panther

No. Unvested amounts are not included in taxable income.

This is the rare case where the executive is not accepting anything in return for the reduction but is agreeing to it knowing the employer's financial limitations.

Employer wants to reduce the deferred compensation benefit paid at termination of employment from $2.5M to $2M? Is this permissible if we keep the same time and form of payment and the parties agree? The 409A regulations (26 CFR 1.409A-1(c)(3)(vi)) envision that it is permissible to increase the benefit but I do not see any express approval of reducing the benefit.

The company does not give the president a choice about the payments and they therefore fall outside of the cafeteria plan (that is my argument) so I do not think the IRC 125 cafeteria plan rules are triggered and that seems to be the consensus here. Thank you for the comments.

Employer pays the President's family coverage under group health insurance plan per an employment agreement. For other employees, employer only pays for employee-only coverage (employees pay for any more on their own. This clearly is discriminatory under IRC 105(h). But does it violate the IRC 125 cafeteria plan rule against discrimination as to contributions and benefits?

Company merged with Target and now wants to enter into new employment agreement with Target Executive. The current employment agreement offers $100k severance benefit upon Good Reason termination due to change in employment position, which will occur. To encourage Target Executive to stay, Company offers new employment agreement with $100k signing bonus and no severance benefit. Would this be a "substitution" under 409A and thus an impermissible change in the time of payment? I think not because under the current agreement he does not get the $100k unless he terminates, which he would not do if he signed the new agreement.

It would seem that an employer could do the 25% QNEC if the notice could go out within 45 days after making the corrective contribution but that is not the case. The Rev. Proc. says the correction involves 3 steps: (1) begin correct deferrals, (2) send a notice within 45 days thereafter and (3) make corrective contributions within 2 years. The notice is tied to when the correct deferrals start, not when the corrective contributions are made. So the IRS has boxed out employers who started correct deferrals and may not have been aware that doing so started the 45-day notice clock for prior mistakes (of which the employer may not even be aware). It makes no sense to say you get the 25% QNEC if you did nothing before correction and the 50% QNEC if you started correct deferrals more than 45 days before correcting. But it is what it is.

I agree with Belgarath. It seems to me that the notice would be sufficient if given within 45 days after the corrective contribution was made but that is technically not what the Revenue Procedure says. We have the same situation and are deciding what to do. The employer is cautious and likely will do the 50% QNEC just to be safe. Words matter.

See also 26 CFR 1.401-10(e)(1) (individual partner is not an employer who can establish a qualified plan, such as a SEP)

Thanks. I assume you base that on the rule in Treas. Reg. 1.408-7(f). That is helpful.

The Company sponsored a SEP with 2 participants. It turns out 1 participant provided no services to the Company and was ineligible to receive SEP contributions. Does that mean the other participant's SEP account could be disqualified?

This cannot be corrected as a document failure per Rev. Proc. 2008-50 -- VCP is not available yet to correct 403(b) plan document failures. The IRS expects to allow this when it updates EPCRS (See Notice 2009-3).

How could you use VCP to correct a 403(b) document failure? Rev. Proc. 2008-50 says VCP is not available for 403(b) document failures.

Rev. Proc. 2008-50 does not allow for correction of 403(b) plan document failures under VCP. The IRS is going to come out at some point with changes to the Rev. Proc. to allow more 403(b) corrections (See Notice 2009-3). Until then, there's no permitted way to correct 403(b) document failures from prior years.

Does anyone know where I can find a checklist showing required and optional provisions of a cafeteria plan document to review them for compliance with IRC 125?