britoski

I am advising a client that will soon be involved in the spinoff of a subsidiary. For various reasons, both buyer and seller are interested in the transferring employees remaining on sellers plans for a period following the date of the transaction. The client's vendors are advising that this arrangement is common and does not create a MEWA since the arrangement won't last beyond the end of the plan year following the year of the termination. Although I agree that the arrangement would be exempt from M-1 filing requirements, I view the arrangement is still a MEWA and am concerned that no exception to any applicable state laws would apply. Have any of you heard of/participated in these types of arrangements? How have you dealt with state laws on MEWAs that would seem to have no exception comparable to the M-1 filing exception?

Peter- good suggestion. I will check this out.

Thanks John. I wish we still had that option! Unfortuantely, I don't think that VCP is available to us since we didn't raise the issue to the IRS- they raised it to us. I agree that it's worth asking though. The IRS has already requested the documents and the client has been unable to find them despite months of searching. I'm assuming that Audit CAP is our only option at this point, and I'm just wondering what to expect for a sanction. I know that, at least in the context of other errors, the IRS has said that it determines Audit CAP sanctions based on a percentage of the amount the IRS would receive if the Plan were to be disqualified. But I've also seen a couple of threads where individuals have experienced a sanction of anywhere between $5000-$12,000 that seemed to be determined more as a "flat fee" (vs. percentage of assets), at least where the only issue is an unsigned amendment/document. I guess I'm hoping that the IRS takes more of a "flat fee" approach where the sole issue in Audit CAP is a document error like this one.

Thanks to all who responded- this was helpful!

Employer merged a plan acquired through a stock acquisition. Employer should have known better, but merged the acquired plan into its own (much larger) plan before it realized it didn't have a signed plan document. To add insult to injury, the entire plan was submitted for a determination letter before the issue was discovered. So the question is...what can we expect for Audit CAP penalities? Anyone have any experiences with this that they want to share?

It's this last sentence that gives me the most trouble: Corrective contributions are required to be made with respect to a participant with an account under the plan. This sentence was added between Rev. Proc. 2008-50 and Rev. Proc. 2013-12. What was the IRS trying to clarify with this? If the IRS was trying to say that all participants needed to be provided with a corrective amount, wouldn't this have read: "Corrective contributions are required to be made with respect to all current and former participant, whether or not they have an account under the Plan"?

If a plan under contributed to a former participant (for example, due to an incorrect definition of compensation) and now owes a small additional amount under the EPCRS procedures, is this a corrective contribution, a corrective distribution, or both? I am asking to figure out how to apply the de minimus exception. From Rev. Proc. 2013-12: "If the total corrective distribution due a participant or beneficiary is $75 or less, the Plan Sponsor is not required to make the corrective distribution if the reasonable direct costs of processing and delivering the distribution to the participant or beneficiary would exceed the amount of the distribution. This section 6.02(5)(b) does not apply to corrective contributions. Corrective contributions are required to be made with respect to a participant with an account under the plan." It seems to me that this paragraph (and particularly the last sentence) is attempting to distinguish between corrective contributions to current accountholders (for whom providing a corrective contribution would require almost no administrative cost) and corrective distributions to former participants who no longer have an account balance (and for whom providing a corrective distribution would result in a (potentially) significant cost). Is this the way that others are reading this guidance? If not, how are plan sponsors handling very small contributions due to former participants?

Employer has an automatic contribution arrangement (ACA- but not an EACA or a QACA) and wishes to change the default deferral percentage mid-year. Assuming that the employer will provide 30 days notice and option to opt out, is there any concern that the arrangement will fail to meet the ERISA preemption requirements under 514(e) because the annual notice will not have specified the new deferral percentage? In other words, the annual notice will become inaccurate as of the date of the change- is this cured by the 30 day notice, or will the employer have to wait to make the change until the beginning of the plan year?

Your post implies that this is a 457(f) plan and that it vested in 2012. Is that this case? If so, it should have been taxable in 2012. If it has already been treated as taxable, I think you probably could extend the payment schedule as you propose. If it hasn't yet been taxed, I think you may have issues beyond the question your post is asking.

Sorry...missed this response. We considered this. She is management, but not highly compensated (according to the IRS definition). She was the NP's sole employee.

The issue arises out of an incorrect operation regarding the definition of compensation. The error affected three plans and our proposed correction is identical for all three. Can we submit together, or does each need its own application (and fee)?

Has anyone run across guidance regarding what happens when an employer sponsoring a 403(b) plan dissolves? I am aware of the myriad problems with terminating a 403(b) plan and that option appears to be out. Since we can't force distributions to terminating employees, what will happen to their accounts when there is no longer a plan sponsor to "maintain" the plan?

Here's a wierd one. For some complex reasons, a nonprofit client wants to implement an arrangement that will provide a former employee with monthly payments for the remainder of her life, but only after she reaches age 80. No death benefit. We are considering purchasing a deferred annuity, but the client would prefer to make payments directly, if we can structure the arrangment to satisfy 457(f). So here is the question: Could a requirement to attain a certain age ever be a valid "substanial risk of forfeiture"? My thoughts are, theoretically, yes. For example, if you wouldn't get a payment unless you attained age 120, I would say that the risk of forfeiture is nearly certain. Age 80 is clearly more troublesome, but could there be some reasonable methodologies to prove that the facts and circumstances support a SRF? When would it lapse? I'm curious to see what creative thoughts you might have on this...

Thanks Bird- this is helpful

I'm a complete novice at life insurance as an investment in a 401(k), so I need help with the basics. Plan has old life insurance investments from plans that were merged into the plan years ago. The participant has died and no distributions have been taken from the account. No one seems to have a copy of the policy. As I am digging into getting a copy of the insurance policy, could anyone fill me in on the basics of how this would generally work at this point? Who fills out the claim form? What happens to the proceeds if the beneficiary has not requested a distribution from the plan? Everything I've found on this gets into the details, but skips these basics- any help you can provide would be much appreciated!