J Simmons

An ER decides upon the retirement in 2009 of a long-term, staff EE to give her $50,000 (in addition to what she has in the company's 401k plan). The $50,000 was paid $12,500 on her last day as an EE, and then three like payments will come due, one each on the first three anniversaries of her last day as an employee. No separate funding is created to pay this; it will simply be paid from the ER's general assets. The first $12,500 looks to be reportable on her 2009 Form W-2, whether considered a bonus, severance pay, or non-qualified deferred compensation. This is true as to it being FICA and FUTA income as well as taxable income. My questions revolve around how the ER should properly report the subsequent payments, each to be made in a year in which she will not be an EE and not otherwise receive a Form W-2? This $50,000 is FICA and FUTA income when there is no longer any substantial risk of forfeiture. Does the lack of separate funding to pay the 2010-2012 payments delay those payments as FICA/FUTA income until when and as paid? If so, to report those out year payments, is a Form W-2 proper? At page 19 of the 2009 Instructions, it provides that non-qualified deferred compensation should be reported on Form W-2 if to an EE, Form 1099-MISC if to a non-EE, and Form 1099-R if to a beneficiary. Severance pay is to be reported on Form W-2. For 2010, 2011 and 2012 out years, this person will not be an EE per se (albeit she will be a former EE). However, given the choice between just EE, non-EE, and beneficiary--former EE not being one of the choices--I'm thinking that the appropriate category is non-EE and thus a Form 1099-MISC. Thanks in advance for your input.

This quote, and the cases cited in it, might be a starting point for you to find out: "One of the unresolved issues is whether the terminations should be treated as a single termination. They were closely related in time (all occurred between the end of August 1994 and the end of June 1996) and appear to have had the same motive, unlike the two partial terminations in Administrative Committee of Sea Ray Employees' Stock Ownership & Profit Sharing Plan v. Robinson, 164 F.3d 981, 987-88 (6th Cir.1999), which had unrelated causes. See Matz v. Household International Tax Reduction Investment Plan, supra, 227 F.3d at 976-77 and 265 F.3d at 576; Weil v. Retirement Plan Administrative Committee, 750 F.2d 10, 13 (2d Cir. 1984). But there is no actual finding by the district court." Matz v. Household International Tax Reduction Investment Plan, 388 F3d 570 (CA7 2004).

Treas Reg section 1.401(k)-1(e)(7).

Thanks, jpod. Does anyone know of the name and phone number of anyone that works in DFVCP?

I was contacted today by a fellow attorney who learned that a 401k plan he set up in the 1990s has never had a Form 5500 filed by the employer's accountant. The DFVCP of EBSA immediately comes to mind. It is a small plan, so the cumulative penalty will cap out at $1,500. However, I'm concerned that it might take two to three months to locate the necessary information for those years' Forms 5500 to be prepared, before we can then formally file the DFVCP application (along with the fee of $1,500). In the meantime, is there a way that I can put the DFVCP office on notice that we've found the problem ourselves, are voluntarily coming forward, but need a few months' time to prepare all the Forms 5500? I want to do this to 'inoculate' the situation against possible detection in the interim by the DoL/IRS outside the voluntary program, under which circumstance the government agency might assess devastating financial penalties. Also, what procedure is there to avoid IRS late penalties?

Rather than any sort of list billing arrangement, even one without such a clause, you might find that it would be better to let employee pay the insurance company directly and then with proof of such payment, your brother would reimburse (not subject to payroll) the employee for the premium paid. See Rev Rul 61-146. Not only will doing it mechanically this way rather than through a list billing preserve the tax savings on the premiums, but also if the insurance coverage is dropped due to late premium payment, that is not something for which the employee can then point a finger at your brother. Each employee who doesn't want insurance coverage would be able to pocket (after-tax) the amount that would have been your brother's 1/2 of the premium that instead was added to the employee's payroll in order to do it this way. But that is, after all, the point: getting your brother as far out of the loop as possible when it comes to employees' insurance so that he is not sponsoring a 'group health plan' subject to all those federal mandates that apply to group policies and drive up the premium cost of coverage.

Only seen/heard of the proposed regs. Not finalized yet.

In most states--and I suspect New Jersey included--a minor child's guardian is his parents unless a court has appointed someone else. Under the version of UTMA adopted in my state (Idaho), the plan trustee could transfer the $7,000 to the parent (if an adult) if the plan trustee determines that the transfer to the parent is in the minor's best interest and it is not prohibited by the plan trust provisions. Because it is under $10,000, under the Idaho version of UTMA, there would be no need to first get court authorization.

Individual policies typically are less expensive these days because they do not have the 'bells and whistles' that certain federal laws require of 'group health plans', such as group policies. A very bare-bones premium-only cafeteria plan may be accomplished without necessarily causing the arrangement to be a 'group health plan' for purposes of HIPAA, Pregnancy Discrimination Act, COBRA, etc. However, it cannot be accomplished, in my opinion, if the employer is bearing any of the cost of the premium. (There are other requirements to avoid those federal law mandates for group health plans, but the employer bearing any of the cost of the premium will wire you into those federal mandate laws applying.)

Thank you for using the technical term. Sorry for using technical jargon--here's what Merriam-Webster Online defines it as (I was using the second listed meaning): willy-nilly Main Entry:wil·ly–nil·ly Pronunciation: \ˌwi-lē-ˈni-lē\ Function:adverb or adjective Etymology:alteration of will I nill I or will ye nill ye or will he nill heDate:1608 1 : by compulsion : without choice 2 : in a haphazard or spontaneous manner

S-Corp compensation to shareholder-EEs must be reasonable, in light of the services that they perform. It's not just something that may be manipulated, willy-nilly, in order to allow for differences in the amount that 10% profit sharing accruals would be for the different shareholder-EEs. If the IRS comes knockin', you're going to have to defend the W-2 to each shareholder-EE as being within the 'reasonable range' for the services provided by that doctor. Why not make the plan a cross-tested one so that there can be variances?

Correct.

Plan termination. Too bad the MEP did terminate on 6/30, however if the sponsoring employer acts, then it could postpone that to 7/31. You can only accept the July deferrals into the old plan if the sponsoring employer of the MEP postpones the date of termination of the MEP to 7/31.

No plan, no deferrals for July unless you postpone the MEP withdrawal to 7-31. Also, you'll need new elections for new plan beginning 8-1.

Does the ER have a copy of the SPD? That might make filling in a blank adoption agreement a bit more accurate that purely from memory, and sending along a copy might lend support to the VCP personnel taking a look at your application.

Incorrect. It is the employer providing health benefits to its employees, albeit via a third-party insurance policy. That's an ERISA employee welfare benefit plan.

Do the documents for the plan that allows employees to pay their portion of health premiums pre-tax also specify that the company shall pay 100% of health premiums for those 65 employees? If so, then the count ought to be 115 and the the 100/120 large plan rule applies. On the other hand, if you have two distinct plan documents, plan titles and three-digit numbers in the 501 et seq series, then you have an argument that you have two separate welfare benefit plans, one with a count of 65 employees and the other with 50, and the the 100/120 large plan rule should apply to neither.

Did the MEP (multiple employer plan) sport a 401k feature? If so, the constituent ER having its own 401k plan so soon (one month later) would make the termination of the MEP not a distributable event for EEs of that constituent ER. For "spin off" purposes, the plan being established effective 8/1/2009 may receive a trustee-to-trustee transfer of the assets/liabilities of the benefits of the EEs of the MEP-constituent ER that is establishing and sponsoring the new, 8/1/2009 plan.

Yes Then no need to make a corrective match

"Maintain" is a more functional, less definite term than "adopt" which implies signing a document that specifies that the signing entity is becoming, for example, a Participating Employer. So if your version of the Corbel document has the verbiage that Larry quoted, then you might be able to take the position that as a successor employer, the LLC to the sole proprietorship, the LLC has performed the functions to 'maintain' the plan. At this point, you might want to draft a document to be signed that recites and memorializes when the maintenance of the plan actually shifted from the sole proprietorship to the LLC, i.e. when the LLC became the successor employer to the sole proprietorship. It sounds as if all the functions of maintaining have been so performed by the LLC since it succeeded the sole proprietorship as the employer.

Hey, Larry, I think the OP was wanting to know what period of time for compensation would the 3% SH NEC apply to, more than necessarily wanting it one way or the other. What I've been driving at is that you could set up the PSP first (or, per Kevin, contemporaneously with the k SH) and have profit sharing comp go back to 1/1/2009. But if the effective date of the k SH is 10/1/2009, then if the plan so says, the 3% SH NEC only applies and must only be made for the last 3 months of the year, during which three months the HCEs will all max out the 402g (and if applicable, over-age-50 catch-ups) limits, $16,500 and $5,500.

If the address listed for the alternate payee (AP) is "c/o J. Doe" and AP is not J. Doe, does this belie the requirement that the QDRO list the AP's address? Probably more significantly, does the plan need AP to sign a written authorization for the plan to send any information about the QDRO or awarded benefits to "J. Doe" as a representative of AP before the plan can use that address?

Does the plan document, per chance, specify that the 'employer' includes members of a controlled group including the sole proprietor? If so, and the sole proprietor owns 80% or more of the LLC, then the sole proprietor and the LLC are a controlled group, and both thus sponsoring employers.

Larry, could this ER adopt a straight PSP now, effective retro to 1/1/2009, and then on 9/26/2009 amend to add a 401k feature--safe harbored at that--to the plan effective 10/1/2009? By 9/26/2009, the PSP would be an existing PSP. (Question seeks input aside from step-transaction doctrine possibly applying.)

Thanks, Kevin. This would then suggest that in adopting a new plan that will have a 401k safe harbor feature, an employer could reduce its k safe harbor 3%-of-pay SH NEC by not making the 401k feature applicable until the beginning of the 10th month of that first plan year--provided it is written to limit the SH NEC to just amounts earned after the 401k feature becomes applicable. Then the SH NEC only applies to compensation earned in the 10th, 11th, and 12th months of that year, but you could have your HCEs max'ing out during those three months their 402g limits and after-age-50 catch-ups.