Steelerfan

If the person is an independent contractor or director--1099-MISC box 7 (nonemployee compensation)

But what about Box 11? Isn't there still a reporting requirement for compliant distributions for Box 11 that existed (and continues to exist) before 409A? the way I read it is you would still report the distribution in box 11 if there were no current or prior year deferrals reported in either boxes 3 or 5. I was thinking only box 1 as between box 1 and box 12 code z.

There is no specific authority I know of but there's fine line between making the adjustment you suggest and actually changing the goals. You can't change the performance goal(s), but as long as you avoid positive discretion, you can take into consideration extraordinary events in determining the available bonus pool. The challenge is to have as little as possible discretionary authority in these matters by using GAAP and other objective standards for making the determination, and be consistent. The IRS would likely only pinch you if you did something obviously sujective like leaving it up to the committe to make the adjustment--the plan should state that the adjustment will be made, not may be made. And if that means a lower pool for execs, then so be it, they can't have it both ways in this matter

Masteff--doesnt your response conflict with what Kim Sheek wrote? If a contribution paid to the plan (and employee) in 2008 is permitted to be allocated in 2007, shouldn't it be regarded as 2007 wages, thus a W-2C for 2007? Unless I'm mistaken, Kim seems to be saying you can't split the years between different purposes.

Point well taken. It just seems too administratively unfeasable for the IRS to expect people to treat the amounts differently. Seems it would be too easy to (1) screw up and accidently include the amount in the ADP test again in 08, or (2) "forget" that in 2007 the amount should not be treated as a contribution. But that could be just that I'm not a plan administrator, it might not be a problem at all. I agree tho that more evidence is needed

[Where did your previous post go?] My responses often have that effect. Under your facts it looks like 7,500 in 2007, unless I'm missing something. I don't see how you can separate out the 401(k) from the non 401(K) rules and report the amount as wages in 2008. Wouldn't the 2007 W-2 have to relfect the amount of the deferral if it's in the plan, even if its just there for testing purposes in 07? If so, how can you report anything in 2008. I don't know anyone who does this sort of thing, but I'd be surprised if they segregated it for reporting purposes as comp in 08 (except for any portion they don't defer). But I could be off base. Your examples have me a little confused (not hard to do), especially with the deferral of severance (why would a terminating employee defer severance?)--but using a more traditional example, assuming the regulation referenced above is being relied upon, if a bonus will be paid in March 08 but there is an 07 deferral in effect for that amount, I guess you'd have to issue a W-2C for 2007. The IRS seems to be saying you can treat the amount as paid to the employee and to the plan in 2007.

I'm going to go out on a limb and say the TPA might be right (but only if the plan provides for it and the election was made in 2007) because we are talking about permissibly deferring compensation, not deductions or immediate inclusion in income. Tax law from secs. 404, 409A and the FICA regs consistently treat amounts paid within 2 1/2 months after the end of a tax year as not deferred compensation. Under section 404, in the direct compensation scenario, the individual on a cash basis of accounting has income the year he receives the bonus, not the year it was earned, and the corporation would get a deduction in the prior year (if the 2.5, etc., rule is met). But for purposes of deferral of income and those tax concepts, you could argue that the rules mean that the employee is deemed to have been paid in 2007. The IRS recognition of this in the above cited reg is evidence that this is a viable concept. However, to QDROphile's point, it would seem that the election would have had to have been made in 2007 (which does not appear to be the case in OP), so is probably too late even if the plan provided for it.

I thought that only IRA contributions could be done after end year. I always assumed that 401(k) deferrals had to be amounts that you would otherwise receive during the relevant tax year but for the election. There has to be something in the regs on this or everyone who couldn't max out in 07 would be trying to push their 08 bonuses into the plan (which i'm sure can't be done, but can't prove it at moment)

The thrust of the original question was whether under the transition rule you can accelerate payments subject to 409A to be made within a time period that would (if the plan had originally be drafted that way) now come within the STD exception. I'm saying I don't think so because it is clear from the language of the final regulations and the guidance that after 2005, you cannot "get out" of 409A, you can only make certain beneficial election changes that will go away after 08. You cannot create an SRF where there wasn't one before and you cannot amend a plan to be exempt from the 409A (as in using the short term deferral exception to avoid the 6 month rule) because you are only changing the timing of the payment; you are not changing the fact that you already have a deferral of compensation in place that cannot be abrogated. The only special exception I recall from the guidance is that you can amend a severance plan to come within the 2 year/2x rule, but this is different from the short term deferral exception (the former are amounts that would be deferred comp but for the exeption, whereas the latter is NOT deferred compensation.

In your scenario, the first payment in the 4 year installment series, if drafted to be a separate payment, would automatically be able to qualify for STD if the payments were SRF. The renegotiation would act as an election to permissiblty accelerate all payments into the STD exception, but it's more or less coincidence since you are really only changing the timing of the payment and not creating an SRF. If payments under severance plan were not already SRF, you would not be able to fit it into the STD exception, you would just be changing the timing of the payment, which is OK.

Doesn't there have to a compensatory arrangement, such as the chance to receive an increase in the value of the stock? I don't see that here.

You wouldn't be able to amend the plan to make it a STD because that would be akin to cancelling the deferral, which could only be done under transition guidance during 2005. After 2005, I don't think a plan that is subject to 409A can be removed from its purview. You can't get a payment any sooner than 2008 if you make the election before the end of 2007.

I thought you might like that. Think of it as a Christmas present!

The following is the conference report from TRA '86" Qualified Domestic Relations Orders Conference Report ****** Explanation of Provision. *** [A]n order will not fail to be a qualified domestic relations order even if the form of the benefit does not continue to be a form permitted under the plan on account of (1) a plan amendment or (2) a change of law. In the case of a plan amendment, an alternate payee remains entitled to receive benefits in the form specified in the order unless the alternate payee elects to receive benefits in another form and the election of such alternate form does not affect, in any way, the amount or form of benefits payable to the participant. In the case of a change of law, which makes the form specified in the order impermissible, the committee intends that the plan is to permit the alternate payee to select a form of benefit specified in the plan, provided the selection of an alternative form by the alternate payee does not affect, in any way, the amount or form of benefits payable to the participant. The bill makes it clear that the 18-month period during which benefits may be deferred begins with the date on which any payments would, but for the deferral, be required to commence. Accordingly, if a payment is deferred pending the resolution of a dispute, then that payment and each other payment that is deferred within the next 18 months because of the dispute are to be segregated. If the dispute is not resolved within 18 months after the first payment is deferred, then all payments deferred during the 18-month period with respect to the dispute are to be paid to the persons who would have received them if the order had not been issued. If a plan administrator determines that a domestic relations order is defective before the expiration of the 18-month suspension period, *** the plan administrator may delay payment of a participant's benefit until the expiration of the 18-month period if the plan administrator has notice that the parties are attempting to rectify any deficiences in the order. Notice of issuance of a stay during the time an appeal is pending is deemed to be notice that the parties are attempting to cure deficiencies in a domestic relations order. Further, the committee intends that a plan administrator will honor a restraining order prohibiting the disposition of a participant's benefits pending resolution of a dispute with respect to a domestic relations order. In addition, the bill eliminates the requirement that a defined benefit plan establish an escrow account for amounts that would have otherwise been paid during the 18-month period. Instead, the plan administrator is required only to account separately for such amounts. If the deficiency is not cured or the dispute not resolved within the 18-month period, all payments deferred during the 18- month period are to be paid to the persons who would have received them if the stay or order had not been issued. ****** Conference Report ****** The conference agreement adopts the provisions in the Senate amendment with regard to procedures during the 18-month period. If a plan administrator determines that a domestic relations order is defective before the expiration of the 18-month suspension period, the conference committee intends that the plan administrator may delay payment of a participant's benefit until the expiration of the 18-month period if the plan administrator has notice that either party is attempting to rectify any deficiencies in the order. Similarly, the committee intends that the plan administrator may delay payment of benefits for a reasonable period of time if the plan administrator receives notice that a domestic relations order is being sought. For example, a participant in a profit-sharing plan which is exempt from the survivor benefit rules requests a lump-sum distribution from the plan. Before the distribution is made, the plan administrator receives notice that the participant's spouse is seeking a domestic relations order. The plan administrator may delay payment of benefits. ****** Senate Explanation ****** Explanation of Provision. The bill clarifies that a qualified domestic relations order may not require that payments prior to, or subsequent to, a participant's separation from service be made in the form of a qualified joint and survivor annuity with respect to the alternate payee and his or her subsequent spouse. ****** Explanation of Provision. The bill clarifies that the qualified domestic relations provisions do not apply to any plan to which the assignment or alienation restrictions do not apply. For example, a domestic relations order relating to the division of pension benefits of a participant in a plan maintained by a governmental employer is not required to meet the rules relating to qualified domestic relations orders because the payment of benefits to a spouse or former spouse of the participant is not a prohibited assignment or alienation of the participant's benefits. Coordination of Domestic Relations Provisions with Federal Garnishment Restrictions. ****** Explanation of Provision. *** [P]ayment of benefits pursuant to a qualified domestic relations order is not treated as a garnishment of wages for purposes of Federal or state law restrictions on garnishment. Coordination with Qualified Plan Requirements ****** Explanation of Provision. *** [A] plan is not treated as failing to satisfy the qualification requirements of section 401(a) or (k) or section 409(d) of the Internal Revenue Code (prohibiting payment of benefits prior to termination of employment or such time as distributions are otherwise permitted) solely because the plan makes payment to the alternate payee, even if the payments are made with respect to a participant who has not separated from service, and they commence before the participant has attained the earliest retirement age under the plan. This exception applies, however, only if the present value of the benefit to be paid to an alternate payee (1) does not exceed $3,500 or (2) exceeds at least $3,500 and the alternate payee consents in writing to such earlier distribution. Further, the exception applies only if the distribution, if paid to the participant, would not contravene the provisions of the plan (except as permitted under section 414(p)(4)). Of course, a plan could not make distributions to an alternate payee at a time not specified in a qualified domestic relations order unless (1) the order also provided for such earlier distributions pursuant to an agreement between the plan and an alternate payee, and (2) the plan authorized such distributions. In determining whether the present value of the benefit payable to the alternate payee exceeds $3,500, the present value of the participant's accrued benefit or that of any other alternate payee (after reduction for the benefits payable to the alternate payee) is disregarded. Similarly, for purposes of determining whether the present value of a benefit payable to a participant exceeds $3,500, the present value of amounts payable to an alternate payee under a qualified domestic relations order is disregarded. *** [T]o the extent provided in a qualified domestic relations order, a spouse of a participant is not treated as a spouse. For example, a qualified domestic relations order could provide for the division of a participant's accrued benefits under a pension plan as part of a separation agreement and could further provide that the participant's spouse is not entitled to receive any survivor benefits under the usual survivor benefits provisions. Thus, the plan administrator would not be required to secure spousal consent to the participant's election to waive a survivor benefit. In addition, the bill authorizes the Secretary of the Treasury to issue such regulations as may be necessary to otherwise coordinate the Code provisions affecting qualified domestic relations orders (sections 401(a)(13)(B) and 414(p)), and the regulations issued by the Secretary of Labor thereunder with other Code provisions affecting qualified plans. The Secretary of Labor has authority to issue regulations under the qualified domestic relations order provisions of ERISA, and the Code (secs. 401(a)(13)(B) and 414(p)), and the bill does not affect the authority of the Secretary of Labor to prescribe such regulations. Earliest Retirement Age. ****** Conference Report ****** Under the conference agreement, the definition of “earliest retirement age” for purposes of the QDRO provisions in the case of a defined contribution plan or a defined benefit plan is the earlier of: (1) the earliest date benefits are payable under the plan to the participant, and (2) the later of the date the participant attains age 50 and the date on which the participant could obtain a distribution from the plan if the participant separated from service. For example, in the case of a plan which provides for payment of benefits upon separation from service (but not before then), the earliest date on which a QDRO can require payments to an alternate payee to begin is the date the participant separates from service. A QDRO could also require such a plan to begin payments to an alternate payee when the participant attains age 50, even if the participant has not then separated from service. The amount payable under a QDRO following the participant's earliest retirement age cannot exceed the amount which the participant is (or would be) entitled to receive at such time. For example, assume that a profit-sharing plan provides that a participant may withdraw some, but not all, of the participant's account balance before separation from service. A QDRO may provide for payment to an alternative payee up to the amount which the participant may withdraw. A plan may provide for payment to an alternate payee prior to the earliest retirement age as defined under the conference agreement.

The following is the text of the committe reports for QDROs. It may not have what you're looking for, but it's interesting. Domestic relations orders. ('84 Retirement Equity Act, , PL 98-397, 8/23/84) Senate Explanation Present Law. Generally, under present law, benefits under a pension, profit-sharing, or stock bonus plan (pension plan) are subject to prohibitions against assignment or alienation (spendthrift provisions). Under present law, 1 certain provisions of ERISA supersede (preempt) state laws relating to pension, etc., plans. A plan that does not include these required spendthrift provisions is not a qualified plan under the Code, and state law permitting such an assignment or alienation is generally preempted by ERISA. -------------------------------------------------------------------------------- 1 Sec. 514 of ERISA. Several cases have arisen in which courts have been required to determine whether the ERISA preemption and spendthrift provisions apply to family support obligations ( e.g., alimony, separate maintenance, and child support obligations). In some of these cases, the courts have held that ERISA was not intended to preempt state domestic relations law permitting the attachment of vested benefits for the purpose of meeting these obligations. 2 Some courts have held that the ERISA preemption provision does not prevent application of state law permitting attachment of nonvested benefits for the purpose of meeting family support obligations. 3 There is a divergence of opinion among the courts as to whether ERISA preempts state community property laws insofar as they relate to the rights of a married couple to benefits under a pension, etc., plan. 4 -------------------------------------------------------------------------------- 2 See, e.g., American Telephone and Telegraph Co. v. Merry (1979, CA2) 592 F2d 118 American Telephone and Telegraph Co. v. Merry (1979, CA2) 592 F2d 118, Cody v. Riecker (1979, CA2) 594 F2d 314 Cody v. Riecker (1979, CA2) 594 F2d 314 . -------------------------------------------------------------------------------- 3 See, e.g., Weir v. Weir (1980) 415 A.2d 638 Weir v. Weir (1980) 415 A.2d 638Kikkert v. Kikkert (1981) 177 NJ Super 471 Kikkert v. Kikkert (1981) 177 NJ Super 471. -------------------------------------------------------------------------------- 4 In Stone v. Stone (1980, CA9) 632 F2d 740 Stone v. Stone (1980, CA9) 632 F2d 740, the court held that ERISA was not intended to preempt community property laws and that a court order requiring a division of retirement benefits did not violate the anti-assignment provisions. In Francis v. United Technology Corp. (1978, DC CA) 458 F Supp 84 Francis v. United Technology Corp. (1978, DC CA) 458 F Supp 84, however, the court held that ERISA's preemption provision prevents the application of State community property law permitting attachments of plan benefits for family support purposes. The IRS has ruled that the spendthrift provisions are not violated when a plan trustee complies with a court order requiring the distribution of benefits of a participant in pay status to the participant's spouse or children in order to meet the participant's alimony or child support obligations. 5 The IRS has not taken any position with respect to this issue in cases in which the participant's benefits are not in pay status. -------------------------------------------------------------------------------- 5 Rev Rul 80-271980-1 CB 85 . Reasons for Change. The committee believes that the spendthrift rules should be clarified by creating a limited exception that permits benefits under a pension, etc., plan to be divided under certain circumstances. In order to provide rational rules for plan administrators, the committee believes it is necessary to establish guidelines for determining whether the exception to the spendthrift rules applies. In addition, the committee believes that conforming changes to the ERISA preemption provision are necessary to ensure that only those orders that are excepted from the spendthrift provisions are not preempted by ERISA. Explanation of Provision. In general The bill clarifies the spendthrift provisions by providing new rules for the treatment of certain domestic relations orders. In addition, the bill creates an exception to the ERISA preemption provision with respect to these orders. The bill also provides procedures to be followed by a plan administrator (including the Pension Benefit Guaranty Corporation (PBGC)) and an alternate payee (a child, spouse, former spouse, or other dependent of a participant) with respect to domestic relations orders. Under the bill, if a domestic relations order requires the distribution of all or a part of a participant's benefits under a qualified plan to an alternate payee, then the creation, recognition, or assignment of the alternate payee's right to the benefits is not considered an assignment or alienation of benefits under the plan if and only if the order is a qualified domestic relations order. Because rights created, recognized, or assigned by a qualified domestic relations order, and benefit payments pursuant to such an order, are specifically permitted under the bill, state law providing for these rights and payments under a qualified domestic relations order will continue to be exempt from Federal preemption under ERISA. Qualified domestic relations order Under the bill, the term “qualified domestic relations order” means a domestic relations order that (1) creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a pension plan, and (2) meets certain other requirements. A domestic relations order is any judgment, decree, or order (including approval of a property settlement agreement) that relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of the participant, and is made pursuant to a state domestic relations law (including community property law). Under the bill, an alternate payee includes any spouse, former spouse, child, or other dependent of a participant who is recognized by a qualified domestic relations order as having a right to receive all, or a portion of, the benefits payable under a plan with respect to the participant. To be a qualified order, a domestic relations order must clearly specify (1) the name and last known mailing address (if available) of the participant and the name and mailing address of each alternate payee to which the order relates, (2) the amount or percentage of the participant's benefits to be paid to an alternate payee or the manner in which the amount is to be determined, and (3) the number of payments or period for which payments are required. The committee intends that an order will not be treated as failing to be a qualified order merely because the order does not specify the current mailing address of the participant and alternate payee if the plan administrator has reason to know that address independently of the order. For example, if the plan administrator is aware that the alternate payee is also a participant under the plan and the plan records include a current address for each participant, the plan administrator may not treat the order as failing to qualify. The committee intends that an order that is qualified is to remain qualified with respect to a successor plan of the same employer or a plan of a successor employer (within the meaning of sec. 414(a)). A domestic relations order is not a qualified order if it (1) requires a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan, (2) requires the plan to provide increased benefits, or (3) requires payment of benefits to an alternate payee that are required to be paid to another alternate payee under a previously existing qualified domestic relations order. An order does not require a plan to provide increased benefits if the order does not provide for the payment of benefits in excess of the benefits to which the participant would be entitled in the absence of the order. The bill provides that a domestic relations order is not treated as failing the requirements for a qualified domestic relations order merely because the order provides that payments must begin to the alternate payee on or after the date on which the participant attains the earliest retirement age under the plan whether or not the participant actually retires on the date. If the participant dies before that date, the alternate payee is entitled to benefits only if the qualified domestic relations order requires survivor benefits to be paid. In the case of an order providing for the payment of benefits after the earliest retirement age, the payments to the alternate payee at that time are computed as if the participant had retired on the date on which benefit payments commence under the order. When payments are made to an alternate payee before the participant retires, the payments are computed by taking into account only benefits actually accrued and not taking into account any employer subsidy for early retirement. The amount to be paid to the alternate payee is to be calculated by using the participant's normal retirement benefit accrued as of the date payout begins and by actuarially reducing such benefit based on the interest rate specified in the plan or 5 percent, if the plan does not specify an interest rate. A plan providing only normal and subsidized early retirement benefits would not specify a rate for determining actuarially equivalent, unsubsidized benefits. If an alternate payee begins to receive benefits under the order and the participant subsequently retires with subsidized early retirement benefits, the order may specify that the amount payable to the alternate payee is to be recalculated so that the alternate payee also receives a share of the subsidized benefit to which the participant is entitled. The payment of early retirement benefits with respect to a participant who has not yet retired or the increase in benefits payable to the alternate payee after the recalculation is not to be considered to violate the prohibition against a qualified domestic relations order providing for increased benefits. The payments to the alternate payee after the earliest retirement date may be paid in any form permitted under the plan (other than a joint and survivor annuity with respect to the alternate payee and the alternate payee's spouse). In the case of a defined contribution plan, the earliest retirement date is the date on which the participant attains an age that is 10 years before the normal retirement age. Under the bill, a plan is not treated as failing to satisfy the requirements of section 401(a), 409(d), or 401(k) of the Internal Revenue Code that prohibit payment of benefits prior to termination of employment solely because the plan makes payments to the alternate payee in accordance with a qualified domestic relations order. Under the bill, an alternate payee is treated as a beneficiary for all purposes under the plan. In no event, however, will more than one PBGC premium be collected with respect to the participant's benefits (determined as if a qualified domestic relations order had not been issued) even though such benefits, subject to the usual limits, may be guaranteed by the PBGC. Determination by plan administrator Under the bill, the administrator of a plan that receives a domestic relations order is required to notify promptly the participant and any other alternate payee of receipt of the order and the plan's procedures for determining whether the order is qualified. In addition, within a reasonable period after receipt of the order, the plan administrator is to determine whether the order is qualified and notify the participant and alternate payee of the determination. The notices required under these rules are to be sent to the addresses specified in the order or, if the order fails to specify an address, to the last address of the participant or alternate payee known to the plan administrator. The bill authorizes the Secretary of Labor to prescribe regulations defining the reasonable period during which the plan administrator is to determine whether an order is qualified. In addition, the bill provides that plans are to establish reasonable procedures to determine whether domestic relations orders are qualified and to administer distributions under qualified orders. Ordinarily, a plan need not be amended to implement the domestic relations provisions of the bill. Deferral of benefit payments During any period in which the issue of whether a domestic relations order is a qualified order is being determined (by the plan administrator, by a court of competent jurisdiction, or otherwise), the plan administrator is to defer the payment of any benefits in dispute. These deferred benefits are segregated either in a separate account in the plan or in an escrow account. In the case of a defined benefit plan, the amounts are to be placed in an escrow account. Of course, segregation is not required for amounts that would not otherwise be paid during the period of the dispute. If the order is determined to be a qualified domestic relations order within 18 months after the deferral of benefits, the plan administrator is to pay the segregated amounts (plus interest) to the persons entitled to receive them. If the plan administrator determines that the order is not a qualified order or, after the 18-month period has expired, has not resolved the issue of whether the order is qualified, the segregated amounts are paid to the person or persons who would have received the amounts if the order had not been issued. Any determination that an order is qualified after expiration of the 18-month period is to be applied prospectively. Thus, if the plan administrator determines that the order is qualified after the 18-month period, the plan is not liable for payments to the alternate payee for the period before the order is determined to be qualified. Of course, the provisions of the bill do not affect any cause of action that an alternate payee may have against the participant. For example, if an order is determined to be qualified after the 18-month period, the alternate payee may have a cause of action under state law against the participant for amounts paid to the participant that should have been paid to the alternate payee. During any period in which the alternate payee cannot be located, the plan is not permitted to provide for the forfeiture of the amounts that would have been paid unless the plan provides for full reinstatement when the alternate payee is located. Consultation with the Secretary of the Treasury Under the bill, the Secretary of Labor is required to consult with the Secretary of the Treasury in prescribing regulations under these provisions. Tax treatment of divorce distributions The bill provides rules for determining the tax treatment of benefits subject to a qualified domestic relations order. Under the bill, for purposes of determining the taxability of benefits, the alternate payee is treated as a distributee with respect to payments received from or under a plan. Under the bill, net employee contributions (together with other amounts treated as the participant's investment in the contract) are apportioned between the participant and the alternate payee under regulations prescribed by the Secretary of the Treasury. The apportionment is to be made pro rata, on the basis of the present value of all benefits of the participant under the plan and the present value of all benefits of the alternate payee under the plan (as alternate payee with respect to the participant under a qualified domestic relations order). Payments to an alternate payee before the participant attains age 591/2 are not subject to the 10-percent additional income tax that would otherwise apply under certain circumstances if the participant received the amounts. The bill provides that the interest of the alternate payee is not taken into account in determining whether a distribution to the participant is a lump sum distribution. Under the bill, benefits distributed to an alternate payee under a qualified domestic relations order can be rolled over, tax-free, to an individual retirement account or to an individual retirement annuity. The usual income tax rules apply to benefits not rolled over. The special rules for lump sum distributions from qualified plans will not apply to benefits distributed to an alternate payee. Effective Dates. The provisions of the bill relating to assignments in divorce, etc., proceedings generally apply on January 1, 1985. If a domestic relations order was received by a plan before the date of enactment, however, the plan the administrator is to treat the order as a qualified domestic relations order to the extent payments are being made pursuant to the order. In addition, the plan administrator may treat any other order entered before the effective date as a qualified order. The committee encourages plan administrators to treat an existing order as qualified to the extent it is consistent with the provisions of the bill. Of course, if the plan administrator does not treat an order as qualified, the alternate payee may amend the order to satisfy the requirements for a qualified order.

What you want to read is the legislative history (committee) reports on the REA. I'm not sure where to get these for free, thomas.gov only goes back to 1995.

I always thought ERISA generally only applied to employees of employers as determined by the common law test. I'd think you have nothing to worry about unless the govermment has an argument to reclassify the consultant as an employee.

I would think you'd be ok if, prior to 2008, you revise the employment agreement to comply with 409A. I don't see where there is any operational violation, unless you're allowing him to defer an amount in violation of 409A, such as an amount of salary that would otherwise be paid in 2007. Depending on the circumstances, you need to figure out which initial deferral election rules apply i.e. salary deferral, new participant salary deferral or nonelective, plus decide how the amount will be paid. E.g. if this is a nonelective amount, then you can defer and set the time and form of payment at the time the LBR ocurrs, which would normally be when the agreement is executed.

I think the transition rules allow linked plans to stay linked only through 12/31/07. After that the distribution provisions must be delinked. That's what we have done with our excess plan.

But if you have to fill up the 401(k) first, wouldn't you use the gross? Also 1.415©-2©(1) excludes employer contributions to NQDC plans from compensation, not salary deferrals. I would think you'd use the gross salary and thus disregard NQDC salary deferrals.

Does anyone know how this new requirement must be reported? The regulation doesn't provide detail as to the form of the information return required. Am I missing something or did they actually issue temp regs that say absolutely nothing?

In order for the participants who took distributions in 2007 to have avoided 409A violations, they should have executed election changes in 2006 for different timing/form of payment in accordance with transition rules. Absent that, I don't see how there isn't a 409A violation. For the participants who have not taken distributions, they should be given a chance prior to the end of 2007 to make any changes within the confines of current transition rules, otherwise they will have to live with the terms of the plan as written. One has to wonder what the point of the plan documensts was if noone was going to bother following the terms?

Not good. The condition is controlled by employee and unrelated to the performance of services for the employer.

The situation SRP is talking about is in Reg § 1.401(a)-13(e)(1): An arrangement in which a participant or beneficiary directs the plan to pay all, or any portion, of a plan benefit payment to a third party (including the participant's employer), will not be an “assignment or alienation” if it is revocable at any time by the participant or beneficiary, and the third party files a written acknowledgment with the plan administrator. This acknowledgment must state that the third party has no enforceable right in, or to, any plan benefit payment or portion of any plan benefit payment (except to the extent of payments actually received under the terms of the arrangement). There is no way to garnish the account or force the participant to make the assignment. The idea of delaying distribution I guess would be to buy time to get the judgement before the participant has time to move or spend the money. I wonder if the IRS would approve language allowing a delay pending the outcome of litigation.

Where is the logic in reaching the conclusion that an individual account is not "the plan"? Where in the statute does it say that a loss to the plan means the whole plan or more than one participant and not one account under the plan? Nowhere, that's why the Supremes took the case, and there is no analogous case. What if a plan fiduciary mishandled one particular asset, such as failing to remove a particular mutual fund as an investment option after being instructed by the employer to do so, and only one participant was negatively affected? That may be a little far fetched, but it is possible. Would you then say that that participant had no remedy under 502(a)(2) because no one else was affected?