serve as Trustee of such a trust? What has people's experience been as to who is actually serving as trustee of rabbi trusts? I am particularly curious as to small employers where there are only one or two participants in the deferred comp plan.

Did the SD adopt a 401k plan? public employers have not been allowed to adopt 401k plans since June of 1986. Only 401k plans adopted before that date are valid. I'm not sure I understand the question. This is a college with a 401(k) plan which has also been letting certain employees (upon request) continue to defer salary to a 403(b). The college didn't realize this practice essentially meant it was sponsoring a 403(b) plan. It thought it was just being flexible with employees who came to the college with annuity contracts from previous employers that they wanted to continue to defer salary towards. Now the college wants to stop this practice as it never intended to be a 403(b) sponsor. My question is - if they want to terminate their 403(b) "plan" - do they need to adopt a plan document which authorizes the termination. From what I have read in the final 403(b) regs - the plan document must authorize the termination.

If this client wants to terminate its "plan", does it need to go ahead and adopt a plan document which authorizes the plan termination?

Thanks everyone for your thoughful comments. You all raised lots of issues I hadn't thought about.

Thanks. That is what I thought (sigh).

I have a client (a public school) which sponsors a 401(k) plan. Client has just told me that although it does not have a 403(b) plan, it does allow its employees to contribute to a 403(b) that they had prior to becoming employees of Client. Is this permissible?

I think an employer can require a specified percentage of deferrals to its plan as a condition of employment. I don't think this is considered an elective deferral. Check out Treas. Reg 1.402(g)(3)-1(b) which states that an elective deferral does not include a contribution made as a condition of employment that reduces the employee's compensation. I'm not sure about your second question. I would guess that it is not a match (assuming the employee contribution is not an elective deferral).

I did check the regs and this is what I found: 1.409A-1(g) Service recipient. Except as otherwise specifically provided in these regulations, the term service recipient means the person for whom the services are performed and with respect to whom the legally binding right to compensation arises, and all persons with whom such person would be considered a single employer under section 414(b) (employees of controlled group of corporations), and all persons with whom such person would be considered a single employer under section 414© (employees of partnerships, proprietorships, etc., under common control). For example, if the service provider is an employee, the service recipient generally is the employer (including all persons treated as a single employer under section 414(b) or ©). Notwithstanding the foregoing, section 409A applies to a plan that provides for the deferral of compensation, even if the payment of the compensation is not made by the person for whom services are performed.