E as in ERISA

"Split dollar" is a term covering a wide variety of arrangements, some of which the IRS doesn't like very well (especially where the policy is structured so that significant economic benefit is being transferred from the employer to the employee purportedly without any taxation). Try including some extra terms like "reverse" and "collateral assignment" and "endorsement" in your google search in order to snag some of the articles that discuss the tax issues. See http://www.websterrogers.com/facts_ideas/f...ndorsement' or http://eupdate.luce.com/taxation/0104.pdf#...t%20dollar' or http://401kpsp.com/splitdollardtl.htm

I think that it is kind of like assuming that the Treasury and IRs are only talking about the "legal form of haircuts" when they discuss how 409A applies to them. : )

Kirk: Why would you assume that the Treasury/IRS is talking only about the types of mirror plans described in PLRs when they say that the coordinated 401(k)/NQ plans are dead in the water. I certainly don't. The Treasury heard about a variety of tandem, mirror, spillover, wrap and other types of coordinated plans not covered by the PLRs when they were drafting the regulations. I assume that their comments are directed to many of those other plans. You're saying that Treasury personnel must not be intimately familiar with how tandem plans operate or otherwise they wouldn't be saying that they are "dead in the water." And you're admonishing some of us for not doing our research before we speak in public. Yet you are saying that you've never seen the plan I describe...you don't seem to be aware of what is actually in operation out there. (Maybe you've only seen the plans you've designed yourself -- which are within the confines of the law -- and aren't aware of what everyone else is doing....?) I am by no means saying that all of these designs are legal under either prior or current law. I was shocked when I first became aware of the extent to which they were being used -- with the assumption that they are legal! But I am saying that there are lots of plans out there with this design -- and they were discussed with Treasury when regs were being drafted -- and Treasury's comments are probably covering more than just the prescribed PLR designs. The first post recognized that there are at least two designs: "The scenario discussed was a NQDC that pours deferrals into a 401(k) after year-end to max. allowable limits, then a similar dovetail comment was made about arrangements that work in reverse - k to the max, then to NQ." I think that the first type is generally designed consistent with the PLRs that allow a transfer to be made from the NQ to the 401(k) after ADP testing is done, etc. I had heard that they were not considered abusive and they might be allowed to continue. I'm assuming -- like you -- that there will be some way to continue those plans...possibly after some clarification in regulations and rulings. But there are a VARIETY of plan designs out there when you talk about the second optin -- the "reverse" -- where deferrals go into the 401(k) first and then the NQ. Specifically there are a number of plans where all deferrals during the year go into the 401(k) until the 402(g) limit is hit, then deferrals go into the NQ (the scenario I described). Deferrals into the 401(k) can be changed throughout the year or be ceased at any point, and its possible that no deferrals would go into the NQ because the 402(g) limit wouldn't be hit. I'm not saying that these are legal or have been okay'd by the IRS. There are certainly many that are very questionable under prior law based on constructive receipt rules. But make no mistake -- those designs are very definitely in use. I think that the Treasury is now very aware of their operations -- I know that they heard questions and comments about them while they were drafting regulations. So I would not assume that they are only talking about the plans that are prescribed in PLRs when they make comments about tandem, mirror, spillover, wrap plans, etc. I think that everyone needs to be aware of these alternate plan designs when they discuss the comments that Treasury is making -- or you may be missing the boat on which design that they are talking about at any particular moment. The words used to describe them -- tandem, mirror, spillover, wrap -- are not "terms of art" that apply to only one specific design. The same words are used by different persons to describe both legal and illegal designs. I think that it is primarily the illegal plans that they are talking about when they are saying that they are "dead in the water." It was my understanding that they have always been very concerned with any plan designs that left any control in the hands of the participant (i.e., where the "amount" could be varied during the year). I don't think that it should be assumed that all of them are abusive. Many of them are used by large employers who want their management to get matching contributions on all deferrals (401(k) and NQ) but they want to minimize manual intervention in order to do that -- they want the payroll system to handle it. There are ways for the participant to define in advance what "amount" they want to defer -- in terms of a specific percentage or maximum dollar amount. But there are so many complexities. With changes in pay, variable compensation such as bonuses, comp limits, 402(g) limits, administrative limits on contributions based on prior year ADP, catch-up rules, etc. it is difficult to get the payroll and benefitss systems to do a true up during the year. It's much easier to do this by first putting all contributions into the 401(k) up to 402(g) limits and then fill the NQ after that. Can you prescribe a design that will work under 409A. Or are they dead in the water, as Treasury indicates?

They are correct. If you don't want to read the law, just read the terms of your plan documents. Do they allow what you are suggesting? They shouldn't. So this would be an operational violation that could disqualify the entire plan. I'm assuming this is an important person in the company who is pressing for this? Tell them that there is risk that the plan will be disqualified and all participants account balances will become immediately taxable. If they're important enouhg, see if they can convince the company that they are worth an extra Christmas bonus of $9,000 + (to any FICA) out of which they can defer the $9,000....

I think that under 409A the deferral election should be as specific as possible, not subject to any future changes on the part of the participant. Any variations should be based on things outside the control of the participant -- such as decisions by the employer about increases in compensation or bonus amounts -- or possibly legal limits. I had heard that plans that meet the "mirror" requirements under which amounts are transferred from an NQ to a 401(k) after ADP testing were not considered abusive. If there is no further discretion on the part of the participant after the initial election was made, then any "amount" issues should be satisfied. I'm assuming that the primary issue is that the "transfer" from the NQ to the 401(k) is not currently on the statutory list of distributions. Maybe the IRS could add it under "acceleration" rules that it is allowed to write. The timing of the distribution would have to be established in advance, subject to acceleration only when ADP testing provides an opportunity for transfer. I think that the IRS' bigger concern would be plans where the NQ deferrals begin only after the 402(g) limit is reached in the 401(k) plan. The participant has control over whether the 402(g) limit is reached. So the NQ deferral could be subject to manipulation. The IRS might think that the answer is for the NQ deferral election to be worded as being a specific dollar amount or straight percentage of compensation minus the 402(g) limit. So they think a specific election works. That may be fine if you think of it on an annual basis. But its more complicated if you have to administer it on a payroll basis. And many plans are designed that way because the employer is going to match up to a specific percentage of total compensation in both the NQ and 401(k) (no 401(a)(17) compensation limit). And then there are catchup issues. For example, what if during 2005 someone age 60 with $250,000 of annual compensation wants to maximize 401(k) deferrals (including catchups) and to defer an additional 10% of pay into the NQ up to a maximum of about $30,000 (knowing that there are some variable in compensation)...and actually gets an increase in June to $300,000 and gets a bonus of $50,000 in November. And the employer is willing to match the first 6% of deferrals into either plan...but also has set an administrative limit of 5% for HCEs in the plan. There are 26 payrolls a year. My understanding is that one of the issues is how to set up this election on the payroll system (for a company with 50,000 employees and 500 NQ participants). It would be easier to administer if you could tell the payroll system to deposit the deferrals into the 401(k) until the 402(g) limit is reached and then start contributing to the NQ as soon as the limit is reached in the 401(k). But if the participant decides to zero 401(k) elections early in the year, nothing will ever go into the NQ. Then I think that the match and catchup calculations become more complex.... How do you word them to apply correctly on a payroll by payroll basis and make sure the top executives get the maximums?

Who made the comment about them being dead? Treasury?

In some cases paper copies may be put out at the same time the info goes to the internet people for posting.

where?

Some time soon today, I believe.

Maybe there is something wrong with me, but I love GB's answer!

Parties in interest CAN potentially make interest free loans to plans. For example, cut a check on behalf of the plan and then get reimbursed. And the DOL just issued a proposed amendment to the rule in PTE 80-26 yesterday that would lift the restriction on number of days. Sometimes sponsors cut the distribution checks and then get reimbursed by the fund based on that PTE. On the flip side, plans CANNOT make interest free loans to parties in interest. So if you are party in interest and you're holding plan money for a period before you are satisfying the obligation, that may be a PT. For trustees, they usually write the checks at the time they debit the plan's account. So then the issue becomes one about "float." There was a field assistance bulletin 2002-3 discussing how you have to disclose to the plan how the benefit of that float will be used to defray the plan's expenses. You may have a prohibited transaction simply by holding the money before writing checks -- or at the very least by not complying with the rules of the FAB.

What are the average assets in the plan? I'm assuming that you're not going to back and do an exact calculation and you want to spread the money pro rata (based on account balance?). If you want to capture some terminated participants who would have received more than $20, then do a back-of-the-napkin calculation of how large a balance they would have had and exclude distributions less than that. For example, if you've had about $500,000 in the plan, then you might only go back and look for persons with accounts greater than $5,000. (2700/500,000 = about a 0.42% allocation. $20 is 0.42% of $5000.) By the way, I think that $20 went up to $50 (or the cost of the distribution, if less) in more recent EPCRS Rev. Procs.? That would give you a much larger account balance to worry about. NOTE: Imprecise calculations could subject them to penalties on the difference between what the DOL's method would provide and what they actually do. But there's also a huge cost to precise calculations.

Or very busy...but good at puzzles.

Oh, please! Wait a week before posting another puzzle. We do have jobs!

Are my answers all correct??? Some seem too obvious. And then there's the "Awl" "I Want For" (wish bone) "Xmas" (Ax? -- actually a saw -- with "missing" teeth or something???)

So obvious! I saw the cowboy on the horse and the bells. Just not a big enough fan of the Lone Ranger, kemo sabe.

1. Jingle Bells 2. Walking in a Winter Wonderland 3. Santa Claus is Coming to Town???? 4. Joy to the World 5. Rudolph the Red-Nosed Reindeer 6. O Come All Ye Faithful??? 7. I’m Dreaming of a White Christmas 8. O Christmas Tree 9. What Child Is This? 10. We Three Kings 11. Deck the Halls 12. I Saw Three Ships A Sailing 13. O Holy Night 14. Noel 15. Away in a Manger 16. Twelve Days of Christmas 17. I Saw Mommy Kissing Santa Claus 18. All I Want for Christmas 19. Chestnuts Roasting on an Open Fire 20. It Came Upon a Midnight Clear 21. Let It Snow Let It Snow Let It Snow??? 22. Silent Night 23. Oh Little Town of Bethlehem What's the guy on the horse saying? Hark?

I think "Solo 401(k)" is a design marketed based on the 404 deduction rules. In the past it would make little (or no) sense for an individual to have a 401(k) plan -- it would have just added an unnecessary layer of administration for those contributions. But now that the 415 percentage limit was removed and 401(k) contributions were removed from the 404 deduction limit, then there is now an opportunity for individuals who previously would have been limited in their contributions by those rules. Now an individual whose 404 25% limit would give him less than the 415 limit of $41,000 in contributions (for 2004) can potentially use up to $13,000 of the 402(g) limit to get him up to that dollar limit. Adding children may or may not impact these calculations. (If the adult children earn compensation, that should increase the 404 25% limit.)

In response to one attorney, sit there with your arms crossed, pick the lint off your clothes, study your fingernails intensely. In response to the other attorney, lean over listening intently to evry word being said. If the first attorney is paying attention, he will cross you off the list.

Is the plan over/underfunded? If overfunded, will there be an increase in benefits as of the date of termination? Have you looked at http://benefitslink.com/IRS/revrul2003-85.html

Good point. In many cases, the DOL considers an "unresponsive" participant to be "missing." But these rollover rules only apply to "non-responders" so that would not make sense in this context. I assume "missing" means "bad address" for the 402(f) notice?

There is a distinction between exclusion of "casual" employees and "cashiers." The 410(b) rules prescribe special rules regarding age and service limitations. The problem with terms like "part time" and "casual" and "temporary" are that they are potentially service (time) requirements -- and since they don't specifically sync with the 410(b) rules re 1,000 hours, etc. then they generally aren't allowed to be used. But the term "cashier" has nothing to do with service or time. So as long as the plan meets the coverage rules without including them, why is there a problem?

Sal would never want anyone to be "out of the know." You can use his current developments by chapter to make sure you're updated: http://www.cyberisa.com/erisa_book_cdbc.htm

I think the fact that they have been making a big deal of saying that terminations will be allowed during the transition period tends to suggest that is something that they will not otherwise allow. But as everyone says, no one will know for sure until the regs are out.

Final average pay DB plans tend to provide lesser accruals to shorter term employees and larger accruals to long terms employees. A cash balance plan tends to even out the accruals. In a mobile service environment, a cash balance plan may be more competitive in attracting some talent (presuming that they understand cash balance v. FAP).