rocknrolls2

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.

According to the most recent EPCRS Rev Proc, even if the plan is under Audit CAP, it is possible to self-correct. In many cases, the agent handling the Audit CAP will specifically allow you to use SCP for the self-correctable items. I see no reason why you could not self-correct merely because you submitted a VCP application. I assume that you have not yet heard from the agent assigned to review the VCP application. In that case, go full speed ahead.

I would view the changes agreed to between the employer and the union in the CBA to be proposals to amend the plan. Since this would be an optional or voluntary amendment to the plan, the IRS guidance on optional plan amendments not necessarily required by plan qualifications generally requires such amendments to be adopted by the end of the plan year in which they are to have been made effective. Accordingly, I would view this as a plan document failure which can be corrected via EPCRS. It would be helpful to know in what year the changes discussed in the CBA to be able to determine whether the change could be implemented via self-correction. If it is within 3 years of when the changes were agreed upon, then the plan could be self-corrected and thus, retroactively amended under the latest iteration of EPCRS.

Peter, I understand what you are driving at with respect to your first post. Could you perhaps look at it in the following way: if the participant's account balance does not exceed the specified dollar amount threshold as of the last day of the plan year, then the involuntary cashout provision is invoked. What happens subsequently (with respect to investments) should not cause the account to be precluded from being cashed out. Also, in an involuntary cashout scenario, you mentioned the 402(f) notice. My understanding is that, in that scenario, the account balance is simply distributed to the participant in the form of a single sum. Regarding your second post, since the participant is entitled to elect whether or not to do a direct rollover to another eligible retirement plan to the extent the account exceeds $1,000 but does not exceed $5,000, I could see that that would take slightly longer a period of time between the end of the plan year and when the distribution/rollover is actually implemented. However, if the account balance as of the close of the plan year does not exceed $5,000, the plan could still implement the distribution/direct rollover, in spite of interim investment gains.

Peter and CuseFan are correct that the Plan language would only automatically revoke the spouse's designation as a beneficiary. As to why the participant does not simply complete a new beneficiary designation, that would certainly be the preferable way to approach this. However, in most cases, a participant only completes a single bene form at the beginning of his/her career with the employer and never revisits the decision at any future point ever. I know that plan administration best practices suggest that plan administrators periodically contact participants and urge them to complete new bene forms, but those calls are, all too often, unheeded. Regrettably, the initial bene selection too often does not reflect the participant's wishes upon his/her retirement or death. Also, regrettably, that is the stuff that results in heavily-contested ERISA litigation.

Belgarath, you should be aware that, in some cases, the plan document may specify how the plan may be amended, including how an amendment may be adopted. You should consider both the plan document and corporate law (with the advice of an attorney) to get the correct answer. If the Plan document contains such a provision, then it would override otherwise applicable state law to the extent consistent with ERISA and the Code.

In my view, the best result would be to lobby to eliminate this arcane relic of the tax law so that the nonspouse alternate payee is responsible for his or her own tax withholding and any order providing for 100% of the participant's account balance becomes the alternate payee's account balance, subject to such withholding as well as repeal the exception to the mandatory 20% withholding requirement. But, unless someone has some great contacts in Congress, the IRS or the Treasury Department, and such orders generally have to be followed, I vote for determining that the order is disqualified unless the alternate payee signs a written consent to allowing the order to become qualified the account is subject to income tax withholding on the part of the participant.

My response is "Hell No!" Both the primary people at EBSA and members of the HELP and Finance Committees on the Senate side, and the Ways and Means and Education and Labor Committees on the House side should be forced to sit through a four-hour course of ERISA fiduciary duty requirements before they come up with some other hare-brained scheme to cast persons who are not, and should never be, characterized as fiduciaries, into them. If they fail to get the message on the purpose of these requirements, they do not belong in a policymaking role in government at any level. Until this cryptocurrency pronouncement, EBSA (and its predecessor, the PWBA) took the position that no class of investments is per se imprudent. In designing the plan and making the decision to allow participants to invest in certain types of investment funds, the plan's fiduciaries should take into account the level of investment sophistication of the average plan participant. Perhaps they should warn them about selecting investments that are or could be extremely risky or should perhaps limit the menu of available funds for selection as part of their fiduciary duty. Or, perhaps they should disclose the need for participants to determine, on an individual basis, their own risk tolerance as well as the period of time their accounts will be invested in the plan (such as proximity to retirement age) in determining whether a particular class of assets is appropriate for them. Otherwise, casting certain types of persons as a super-fiduciary or watchdog defeats the purpose of providing investments for retirement.

In addition to what was discussed above, other than an obligation on the employer's part to make sure that the transferee plan is qualified and getting it to make covenants to preserve optional forms of benefit under Code Section 411(d)(6) (except to the extent the plan administrator eliminates one or more of them pursuant to regulations specifically authorizing such elimination) and getting the transferee plan's commitment to comply with any applicable reporting and disclosure requirements under the Code and/or ERISA, , I do not see any potential liabilities on the part of the employer of the transferor plan.