BTG

Thank you both for the thoughtful responses. Larry, I think the closest example from Derrin's book is the private equity firm in 13.5.18. However, I think EBECatty draws a reasonable distinction based upon whose money is being invested. My particular situation involves (on an oversimplified basis): Entity A owns 49% of Entity B. Entity B's exclusive business is to provide investment advice and manage Entity A's money. Because Entity B is essentially rendering investment services for a fee, I think I am persuaded byEBECatty's analysis that it can be distinguished from the traditional bank or the private equity firm in Derrin's material, which are using their own money to make money. On a related note, do you think such investment advisory/asset management services would constitute a "management function" under 414(m)(5)? If so, the first inquiry may be irrelevant. (Of course, we have even less guidance on 414(m)(5).)

What are everyone's thoughts on whether a company that provides investment advisory and asset management services would be a "service organization" under the ASG rules? Under the regs (which I recognize are still just proposed), while such a company would not appear to fall within any of the enumerated fields in 1.414(m)-2(f)(2) (except maybe "consulting," but I think that is a stretch), it seems to me that it would easily qualify as a "non-capital intensive organization" under the general definition in 1.414(m)-2(f)(1), according to the last sentence (i.e., the gross income of the business consists principally of fees, commissions, or other compensation for personal services performed by an individual). However, there is a specific carve out in 1.414(m)-2(f)(1) for "banks and similar institutions," which are deemed to be capital intensive. So, I guess the ultimate question is whether an investment advisory and asset management business constitutes a "bank or similar institution" within the meaning of 1.414(m)-2(f)(1)? I tend to think yes, but I could be persuaded.

For loan forgiveness purposes, the PPP requires the amounts to be used for "costs incurred or payments made" within the 8-week covered period. We obviously need more guidance on exactly what that phrase means. While I don't think the SBA is interested in splitting hairs on minor timing differences, it seems clear to me that these amounts were intended to somehow relate to the 8-week time period, and a straight cash basis accounting interpretation that would allow employers to accelerate expenses and obtain forgiveness on those amounts seems abusive. Given the limited guidance we have at this point, I think it would be very aggressive to take the position that an employer could fund the entire year's profit sharing contribution during the 8-week period and obtain loan forgiveness for those amounts. Of course, I'm assuming that most plan documents allocate discretionary profit sharing contributions according to a formula that is somehow based on the full plan year compensation. So they couldn't, for instance, declare a contribution of "x% of compensation paid during the 8-week covered period," without eventually setting a profit sharing contribution of at least x% of full plan year compensation. I do agree that plan sponsors would be wise to hold on to these funds in the hopes that more specific guidance is issued before the end of their 8-week covered period.

Thank you everyone for the responses! I agree that contributing to an unallocated account during the covered period should work, as long as the recordkeeper is willing/able to support that. To add one more wrinkle on to this situation, what are everyone's thoughts on plans that have only a discretionary profit sharing formula? Arguably, the plan has no contribution obligation until the contribution level for the year is determined by the board. However, I still think the employer should be able contribute the portion of the full year's contribution that is attributable to the covered period during the covered period, but they will need to make sure that they ultimately set the contribution level high enough to support that amount. I don't see any guidance on this, but it would seem to support the legislative intent of the PPP. Anyone disagree?

Retirement contributions are a permissible payroll cost for purposes of Paycheck Protection Program loan forgiveness under the CARES Act. However, in order to be forgiven, the expense must be "incurred" during the 8-week covered period following the loan origination. In order to be "incurred," does the contribution actually have to be made to the plan, or is it sufficient that a tentative liability is accruing during the covered period? (I suspect the former... i.e., that this is handled on cash, not accrual, basis.) Has anyone considered how this will affect plans with an "employment on the last day of the plan year" allocation condition, which would normally not be made until early in the next plan year? Except for those with very unusual plan years, these plans will have no way of knowing who is entitled to contributions by the end of the covered period. If it will be necessary for PPP employers who have plans with allocation conditions to pre-fund contributions in order for those amounts to be eligible for forgiveness, how are people seeing the mechanics of that handled? Are these amounts just being stuck in a forfeiture account or some other unallocated account?

I would politely disagree (to some extent) with some of the other posters. The waiver under CARES is structured exactly the same way as the 2009 waiver under WRERA. In the case of the 2009 waivers, a plan sponsor could elect to require RMDs to continue without regard to the waiver. The 401(a)(9) rules set an outside limit. Plans can always require distributions earlier. As a practical matter, I think this is probably an academic discussion and virtually all plan sponsors will want to allow a waiver. However, in my opinion, if a sponsor wanted to continue to force out RMDs in 2020, it theoretically could.

Agreed, Austin. I have been looking at the same issue for a number of clients, and my understanding is that regardless of the terminology used (i.e., furlough, layoff, leave of absence), it really depends on the facts and circumstances of the situation. Under 1.401(k)-1(d)(2) a severance from employment requires that the participant ceases to be an employee of the employer. So this really becomes more of a payroll issue. In my view, if this is intended to be a temporary leave , it is probably not a severance from employment. Of course, the employee could always quit (or the employer could terminate them) down the road and convert it to one.

Agree that there is nothing in SECURE that limits this to active participants (though they will be the one ones eligible to pay it back). Also agree with RatherBeGolfing... Everything I've seen on this, including some discussions with IRS/Treasury, has been pretty clear that there is no time limit on repayment. The individual just has to remain otherwise eligible to contribute. I should also mention that they have been clear that you don't have to allow the distributions, but if you do allow them, you have to allow for repayment.

Hoping to revive this topic to see if anyone was able to find a definitive answer. This issue seems to be coming up for a lot of clients lately. I think the approaches taken in this thread are well-reasoned, but it would be nice to have a definitive answer.

Thank you, this is very helpful!

Is anyone aware of a source for a complete (and current) list of the various lawsuits in the recent high-profile actuarial equivalence litigation? I believe there have now been 11 different cases filed, but want to confirm that I'm not missing any. Thanks!

I have a bit of a reverse spin on the usual "severance from employment" issue. Holding Company owns Company A and Company B. Company A sponsors a plan that covers everyone in the group. If Company A is sold in a stock deal and takes the whole plan with it, clearly Company A employees have not had a severance from employment. There is plenty of guidance on that. But what about the employees of Company B? I would think they have had a severance from employment because the plan sponsor is no longer part of the controlled group, but I haven't found anything to confirm that. I can see how it would be difficult to explain to Company B employees that they have experienced a severance from employment, even though their company wasn't the one sold. If this is indeed a severance, I assume it could be avoided by spinning off the portion of the plan that covers Company B prior to the transaction. I have been surprised that I have not found any guidance on this yet. I know this is not the typical M&A situation, but I have to imagine that it still happens fairly regularly. Thoughts? Thanks!

Thanks Belgarath. That approach had occurred to me (we use FIS for our documents). Unfortunately, this particular client uses a different document, and I was unable to locate any similar language.

Thank you all for the responses. They caused me to go back and re-examine my original premise. Upon further review, I have concluded that such third party sick payments may or may not be included in plan compensation for plans that use W-2 compensation (as well as plans that use 3401(a) withholding compensation). The answer depends upon whether the third party is acting as the employer's agent (as well as whether the employer and third party have entered into a binding agreement to shift the responsibility). There is a great discussion on this topic in IRS Publication 15-A. However, in some situations (such as where the third party is acting as the employer's agent), these third party payments are included in both 3401(a) and W-2 wages. Therefore, my question remains: How are 401(k) deferrals withheld from these third party payments and deposited in the plan? Has anyone seen this done successfully?

Taxable third party sick/disability pay (e.g., where the premiums are employer paid or are treated as such because they are made pre-tax through a cafeteria plan) would be included in a W-2 definition of plan compensation. As a practical matter, how are deferrals on these amounts handled where the amounts are paid by the third party insurer directly to the participant? Do any insurers actually withhold deferrals and forward to plan sponsors for deposit in the plan? I have seen this issue discussed on a number of threads, but I haven't found any that reached a conclusion. Thanks!

For purposes of determining whether a participant has a permissible distribution event under Code section 457(d)(1)(A)(ii) due to severance from employment with the employer, do the controlled group rules apply? In other words, must a participant terminate employment with all members of the controlled group in order to be eligible for a distribution? I would think so, since Treas. Reg. section 1.457-6(b)(1) references the regulations under Code section 401(k) (which obviously require a termination with all employers in the controlled group). Is anyone aware of more specific guidance on this point?

Thank you both. Kevin, it's not a church plan, but thanks for that thought. J, that paper provides an excellent discussion of the historical context of these rules. It appears that the universal availability requirement very clearly applied when the document was adopted. The only argument I can think of in defense of including these age and service eligibility conditions in the document is that, at the time, there was a "reasonable, good faith interpretation" standard for 403(b)(12) compliance, and perhaps we could argue that this sponsor determined (reasonably and in good faith) that 403(b)(12)(A)(ii) only applied to employees who met minimum age and service under the plan. However, something tells me that Bob Architect would not have bought that argument. In fact, there is a particularly unhelpful sentence in his paper (in the paragraph after the language you quoted), which reads "Unlike a qualified plan, there is no minimum age and service exclusion."

I have a very simple question with what seems to be a very elusive answer: When did the universal availability requirement first apply? I'm looking at an early 1990s document from a major provider that has an age 21 and one year of service requirement in order to be eligible for deferrals. I'm struggling with how that would have been permissible. Code Section 403(b)(12)(A)(ii) was certainly in effect back then.

Thank you CuseFan (and good luck to your Orange tomorrow). Would you agree then that a definition that excludes "fringe benefits" would pick up the taxable portion of GTL?

I'm working with a plan that uses W-2 Comp, but excludes (among other things) "fringe benefits (cash and noncash)." Obviously, one of the big differences between using "3401(a) wages" and "W-2 Compensation" is the value of taxable group term life. However, since GTL is a fringe benefit, would this amount be excluded under the above definition? Or is it only the tax-free portion of GTL that is treated as a "fringe benefit"? On a related note, would anyone take the position that cash in lieu of health coverage (i.e., an opt-out payment) is a fringe benefit? (It seems to me that these payments are pretty clearly W-2 comp.)

Company A acquired Company B in an asset sale in late 2018. Company B maintained a 401(k) plan that was not assumed by Company A as part of the sale. Nonetheless, following the closing date, Company A has continued to make contributions (both employer contributions and elective deferrals) to Company B's plan, which were accepted by the TPA. It seems to me that this scenario results in countless technical violations, but little (if any) harm to participants, and that the least problematic solution would be for Company A to assume sponsorship of the plan, retroactive to the date of close. I'm aware that such an approach should involve a VCP application, though I doubt the parties will be interested in the time and expense involved in such an application. Any problems with that proposed solution (aside from the risk associated with not going through VCP) that I'm missing? Alternatively, are there cleaner approaches that people have used or seen?

Carol, thank you very much for your response and the citation to your Advisory Opinion. I'm not sure I understand the policy motivation for the DOL's position (aside from just blindly following the statutory language). However, it appears that the safest course is indeed to maintain two separate plans. ERISAAPPLE, the exclusive benefit issue is an interesting point, but I think you can get around that because ERISA's exclusive purpose rule in Section 404(a)(1)(A) refers to participants and their beneficiaries (versus the Code Section 401(a) language which refers to employees and their beneficiaries). I can't say that I've ever noticed that distinction before.

I recently came across an article (here) which suggested that including independent contractors in governmental 457(b) plans could cause those plans to lose their ERISA exemption. The author contends that, while independent contractors are permitted to participate in 457 plans, the ERISA exemption applies to "governmental plans," which are defined in ERISA 3(32) as plans that cover employees. (He acknowledges that plans that cover only independent contractors would be exempt in their own right because they don't cover any employees, but indicates that the governmental employer must maintain separate plans for employees and independent contractors in order for them both to be exempt from ERISA). While I follow his logic, I can't say that I've seen any other support for (or even discussion of) this position. Does anyone else agree or disagree with his position?

Company X acquires 100% of the equity of Company Y. Company Y was previously a wholly owned subsidiary of Company Z. My understanding is that, because this is a stock deal, Company Y's employees have not experienced a severance from employment, and all service with Company Y (including pre-acquisition service) must be taken into account for eligibility and vesting purposes under Company X's plan. (Unless the GCM 39824 exception is satisfied. Let's assume it is not.) My question is: What about pre-affiliation service with other employers in the acquired company's controlled group? If a Company Y employee also previously worked for Company Z, is that service required to be counted under Company X's plan after the merger? This seems like a stretch, but I could make the argument that it should be counted. I can't seem to locate any authority addressing the issue.

jpod, if that's the case, then I assume that you would agree with me that the assertion in the article cited in my original post (i.e., that money rolled from an ERISA Plan into a governmental plan continues to be subject to the new rule in the hands of the governmental plan) is also incorrect?