david rigby

It might be useful to note that several sections of ERISA Title 2 (i.e., the portion of ERISA that amends the Internal Revenue Code) contain subsections that describe exemptions. For example, IRC 410 (Minimum Participation Standards) includes subsection (c): (c) Application of participation standards to certain plans (1) The provisions of this section (other than paragraph (2) of this subsection) shall not apply to- (A) a governmental plan (within the meaning of section 414(d)), (B) a church plan (within the meaning of section 414(e)) with respect to which the election provided by subsection (d) of this section has not been made, (C) a plan which has not at any time after September 2, 1974, provided for employer contributions, and (D) a plan established and maintained by a society, order, or association described in section 501(c)(8) or (9) if no part of the contributions to or under such plan are made by employers of participants in such plan. (2) A plan described in paragraph (1) shall be treated as meeting the requirements of this section for purposes of section 401(a), except that in the case of a plan described in subparagraph (B), (C), or (D) of paragraph (1), this paragraph shall apply only if such plan meets the requirements of section 401(a)(3) (as in effect on September 1, 1974). Note: (c)(1)(A) includes a cross-reference to IRC 414 for definition, and (c)(2) above specifies that the exemption in paragraph (1) applies only if the plan meets the legal requirements in effect on the day before ERISA was effective. The plan sponsor should discuss this issue with an ERISA attorney.

In my 40+ years, I've probably seen one or two plans that permit non-consecutive years in the FAC definition. Sorry, don't remember any of the details. Is it allowed? Of course. Is it wise? Probably yes for an owner-only plan. Caution don't forget about the 415 definition(s).

I agree with @Effen and @CuseFan. I know of no reason why ANY "audit" would affect the timing of a legitimate payment. Hunch 1: the person you talked with had no idea why it was delayed and decided to throw out the word "audit" as a means of getting you to shut up/go away. You are entitled to a better (i.e., correct) explanation. Hunch 2: there may be a staffing reason, such that somebody is working on the Form 5500 and (therefore) cannot spend the time to process the payment; if so, this is a terrible reason for intentionally delaying a payment. Also @Effen's comment about adjustment for any delayed payment date (for whatever reason) is exactly correct.

Because January 1 is a "special date". Since it is usually a holiday, almost no one starts a new job on that date, in which case, many Employers will interpret their document: an employee hired on 01/02/yy will enter on 01/01/yy+1. (It happened to me once.) This policy might not apply to any other dates. Accordingly, I suggest trying other dates for your analysis.

I agree that the phrase in boldface above as presented by @Peter Gulia might lead to the conclusion that the rollover described in the original post IS as "related rollover". However, the original 416 regs date to 1984, with some later amendments; I observe that the QDRO universe has evolved significantly since then. Is it possible to conclude that the 416 statute and reg did not imagine the situation at hand? I say Yes. The spouse receiving the QDRO award had the choice (OK, I'm assuming) to take a rollover to his/her IRA or a transfer/rollover to his/her 401k account. IMHO, the TH treatment should NOT differ for these two choices. BTW, I checked the Gray Book; nothing on point. Maybe some of our attorney contributors could check prior IRS/ABA Q&As?

Seems like a good idea to have it all in writing.

Hunch: this question may have been addressed previously. Try using the Search feature. Maybe search words "related rollover" and "QDRO", but don't restrict your search to only this forum.

Geez, why make it complicated? Think of BOTH as a minimum allocation as: one-seventh, one-sixth, one-fifth, one-fourth, etc.

Here's an idea: since the "higher powers" don't know the rules and (implied above) don't believe what has been presented here, they should hire @Carol V. Calhoun to provide them some legal advice.

I use this one: https://www.irs.gov/privacy-disclosure/tax-code-regulations-and-official-guidance By the way, although this is an IRS site, other information is also available (eg, the Department of Labor is under Title 29, etc.) If I "misplace" that bookmark, I'll go to the Cornell Law School reference: https://www.law.cornell.edu/

Another point: Statement in the original post that the 403b plan "was informed that the ... RMD ... was not distributed". Who did the informing? If someone knew it was not distributed, why didn't it get done? This may seem trivial, but it goes to the very serious question of both competency and thoroughness of someone in the administrative chain, perhaps multiple someone's.

As usual, @Peter Gulia is thorough. The big picture way to think about this is (first link above), the beginning of IRC section 3121(a) says: That is, the portion of the statute that follows is a list of exceptions or "carve-outs". For example, subsection 5 includes the carve-outs of various retirement plans. No non-qualified plan is in that list, so we must conclude that it is not excluded from "wages".

I see two operational failures (at least as described in the original post): The second sentence states that "company X" directs the "cashout". I hope it is the Plan terms that do the directing. (Possibly this is not a real problem, other than poor phrasing. Just being cautious, maybe it's worthwhile to read the relevant plan provisions for verification.) The distribution appears to be 100% of the account. This implies the participant was never offered an opportunity to do a rollover. As @CuseFan states, this might be OK if the check was issued as a "rollover check".

Merely to act as a valid cross-reference, this discussion in a different forum is QDRO-related.

Why? What is your relationship to the plan? To the parties? Do you know whether the divorcing parties expect to include any particular assets (in this case, the 401k accounts) in their asset division? Even if you do know, is it any of your concern? Is it possible the parties will find ways to simplify asset division by ignoring some? Is it possible both accounts are small enough so as to be trivial? (BTW, these questions might be inter-related.) I'm not really asking you for answers, just pointing out that the plan (and its administrators) should stay out of the legal proceeding. It seems likely the QDRO procedures direct you to act on a (draft) DRO only if you get one. Alternatively, if your QDRO procedures direct you (or someone) to speak up (or take any specific action) whenever you hear about a potential divorce of a plan participant, then you should quickly engage an ERISA attorney to help you correct that.

@Paul I is correct. However, it's worth noting that the original post said nothing about buyer or seller or multiple plan sponsors, only about a merger of one plan into another plan. Careful consulting practices will help plan sponsors understand the difference as well as how to anticipate (and properly execute) such transactions.

I think the location of the assets is 100% irrelevant.

I'm unsure of the answer, but it bugs the crap out of me. (OK, that's not the technical terminology.) My response is, if you want to do this for someone who will (later) be a HCE, why wouldn't you do the same thing for any new hire? Why not treat everyone the same, but (maybe) change the eligibility to something more generous (such as first calendar quarter following DOH)?

Just an opinion: changing anything on Exhibit A is a plan amendment. Thus, something must be signed (board resolution, plan amendment, probably both).

How will they handle transferring employees?

Maybe it's just me. It seems more likely that the number of NHCEs during the audited year(s), including whatever benefit they earned and/or vested, will be the more important concern.

Well, assuming the plan uses "January 1" as a defined Entry Date. However, it might use "December 31". Verify.

Thankfully, I'll never have to do this again: About 25 years ago, I spent a full day with a bankruptcy attorney, educating him about ERISA matters for our common client in bankruptcy. Maybe the legal world is different now. If the bankruptcy attorney does not have ERISA experience, don't be shy about suggesting that someone (not you) should engage the necessary legal assistance. Of course, as pointed out by @EBP, there is no mention (yet) of a formal bankruptcy filing.

Non-lawyer opinion: Likely, any answer to the original question that is posted here will be inadequate and/or a guess. The plan sponsor needs its own advice from its own ERISA counsel, who will (presumably) inspect the relevant documents and interview the relevant persons.

Just a hunch: this plan sponsor should probably want its legal counsel and auditor to review the situation.