J Simmons

I dug through my notes, and when I researched this issue many years ago, I found Rev Rul 80-314, 1980-2 CB 152, that discusses this somewhat.

The 3% safe harbor counts towards the top heavy required minimum contribution, but might not satisfy the top heavy required minimum entirely. This could be because you may have employees that are not key employees (416i) and thus entitled to the top heavy minimum although they are HCEs. This could be because you define compensation for the safe harbor purpose as only from the time of mid-year entry, but top heavy minimum applies to entire year compensation. This could be because the type of compensation is defined for safe harbor purposes more restrictively than it is required to be for top heavy minimum purposes.

Unless plan sponsorship was handed off to the new entity (the new name, new EIN) through succession and/or assumption documents, then the new entity does not have the documented plan. It does need a new plan document, one spelling out that the plan being operated is for the benefit of employees of the new entity, and identifying the plan administrator, agent for service of legal process, initial claims determiner, claims review board, etc. As for the existing plan, without such a hand-off it will need a final Form 5500 and perhaps some additional termination steps.

I would exclude from the ADP test those salary deferrals returned to the INELIGIBLE HCE. Treas Reg sec 1.401(k)-2 speaks only in terms of how to determine the ADR (for ADP purposes) of eligible employees.

Many prototype and some individually designed plan documents contain multiple employer plan language so that if all the adopting/participating employers happen not to be a 'single employer' under control group or affiliated service group rules, the plan has language 'built-in' to handle the contingency of the plan being or becoming a multiple employer plan. You need to look at the language. There was the relief under Rev Proc 2002-21 until the end of the plan year that began with or in 2003 for PEOs to convert to MEPs. Apart from that, if a client is not listed as an adopting/participating employer of the PEO-sponsored 401k plan, then those workers who are in reality employees of the client rather than of the PEO could not properly benefit under the 401k plan until the first year that it's documents are changed to add the client as an adopting/participating employer of the PEO's 401k plan. The exclusive benefit rule and the duty of fiduciary to apply the plan's terms as written would be problematic otherwise.

Treas Reg § 1.401(k)-1(d)(4)(i) provides, in relevant part, that

The 1-time top-hat filing would give the DoL info about the arrangement, and then it could someday be pulled for audit. That, however, seems minor compared to the penalties that could apply for failing to report annually an ERISA plan if you are second-guessed years later and it is determined to somehow be an ERISA plan. Have you run down, analytically, the IRC 409A implications? The arrangement might not provide for retirement income or for deferral of income past termination of employment, but depending on other factors not mentioned it might defer income to a year later than when the employee's right to it is earned.

MEWAs do have to comply with state law, as well as ERISA unless all the constituent employers would be exempt from ERISA. MEWAs are sometimes designed to target a very healthy grouping, and thereby have lower, pooled health costs. These types of MEWAs eventually 'wear out' as the targeted grouping grows older and sicker. But for a number of years, such a MEWA might yield some cost savings to its participants.

David, Mike and Janet, Thanks for your input on this thread. The QDRO at issue is short (2 pages). It has all the statutory elements required of a QDRO. It has these contingencies in it. I was taken aback it accomplished so much with so few words--I guess I was skeptical but shouldn't have been.

The advantage of a SIMPLE is to avoid ADP/ACP testing. If a 401k plan starts a year as a SIMPLE may it be amendment mid-way through the year to remove the SIMPLE aspect, and ADP/ACP testing thus applies to the entire year? Can this be done without stripping the contributions made for the SIMPLE portion of the year of their tax deductibility? Of course, the required SIMPLE contributions would have to be continued to the point in the year that the amendment takes effect (after the required 204h notice period).

Hi, David, I thought the DRO was pretty cleverly drafted also. It is amazingly short and simply worded too. (My hat's off to the author.) In fact, it might have covered the two areas you mention. If the EE dies before either his annuity starting date or the AP electing the single life annuity after the EE might reach age 55 years, the AP would be the 'surviving spouse' of all the benefits accrued during marriage. If the EE reaches age 55 and the AP opts for the single life annuity before the EE's annuity starting date, the actuarial risk with respect to that 50% of the benefits accrued during marriage would be factored into the monthly amounts payable to the AP's single life annuity. So if the AP is in pay status and dies before the EE, any 'windfall' would be to the plan by reason of that actuarial risk.

Hey, Don, ERISA is more straight forward in use of language regarding salary reductions being 'participant contributions' than the tax code is referring to the payment of a corresponding amount by the employer as 'employer contributions'. Payroll practices where the employer limits its involvement accordingly are not ERISA plans. However, employers are often tempted to get more involved than they should and what could have been an exempt payroll practice sometimes becomes subject to ERISA.

Hi, Janet, The second scenario would, for example, be that the QJSA of the benefit accrued during marriage is $1,000 a month while the employee remains yet alive, then $500 a month to the alternate payee for the remainder of her life. The $1,000 per month while the employee is yet alive would be split $500 each between the employee and the alternate payee. In essence, both the alternate payee and the employee would each receive $500 a month for the rest of their respective lives once the employee's benefits commence paying. Under IRC sec 414(p)(5) and ERISA sec 206(d)(3)(F), if the marriage lasted at least 1 year and the QDRO provides the alternate payee of the employee for purposes of IRC sections 401(a)(11) and 417 and ERISA section 205. As to benefits not separately awarded to the alternate payee but retained by the employee, the alternate payee must be treated as the 'surviving spouse' to the extent so provided in the QDRO.As for any portion of benefits awarded and payable to the alternate payee separate and apart from what the employee retains, the only form of benefit available under this plan is a single life annuity. Even if the alternate payee marries again, the alternate payee's new spouse is not a "spouse" for purposes of QJSA. Is there something else regarding non-spousal beneficiary that you are referring to?

The plan is a DB that does not offer lump sums. The earliest retirement age is 55. The plan administrator received and is reviewing an interesting DRO. The DRO provides that until the EE reaches age 55, the AP is the 'surviving spouse' of all benefits accrued during the marriage. The DRO provides that on and after the EE reaching age 55, the AP may choose to begin taking a single life annuity of 1/2 of the value that accrued during the marriage. If the AP does so, then the AP will not be the 'surviving spouse' of any benefits retained by the EE. If the AP does not elect to have the single life annuity begin paying before the EE's annuity starting date (and the AP is yet alive at that time), the benefits accrued during the marriage will be paid as a QJSA with the AP as the 'surviving spouse' and the AP to receive 50% of each payment otherwise made to the EE until he dies. Apart from the contingency depending on the AP commencing the single life annuity on or after the EE reaches age 55 but before the EE's annuity starting date, the language of the order seems to specify clearly the amount or percentage of benefits. The language of the contingency would seem also to specify clearly the manner such amount or percentage is to be determined--under the various contingencies. My question is whether these contingencies--because they are contingencies--calls into question the validity of the order as a QDRO. Any thoughts?

Hey, Don, In defining 'plan assets', DoL Reg §2510.3-102 explains that "participant contributions" are those amounts "a participant or beneficiary pays to an employer, or amounts that a participant has withheld from his wages by an employer." Also, in the safe harbor exclusion of certain group (or group-type) insurance programs under DoL Reg §2510.3-1(j), the first requirement is that there be If under ERISA salary reductions were 'employer contributions' as they are under the tax code, then these exempted insurance programs could not be paid through salary reductions. Also see DoL Opinion Letter 96-12A (July 17, 1996) where payroll reductions and corresponding payments by the employer to the insurer did not of itself render the arrangement to be a plan subject to ERISA.

Salary reductions are 'employer contributions' for purposes of the tax code, but are employee contributions under ERISA Title I.

My recollection, off the top, is that the amendment has to apply to all benefits accrued on or after 1/1/2005, but not as to those that accrued prior thereto--unless there has since 10/3/2004 been a material modification to the plan as it then existed.

Take a look at Rev Rul 2002-32.

ER pays $20,000 to new EE for moving expenses under agreed terms that if the EE does not remain employed for 2 years the EE will repay the ER the $20,000. Is this subject to 409A? It would be much like the ER having given the EE a $20,000 loan at date of hire and agreeing to a $20,000 bonus after 2 years of employment, paid by offsetting the $20,000 the EE otherwise owes the ER due to the loan. Treas Reg § 1.409A-3(f) addresses offsets as substitutes. I'm interested in your thoughts and comments.

I would think the refund negates the notion that the employee has, to the extent of the refunded amount, incurred an expense that qualifies for flex account reimbursement. The payment should be restored to the employer, whether via a debit card or direct payment by the health care provider to the employer. The employee/patient is not entitled to the refunded amount. If the payment from the doctor to the patient was for personal injury damages the patient suffered at the hand of the doctor, then that would belong to the employee. But the term 'refund' is used here, the measure of the amount of money is the same as the original expense paid for the medical services, and the payment is due to the patient not being satisfied--not necessarily damaged by the medical procedure to his or her eyes.

I agree, mjb, with regards to the unimplemented investment directive at issue in LaRue. There are many defenses, and the $150,000 will likely be chopped down to just a fraction of that through various defenses. Also, if the DeWolff plan did not specify in a very concrete, mechanical way how an investment directive must be delivered (via some means that yields hard copy proof), then at trial it may be nothing more than a 'he said, she said' about whether the directive was in fact delivered. I suspect the holding in LaRue will have more impact in the pending class action lawsuits against employers and plan officials over excessive, hidden fees (the 'excessive revenue sharing' lawsuits). The issue addressed in LaRue was one that plagued those lawsuits too: could the employees sue under 502(a)(2) in the name of the plan to go after the fiduciaries in a way that benefits those employees disproportionately rather than purely plan-wide? If the plan had, at some point prior to suit, changed to lower fee investments and services, then the amount recouped would perhaps not benefit the DC accounts of those who first accrued benefits after the switch to the lower cost investments and services. The issue in LaRue was whether a claim could be brought under 502(a)(2) against fiduciaries if the result was more benefits for that employee rather than benefiting the plan as a whole. That has been answered. This is why I think the LaRue decision will nudge more plans towards brokerage windows and open architecture rather than back to non-directed status.

In a similar vein, would a child that was emancipated for a time (married, financially on his own) return to dependent status upon divorcing while yet young enough and moving back home with dad, upon whom he now depends for more than 1/2 of his financial sustenance?

#1. A and B are unrelated ERs, in the ERISA sense, but sharing a plan. The reason for separate testing ought to lead to the conclusion that the categorization of EEs for those separately applied tests ought to be determined separately. I think this consistency is the better argument in the absence of IRS guidance (I don't think there is any). So I'd say for 2007, John is not an HCE in B's testing. #2. For the same reasons as expressed above, I'd use John's $80,000 compensation from A in A's 2006 ADP testing and John's $70,000 compensation from B in B's 2006 ADP testing.

Nope. The PTO pay back would not qualify as a health expense, if it's a health flex account, nor a dependent care expense, if it's a day care flex account.

Thoughts, no cites. I think that it is the date of payment, not the date of request that is determinative. Date of payment would be his 'annuity starting date' though paid in a lump sum. He was dead when the payment was attempted. The death beneficiary should prevail over his estate. The widow's request for payment as the death beneficiary is likely a claim that ought to be processed as such under ERISA 503.