rocknrolls2

However, building on MoJo's points, if the plans merged, there is no more Company B 401(k) Plan which could terminate post-merger and there is no violation of the successor plan rule. Therefore, there would be no need to do a VCP filing. So the crux of our points is: what merged and when, the companies, the plans, etc?

It should definitely not be an issue for coverage testing purposes since employees who have not yet been credited with one year of service are tested separately for coverage purposes. Moreover, since those folks are NHCEs for the first year (with the exception suggested by Austin 3515), it should be a no brainer. Most importantly, however, deferrals are tested separately for coverage purposes than are employer contributions.

Bird, I took a look at the statutory citation you referenced and it deals with what is included in gross income for NJ state income tax purposes. Basically, the section states that 401(k) contributions are excluded from an employee's gross income. I think the agent is mixing up the employee-level income exclusion with the employer-level income tax deduction. The elective deferrals for each employee, up to the 402(g) limit and as permitted by the results under the average deferral percentage test, to the extent applicable, would be deductible at the employer level and reported on Form NJ-BUS-1. In addition, any employer contributions, including matching and profit-sharing (non-elective) contributions, would be deductible at the employer level, subject to the 25% of compensation limit, as adjusted with respect to self-employed individuals. I hope this clarifies this for you and helps get the agent off your client's back.

The IRS website at www.irs.gov/ep has some pretty excellent resources as well. You might want to go to a link on amending or updating a plan where you will find a link to an ESOP Listing of Required Modifications (LRMs), which can serve as an excellent start, if you need to draft a plan document. There are also IRS checksheets used by IRS agents in reviewing plan documents submitted for determination letters which can also be somewhat helpful. There are a couple of caveats you need to bear in mind when examining these documents: (1) the LRMs are a bit rusty and would need to be updated to account for more recent law changes, to the extent that they are mandatory as well as optional changes the client might want to implement, particularly if the IRS has issued any guidance on the issue of some of the optional changes. (2) the LRMs and checksheets do not necessarily consider ERISA and other practical legal language that you might want your client to avail itself of to obtain an advantage and possibly forestall litigation, such as a limitations period and a venue provision for bringing lawsuits following claims denials.

As an attorney, the iron-clad "attorney-client privilege" is full of holes as applied to employee benefits law. The reason is that the courts consider the attorney's client to be the participants and beneficiaries of the plan and not the employers retaining those attorneys. There are exceptions, of course, that I do not want to drag out and confound this forum with. That being said, the attorney's notes and communications to HR officers and top executives of the employer are generally not protected by privilege. Consequently, both the real client and the attorney are better served by not creating excessive notes that can be discovered by a disgruntled participant with an axe to grind. This fact argues strongly in favor of a document retention policy and strict adherence to it. That being said, however, plan documents, restatements, amendments, SPDs, participant communications and the like should most probably be retained forever (or pretty close to it).

Since those benes are both minors, the bank should ask for something from the person purporting to be their guardian proving that they have been appointed as the child's guardian -- it could be something from the probate court -- much will depend upon the language of the state law authorizing persons to receive assets on behalf of a minor child. I have seen provisions that are more liberal than the one describe, in which case, you may simply be able to pay out that person and not be concerned with how they apply. The bank should not apply for a court order -- let the person claiming the money on the minors' behalf do the heavy lifting of proving that they are duly qualified under applicable state law -- if that is done, then the trustee may pay that person directly on behalf of the minors.

For a profit-sharing plan, there is no notice that is required to be issued to participants in advance. If, however, the employer is applying to the IRS for a determination letter that the termination of the plan does not adversely affect its qualified status, there is an advance notice requirement that is applicable in that instance, much of which appears to be driven by when the employer files its Form 5310 with the IRS. Notice of intent to terminate is a term used in the context of PBGC-covered defined benefit plans and has to be provided to participants in advance of the anticipated termination date. In addition, if the employer is amending the plan to significantly reduce benefit accruals under a defined benefit plan or money purchase plan, there is also an advance notice requirement that generally varies from 15 to 45 days, depending upon the type of plan and the number of participants covered under the plan. See ERISA Section 204(h) and Code Section 4980F. However, neither of these provisions apply to a terminating profit sharing plan.

I looked into support for the notion that the renewal commmission arrangement you described is both NQDC and an ERISA pension plan. Here is a link to an IRS memo issued in 2007 holding that the arrangement was deferred compensation for FICA purposes. https://www.irs.gov/pub/irs-wd/0813042.pdf Please note that the memo does not address the application of Code Section 409A, even though final regulations were issued in 2007. This is because the memo was prompted by the employer's application for a refund of the FICA taxes paid on such amounts, which the IRS denied. Regarding the issue whether the arrangement is an ERISA pension plan, the case law seems to go in different directions. Please note that the outcome of this issue may well turn upon the actual language of the renewal commission arrangement in question as well as the agent's work or residence location. Also, since I do not have the benefit of an online citation service, it is possible that some of these cases may have been reversed or overruled by decisions in higher courts or subsequently issued case law. Finally, do not overlook the fact that the DOL issues Advisory Opinions from time to time which may have dealt with this particular issue. That being said, for the proposition that the arrangement is an ERISA pension benefit plan, see Petr v. Nationwide Mutual Insurance Company, 712 F. Supp. 504 (D. Md. 1989) For cases holding that the arrangement does not constitute an ERISA pension plan, see Fraver v. North Carolina Farm Bureau Mutual Ins. Co., 801 F. 2d 675 (4th Cir. 1986), cert. denied, 480 U.S. 919 (1987); Wolcott v. Nationwide Mutual Ins. Co., 664 F. Supp. 1533 (S.D. Ohio 1987). In light of my statements in the foregoing paragraph, please consult with counsel on whether and how the renewal commission arrangement in question is considered an ERISA pension plan.

In response to CuseFan's post, his statement regarding the characterization of insurance agents is not entirely accurate. At the outset of this post, I want to emphasize that the insurance company's label that is slapped onto a worker means nothing unless it is backed up by the facts and circumstances of the relationship of the insurance agent vis-a -vis the insurance company. It depends entirely on how the insurance company treats them for tax purposes as well as whether the facts and circumstances of their relationship with the insurance company justifies the conclusion that they properly fall into one classification or another. Some insurance companies treat insurance agents as common law employees, meaning that they are subject to the direction and control of the insurance company, cannot simultaneously work for other companies in the financial services industry, are reimbursed for certain tools and expenses needed in the performance of their duties, etc. There is a 1987 US Supreme Court case Nationwide Insurance Company v. Darden where the court accepted a 20-factor test proposed by the IRS as the determinant of a worker's true employment status, which was applied to Nationwide Insurance Company insurance agents. Many states and even the federal government have distilled that test down to only a very few facts and circumstances. Some states (such as CA and NJ) use what they refer to as "the ABC test." If the insurance agent is classified as a common law employee, then there is a concern that the post-retirement payment of renewal commissions could be treated as an NQDC and maybe even an ERISA pension plan. It is also possible for the insurance company to classify the insurance agent as an independent contractor, provided that their relationship with the company and the facts and circumstances of their relationship justify a finding of such status. In that case, the plan would be an NQDC but it would not be subject to ERISA because it would not cover employees of the company. There is a third possible employment classification for full-time life insurance agents (note, not property and casualty insurance agents). In order to be a full-time life insurance salesperson, the agent must sell primarily life insurance and annuity products and satisfy certain other criteria in the facts and circumstances surrounding his or her relationship with the insurance company. See Code Section 3121(d)(3)(B). Any agent satisfying this definition is subject to FICA and, as authroized by Code Section 7701(a)(20), is authorized to participate in the insurance company's employee benefit plans as an employee.

Building on CuseFan's response, to some extent the Internal Revenue Code dictates how the amount is taxed (or not). Although, if you request a withdrawal from after-tax contributions or Roth 401(k) contributions, and it is not a qualified Roth distribution, then a pro rata amount of taxable earnings and non-taxable contributions will be made. If you request a lump sum, however, the tax law completely dictates the tax treatment of such amounts with all employer contributions, pre-tax 401(k) contributions and earnings being fully taxable and Roth 401(k) contributions, after-tax contributions and earnings distributed in a qualified Roth distribution (generally after age 59 1/2) being tax free.

Wait a minute, here! Is the spouse still alive? If not, are the children? If not, did they have any children who remain alive? You need to have no answers to all of the preceding questions before you even consider whether the benefit is payable to the participant's estate. The points raised by ESOP Guy are all problems for the decedent's estate and the surviving heirs. If it is payable to an estate, have the executor/administrator certify the EIN for the estate before you pay anything. Also ask to see letters testamentary (if the decedent died with a will) or letters of administration if the decedent did not have a will in force at the time of death. For the last sentence, short forms are ok for the plan to accept in lieu of full letters testamentary/administration. If the estate is too small, there is an affidavit that is filed with the probate court -- have the personal representative provide you with a certified copy of the de minimis estate order. When it is time to issue the 1099-R, you would issue it to the estate's EIN (or if the estate is too small to the persons's SSN name in the order in lieu of administration). Who gets it, in what proportions and all other questions are not issues for the plan to solve -- they are the problems to be faced by the executor/administrator. I know that determining who gets per stirpes can be an issue since the plan would not know who is eligible to inherit. In that case, have the executor/administrator provide that to you. You might also want to get a release that you have a right to rely upon what they are telling you and that you have no liability for making payments pursuant to their direction.

Another point worth noting is that all qualified plans are subject to a $5,000 (increasing to $7,000 per SECURE 2.0) participant consent requirement, regardless of whether spousal consent to the selection of an alternate form of benefit is required by the plan document, ERISA or the Code.

Overall, I agree with C.B. Zeller. I just wanted to add the following: 1. It is optional whether a plan will allow participants to self-certify hardships. 2. If the plan allows self-certification and the participant lies, generally there is no liability to the plan or its administrator merely by relying on the self-certification. 3. The exception to 2 is if the plan administrator is aware that the participant is lying, the self-certification cannot be relied upon. If the plan administrator nevertheless authorized the withdrawal, then the plan administrator is subject to liability by disregarding its actual knowledge by authorizing the distribution.

I agree with Peter, with a special emphasis on the heavy retainer. After all, as they say, "Fool me once, shame on me, fool me twice, shame on me." But you won;t get fooled if yoy don't do anything without getting that amount up front.

SHA, under your facts, since the individual is already age 65, the 10% tax penalty does not apply -- it only applies to distributions prior to the individual's attainment of age 59 1/2. If the individual is roling the amount over to a Roth IRA that has already met the 5-year initial holding requirement, there should be no need for the rolled over amount to be held an additional 5 years post-rollover.

B21, For partners in a partnership, there is no de minimis percentage threshold which would render them NOT self-employed individuals. Therefore, if a partnership had 500 partners, not one of them could be considered "employees" under the cafeteria plan rules, regardless of whether each partner owned an equal percentage of the partnership.

Thanks RatherBeGolfing and Peter! By the way, the following link is the latest version I have, which supposedly includes the amendments adopted by the Senate. On Friday, the House simply adopted this version: "C:\Users\Owner\Documents\Consolidated Appropriations Act 2023 - Final Version Passed by US Senate -- HR 2617.pdf"

I have read that the President intends to sign the Consolidated Appropriations Act, 2023 (which includes SECURE 2.0) into law. Has anyone read when he intends to do so? Thanks and Happy holidays to all!

The following is a link to the SEC Clawback Regulations as published in tomorrow's (11/28/22) Federal Register (which take up a mere 67 pages in the typical Federal Register three-column print). https://www.govinfo.gov/content/pkg/FR-2022-11-28/pdf/2022-23757.pdf

I would agree with the previous commenters that 60 days after separation may well prove to be a very unreasonable amount of time to both hire the appraiser, have them visit the company and its operations, review its financials and the competitors in the industry and arrive at a final valuation amount. In some industries, there is a rule of thumb that is often applied in valuing certain businesses in that industry, such as average gross earnings over the the last 6 months or 20 times weekly net earnings. If there is such a rule of thumb applicable to that industry, maybe it is not unrealistic to expect the valuation to be completed and a value arrived at within 60 days of separation.

Peter, I am not sure that I agree with your previous statement that the contingent beneficiary would obtain the remaining benefits if the primary beneficiary dies prematurely. Many times, the contingent beneficiary's status is conditioned on whether or not the primary beneficiary survives the participant (which would be determined within a few months of the participant's death). In that scenario, the contingent beneficiary would not be entitled to anything if the primary beneficiary survived the participant. Prior to SECURE, no one ever thought seriously about the possibility that a beneficiary of an RMD would be able to designate a beneficiary. Plans should be amended to allow for this as part of the SECURE remedial amendment period amendments (with one possibility being the revival of the participant's designated contingent beneficiary becoming the default beneficiary). The other concept I saw referenced in the discussion was that the plan's default beneficiary would take. In many plans, the default beneficiary is often the participant's estate. This latter possibility is also highly undesirable and may prove impractical, particularly if the participant's estate has become closed prior to the primary beneficiary's death. Bottom line, cover this in the SECURE RMD amendment.

Tinman, I agree with Luke about the nonexistence of federal limits on merging the plans. However, one reason to continuing maintaining separate plans that you might want to consider is dependent upon whether the separate groups are unionized, what each promises its members with respect to the plan for its members and the employee relations issues that might ensue if one group got substantially better benefits or was perceived to be getting better benefits than either or both of the two other groups. That said, there is nothing (subject to any state laws with respect to governmental plans) that would preclude the consolidation of the three plans into one, even if separate contribution or benefit rules apply to each separate group and the accumulated assets of each group are required to be maintained separately from the other groups, provided that there is a way of tracking to which group a particular employee belongs, having rules for what happens if an employee in one group transfers to another, etc.

To the extent that any of these participants are age 60 or over, please note that catch-up contributions are not taken into account as annual additions. See Code Section 414(v)(3), Reg. Section 1.414(v)-1(d)(1). If catch-up contributions would have resulted in the participant seeming to exceed the 415 limit, you can heave a sigh of relief.

I disagree with CuseFan only to the extent he says that the plan document should say how the correction will be handled. I agree with him and others who are saying to the extent that the error should be corrected for the reasons that they expreseed. I am fine with language authorizing the plan administrator to correct any error in administration by referencing EPCRS generally. However, I would not want the plan document to effectively tie the administrator's hands to a one-size-fits-all solution intended to work for every situation so that there is some degree of flexibility on the part of the plan administrator. If that one solution does not work in a particular instance and the plan administrator uses a different correction approach that is more appropriate, but contrary to the plan's language, this in itself gives rise to an operational error.

I agree to the extent that those of you who have said that the forfeitures can be used by other participating employers. One thing that has not yet been raised by this thread is that the IRS concept of what is a plan or a separate plan, depends upon whether the pool of money constituting the account balances are segregated. If they are, the IRS considers each segregated pool of money to be a separate plan. See the IRS Regulations at 1.414(l)-1. In my view, you need to read the 1.413-2 regs in combination with the 1.414(l)-1 regs to arrive at the correct result.