XTitan

I had this happen to me last century. In my case, the 1099 was issued late, I filed my taxes early, and since I "knew" there was no tax impact of the rollover, I didn't think about it. When I got my letter from the IRS saying I owed taxes, I just provided all of the back-up and filed a 1040-X. No harm, no foul.

The good news is that death benefits from NQ plans are not subject to FICA. See 26 CFR 31.3121(v)(2)-1(b)(iv).

457(d)(1)(C) is the citation allowing transfers of governmental 457(b) plans while 457(e)(10) allows transfers between non-governmental 457(b) plans. Also see 26 CFR 1.457-10(b)(5). The inference is that these are the situations where the transfers are permitted and all other situations must be forbidden.

Well, my calcs match yours, which only says something about consistency, not accuracy. It's "only" 3.2% on average, and given last month was 2.9% over last year, it's not that big a leap.

Hmm. I'm getting if inflation is about 3.2% for the next two months that the 415 limit goes to 57,000 and 401(a)(17) goes to 285,000, in addition to 416(i) going to 185,000.

In a perfect world, there would be one additional paycheck showing the reversal of $6,000 and withholding is returned. In an imperfect world, the $6,000 not received would still show on the W-2 and then you'd likely take a deduction on your 1040, though it used to be subject to the 2% miscellaneous deduction. Rationally, W-2 income not received should reduce your MAGI. Don't know if the 2% deduction rules changed post-TCJA. The .9% was not repealed by TCJA.

This sounds really frustrating. I wonder if the "counsel" who provided the "advice" ever looked at IRC 457(f)(1)(A) which states: the compensation shall be included in the gross income of the participant or beneficiary for the 1st taxable year in which there is no substantial risk of forfeiture of the rights to such compensation I'd still hang my hat on the W-2 showing zero in box 1, 3, and 5 with respect to the net 457(f) contributions and that the resulting over-withholding can be recovered when filing your 1040. Subjecting the 457(f) contribution to state tax up front makes wonder if this is New Jersey we are talking about. Some folks still think there is no tax deferral for non-qualified plans.

Transfer of assets is a different question than transferring the plan. I have seen spin-offs where plans are carried from Oldco to Newco, but whether assets were transferred really were dependent on the nature of the transaction and whether any informal funding assets were owned by Oldco or owned by a rabbi trust.

I agree with Pension Pro; a Non-Qual plan can work really well, subject to the usual disclaimers.

If your wife has not left yet, I call to HR is merited so the taxable amount can be reversed, and more importantly, the withholding can be reversed as well. However it plays out, I'd double check the W-2. If you don't see a reversal on the paystubs, at least make sure Box 1, 3, and 5 are lower than what's reflected on the paystub even if withholding amounts shown are the same. If how they are "early-taxing" the benefit is any indication of how they are running the plan, I fear your wife and you will be following up quite a bit.

I would say I haven't seen early inclusion for income taxes and FICA taxes before either. So for income taxes, I can see the company issuing W-2c's for the prior tax years to reverse amounts includible in income which would permit you to refile your 1040's for those years to recover taxes paid. I can also see the company showing adjustments for this year only (notionally repaying this year amounts "received" in prior years) which would adjust current year taxable income only. This would likely be less favorable to you since tax rates decreased this year (YMMV). Now FICA may be a different story. The company opted for early inclusion for FICA purposes. If FICA was assessed in a timely manner, then you may not be eligible to receive a FICA refund even though the amounts were ultimately never received. There was a recent court case BALESTRA v. U.S. that ruled that there was no FICA refund available for amounts appropriately assessed but not received due to bankruptcy. That's not to say that FICA was appropriately assessed to begin with. This is the "worst case" scenario.

I've also seen designs where the bonus net withholdings is what is ultimately paid as a premium so a gross-up wouldn't be needed. I think the key to remember is that a company may want to differentiate their benefit offering beyond cash or deferred compensation. Offering executives an opportunity to acquire permanent life insurance is one way to do it.

Here's a couple of reasons. Generally, more than one executive would be eligible for such an arrangement. If there is a sufficient size group, policies may be available without requiring medical underwriting. The company could also put claw backs on the bonus/premium as a retention device. If employee contributions are available/required, those premiums can be facilitated via payroll deduction. So, sure, economically there is no difference between the employer paying premiums for a life insurance vs the employer paying a bonus for the employee to buy a life insurance policy, but there is a difference based on what the company wishes to achieve in their benefits offering.

Agree with Larry. I've seen plenty of S Corp NQDC plans; they can benefit key execs who aren't shareholders.

This is the way I read it: If the employee dies, the option does not immediately terminate. If the employee becomes disabled, the option does not immediately terminate. If the employee terminates for any reason other than for Cause, the option does not immediately terminate. If there is a termination for any other reason not listed above, the option immediately terminates. Termination for cause doesn't fit into any of the three exceptions listed above, so termination for cause would cause the option to immediately terminate. Is there really a typo?

In theory, constructive receipt raises its ugly head because by naming what is effectively an alternate payee you would have a measure of control which makes the notional account more "real". Same argument as not applying DROs to NQ balances before 409A said it was allowable.

You may have a constructive receipt issue if the participant has the right to assign the benefit away today. Section 409A does not supersede Section 451. Revenue Procedure 92-65 listed a number of requirements that a nonqualified plan had to meet in order to receive an advance ruling from the IRS that the plan did not create constructive receipt under section 451, not that anyone asked for advance rulings and the IRS later said they wouldn't give advance rulings. The plan must provide that a participant's rights to benefit pay­ments under the plan are not subject in any manner to anticipation, alien­ation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the par­ticipant or the participant's beneficia­ry. As such, it was standard practice to include this language so that an argument for constructive receipt would be harder to make. Even the substitution rules under 409A note the following: In addition, where a service provider’s right to deferred compensation is made subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the service provider or the service provider’s beneficiary, the deferred compensation is treated as having been paid. If this just for the convenience of a participant, not sure it's worth the risk.

True, but anything beyond the qualified plan limits is still just moving cash from one pocket to the other.

And the 409A regulations governing partners and partnerships remain unwritten.

Semantics, but a SERP is a form of a non-qualified deferred compensation plan. You don't need voluntary deferrals or account balances, so the language in the 1099/W-2 instructions still apply. Nothing to add to jpod's fine response, including the aspirin part.

If we get a spike to 4.2% CPI in Jun-Jul-Aug, we go up two steps on all the limits and catchup finally moves to 6500. I'd rather not have this happen.

What's your definition of "guaranteed payment"?

When the top hat regs state: Only one statement need be filed for each employer maintaining one or more of the plans why do more? Of course, if you do electronic filing, the instructions imply all plans need to be filed (whether on the initial filing or subsequent), then number of plans needs to be stated, and the number of employees per plan needs to be included (though the plan name is optional). The same electronic filing that the proposed regulations say the required content hasn't changed. Riiiight. https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/e-file/tophat-plan-filing-instructions

Since this looks like a bonus arrangement, ERISA doesn't apply, so no issue there. I would caution against setting aside assets that would be guaranteed to pay benefits in the future as that could trigger immediate taxation under the economic benefit theory. I agree with jpod; as long as the benefit is paid out with 2.5 months of vesting, then 409A doesn't apply. Accounting-wise, I'd look to ASC 710 (where the old APB12 was codified). In similar situations for top hat plans, I've had clients generally account for the liability ratably over the vesting period.

MOUSE? That's goofy...