E as in ERISA

I've even seen them covered under one "trust" document -- very questionably so.

I've never seen them legally as one plan -- but I've seen them administered almost as if they were. They might do that from a recordkeeping standpoint to get them on one statement. Mostly in the healthcare arena -- using an insurance company for both the 403(b) and the 401(a) being a money purchase pension plan with the match. And I think that some of the persons dealing with them actually thought they were one plan and referred to them that way even though they weren't legally.

Qualified or nonqualified benefits?

Are the participants terminated too? Does the plan have cashout provisions applicable to terminated participants? Both the plan's termination provisions and the plan's cashout provisions would apply? So you could auto roll them as cashout distributions? 401(a)(31)(B)(ii) appears to refer to a plan that has a cashout provision described in Reg. 1.411(a)-11(©(3). 401(a)(31)(B)(i)(II) appears to describe a distribution made pursuant to such a cashout provision. Termination distributions are made under a different exception to the consent rules. Reg. 1.411(a)-11(e)(11). But the IRS has not clarified yet. So you're safer if both plan provisions apply.

Or is there a nonqualified plan that is operated in connection with the qualified plan? A nonqualified plan kicks in when an executive exceeds some limit in the qualified plan? A wrap plan, spillover plan, etc.

The CODA listing of required modifications includes some language covering the final regulations. Updated hardship provisions, etc. http://www.irs.gov/pub/irs-tege/coda_lrm0205.pdf

Here are some articles that have been posted on this web site. This says no exemption for nonqualified: http://www.bnatax.com/tm/insights_CPJ3.htm This says actuaries want confirmation that certain activities fit in the exemption for written advice concerning "the qualification of a qualified plan": http://www.actuary.org/pdf/pension/circular_050905.pdf

I've heard IRS say same thing as Bob K did. You can use it for testing of the 2005 plan year.

But note that we've passed 3/28/2005 and the automatic rollover rules are now in play. Some believe that automatic rollovers apply to distribution of any balances between $1,000 and $5,000. Some believe that automatic rollovers only apply where distribution is only occuring because of the plan's cash out provision -- and does not apply where the distribution is occurring under the plan termination provision. (They are two separate exceptions to the consent requirements under 1.411(a)-11 and two separate plan provisions and it is arguable that the automatic rollover rules only apply to the pure cash outs).

The material modification rules only apply if you're grandfathering. You'd have to choose not to grandfather and fully apply 409A to the plan (and you'd have to apply it as of January 1, 2005).

Most nonqualified plans try to be "top hat plans" for which there are exemptions from participation, funding, reporting requirements, etc. To be a "top hat" the plan must generally be limited to a select group of management and highly compensated employees.

You may not be able to distribute to the employees upon termination if you have a successor plan sponsored by the same employer and covering same employees. You might just have to "freeze" the one plan (no new contributions). So merger might be better -- unless you think that one of the plans has had a lot of problems and you don't want to taint the other plan.

I have a friend who was previously a large case auditor. And he has told me you can save your clients a lot of money if you're creative in your approaches to corrections. Look for alternative ways to solve the problem. For example, if you've excluded a lot of employees with low hours and pay, don't automatically correct by funding deferrals at the average for the plan. Ask to use the average for employees in the bottom tier of pay. That's a perfectly reasonable solution. And in this case, look for a way to argue a different solution than funding a deferral at the rate on regular salary. It may not be possible, but it's worth trying.

Maybe my response was a little "cryptic." But I didn't say that there is "no problem." There could very well be a problem. But I'm suggesting some facts that be looked into before that conclusion is made. And I think that I said pretty clearly that if the election form applies only to regular salary, then I hoped there was another form for making an election for bonuses. I have had this very question before. And when I asked what the standard election form says, there are in fact some cases where it says something to the effect of "I defer ___% on regular salary" (even if the plan uses all compensation) So I think that would be an operational violation to have deferred on the bonus based solely on that form. So then the next question is whether employees had an effective opportunity to defer on bonuses. (And I would note that Notice 99-1 says that there are no rules or standards prescribing the media through which a deferral election must be made, so that may provide a little leeway.) There are various facts that may help -- clarity of employee communications about the fact that bonuses can be deferred --and any processes or forms that could be interpreted as allowing a deferral on bonuses. If the issue arose because someone asked to defer on their bonus, that may actually be a fact in your favor -- if they were allowed to defer. In most cases, the real effect of this analysis is that it makes it less clear what your correction amount is. If the percentages on the standard election form don't automatically apply, what percentage do you use? This may give you more room for negotiating a lower correction amount with an IRS agent. Why not at least affirmatively provide a separate election opportunity on the next bonus before making any correction. And use the average percentage elected in the current year. They may not get a lot of takers if people are accustomed to taking their full bonus in cash. (And that potentially allows them to use a lot lower than the average deferral percentage on salary). I would note that the IRS has said that employees do have some responsibility for making sure that there deferrals are being taken out of their checks. Maybe not right away, but eventually. And I think that in many cases they would recognize that this would be a windfall to fund a deferral on bonuses at the full percentage elected for salary. (You could take this position in EPCRS -- and provide a rationale for a lower correction amount). A lot of it is a matter of negotiating. I would assume that before a client would pay $500,000 into the plan, they would pursue the alternatives I've suggested.

Hmmm. I'm having a hard time seeing what was "cryptic" about your original post. I interpret JDuns comment as being the same as mine (the difference being that he assumes that there are no facts that support a separate election opportunity. And I was advising mm to go back and see if there are: If the standard form is limited to regular salary and that there is then another method for deferring on bonuses. Yet you say that you completely agree with JDuns and completely disagree with me (and so much so that you accuse me of flunking ERISA 101 and failing to do my homework).

The participant isn't expected to know code sections and the election form doesn't have to say "I elect to defer ___% of my 401(a)(17) compensation." You can put the election in plain terms. So they might elect a specific percentage of each payroll -- even when their cumulative payrolls have exceeded the $205,000. So they are actually electing more than 6% of $205,000 when you view it on a plain language basis. The IRS clarified this informally several years ago. But the clearer you make it in your documentation how you are applying the participant election, the better you will be ('cause its the HCEs who are going to exceed it).

I'm assuming that 409A would only subject the increment to taxation. I'm assuming that the bigger issue is that you can't pay out the benefit at the time that it is taxed under 457(f) without violating 409A (assuming that the SRF is not valid for 409A so it is not exempt from the rules). You might want the plan to provide for a distribution to pay for taxes under 457(f) (which 409A guidance would allow).

Many participants may not like having their deferral taken out of their bonus. They may only want it to apply to salary. You could use two election forms -- one for regular salary and one for other forms of compensation. (Or one form with two sections). There is nothing that says that a particular participant election has to apply equally to all of the plan's definition of "Compensation." Sometimes if you look at the form, you'll find that it asked the particpants how much they want to defer of their "salary" (or some term other than "Capital C" compensation). So you may not have been out of compliance from that standpoint. (But then hopefullly participants would have some other method of electing deferrals on bonuses, if someone actually asked -- which they never do).

If you get audited by the IRS and they found that you didn't make distributions, they might get on the list. But they probably will only make you correct errors that are above a certain threshold (similar to EPCRS). If you get audited by the DOL, they might not have thresholds. But they probably would be less concerned if you did something with the money that benefited participants (as opposed to the sponsor or a vendor).

Vesting is the key event under 457(f) (with the question being whether rolling risk is a true substantial risk of forfeiture/vesting issue). Distribution is the key event under 409A. You probably have to comply with the plan provisions restricting distribution under 409A. You can't use the lapse of the risk as the time of distribution (it's not on the list). So you will be tracking two different taxation rules and trying to figure out how they coordinate. So even if rolling risk is okay, it's going to be a lot more complicated to figure out the taxes on this plan.

Yes. Since 457(f) has a requirement of substantial risk of forfeiture (vesting), it actually fits better with an employer-funded benefit as opposed to the employee's money -- and that would be expected to be limited to a smaller group of executives or even just one executive -- and used as a golden handcuff.

It looks like you're missing a belt buckle joke. Isn't there a standard version that says you get stopped by the cops and they ask for ID and you point to your belt buckle? Is there a way to make that a Jedi joke?

Are there other participants and are they going to be permitted to invest and are they going to comply with any applicable federal or state securities laws, etc? You can obviously have employer stock in a plan, but then it generally subjects the plan to more legal requirements.

I think that's kind of a chicken and egg question. The refinance rules require that the existing loan satisfy the old rules. In your case tuey have a loan that does not satisfy the level amortization requirement at the current time -- certain installment have not been made. But it is in the cure period and is not yet subject to deeming. They can bring it into compliance by paying off the late installments by the end of the cure period. So they might be able to argue that the re-finance pays off the old loan in full and thus causes the old loan to be in satisfaction of the rules at the time of re-finance. But I question whether those two events can occur simultaneously. Whether you can use the refinancing itself to satisfy the pre-condition of the refinancing (the requirement that the old loan be in compliance).

Did they change the signature rules? I thought that the only accounts that are excepted from the signature rules for banks are those within the $1,000 to $5,000 category subject to auto rollovers. How can the bank accept under $1,000 without the participant's signature? http://www.occ.treas.gov/10.pdf