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As I was looking into this issue, I came across the DOL regulations at 2580.412-31 and -32. However, these provisions appear to limit the exemption from bonding to the insurance companies providing the plans to other employers and do not specifically exempt the employers themselves. Has anyone sought to apply these regulatory exemptions to the employers adopting such plans?

My client is a 501(c)(3) organization that maintains an ERISA 403(b) plan. It has never filed Forms 5500 and has never purchased a fidelity bond, as required by ERISA Section 412. I will be filing the client's 5500s under the Delinqauent Filer Voluntary Correction program. However, I am reluctant to go further until it corrects for the failiure to have an ERISA bond. I asked the client to obtain a quolte for an ERISA bond retroactive to January 1, 2009, but they were told that the bond could only made effective on a prospective basis. What do I do about 2009 - 2016, when no bond was in place?

Individual A purchased a long-term care insurance contract from Insurance Company X in the 1990s. X is currently in liquidation proceedings. X is offering its long-term care insurance policyholders three options: (1) retain the same benefits at a substantially higher monthly premium; (2) continue with a policy providing for reduced benefits at a slightly higher premium; or (3) surrender the policy and receive cash in a single sum. The amount of the lump sum payment greatly exceeds the total amount of premiums that A has paid on the contract. Assume that A elects option (3) and receives cash. What are the tax consequences of the cash to A?

A client sponsors a 403(b) plan for its employees. However, there are no HCEs who are eligible to participate in it. Does the plan still have to satisfy the universal availability requirement?

Client X is a 501(c)(3) organization that maintains a 403(b) plan for the benefit of its employees. Up to now, the plan merely provided for a discretionary nonelective employer contribution. X wants to amend the Plan to allow employees to make elective deferrals and receive matching contributions with respect to the deferrals. A copy of the plan document has been requested from X. In the meantime, the Summary Plan Description already provides for elective deferrals and the SPD is given out to the participants. Assuming that the plan document does not provide elective deferrals, is there an operational violation because the SPD provides for elective deferrals, even though none have been made and even though all employees have been told that there are no deferrals under the plan?

Company X maintains a defined benefit plan with a traditional formula based on final average compensation. Participant A has completed 32 years of service with X and is within months of reaching age 65, the plan's normal retirement age. Can A file a disclaimer with the Company X plan administrator and therefore give up his/her right to receive benefits under the Plan? Is the disclaimer rule available only to beneficiaries and not to participants? Why or why not?

Mr. Bagwell, I am assuming that the account is not a forfeiture account but simply a non-allocated account. The name given should not matter at the end of the day. Another possible name is a suspense account. Regardless of what you call it, the IRS basically requires almost all dollars in a defined contribution plan to be allocated among all participants as of the end of each plan year. In order to take less than fully vested matching contributions out of the non-allocated or suspense account and treat them as qualified nonelective contributions, the plan document would need to be amended to provide that a contribution must be nonforfeitable at the time it is allocated to a participant's account NOT at the time the contribution is initially made. If the plan is amended in this manner, and based on the IRS proposed regulations, such an amendment could be given retroactive effect, you could take amounts out of the non-allocated or suspense account and allocate it as a qualified nonelective contribution to the accounts of certain non-highly compensated participants.

One of my clients is having their 401(k) plan audited by the IRS. We are close to concluding Audit CAP with a certain operation error that was discovered during the audit and the agent has asked us to extend the limitations period. I arranged to have the necessary forms (Forms 56 and 872-H) signed by the client and sent to the IRS. The agent has gotten back and says that they want an extension for the next succeeding year, which we are inclined to grant them. The only problem is that I cannot locate a link to the Form 872-H on the IRS website or on any of the Google searches I have run. Could someone please help by providing a link to the form. The version that was signed for the earlier year was last updated in April 2012.

Thanks, 'Cuse!

I received an interesting question on whether state mandated short-term disability benefit payments should offset a qualified plan's definition of compensation. My gut feeling is that since most compensation for such purposes is driven by employer-provided payments via its payroll system, and such amounts are or are not subject to federal income tax withholding, that the state mandated disability benefit payment should not even enter into the compensation definition in any way and therefore, should not offset the employee's other compensation which is taken into account for qualified plan purposes. I know that the mandated benefit is taxable to the employee to the extent that the employer paid the premiums for the benefit. However, this should not affect my conclusion on whether such payments should offset the employee's compensation for qualified plan purposes, or am I missing something?

THE first, foremost and most important question is: what does the Plan say? That will control the "RIGHT" answer all the time. In all likelihood, I would suspect that $50,000 would be the right answer, but check the Plan document first.

I am preparing a determination letter request for a defined benefit plan restatement under the third (and last round) of Cycle A. The IRS website on Employee Plans states that such plans that have risk transfer language need to disclose such language, the location of the language in the Plan document and certain other information. In this case, the client adopted a lump sum window in 2016 for term vesteds only, so that the Notice 2015-49 restriction and arguably the need to make a specific disclosure in the dl submission would not be required. I am still inclined to do the disclosure only in hopes of getting a favorable caveat on the point in the ultimate determination letter. What are other folks doing for these types of windows?

AdKu, it would help to know whether Owners 1, 2 and 3 are related in any way. Under the IRS regulations, depending on the relationship, the interests of certain related parties may be disregarded which would have the effect of increasing the percentage owned by Owner 1 and could cross the controlled group threshold. If 2 and/or 3 are the children of Owner 1, then I would need to know their ages.

If the pension fund was using the deferrals from 2010 to cover certain past payrolls, then the trustee(s) or whoever is running the financial end of the fund is committing a fiduciary breach. Either the pension fund, the trustee or whoever directed the money to be applied in the manner in which it was applied have to make up for the error. They would need to deposit the funds with earnings to the affected employees' accounts (even if there is not currently any for one or more employees). I am assuming that "we" is the employer. There is a risk that the delayed discovery of this by the employer could result in co-fiduciary liability to the employees because the employer has effectively enabled the person(s) in question to commit the fiduciary breach. You should investigate to see if the Labor Department's Voluntary Fiduciary Correction program is available to correct this error and how it coordinates with EPCRS on the IRS side. As to how to approach this, contact the persons involved and tell them that they have committed a fiduciary breach and have to rectify it. If they don't, the employer is in a difficult position because if it sues the persons in question, they will likely defend by citing the co-fiduciary liability provisions of ERISA. If you report it to the DOL, there is also a risk that they could look to require the employer to pony up a part of the liability, particularly if the persons in question have limited assets or are otherwise insolvent. Obviously, if the missed amounts and earnings do not add up to a lot of money, then you can posture this more aggressively. The worst possible scenario is if the employees in question sue and they have wind of what has happened. Good luck.

Alternatively, the Plan could define eligibility for a disability retirement benefit by reference to eligibility to long-term disability coverage under the employer's long-term disability plan.

Thank you for your response, Kevin C. I was also of the view that the plan would not remain a safe harbor plan in the year of the spinoff. Did you want to provide a response to my initial question of whether the spinoff could be done? If you respond, I will provide you with my thoughts on this issue.

In addition to the above questions is the question of whether the remaining employers in the safe harbor 401(k) plan can still utilize the safe harbor, both in the plan year in which the spinoff occurs and going forward.

Thank you for your response. What if the employer decided not to change anything in its safe harbor 401(k) plan but it instead wants to take the account balances of the employees in the subsidiary and spin them off to a newly established 401(k) plan that will be subject to ADP/ACP testing? Assuming that the plan passes coverage and the ADP/ACP tests are satisfied, would this be a permissible alternative? If this approach is taken, do the rules on the mid-year changes and the timing of supplemental notices applicable to safe harbor plans in general apply for this purpose?

Company X maintains a safe harbor 401(k) plan in which the matching contribution is structure to satisfy the safe harbor of Code Section 401(k)(12) (i.e., 100% match on elective deferrals up to 3% of compensation and 50% match on elective deferrals greater than 3% but not in excess of 5% of compensation). Employer X wants to amend the safe harbor 401(k) plan to allow for suspension of the safe harbor match by one or more subsidiaries or divisions. While it is clear that, subject to complying with the rules set forth in the regulations including the content and timing of the notice requirement and any supplemental notice requirement as applied to all participants, can the employer limit the suspension to one subsidiary and not lose safe harbor status?

HATFA section 2003©(1) amended Section 436(d)(2) of the Code to provide that if an employer sponsoring a defined benefit plan is in bankruptcy, no prohibited payment may be made unless the plan's actuary certifies that the AFTAP of the Plan is not less than 100%. For this purpose, the determination is to be made without regard to the amendment to extend the minimum and maximum percentages of the segment rate to 90% and 110% from merely 2012 to 2012 through and including 2017 (a subsequent amendment extended the application of such percentages through to 2020). In working on a sale of the employer, the lawyer for the buyer suggested that the plan has to be amended prior to closing to provide for such an amendment. The proposed amendment seems to be merely parroting the statutory change made by HATFA and not adding anything to facilitate the implementation of such change. I looked further into this. While IRS Notice 2015-84, which contains the 2015 cumulative list, references certain changes to Code Section 436, there is no direct reference in the Cumulative List to the HATFA changes, other than a cross-reference to a 2014 notice dealing with the HATFA changes. Since the proposed amendment appears to be merely parroting the statutory change, I would conclude that such an amendment would not be required since it would already apply by statutory operation. Any thoughts either way on this?

Company X has entered into a contract with Provider Y to provide recordkeeping services with respect to its 401(k) plan. For years, it has arranged for revenue sharing through investments in mutual funds not affiliated with Y which provide a rebate of a specified number of basis points. To continue with the trend of DC plans to shun revenue sharing arrangements, X would like to determine Y's fees on some basis other than revenue sharing. Some obvious ones that come to mind are a flat dollar fee per participant, a flat dollar fee per transaction (e.g., a loan) and a set amount per hour in connection with the performance of other services. Does anyone have any other alternative methods of arriving at fees that they have seen or encountered? Thanks.

Company X is a corporation organized and operating in the US. It maintains a number of subs in the US and abroad, including one in Chile. P is a US citizen and is working in Chile (having been transferred there by X). X has a self-insured medical plan. Assuming that P will be retained on the Chilean payroll, how can X arrange to cover P under its medical plan?

Company X, a US Company, maintains its headquarters and the bulk of its employees in the US. It has a Chilean sub to which a number of US citizen employees have been assigned. What are X's options for covering these employees in the US benefit plans (viz., 401(k) and medical plan)?

Does anyone have a tool that can make an easier calculation of the maximum payment amount for purposes of Audit CAP. We have been asked to prepare a position paper and propose a base amount to enter into negotiations with the IRS over the fee amount. Does anyone have an app or tool that simplifies the calculation of the maximum payment amount? I would be most appreciative if you could either share a sample or provide me a link to access it.

I am representing a client going through Audit CAP. Of course, the 800-pound gorilla in the room is the Maximum Payment Amount and how to calculate it. The IRS agent is asking us to prepare a position paper which sets out a recommendation of the audit CAP sanction amount, which would be a starting point in the negotiation. Two things: (1) Does anyone have access to a simple tool to calculate the Maximum Payment Amount that they could with post or provide the web address for? (2) Can anyone provide a CAP position paper (feel free to redact whatever information or details you consider necessary)? Either or both of these would be MOST helpful.