J Simmons

Hey, Everett, I don't know that you are wrong--or right. As is so often voiced on this board, it would be nice to have definitive IRS guidance. In the absence of guidance, then, it is a matter of how comfortable you can be that your plan is 'bona fide', whatever that might eventually be defined to be.

aciepluch, Prior to the new regs, there was no express requirement for an overarching plan document for a 403b plan that was sponsored by an employer not subject to ERISA, such as a church. However, the new 403b regs impose such a requirement for the tax advantage. So the exemption from ERISA that a church plan has will (as of 1/1/09) no longer exempt a church 403b plan from needing a plan document. However, if you know of some provision in the new 403b regs that exempts churches from the plan document requirement, like Tom, I would like to know where in the new regs that exemption is.

A plan need not give an employee (or ex-spouse) a lump sum, 'cash out' option. In a DB plan, the only required distribution modes are qualified preretirement, joint and survivor and optional annuities. QDROphile is certainly correct in that you need to get the documents he has specified. Whether the plan in question gives a lump sum option would be in the plan documents. What happens when your husband dies and what happens when his ex-wife dies depends heavily on the plan documents and the order (and correspondence). As importantly for you as these two questions, what happens if the ex-wife is yet alive when your husband begins to receive benefits under the plan. If there is a misunderstanding by your husband and the ex-wife in what will happen under the plan in light of the order, they do have the opportunity to get the consequences under the current order sorted out with the plan administrator and if necessary, obtain a modified order from the divorce court. The sooner the better, particularly before one of them dies or the benefits go into pay status.

Everett, Is there an implication that because there was specific mention of the 457 definition applying to 457f plans subject to 409A that the 457 definition does not apply to the more common plans subject to 409A, i.e., those that are not also subject to 457f?

Tom, Are you suggesting that if an employer in a state that requires an open-vendor environment can avoid that by entering into an info sharing agreement with hold-harmless language with one or just a few vendors, and find cover for that from the 403b regs? As I understand the 403b regs, they require info sharing agreements between the employer and the vendor. If another vendor came along and was willing to sign the employer's info sharing agreement on the terms entered with the 'sole' vendor, would that state law be inapplicable? Or is your suggestion that vendors would generally be so adverse to signing hold-harmless language burdening the vendor in favor of the employer that no other vendor would, as a practical matter, be willing to sign and give such a hold-harmless?

In response to the 409A regs in proposed form, many practitioners asked the IRS to include a definition of bona fide sick leave and vacation leave, and asked about 'borrowing' from the 457 regs. Early indication was the IRS would provide a definition in the final 409A regs. Nevertheless, the IRS did not do so when it finalized the regulations.

I think it is 409A deferred comp--rights earned in one year but payable at least possibly in later years. I think the program should be documented in a way to comply with 409A by 12/31/2009. I think if the only way to get use of the PTO bank hours before employment termination is to be sick and otherwise not entitled to pay, then it would seem to be a bona fide illness plan. If part or all of the PTO bank hours can be cashed out sooner, such as merely on application to the extent that the hours exceed a certain number or for hardships defined more broadly than 'unforeseeable emergencies' as defined in the 409A regs, then I think you've got a 409A tax problem. If the program is too broad now, but you plan to tighten it up incident to 409A document requirements, you might have a problem to the extent you attempt to restrict amounts currently accessible. You should consult an attorney knowledgeable with 409A and the regs.

For those interested, the new Form 5307 and instructions are now on the IRS website: 200803 Form 5307 200803 Form 5307 Instructions Mostly just format changes. The previous Form 5307 may be used until September.

Is dad a key EE on rehire? Yes, if his children yet have a combined 5% or more ownership. Has dad been a key EE all along, even when he neither owned nor worked for the company? I don't think you can be a key EE during the time you were not an EE.

Maybe the regulation writers did intend to say that the $200/yr minimum must be levelly amortized over the entire year. But they didn't say that.

I think you could have a minimum deferral per pay period that exceeds $200 for the year, provided employees also had the option to stop the deferrals before the end of the year. Suppose it was $50/mo minimum. That would be $600/yr. That's above the $200 floor. However, if the employees had the ability to stop mid-year the elective deferrals, say once the $200 minimum, is met, then I do not think you'd be in violation.

I got my opinion letter (dated 3/31/2008) for my self-authored prototype in this morning's mail. I don't know what the status for notification letters is for practitioners using purchased prototypes.

Yes, until the state law is changed, the participants could likely sue over an employer going a single vendor or limited number of vendors in violation of state law. This would be so with the public school employers that are exempt from ERISA and thus state laws clearly apply to their 403b offerings. For 501©(3) employers, ERISA applies but might not preempt these state laws. The new 403b tax regs do not require a single-vendor approach, and thus both the new 403b regs and the state laws can be accommodated by a 403b plan. The fact that the state laws were enacted before the new 403b regs were issued does not invalidate the state laws.

The accountant is correct. But then so too is the salesman--the HSA contributions are tax-free, just in the way explained by the accountant. Unfortunately telling employees and other management that corrective steps are necessary, and that matters must be handled differently in the future, to bolster the claim for tax-free treatment only slightly reduces the size of the target on your back as the messenger. After you get the past fixed, you could adopt a cafeteria plan that offers HSA contributions as the only tax-free benefit option. That way the HSA contributions would not only be tax-free, but FICA-free too.

See IRC §410(b)(6)© and Treas Reg §1.410(b)-2(f).

I would do the the check for the net amount of excess deferral, report on the 1099-R the gross amount of the excess deferrals, and notify the EE in writing to claim the loss on Form 1040, line 21 in the year of distribution (rather than another 1099-R showing a negative amount).

"ADP" stands for ACTUAL deferral percentage. Treas Reg §1.401(k)-2(a).

The 'modern' right-of-representation (not all of them) statutes give equal amounts to the representatives of each generation, e.g., each grandchild of a deceased child being put on the same footing regardless of whether a child of a more or less prolific deceased child. The rationale I've heard for this development rather than the pure per stirpes is that given today's longevity, grandparents often have more of a direct relationship with grandchildren, now that their lives overlap more. A grandchild is not just the child of a child anymore. For this reason, the modern approach has started to take hold. The lessen to take from all this, however, is that whatever the wishes of the grandparent, they be made clear, using terminology that is understood and not confusing, both in designations of death beneficiaries and in testamentary instruments.

Unless and until an order found by the PA to be a QDRO is perhaps modified by the issuing court, it should be implemented by the Plan. The QDRO set the commencement date for the awarded separate share to the AP, i.e. the P's actual retirement date. If AP has not by then chosen an alternative form of payment, the Plan should then begin payments of the separate interest to the AP per the plan's default form of payment for a single person. No signature necessary.

See IRC §410(b)(6)© and Treas Reg §1.410(b)-2(f).

Why won't it be eligible for 'partial termination' treatment? An ER decision (to withdraw ASG) that will prevent the affected EEs from earning additional vesting service? Of the entire ASG's EEs, what percent will be impacted by the withdrawal? Barring that, could you spin off the part of the plan (and assets) that benefit the EEs of the ER withdrawing from the ASG, and then terminate the spun off plan? That would vest them.

So the choice an EE has is between health insurance coverage (tax free under 106a) or a $4,000/yr medical expense reimbursement benefit (tax free under 105h). No cash option. No option for other taxable benefits. No constructive receipt of cash/taxable benefit, since no choice of that. No constructive receipt, no need to satisfy IRC 125.

I don't recall EPCRS 'make whole' requiring any consideration of the marginal tax rate or that you need to add in a factor for the 'added tax burden' to make the employee whole as part of the remedy. Because the mistake/remedy did cause the added tax burden, the employer might want to make a payment for the 'added tax burden' factor to the employee.

There is a mandatory employer contribution to a SIMPLE 401k or SIMPLE IRA. The employer has not contributed for years, so it seems odd that the employer would want to go to a plan that would require a contribution from the employer. If the employer is yet SIMPLE determined, then the easiest would be to wait and convert the current 401k to a SIMPLE 401k effective 1/1/2009. If the employer decides to terminate and not start a new plan, then termination does not have to await until the end of the year--the document is right. If the 401k is terminated, the employer may not start a SIMPLE IRA until the first of the next calendar year. No company contribution required, but employees currently using the 401k. Why terminate it?

If I understand the question correctly, the pension cost ought to be allocated as a partnership expense and thus reduce the H's and W's share of profits proportionately regardless of the amounts of the pension contribution that may be allocated to them. I think you'd follow the partnership agreement to the extent it does not call for the allocation against partnership income not be, per partner, the amount that such partner receives in pension contribution allocation.