BTG

Thank you all for the input. You have persuaded me that this may not be a service provider responsibility, but I still see no basis to place this responsibility on the shoulders of the last man standing.

Thanks. Yes, I agree that this is an abandoned plan, but given the small amounts that were in play, the participant isn't interested in paying us to help him navigate that program. (Nor should he.) I should have also mentioned in the original post that he subsequently took a distribution of his account. The service provider is still trying to get him to sign off on the final return (and I believe also some delinquent returns from previous years). At this point, I can't think of any reason he should do that.

Here's a fun one for a Friday morning. A deferred vested 401(k) participant (from a job decades ago) was recently contacted by a service provider who told him that he is responsible for filing the 5500 for the plan. The company no longer exists. He was never in plan administration or an owner of the company, but the service provider says that because all of the owners are now dead and he is the only participant left with an account balance, he is somehow responsible for signing and filing annual returns. It seems to me that that can't possibly be right, and that the responsibility for terminating the plan and filing the final returns more properly falls on the shoulders of the service provider. Any thoughts on this one?

I generally agree with the above timelines, although I will say that there seems to be a significant amount of variability. Our most recent submission took 5 months. I actually managed to turn one around in a month in mid-2019. I almost fell out of my chair when it came back that fast. Madison is right though... The vast majority of the timeline is just waiting for it to get assigned.

After I posted this, it occurred to me that the real issue in this situation is probably the 415 rules. Per Treas. Reg. § 1.415(c)-1(b)(6)(C), an employee contribution must be made no later than 30 days following the close of a limitation year in order to be treated as an annual addition for that limitation year. So, I think that is really the outside limit (not the tax return deadline).

My understanding is that the deadline for a participant to elect voluntary after-tax contributions is the due date for the employer's tax return (as opposed to traditional or Roth elective deferrals, which must still be elected by December 31 (even though they can be funded later). Can anyone point me to authority either supporting or correcting that understanding? (Note: I'm specifically asking in the context of a solo 401(k) plan for a sole proprietor.) Thanks!

It was indeed a 2021 final/short year filing. Thank you both for the feedback.

Thanks. Presumably that can't happen until the assets are actually distributed though. Any downside to having the improper final return sitting out there in the interim?

I have a situation with simple facts, but no apparent good solution. A retirement plan sponsor accidentally filed a final 5500 (showing no assets), under the mistaken belief that all assets had been distributed. In reality there were (and are) some assets in the plan. This is all very recent, so they are still within the acceptable window following plan termination to distribute the assets, but I'm not sure what to do about the incorrect filing. Is there some way to retract or unfile a final 5500? They could presumably file an amended final return, but not until all of the assets are actually distributed. (As some may have guessed, the remaining assets are nontraditional assets that may take some time to dispose of.) Has anyone else seen this situation?

QDROphile, thanks for the response. The QDRO does provide that the Alternate Payee shares proportionately in any early retirement subsidy (and the QDRO procedures contain default language on this as well). The issue is whether that early retirement subsidy has been triggered where the participant died before attaining early retirement age. You make a good point regarding the fiduciary obligation to act in the best interests of plan participants and beneficiaries. However, as a counterpoint, the fiduciaries also have an obligation to follow the terms of the document. I would argue that the document does not lead to an early retirement subsidy being payable because the participant died before early retirement age. There is a clear work-around for that in the case of a QPSA because the participant is treated as having survived until early retirement age for purposes of the calculation. However, in this totally severed approach, it is my understanding that we're not really dealing with a QPSA, but rather almost treating the AP as a completely separate participant. Any additional thoughts appreciated.

I have a client who takes a "completely severed" approach to administering separate interest QDROs, so they do not require a QPSA to be awarded to the AP. Instead, the AP just gets his/her share of the benefit regardless of whether the participant predeceases the AP. The plan also provides a rather generous early retirement subsidy. A situation has arisen (apparently for the first time) where the participant died before shortly before attaining early retirement age. (The participant would now be past ERA if still alive.) The question becomes whether the AP is entitled to an early retirement subsidy on her portion of the benefit. If this sponsor used a "standard" (rather than completely severed) approach, the QPSA would clearly include the subsidy, so it would seem fair that the benefit payable to this AP should as well. On the flip side, that result is driven by the QPSA rules, and this isn't a QPSA. Since, the participant can never trigger the subsidy, arguably none would be applicable to the AP's portion. Anyone who regularly works with this completely severed approach care to weigh in on how this is typically handled? Thanks!

Thanks Bri... I know that if you're using QNECs to fix testing (whether through EPCRS or otherwise), the plan has to provide for it. (See, e.g., Section 4.05 of Rev. Proc. 2019-19.) However, I could have sworn that the IRS has stated that you can implement the corrections for missed deferrals under EPCRS (which involve QNECs) without having to actually amend the plan for to permit QNECs. I still have yet to locate that guidance though, so perhaps I'm just mistaken.

I swear I've seen something from the IRS that states that a plan does not need to be amended to permit QNECs just to use the standard corrections for missed deferral situations that generally involve a corrective QNEC. In fact, I thought it was right in the EPCRS Rev. Proc. However, I can't seem to locate anything that confirms my recollection. Can anyone point me in the right direction (or, alternatively, discredit my memory)?

Thanks Peter. That makes sense. As an aside, I am expecting the latest edition of your 457 Answer Book to arrive tomorrow. It's a great resource.

My apologies for reviving an old thread. Peter, I have often seen separate 457(b) plans set up for each common law employer within a group of related employers. My understanding has always been that this was primarily done for creditor protection purposes, so that if one employer went belly up, its creditors could not reach assets attributable to the plans of the other related employers. In the excerpt above it sounds like you're suggesting that this is not necessary, as long as the document carefully defines which benefits are the obligation of each employer. Is that correct? Any chance you could provide some authority for that position? It seems like a reasonable interpretation of 1.457-8(b), but it would be nice to have something definitive.

Can two plans be aggregated for ACP testing, but not ADP testing? (Note: I'm using "plan" in the colloquial sense here.) I understand the the 401(m) and 401(k) components of the plan are separate "plans" under 410(b), but Treas. Reg. 1.401(m)-1(b)(4)(iii) and (v) indicate that this treatment does not apply for purposes of permissive aggregation under the ACP testing rules. I take that to mean that, if you aggregate plans for ACP purposes, you also have to aggregate them for ADP purposes. However, I have found surprisingly little discussion on this topic thus far.

Thanks! So, no inherent problem with granting additional service to former participants who will not be rehired?

Thanks David, I agree that--assuming that the granting of service is permissible--it should apply for all purposes, not just accrual. I take it you agree with Effen that this would be permissible. Any thoughts on granting the service for the folks who are never rehired?

Interesting. I appreciate the reply. I suppose I have seen plenty of plans that voluntarily credit prior service with a previous (non-controlled group) employer, and from an exclusive benefit standpoint, there would really be no difference. I'm curious exactly what you're cautioning against here... Are you just pointing out that the language has to be carefully drafted to capture the intended individuals? Or is there some inherent problem with including/excluding these folks? For example, what if a plan sponsor laid a bunch of people off in March with the intention to rehire them, but only ends up rehiring some of them... Any issue with granting each of the non-rehired individuals service through the date on which the decision is made not to rehire him or her (assuming no discrimination issues and that the plan sponsor could administer this)? Does it then become an exclusive benefit issue if we're talking about someone who is not an employee at the time of they are granted the service?

I am starting to see questions from employers who laid employees off this year due to COVID and are planning to hire them back as to whether they can voluntarily grant accrual service for the period of the lay-off. (Note: The terminology seems to vary by employer and state, but I'm talking about a situation where there was actually a termination and rehire, not an unpaid leave where the individual remained employed.) Even though the employers are trying to do a nice thing for these participants, granting service for a period of nonemployment strikes me as an exclusive benefit violation. I have to imagine that others are seeing this question as well. Thoughts?

Is anyone aware of a good discussion on whether/when an individual employment agreement will be construed as an amendment to an ERISA plan? For example, assume a retirement plan provides for 3% employer contribution, but the company signs a contract with one employee promising 5%. Or, alternatively, a retiree health plan provides that benefits can be discontinued at any time, but the company signs a contract with one employee promising to maintain those benefits for life. I have to imagine that this issue comes up relatively frequently especially at less sophisticated companies, but I have found surprisingly little guidance so far. Thanks!

Thank you very much for the response, but I've continued to look at this and I can't say that I agree with you. Section 419A(d)(1) states that "the requirements of this paragraph shall apply to the first taxable year for which a reserve is taken into account under subsection (c)(2) and to all subsequent taxable years." If the entity is tax exempt, then the deduction rules of 419 are irrelevant, and there is no UBIT under 512. Therefore, the entity would never take any additional reserve requirements into account under 419A(c)(2), and so 419A(d)(1) would never apply under the quoted language above. In addition, there would be no 4976 excise tax, because 4976(b)(1)(A) provides that there is only a disqualified benefit "if a separate account is required to be established for such employee under section 419A(d)" and that rule is not followed. Thus, I'm just not seeing where this requirement is made applicable to tax-exempt employers.

Thank you! That all makes complete sense. I was overlooking the obvious, i.e., that the plan could be terminated post-correction to create a distributable event (unless the sponsor is faced with the successor plan issues you identify above). I wonder if the IRS would approve a VCP application that requests to merge the frozen 401(k) into a new governmental 457(b) (effectively converting the frozen 401(k) to a 457(b)). I believe one of the earlier posters on this thread indicated he or she was successful in such an effort. There are obviously some differences between these plan types, but once the 401(k) is frozen, it seems to me that we're really only talking about the distribution provisions (which are substantially similar). From a policy standpoint, I think you can make a compelling argument that the distribution differences are minor, and that keeping these assets in any plan would be a preferable outcome to terminating the plan and distributing assets (which participants may or may not rollover).

Would everyone agree that, in the case of a VEBA maintained by a tax-exempt entity, 419A(d) does not require the entity to establish separate accounts for key employees? Since 419A(d)(1) states that it applies to the first taxable year for which a reserve is taken into account under 419A(c)(2), I assume that no separate accounts would be required. Obviously, these employers aren't concerned with the general deduction limitations of 419 and 419A. However, I want to make sure these amounts don't need to be taken into account for 415(c) purposes under 419A(d)(2) and that no excise tax is triggered under 4976(b)(1)(A). Thanks in advance!

Carol, I know this is an older thread, but I have a client with this exact situation and I was wondering if you could confirm that you were able to go through VCP and obtain the desired result? Also, to your last point, I'm curious what the basis would be for allowing the participants to elect a rollover to the new 457(b). Wouldn't they need a distributable event? Thanks in advance!