J Simmons

I would think then that the MEP (a 401k PSP) is of the same type as the Keogh (PSP) for purposes of preserving characteristics attendant to the Keogh benefits, but a closer look at the features would be needed. For example, perhaps the Keogh plan allows in-service withdrawals or are subject to the QJSA/QPSA rules, due to plan design. Language might be in the MEP to preserve features of benefits merged into the MEP that the MEP does not itself imbue on benefits accrued under the MEP. And then there is the question of whether the documents of the two plans have, or can be amended, to allow a merger. However, off the cuff, I would guess it is doable, if done right.

See this response to your duplicate post under the other board.

You indicate that the Keogh is a DC QRP. What kind? PSP? MPPP? Target Benefit? How about the MEP? Is it it a DC QRP? If so, what kind? It is this typing of plans that imbue benefits with different types of characteristics. I think that is what is meant by the type of plan rather than one being a MEP and another being a Keogh--both of those characteristics go to the type and number of employers, not the type of plan.

I do not think that the addition of contributions-to-HSAs in the middle of a plan year allows the employee who already has elected an FSA for the year to stop that FSA election mid-plan year. An employee may have both an FSA and contributions-to-HSA elections, provided that the FSA is limited to preventive care or has a deductible that makes it HDHP coverage so that the employee is eligible for contributions to an HSA. Such a limited FSA yet provides tax-free reimbursement of certain medical expenses incurred in the plan year for which the limited FSA is elected, while the contributions to an HSA can create or add to a fund that is available for payment for other current plan year health expenses or health care expenses incurred after the plan year has ended.

My white out experience was that the same employee, year after year, submitted the same bid to repair his house for yet another fire. Only the year indicated in the date on the bid was white-outed and typed over. He tried it 3 times after the 'initial' fire and repair snagged him a hardship payout. He did not get a hardship distribution for any year that the white-out was used.

If this former EE quit before reaching age 55, began taking the installments over his life expectancy, no more than 5 years has passed or is under age 59 1/2, then by taking the lump sum he might face the 10% early distribution penalty on amounts already taken.

Not to sound like a broken record, but I agree with Sieve.

Yes No

For those interested in this topic, an interesting federal court opinion addressing the ERISA § 3(2)(A) definition of an ERISA 'pension plan' as possibly applicable to a nonqualified stock plan is Serio v Wachovia Securities, D NJ (8/27/2007). While that case did not involve a profit sharing plan that qualifies for favorable tax treatment under IRC § 401(a)--something not mentioned in ERISA § 3(2)(A)'s definition of ERISA 'pension plan'--it seems the same judicial approach and rationale could be applied to a profit sharing plan without a 401k or 401m feature and that allows withdrawals after two years. If so, such a profit sharing plan would appear to be exempt from ERISA.

If all the facts and circumstances lead to the conclusion that the re-hire was not prearranged at the time of the termination, then the fact that an application was later made for and re-hire does occur does not mean that a distribution before the re-hire was improper or a sham termination. The factual merits of each situation come into play and must be examined.

Whatever portion the ER is going to pay in premiums may be done under 106a, outside of the POP. The POP would not mention what part of the premiums the ER is paying. The POP would be reserved for the sole purpose of giving EEs an election to pay the remaining premium cost with pre-tax payroll reductions. Ergo, the POP is nondiscriminatory--unless outside the POP and under 106a the ER pays more of the premium for the lower paid EEs, leaving POP usage to be greater by the higher paid EEs.

Right, Jim, it is not an owner-only plan.

Thanks, four01kman. Do you have a citation for that proposition? Again, thanks, Larry. The arrangement is a profit sharing one. My understanding of the reason in-service distributions are allowed (albeit after two years of the profit sharing contribution in the plan) is that, unlike a DB or money purchase pension plan, the profit sharing plan is just that--a plan for the sharing of the profits of the company with its employees. So in-service withdrawal is allowed so that employees have relatively current access to their share of those profits. I like your assumptions that someone is bound to wait until post-employment before withdrawing his profit sharing benefits, and that 'surrounding circumstances' would include such, but do you know of any citation for the notion?

Thanks, Larry. Following up on your comments, from where does that intent to provide retirement income come where the employer has chosen to include a 2 year, in-service withdrawal provision?

Under the current proposed regulations, a plan year is 12 months. It can be shorter to accommodate a 'valid business reason'. Prop Treas Reg §1.125-1(d)(2). If there is a valid business reason for cutting the current plan year short (and to terminate the plan before the current plan year ends), then I suggest that you give the employees about 60 days notice so that they can accelerate the use of any remaining flex account amounts, even though I do not think that notice is required. If the plan is also an welfare benefit plan under ERISA Title I, there is an argument that unless the plan documents and summary plan description explicitly reserve to the employer the right to terminate the plan mid-plan year, as each new plan year begins there is an implied promise that the plan will continue to the end of that plan year since that is the measure of time for the election, the corresponding compensation reduction to pay for the elected flex account, and the time within which to incur qualifying medical expenses to be reimbursed out of that annual flex account. But I know of no specific ruling that ERSIA Title I so precludes a mid-plan year termination.

The sham transaction doctrine is typically applied in situations where the transaction is designed basically for the purpose to generate a tax deduction. Similar concepts are applied in situations where something other than a tax deduction is the objective. For example, in Powell v Strategic Outsourcing Inc, S.D. Texas (March 18, 2009), a COBRA continuation opportunity was the objective of a termination and quick re-hire--a 'sham termination': In this case, Plaintiffs have failed to present evidence that a "qualifying event" occurred that would trigger any obligation for Strategic to provide COBRA notice of the option to elect continuation coverage. Mr. Powell states in his affidavit that ESOR engaged in a sham termination in June 2005 in which ESOR terminated his employment and then immediately rehired him. See Affidavit of Dennis Powell, Exh. C to Plaintiffs' Response [Doc. # 28], ¶3. A "sham termination" is not a "qualifying event" for purposes of COBRA notification and coverage continuation requirements. It is undisputed that Mr. Powell's employment with ESOR was not terminated and that he remained employed by ESOR without a break in service and with no reduction in hours until April 1, 2006. Consequently, there was no termination of Mr. Powell's employment that would operate as a "qualifying event" for purposes of the COBRA requirements. Plaintiffs have failed to present evidence of a "qualifying event" required to trigger COBRA requirements for notice and continuation coverage. As a result, Strategic is entitled to summary judgment on Plaintiff's COBRA claim.

If an ER establishes a profit sharing plan without 401k and 401m features, has no vesting requirement, and allows in-service withdrawals of amounts that have 'seasoned' in the plan for just two years, is the plan subject to ERISA Title I? After all, ERISA § 3(2)(A) defines Since withdrawals may be made under a plan as I described before retirement or termination of employment, is the plan subject to ERISA Title I?

To take what is essentially an in-service distribution before age 59 1/2 that is not permitted--in the absence of a real, substantive termination of employment.

PLR 8307142, 11/22/82

The closer in time the re-hire from the date of termination, the more suspicious it will look to an IRS auditor that the re-hire was prearranged before the termination actually occurred. Less suspicion surrounds the situation where a longer period of time has elapsed since termination before the re-hire. You want the termination to be, as tax law Professor Vance Kirby used to say, 'old and cold' before the re-hire takes place. The same rule against in-service distributions before a certain age generally applies to 401k and profit sharing plans too. There is a state supreme court decision (Sorensen v. Saint Alphonsus Regional Medical Center, Inc., Docket No. 30476 (ID 6/24/2005) (ID, 2005)) that may be of interest. In that situation, the plan improperly began in-service distributions. The IRS discovered this and told the plan it must stop the payouts, or not employ the person for at least 4 months. (The plan in turn informed the employee of her two options. She filed suit to try and prevent the non-ERISA plan from giving her such an ultimatum. She lost. I point this out to show what the IRS had proposed to remedy the improper in-service payouts. Apparently for that IRS auditor, a 4 month gap in employment was old and cold enough.)

The regs set the outer limit of what can constitute a default of the loan--no payment as of the end of the calendar quarter following the calendar quarter in which the scheduled loan payment came due. The loan documents may effectively define and set default to occur earlier. If so, then your shop is too soft of heart. You need to look at the specific loan documents to be sure.

Rev Rul 73-338 applies Treas Reg section 1.72-16©(2)(ii) in the way Bill Presson implies. Albeit the language of the reg itself does not make it clear whether it is the widow, for example, that gets tax-free the handover from the plan trust of insurance death benefits or it ought just be the plan trust that receives such tax-free. But since the plan trust is already tax exempt, it would be a bit redundant of the reg for it to be interpreted to not apply to the widow.

No, Belgarath, as wrong as my statement is, it was what I intended. Good to learn the plan's handing over the death proceeds, over the csv is a tax-free distribution to the plan's death beneficiary.

I agree with MARYMM--payroll reduction contributions to an HSA, elected through a cafeteria plan, may be stopped, changed or initiated effective the first day of the calendar month beginning after the instruction from the employee is provided to the plan administrator.

Yes if those officers do not own, nor are deemed to own, more than 2% of the S corporation. Their participation might be limited to the extent that the applicable nondiscrimination rules apply. EDIT: grammar correction.