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Per Diems can be excluded, provided it's a legitimate classification. I even went through VCP to give retroactive relief to a hospital that had always excluded per diems, but whose prototype provider mistakenly treated them as if they were part-time and includible if they were paid for 1,000 hours. We showed IRS communications and salary structures which made clear for this hospital that the per diem exclusion could be applied, regardless of document mistake and even for those with more than 1,000 hours. Don't try this on your own, non-lawyers (and even most of you lawyers). 😏

It's 2023 and this question is still fascinating. A new client has a problem. It gave all employees a choice to receive a qualified non-elective profit sharing plan contribution or a tax free reimbursement for education loans under an IRC 127 Plan. There is no cafeteria plan. Even if there had been, 127 Plans are not eligible, and this would have been considered an unallowed deferred compensation benefit because it was not structured under the 401(k) exception. The logic of PLR 9104050 seems to apply. In that case, employees had a choice between tax free health insurance or tax deferred contribution to a qualified pension plan. The IRS reasoned that those who elected health insurance should be TAXED on the value of the health insurance contribution. The IRS reasoned that the pension contribution would result in eventual income, so this was not a non-taxable choice between two non-taxable benefits. Intrestingly, this case has come to me with a request from non-lawyer advisors to file a VCP. I am leary of presenting these facts, because VCP won't excuse people from paying taxes on income that was "received," which seems to be the case here. The client has already made retroactive profit sharing contributions for those who waived them for stdent laon payments, so deeming this just as a self correction without VCP seems the best course. It's doubtful the IRS on its own would be assessing taxes unless led to it by an unnecessary VCP. Any thoughts as to why PLR 9104050 logic would not still apply?

There is a PBGC letter that the 30% cap on asset sales of small companies does not apply if the asset sale occurred after a mass withdrawal. I wish I had saved it, but did not. Can anyone point me to a link to that PBGC opinion, or anything else relevant. After a mass withdrawal, and without that 30% exception, it seems that the entire value of a small company could be forfeited.

Lois, About that Annuity question for Secure Act disclosure. I did post it recently. Over 70 views and not a single answer. Annuity illustrations_Secure Act It really is disgraceful that EBSA is ready to fine you mercilessly and won't help out with this "important" project. The DOL rules on this are absolutely pathetic and unhelpful for participants. What's the point of giving people who are in their 20s and 30s a calculation that asks them to pretend they are age 67 with a 67 year old spouse and are buying an IMMEDIATE annuity. No projection of earnings allowed for this required disclosure. At the least, they should take down the out of date calculator on their website. Hrrumph. 😡

Thanks. That is exactly the advice our IT person just gave. It must be because it's a fillable form.

Thanks, Lois. That is the Link and this is the message I get (see below). My Reader is up to date so I will call the IT Service we use. Hey, While I've got your attention, I'm wondering if you could answer another question I had about the required annuity disclosures for DC plans. The DOL Calculator is still geared to the proposals for annuity disclosure prior to Secure Act. It's a great calculator, but doesn't work for Secure Act because it shows jt. and 50% survivor instead of Secure Act jt and 100% survivor. It also projects to NRD instead of assuming the person is age 67. (Much better methodology, frankly, but the DOL changed it.) WHERE CAN YOU GET A CALCULATOR FOR SECURE ACT ANNUITY STATEMENTS? There must be one somewhere, but I can't find it. Thanks for all you do, George The document you are trying to load requires Adobe Reader 8 or higher. You may not have the Adobe Reader installed or your viewing environment may not be properly configured to use Adobe Reader. For information on how to install Adobe Reader and configure your viewing environment please see http://www.adobe.com/go/pdf_forms_configure.

The IRS website https://www.irs.gov/retirement-plans/form-8955-ssa-resources will not let me open the Form. It's not my Adobe Reader, which can open other IRS Forms and instructions. It's just this Form. Great that the IRS will penalize people for not filing a Form that they can't get from the IRS. Any ideas?

The Secure Act requires annuity illustrations each year for DC plans. There is a calculator on the DOL website for pre-Secure Act but it is worthless for Secure act Assumptions. Specifically, it shows joint and 50% assumptions, but the DOL requires Joint and 100% assumptions for the Secure Act statements. This is the out of date DOL Link: https://www.askebsa.dol.gov/lia/home?_ga=2.36006498.358269527.1690289872-1185248543.1690289872 Any ideas on where to get a free calculator that will produce the Secure Act assumptions? Thanks.

The postponement agreement must be irrevocable by its terms during the 12 months prior to the originally scheduled payment date. If it was executed earlier than that (e.g. 15 months before the original payment date), it can be revoked prior to the start of the 12 month period. Chances are the language says it is irrevocable after signed, so you may need the employer to grant permission for the revocation, as long as nothing is revoked within the 12 months preceding the originally scheduled payment date.

I agree with Lou S. In fact, there is a PLR that supports his answer. A more complicated solution, if you could figure out where to file the application, would be to pay the 10% excise tax and then file for a waiver of the 100% tax. The smart actuaries at ASPPA have thought this through. https://www.asppa.org/news/browse-topics/defined-benefit-plan-termination-funding-deficiency A waiver and an actuary who will recognize it is the practical approach.

Why wouldn't you have the doctors waive the unfunded portion of their benefit? Although this is not a PBGC Plan (small PC sponsor) my experience is that PBGC allows owner waivers for plans under its jurisdiction. I've never had a problem with IRS on owner waivers, either. Why use after tax money so that the corporation can contribute for a worthless deduction and convert the after tax contribution into a taxble benefit?

Uh oh. Some brothers and sisters just found out, after ten years, that their companies are not a brother-sister controlled group. (No brother-sister aggregation for this test.) They have always operated their 401(k) plan as if it were "single employer" with everyone getting the same contribution. The 401(k) and (m) tests were also operated on a "single employer" basis, which is the problem because those tests need to be company by company in a multiple employer plan. Maybe if they could find the data, the 401(k) and (m) tests would be passed. The document is set up since the begiinning of time as a single employer plan, also a problem. Here's the question, and I am sure the answer is No, but it would be great to hear something different. Is there any permissive way that a plan can elect to aggregate as if it were single employer, even if there is no controlled group or affiliated service group but a family relationship among the owners?

Thanks, everyone. I'm not really looking for financial planning advice or the advisability of rebalancing. This really is just to find out about industry practice and to advise a client.

I was actually curious about established practices at the major vendors, like Empower, Schwab, Fidelity, etc. Peter indicates he has seen either approach, and the observation that instructions should be clear is soemthing we all live with. We lawyers and consultants are used to obscure language, but I can see how the average participant, and maybe even the average lawyer, would be surprised that instructions to rebalance would shift all of a current baalance into a new money election. MoJo asks why a participant would have two sets of elections, and it's a fair question. Some vendors have a one size fits all approach. Personally, I like the flexibility of having different choices for new and old money, but you can overthink these things. Thanks both for response. If anyone has specific info on the procedures at some of the major administrators, I'd apreciate that.

A participant has one set of elections for a current balance and a different set of elections for new money. Has anyone ever seen an auto-rebalance procedure that would put all of the current balance into the investments elected for new money? In other words, rather than rebalancing the current balance according to the current balance elections, this vendor assumes that "rebalance" means to invest all of the current balance as if it were new money. It simply provides no way for auto-rebalance of a current balance to be according to the current balance elections. This is something I feel I need to alert clients about, but I'm curious if this vendor's practice is as unusual as it seems to be.

Agreed. Performance Period definition is necessary only if you want to permit deferral elections as late as 6 months before the end of the performance period, e.g. after there has already been some performance. Now that performance plans are no longer a tax exception for public company compensation under 162(m) it's a moot point in most cases for public companies. I've never seen private companies bother with it; they just use the 1 year/5 year deferral process if they want to permit deferral, and most just pay when due.

Thanks, Lou. Two catch-ups in the same fiscal year is exactly the situation I was thinking about. For tax purposes, it has to be the last dollars contributed in the calendar year. In plans where catchups are not matched, there is an interesting twist. Some TPAs have annualized the two limits (basic and catch-up) and treat catch-ups as being made ratably throughout the year. This leaves the participant who discontinues deferrals in the middle of the calendar year short of match, because the non-matched catch-up was not really a catch-up when all deferrals are tallied for the year. I don't think the typical payroll match election in prototypes addresses this. The participant is owed a true-up.

If a person defers the full 402(g) basic limit with full catch-up, when do the catch-ups occur? If deferrals were pro-rata during the year, do they occur with each payroll period? Or do the catch-ups only occur in months after the basic 402(g) limit has been reached? I understand that an amount is not a catch-up until the basic limit is deferred. However, assuming the basic limit is met, what is the crediting date for the catch-ups? For fiscal year plans with 415 concerns, the timing of catch-ups is important, because catch-ups are not additions. My position has been that catch-ups are the last dollars contributed in a calendar year and are not pro-rated for tax purposes, regardless of how the TPA characterizes the timing.

EBECatty, That's a good article, and hits all the bases. I appreciate your response.

Thanks, Luke. I always appreciate your responses.

I had hoped for a more substantive response and not a chiding to seek counsel. I happen to be an attorney, and like most who practice in this area, I am frank to say there are times when the opinion of knowledgeable colleagues - lawyers or not - is helpful. Of course there is a vacation plan exception to 457(f). Everyone knows that. The issue that concerns me with this design is the ability to convert vacation days into cash at any time, rather than a cash-out only after retirement. Employers I've seen do not consider plans with optional cash-out dates to be taxable until cash is paid, even though the right is vested. Do you see the problem - the nasty possibility of 409A application? Couldn't a plan like this be considered a right to deferred pay without a set payment date or short term deferral exception? I'm inclined to tell the employer to make the cash-out right less than 100% of the value of a full vacation day, and was simply curious how others who practice may have handled the issue.

A Tax exempt employer allows all employees to accumulate unused vacation pay. Employees may cash out up to 25% of unused days in any calendar year. When the employer has extra staffing needs, it allows them to cash out the entire bank. When employees retire, they are cashed out. Obvious 457(f) issue is the cash-out. At what point is this vested deferred compensation? The annual vacation schedules are negotiated with a union - 2 -4 weeks based on seniority. This is not just a special deal for executives, although they participate also. I think this is a fairly common design, and I've seen little in the way of IRS guidance. Thoughts?

CBZ, I like your answer. Thanks. This Plan is unusual in that there is immediate eligibility for all, but only an allocation requirement for this counsellor group. I like the interpretation that we can break them into the two groups for testing even though the 1 year/age 21 requirements are not in the Plan at all.

CB, Very good comments. Here is how I would address the concerns you raise, and this would apply to each of the disaggregated "plans" - match and non-elective. Condition ii. The counsellors are immediately eligible, just like everyone else. Unlike the rest of the population, they need to perform 1,000 hours and be employed on December 31 to accrue a benefit. In the unlikely event a counsellor actually satisfied those conditions, a fully vested contribution wouold be contributed after the year ended. Condition iii. The counselors do have an hours of service and last day requirement. The other employees (mostly NHCEs) do not. I don't think that prevents application of the terminated employee rule. Observation: I don't think disaggregation would work based on minimum age and initial eligibility, because most of the employees do not have to satisfy initial eligibility requirements. However, the terminated employee rule does not seem to require that hours of service and last day apply to the entire plan, just the employees in the group being tested. Going forward, a minimum age of 21 would solve the problem. I'm trying to analyze past years in the event of audit. The best solution I see would be the terminated employee rule so that the counsellors could be excludible. I'd love to hear more from you if you have the time.

John, This 403(b) Plan allows all employees, including Counsellors, to defer. For employer contributions, there is a "fail-safe provision" for the summer counsellors, which they will never satisfy. (They would get an allocation if employed at the end of any year in which credited with at least 1,000 hours.) The "fail-safe" is not needed for the 300 other employees, who receive contributions each payroll period regardless of hours or last day of the year employment. As I read the terminated employee rule the fact that the included class gets an allocation regardless of hours is irrelevant. It seems that for coverage a plan can ignore any terminated employee with less than 500 hours. I don't believe the otherwise excludible employee rule would work (minimum age and waiting period, but not yearly allocation requirement). I believe you can use the excludible employee rule only for the least rigorous age and waiting period conditions in a Plan, so because the included 300 (which includes 20 HCEs) come in immediately, we are out of luck with that theory. (Adding a minimum age or one year waiting period would not be acceptable to this school.) For this plan, with no age or waiting period for included class (all except counsellors) I just can't think of any theory except terminated employee that excludes the part-time counsellors, whose numbers make it impossible to pass salary-ratio.