BTG

Assume a plan calculates the employer match on a plan year basis, but the employer funds per-pay period with a year-end true-up. Could the plan be amended to provide that, if an employee hits the 401(a)(17) limit before the end of the year, the true-up amount for the employee will be funded at that time, rather than waiting until year-end? I'm wondering if the timing of the true-up is potentially a BRF issue, given that it would be virtually all HCEs who would get the contribution early (and get the opportunity for additional earnings). Of course, there's always the potential for additional losses as well. As always, I appreciate the collective wisdom of the group.

Thanks again, Peter. I like that conclusion. I was hung up on the language at the outset of 408(h) which provides that it applies "for purposes of this section." However, there is also the last sentence that says the custodian will be treated as the trustee (which implies, at least to me, that the custodial account will be treated as a trust) "for purposes of this title," which would include 1563. I'm inclined to go with this analysis unless anyone else has other thoughts on this that they would be kind enough to share. Thank you again, Peter, for all of your help!

Thank you for the response, Peter. I had that same thought. If 1563(e)(3)(A)-(B) apply, then presumably, the ownership would be attributed to the IRA holder, at least provided that the IRA is structured as a trust account. However, what if the IRA is structured as a custodial account pursuant to 408(h)? Would that lead to a different result under 1563(e)(3)(A)-(B)? It certainly doesn't seem that it should from a policy standpoint. Again - I'm just surprised that I haven't found a more robust discussion of this topic anywhere, and I'm probably missing something.

I'm trying to determine whether stock held by an IRA is attributable to the owner for purposes of the controlled group rules. So, for example, if I own 100% of Company A, and my IRA owns 100% of Company B, am I deemed to own 100% of Company B, such that A and B are in a brother/sister controlled group? I know the answer is "yes" in the context of a qualified plan (based upon the language in 414(b) stating that 1563(e)(3)(C) doesn't apply). However, I have not been able to find a discussion of the application of these rules to IRAs anywhere. From a policy standpoint, the case for attribution would seem to be even more compelling in the IRA context, given that there's always going to be a single individual who owns the entire account. I find it hard to believe that this issue hasn't been addressed, and I assume I'm missing something obvious.

This is definitely an area where we could use some additional guidance. It comes up reasonably often, and the existing guidance is frustrating. On the one hand, the regulation C.B. Zeller cites above very clearly addresses the handling for 415 purposes and provides that the back pay is generally taken into account with respect to the year to which it relates. However, make sure to also look at the plan document's definition of plan compensation for allocation purposes. For example, many plans use W-2 comp. These back-pay amounts won't be picked up on the employees' W-2 until the year of payment. Depending upon the exact facts presented, this mismatch can lead to bizarre outcomes and can sometimes mean that the individual is not permitted any deferrals or employer contributions on the back-pay. (It gets extra fun when the back-pay award explicitly states that the employee is entitled to them.)

Paul and Lou are spot on. Just because someone opts out, doesn’t mean you get a free pass on them for testing purposes. These elections are almost always more trouble than they’re worth.

Our client maintains a DB plan. A participant was receiving a J&S payment and then died. The plan sponsor tried reaching out to the (non-spouse) beneficiary for years and never received a response. Now the beneficiary has died. Presumably the missed payments are still owed to the beneficiary's estate. However, is the sponsor required to include an interest adjustment where they made every effort to pay during the beneficiary's lifetime?

Curious how folks are handling the situation of a participant who receives back pay for prior years. Are you making corrective contributions for missed deferral opportunities and any employer contributions with respect to the back pay? Treas. Reg. § 1.415(c)-2(g)(8) provides that it is generally taken into account for the limitation year to which it relates. So for 415 (and 414(s) testing comp) purposes, it would be included for the prior year(s) to which it relates. However, back pay is reported on Form W-2 for the year of receipt. So, if a plan uses a W-2 definition of comp, it seems that the back pay would be picked up in the year of payment, even if the individual doesn’t have 415/414(s) comp to support it. It seems odd to me that the timing would differ, but I suppose not everything in the wonderful world of ERISA makes sense.

The EOB has easily been the most valuable resource over the course of my career thus far. I use it on a daily basis. I have found the electronic version of the EOB a little clunky and difficult to navigate, but once you get where you're going, the content is excellent. As an aside, am I the only one wondering what a "401(k) Split Plan" is?

Thank you both. C.B., your point is well-taken regarding the "safest approach" issue. In this particular instance, I'm trying to justify a historical situation where RMDs did not commence, so I'm just trying to establish that it was a defensible position. Given the lack of clarity/authority at this point (pending potential clarification in the final regs), I'm getting pretty comfortable that it was a reasonable, good faith interpretation of 401(a)(9)(C).

If a non-owner participant terminates employment after age 72 (or 70-1/2, as the case may be), but is later rehired within the same calendar year, are RMDs triggered? There doesn’t appear to be any guidance on this. Where the rehire occurs in a later calendar year, and RMDs have already started, there is at least informal guidance stating that they must continue. (See ERISA Outline Book and 2010 ASPPA IRS Q&As.) However, I've found nothing addressing termination and rehire in the same calendar year prior to starting RMDs.

Thank you both. The terms of the judgment award the entire benefit to the participant, and accordingly there is no QDRO. CuseFan, as you suspect, this is a situation where the participant was forced into pay status with a QJSA automatically at RBD. Based upon the believe that she was married at the time. It seem to me that the participant should be retroactively switched to a single life annuity, with the resulting underpayments corrected. To the extent that the plan offers other forms of benefit, she should be given an opportunity to make an elect such a form instead of the SLA. Again, thanks to both of you for your insight. Brian

Our client has an interesting situation: A participant whose divorce became final ON her annuity starting date. The plan administrator was aware of the pending divorce, but could not suspend payments (as it normally would under QDRO procedures) because the participant had also reached her required beginning date under the RMD rules. The administrator did not receive the final decree until a few months after the ASD/RBD, and brought the participant into pay status with a QJSA because they believed her to still be married on her ASD. Under state law, the participant was not married on her annuity starting date. My thought is that the participant should be permitted to retroactively elect a life annuity. However, I'm curious if anyone has ever seen a similar situation and how you handled it?

Lump sum windows in connection with a plan termination close as well. If the participants don't elect a lump sum during the window, they won't have the option later. They'll get an annuity contract from an insurance company.

Curious what the objection is to the use of this terminology? I see it used routinely.

Effen, this is exactly the point I'm wondering about. Can you provide any cites or authority for this? I understand the logic, but I haven't been able to put my finger on anything requiring it. Those who are currently in pay status would not be eligible for a LS and would continue to receive their monthly benefit in the elected form following transfer to the insurance company.

Sorry, I should have specified in my original post that this is in the context of plan termination so the prohibition on in-service distributions prior to age 59.5 does not apply. I am indeed talking about all actives (or the vast majority of them anyway). So, let's assume the plan does not currently provide for in-service distributions, and has a NRA of 65 and an ERA of 55 with 10 years of service. And let's say for example that I have an unmarried 60-year-old active employee who is early retirement eligible, and could terminate and elect either a life annuity or a life annuity with 10 years certain. If I offer that participant a current lump sum in connection with plan termination, 1.417(e)-1(b)(1) would say that I also have to offer him/her an immediate life annuity. What requires me to also offer the immediate life annuity with 10 years certain? If the participant does not take the lump sum (or immediate life annuity), he/she would get a deferred annuity contract that protects the life annuity with 10 years certain. Am I missing something? I appreciate the feedback!

Effen, I'm confused by your premise. Why couldn't a plan be amended to permit in-service distribution as part of a lump sum window? This is standard practice in the plan termination context.

Thanks, @CuseFando you have a cite or any authority for that, by chance? Also, to be clear, I'm not suggesting completely eliminating the other optional forms of distribution. The participant would still be eligible for them when they eventually separate. I'm wondering about the active employees who would not be eligible for a distribution at all, but for the lump sum window. I know 1.417(e)-1(b)(1) requires the QJSA, but I haven't been able to find anything that would require the other forms to be offered to such participants. Thank you!

When offering a lump sum window, I understand that a sponsor is required to also offer eligible participants an immediate annuity that satisfies the QJSA rules. However, I generally see lump sum window designs that limit the annuity options for participants who have not yet attained early retirement age to the QJSA (or QOSA), while providing the full suite of optional forms of benefits to those over early retirement age. Is that legally required (perhaps based upon the anti-cutback rules), or simply a design choice? Could all lump sum participants (who are not otherwise eligible for a distribution) be limited to the QJSA/QOSA?

Assume a tax-exempt entity, "Parent," has a for-profit subsidiary, "Sub." One of the executives of Sub is also an officer of Parent. As an officer, he would (at least typically) be considered an employee of Parent. Assuming the plan language permits it, any issue with him participating in 457(b) and 457(f) plans of Parent? Presumably, any 457(b) deferrals should be limited to his compensation received from Parent for his officer duties. Any limits to what he can get on the 457(f) side? It seems like this might have 4958 or 4960 implications.

Has anyone seen an ERISA 404(c) plan that allows participants to have their own investment advisor's fees paid out of their plan account? I have seen this, but only in the case of self-directed brokerage windows within a plan. I have a client asking if they can allow participants to obtain advice on allocating their accounts between the plan's designated investment alternatives and charge the associated advisory fee against their account. This strikes me as technically permissible, but a huge pain to administer. I've located a couple of similar message board threads which reached a similar conclusions, but they predate the service provider and participant level fee disclosure regs, which seem like they would raise some additional roadblocks. Any thoughts appreciated.

I'm sure most of us are familiar with Rev. Rul. 2019-19, which essentially says that an uncashed distribution check is still taxable and subject to reporting and withholding for the year of issuance. If the individual actually cashes the check in a later year, it is not subject to tax, reporting, or withholding in that later year. Has anyone seen guidance on how to handle reporting where the initial distribution was a direct rollover, but the participant never provided the check to the new institution? What if the participant requests a new rollover in a later year? Obviously, there are no tax or withholding implications of a direct rollover, but should another 1099-R be issued? I would think so...

Thank you both for the input. Good points and suggestions.

Assume a DB plan offers a lump sum window. Shortly after the window closes, the plan administrator is contacted by a terminated vested participant who never received the paperwork because the address on file was outdated. I would assume that the plan cannot now offer this individual a lump sum because it would conflict with the terms of the amendment that provided for the window (unless the plan is further amended). However, if the plan administrator was less than diligent in maintaining current address records for its participants, I can see how they might have some culpability here (particularly given the DOL's recent aggressive enforcement in this area). Surely, this is a fairly common occurrence. What have others seen in terms of handling?