namealreadyinuse

The only place I remember seeing the one year rule is in the IRS exam guideline on plan terminations, but that is what it says. Your plan still needs compliance amendments, 5500s, etc. What happens if the asset appreciates fster than the interest on the note, or actually loses money?

I think we are all on the same page, but don't we have more discretion in 2005-07 to determine whether somehting is a SRF? What if we have a document provision that would not be a 409A SRF in our document ("ANY reduction in TOTAL compensation and benefits") for example, but everything was administered in good faith compliance with 409A and that provision was effectively ignored from 2005-2007. Under the Notice it sounds like it cannot be amended to comply with 409A good reason. Is that correct?

Yes, it is just an effective date issue as to whether or not you are under the final regulations. I think that they are just clarifying their position that they don't allow you to add a new SRF (essentially extending a SRF). If final regs say your good reason is not SRF, you have to amend before 1/1/08. Isn't it that simple, assuming of course that you have some good faith basis for arguing that your non final reg good reason definition is good enough for transition period SRF.

I thought that everyone was pushing it this way: Set up an LLC w/ IRA as owner and the invest the cash anyway you want. If these get to the same end result (I won;t mention which end result I believe they get to) then the LLC is cheaper. Ultimately there is a TON on the interweb on these "deals" and my understanding is that the promotors make all of the money setting up the entities and plans. Good luck!

If no payments were never made, or if circumstances indicated that there was no intent by participant to treat loan as a vaild debt, the PT sounds possible. Otherwise, they may be confusing the Section 72 repayment requirments with 4575.

401(k)/404© plan SPD contains a listing of investment funds and it looks out of place to me for some reason. Is it advisable to list the available funds as long as the SPD notes that the funds are subject to change w/notice, or should just general information about specifying/changing investments be included. This does not appear to be an attempt at a 404© notice. Is it ok to try and use the SPD to satisfy the 404© notice disclosure?

What is the basis for the S-T deferral rule in the first place (why 2 1/2 months vs. 3 or 4 if it pushes to the next tax year anyway)?

I am confident that I could get some sort of "release" if I was paying off w/d liability. The liability determination is really set forth pretty specifically in the plan and statute. Once Truestes calculate a FINAL number, that is all an employer will ever have to pay (absent other circumstances). The Trustees will not sign an absolute release because, for example, they might later determine that the employer misreported demographic information. Beware though, that the initial assessment and payment schedule is usually not basedon the audited numbers for the year and very often changes. You should be able to get a discount if you pay-off in a lump sum. If nothing else, you should get a discount for the time value of money.

"any correction of an operational failure by adoption of a prototype for which the plan sponsor has reliance on the plan’s opinion letter" and "As the new document is drafted" may not match up. You are going to have to use the prototype amendments as your correction if you want to get out of a determination letter. I doubtt hat you will be able to get a provider to actually sell you their outdated documents, so you probably won't technically have reliance on their letter, will you? I'll bet that VCPs with determination letter applications are taking a ton of time to process right now, so I would try and avoid that if at all possible, but if you are terminating anyway, why not use the 5310 as your application?.

IRAs do it right-and-left. Does 4975 not have the service provider language?

Ok, wouldn't many employers that were working towards a liquidity event care about the accounting treatment? Discounted options still hit the accounting books. If you are suggesting an option that does not become exercisable until a CIC and then HAS to be exercised within 2 1/2 months from the close of that year, then you have to make sure that exercisability = risk of forfeiture for 409A. There has got to be a better way to do it, though.

I don't think that corporations can act as trustees unless they are banks, trust cos, or otherwise qualified. It is very common to have principals of a corporation (Board members, owners, etc.) individually serve as Trustees.

Can't the agreement pay on separation from service, whenever that is? There is nothing controversial about that and it is not what I would call a rolling risk of forfeiture. Capital gains is your best point favoring current payout, although you should be able to pay out within the first 2 1/2 months of the close of the year of separation and attain the goal of a lower marginal rate. I believe that 457s were cool when they could be tricked out with rolling risk, regulated investment company options, etc. There is not much to them now, I guess. That said, all of the old 457(f)s have to be updated for 409A now because the term and pay out transition relief under 409A expired after 2005, correct? There will still be a lot of 409A compliant 457 plans, but it sounds like there is not much benefit to setting one up now with new money.

Thanks Bird - that is a very helpful response. It will made me feel better about just doing a band-aid revision, which I am leaning towards (there is safety in numbers or misery loves company I guess if we all get busted). Your "cautionary note" (aka, CYA note) uses the defined term "Designated Roth" does the existing notice include details about designated Roths: - if the plan in your example adopted designated Roths, was the note all you discussed or was there more in the guts of the SPD? - was the plan just pre-tax 401(k) only and your note just inteded to pick up general 402 rollover provisions that mentioned the term? Thanks again!

How is an individual a Trustee in that case? Is he a receiver?

I know that the IRS safeharbor 402(f) notice is too old to include Roth 401(k) (among other things like non-spouse rollover). The IRS is going to revise it but it won't be soon enough for us unfortunately. I also understand that the IRS position is employers must customize the new model for things such as Roth 401(k)s if it adopts them. I have never seen a revised version so I am not sure that this is really being done, but we need it done. Does anyone have thoughts on how much to add (or can confirm that we even need to add) to the model to incorporate Roth 401(k)s (we did adopt them). Do other items like non-spouse rollovers need to be included (we may not have adopted plan amendments yet)? Any checklists of necessary revisions or sample revisions would be greatly appreciated!!!

Who is the trustee? It doesn't sound liike a problem. The corporate actions to terminate (resolutions) can't be paid, but the other functions you mentioned (DOL audit, etc.) sound fine. The participant's best interest is being served by getting this liquidated. Remember a big expense is to amend the plan to get it current (and possibly file a 5310 - but I wouldn't push that here) no matter what cycle it is on. I am not familiar with the orphan plan rules, but won't those factor in and provide additional independent ability to hit up the trust?

No income recognition unless the IRS pushes deemed exercise (deep discount). You are exempt from 409A and there is not taxation under other theories (ecomonic benefit, constructive receipt, assignment of income, etc. . . ) because of Section 83.

I have never heard any exception mentioned. Policy-wise, wouldn't the Treasury want this person to be outside the exception because of the low compensation? I don't think they will be sympathetic.

Wouldn't they just be nondiscretionary account balance?

Outside of the transition rule, I believe the answer is yes if it is ok under 457(f) (which it should be). The final regs put the distribution election provisions for employers in nonelective plans on par with those for the participants in elective plans. 457(f)s have to comply with 457(f) and 409A.

I was clearly wavering in my original post, so you were on notice.

I changed my mind. ISOs should be exempt from 409A. Only the ISO valuation rules should apply, BUT . . . aren't there several situations where ISOs can become NQSOs, such as exceeding the 100K first exercise rule or exercising more that 3 months after termination of employment. If you are going to issue ISOs without following the 409A valuation rules, you better make sure there is NO POSSIBILITY of any ISOs turning into NQSOs. Agree??

Both rules apply. Like 457(f)s are subject to two "substantial risk of forfeiture" definitions. All options have to meet 409A FMV or they are dead meat. Also, ISOs have to meet the ISO rules.

I have never heard of that rule. Are you sure you heard it correctly?