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Have a pending Cycle E2 determination letter application for an individually-designed plan. I am in the middle of the Employee Plans Specialist's review and there will likely be a Closing Agreement matter relating to a missing interim amendment for a prototype plan that was merged into the plan a few years ago. The sponsor knew of same, and it was noted in the cover letter. Nonetheless, there will be some sort of sanction to fix, and I am OK with that. A few days ago, the sponsor indicated that it had not adopted a discretionary amendment to the individually-designed plan that added a Roth feature to the plan in mid-2016. The Roth feature has been implemented, but no adopted amendment to date. I could fix this via a separate VCP filing and pay the VCP fee, because, per the determination letter rules, the plan is not "under examination" re this item. But, would it be possible to save a buck or two and voluntarily raise this new issue with the Specialist and deal with it with the pending other nonamender failure . . . with the hope that the sanction will be baked into same, say the VCP fee of $10,000 or so as the CAP sanction. Or, should I just wait a few weeks, get the determination letter/closing agreement, and then file a VCP application to fix the new issue? Thanks.

Plan sponsor will terminate its pension plan in a standard termination. The plan currently has no lump sum distribution option, other than forced cash-outs for small benefits under $1,000, and other cash-outs (e.g., to an IRA) between $1,000 and $5,000. The sponsor wants to add a lump sum distribution option for participants who are not in benefit payment status, to be used in connection with the standard termination. So far, so good. The sponsor, however, wants to specify a lookback month for determining the applicable interest rate to be used in determining the lump sums under the new distribution option that is different than the lookback month used for determining small benefit cash-outs. Is this do-able? Or, does it violate the 417(e)/411(d)(6) rules? Specifically, does it run afoul of the regulations at 1.417(e)-1(d)(4), which provides in relevant part: "The time and method for determining the applicable interest rate for participant's distribution must be determined in a consistent manner that is applied uniformly to all participants in the plan." Would it be OK to get by this issue by "protecting" the participants with small benefits by giving them the benefit of the greater of lump sums determined under the two interest rates. (Everyone else will have a lump sum calculated under the new interest rate.) Thanks!

Company A ceased operations in 2010. No bankrupcty, just an assignment for the benefit of creditors. Assets liquidated, secured creditors paid. Nothing left over for unsecured creditors. Company A had a defined benefit pension plan. After Company A ceased operations, no provision was made for terminating the pension plan or continuing its minimum funding . . . because Company A had no assets and no staff. PBGC placed Company A's pension plan into PBGC trusteeship in late 2012. And, per same, used the date in 2010 of the Company's WARN Act notice to employees as the date of the plan's termination. Companies B, C and D were in Company A's controlled group as of the date of the plan's termination. Some of their assets were disposed of in the normal course of operations between 2010 and 2012. PBGC has assessed B, C and D, as controlled group members, with joint and several liability under ERISA section 4062 for the pension plan's underfunding, minimum contributions and PBGC premiusm. So far, so good in the sense of the typical PBGC process. The PBGC has also asserted a claim that, per ERISA section 4068, the federal tax priority rules of 31 U.S.C. section 3713 apply and that B, C and D must pay the PBGC first with the proceeds of any liquidation or similar action with regard to their assets . . . and that company officers or other fiduciaries of B, C and D may be personally liable to PBGC for same. And, the PBGC also asserts that this liability extends all the way back to the 2010 date of the pension plan's deemed termination (and not just for the period on and after the 2012 date on which the PBGC placed the pension plan into trusteeship). Has anyone come across a similar PBGC tactic using ERISA section 4068's incorporation of 31 U.S.C. section 3713 to go after controlled group member companies and, more importantly, officers, shareholders, and fiduciaries of such members re the disposition of their assets and the assertion of personal liability for a pension plan's funding? I have found nothing of note in the usual commentary and case law sources. Thanks.

An employer wants to terminate its group health plan in connection with a sale of all of its assets. Do the summary of benefits and coverage regulations at 54.9815-2715(b) ("Notice of modification") require a 60-day advance notice of same? It sure appears that way, because, arguably, the plan's termination is a reduction in coverage, and coverage is one of the topics to be addressed in a SBC, and the plan's termination is a "material modification" under ERISA section 102, and the regulations at 2520.104(b)-3(d)(3). Note that under the ERISA regulations, notice of a plan termination type fo material modification may be provided up to 60 days AFTER the modification takes effect. (Of course, the fiduciary duty rules require advance notice of a plan's termination . . . so that participants don't incur claims/expenses that are no longer covered under the plan.) In the past, prior to the SBC requirements, I've had the employer issue an SMM notifying participants of the plan's termiantion at a reasonable time prior to the plan's termination. If the SBC regulations apply, I guess the notice will have to be provided at least 60-days in advance, and an updated SBC provided. I've found no guidance on this particular issue. Any thoughts are appreciated. Thanks.

Will the exclusive benefit rule under Code Section 401(a) be violated if the sponsorship of a long-frozen defined benefit pension plan is transferred from current sponsor A to new sponsor B where: 1. A and B (and other corporations) are in a controlled group at the time of transfer. 2. A will be sold in a stock sale soon after the transfer. 3. B, although an active trade or business, has no current or former employees who are participants in the plan. Note: This set of fact is -- very roughly speaking -- an imperfect mirror image of the fact pattern in Revenue Ruling 2008-45, where the IRS found that the exclusive benefit rule would be violated where: 1. A creates subsidiary B. 2. B is a shell company and not an actual trade or business. 3. A & B are in a controlled group. 4. A transfers its pension plan to B, plus additional assets to more than fully fund the plan. 5. A then sells B to unrelated purchaser C. Thanks.

Is there ANY possibility of making a tardy election for 2011 plan year funding relief under PRA 2010? The deadline for the defined benefit plan in question was December 31, 2011. The plan's actuaries prepared the election package, e.g., (i) election letter, (ii) draft notice to participants, and (iii) cover letter explaining how to elect, when to elect, how to provide notice to PBGC and to participant. But, there was some confusion as to whether the plan's sponsor received the election package. After reading through IRS Notice 2011-3, and the parallel Code section 430 and ERISA section 303 provisions, it sure looks like there is no possibility of making a tardy election. Is this worth a call to the IRS and/or PBGC? Or is the answer a clear "too late"? Thanks.

A NONPROFIT corporation operates a physician practice group. It provides physicians with a standard employment agreemnent which provides for severance payouts upon death, disability or ANY termination of employment (voluntary or involuntary), as long as the physician had at least 3 years of service at the time of such event. The severance is equal to the net collections the corporation receives from the physicians' services performed prior to termination during the 90-days following such termination. The severance is payable monthly in arrears, based on actual collections received for the preceding calendar month, and the first payment is made during the second calendar month after termination. Query: Because the severance right is available upon a voluntary termination of employment, it will vest once the physician hits 3 years of employment. So, due to the corporation's nonprofit status, won't the deferred compensation be taxable at that point in time? And, if so, what is the amount that's taxable, as the post-termination collections won't be known at such time? Thoughts? And thanks.

Employer sponsor of an individually-designed 401(k) plan TIMELY adopted a good faith amendment for compliance with the HEART Act, but . . . the good faith amendment was incompleted and omitted on of the mandatory HEART Act requirements. The plan is now up for a Cycle B restatement and determination letter submission. Prior to the determination letter submission, should the sponsor submit a nonamender VCP application under the streamlined and discounted EPCRS nonamender program? Or, should the sponsor explain the situation in the cover letter accompanying the determination letter submission ("the plan was timely amended in good faith, but the amendment was incomplete") and indicate that the good faith amendment should be treated as completed and timely. (The restatement, of course, will include the omitted language.) As regards the cover letter option, the idea is that it's not much different than the situation where the agent reviewing a submission -- let's say back in the original EGTRRA Cycle B -- contacts the sponsor and says "Your good faith EGTRRA amendment looks good, but send me an amendment that adds pieces X and Y." No (expensive fee-wise) nonamender issue raised by the agent, just a nudge to get it right. Thoughts?

A defined benefit plan sponsor will soon terminate the plan in a standard termination. Currently, the plan does not offer lump sum, other than small benefit cash-out lump sums. The sponsor would like to amend the plan at termination to allow vested terminated participants a limited time "window" opportunity to elect a lump sum distribution. So far, so good. The issue is whether, in offering the lump sum election, must the vested terms also be allowed to elect a QJSA? Treas. Reg. section 1.417(e)-1(b)(1) sure seems to require this result -- "A distribution cannot be made at any time in a form other than a QJSA unless such QJSA has been waived by the participant and such waiver has been consented to by the spouse" and "[T]he plan must also offer a QJSA . . . ." It's certainly the case for an ongoing plan that is amended to offer a permanent or, in my view, a limited time window, lump sum election option. Thanks.

A nonprofit enters into a "deferred compensation" arrangement with a key employee. The arrangement document complies with 409A, e.g., proper deferral election and time and form of payment provisions under the 409A -- "the deferred amount will be paid in a lump sum on month/date, 2014, and no earnings will accrue on the deferred amount." But . . . there is no substantial risk of forfeiture, the money is vested up front. Nonprofit later discovers the error one year after the agreement is signed. There was immediate taxation to the executive under 457(f) because of the absence of a substantial risk of forfeiture. But . . . is there a 409A penalty if the document otherwise complies with all of the 409A rules? (If the company were a for profit entity, no 409A issue.) Thanks.

UPDATE -- I contacted the IRS in Washington re the QOSA guidance, the Code, and the question posed here. Per Jim Flannery at IRS, the IRS agrees that, under the facts outlined above -- i.e., fully-subsidized QJSA with no waiver right -- the QOSA requirement does not apply. And, the IRS guidance in the Notice does not conflict, i.e., refer to "generally" qualifier near the beginning of the Notice.

I am legal counsel to the company (a new client) and we are sorting out whether to submit a "nonamender" VCP application for failure to amend the plan for the QOSA requirements. I do believe that the QOSA requirement does not apply, because Code section 417(a)(5) explicitly says that, if a plan meets the 417(a)(5) requirements, then the rest of 417(a) won't apply, so that would include the QOSA requirement found in 417(a)(1). What's bothering me is the Service's blanket statement in Notice 2008-30 that plans "subject to Code section 401(a)(11)" (which includes ALL defined benefit plans) must comply with the QOSA requirement. Perhaps the IRS might say: "What's the big deal? So, you have to allow the participant the opportunity to pick a QOSA. You don't have to provide spouse consent, etc." I'd just hate have the company busted during a determination letter review. (The company is on cycle this year.)

Company has a defined benefit plan that provides for only a single life annuity for unmarried participants, and a joint & 50% survivor annuity for married participants. The plan has no other forms of distribution, and married participants CANNOT waive joint & 50% survivor benefit or name a beneficiary. Company and the plan's actuary take the position that this arrangment meets the requirements of Code section 417(a)(5), hence the usual QJSA and QPSA rules don't apply . . . and, the recently added qualified optional survivor annuity ("QOSA") requirement does not apply. In a nutshell, they explain that, when 417(a)(5) applies, it knocks out all of the QJSA, QPSA, and QOSA requirements in 417(a)(1)(A). Makes sense to me, but . . . the IRS guidance to date merely says that if Code section 401(a)(11) apply to a plan -- i.e. a defined benefit plan -- then the QOSA must be added to the plan. Any thoughts? If the QOSA requirement applies, I'd rather tell the company to to a nonamender VCP, instead of having an IRS review during the next determination letter submission say "failure to amend for PPA, audit cap sanction." Thanks in advance.

As part of a planned standard termination process, a defined benefit plan sponsor wants to permit participants who are already in pay status -- e.g., receiving an annuity form of payment because they've retired and previoiusly elected to commence benefits -- to elect to have their remaining plan benefits converted to and paid in the form of a single lump sum (with appropriate spouse consent if the participant is married). Has anyone come across this maneuver? If so, is it permissible? How about in the situation where NO plan termination is planned? Many thanks?

A defined benefit plan is being terminated in a standard termination. Recently, the sponsor purchased the annuity contracts for all of the participants' and existing alternate payees' accrued benefits. The sponsor will soon file the PBGC Form 501 certificate. A few days ago, the sponsor received a entered QDRO for a participant dividing his pension benefit in a separate interest. The sponsor learned of the QDRO only at this time. Other than timing, the QDRO meets the requirements for approval. Is this QDRO too late to be honored? Must the annuity contract provider honor the QDRO? I've had no luck with commentary, or DOL/PBGC guidance on this issue. Thanks.