ERISA25

I believe most, if not all, of the large recordkeepers do not withhold local taxes from plan distributions. I assume that it's just too difficult to track and administer the various local tax withholding laws/rules. I would also think that there may be some preemption arguments because it's disruptive to the uniform administration of retirement plans. Without doing any research, I would think that some local jurisdictions would specifically require withholding and some may not (or may not have any rule at all). I'm thinking that the potential liability to a plan sponsor would be low b/c of some combination of the following: (i) the underlying local tax liability belongs to the participant; (ii) it's a low amount; (iii) limited local resources to enforce; (iv) maybe preemption attaches; and (v) market practice of not withholding for local taxes. Anyone have any thoughts/direction on this issue?

The regs and everything I have looked at refer to the "plan sponsor" as the eligible recipient so I think in the context of a single-employer, self-insured health plan that is funded by a VEBA, retiree drug subsidy should be paid to the employer. I think this is an interesting question, but that's my interpretation. Has anyone else looked at this issue?

I'm not an actuary, but trying to get a better understanding of the "most valuable" requirement, as set out in Treas. Reg. Section 1.401(a)-20, Q&A - 16. If a plan uses an interest rate that is more favorable than those prescribed in IRC 417(e)(3) for determining LS and let's say 6.5% for converting among annuity options, would there be a concern that the LS option is more valuable than the QJSA, which is the normal form for married participants? How is the most valuable determination made? Is it simply a matter of using the more favorable factors to determine the present value of the QJSA?

The plan document requires payment to the estate when no beneficiary is named. Would that mean that the benefits are paid to the estate's EIN, taxed to the estate, and then distributed to the estate's beneficiaries? In that case, the beneficiary would not be able to rollover the benefits, correct? And, the beneficiary will be able to itemize deductions for any estate tax paid? If you have any Code citations or formal IRS guidance on this, please provide. Thanks!

If an employee's domestic partner participates in the employer's health plan and then the two (employee and domestic partner) marry during the plan year, does the employer consider the employee married for the entire plan year ( and recoup overpaid taxes for benefits paid while a DP) or should the marriage only be honored on a prospective basis for tax purposes (i.e.,tax breaks apply only for the portion of the year during which they were married)? Any citations would be appreciated.

I've seen some threads on this, but I can't seem to find any that directly answer my question. Assume that overpayments were made to 401(k) participants as a result of the application of an improper vesting schedule. The custodian issued 1099-Rs for the total distribution (including the overpayment). I am comfortable with the EPCRS correction procedure for this error (which includes the plan notifying the participant that the overpayment is not eligible for rollover and asking for the return of the overpayment [and if not returned, plan needs to be made whole]), but, I'm struggling with the tax reporting. Assume for purposes of numbered paragraphs below that the distributions were not coded as direct rollovers: 1) Should the plan instruct the custodian to issue amended 1099-Rs to reflect the correct amount of the distribution and issue a 1099-MISC for the overpayment amount? 2) Alternatively, should the plan only issue amended 1099-Rs if the participant returns the overpayment? Under this approach, the plan would do nothing unless the overpayment is returned. If the distributions were coded as "direct rollovers," I believe the plan would have to issue an amended 1099-R to reflect the amount eligible for direct rollover and the amount not (i.e., overpayment). Any thoughts would be appreciated.

My understanding is that if you have two separate 401(k) Plans in the same controlled group and they separately pass 410(b) coverage testing, then they can also be tested separately for ADP/ACP testing. Does anyone have citations for this position?

I was wondering if someone can tell me whether a plan's nondiscrimination results are reported on the Form 5500. I do not see a specific spot on the Form for such information, but I'm curious to know whether that is something that is addressed in the auditor's report in connection with the Form 5500? Any guidance is appreciated.

Any thoughts on whether beers after a shift at a beer brewery are taxable compensation. It does not appear as though they are provided for the convenience of the employer. The only potential/arguable exclusion I can think of would be as a de minimis benefit.

In a plan subject to QJSA rules, who usually provides the required QPSA notice (which has very specific timing requirements tied to an employee's age)? Does the employer typically provide this notice or is it the plan's TPA?

Section 4204(a)(2) provides that if a buyer defaults on its withdrawal liability obligations, the Seller (or the bond if a bond is used) shall pay to the plan an amount equal to the withdrawal liability that would have been due but for Section 4204. This seems to suggest that no matter the amount of withdrawal liability owed by the buyer (i.e., even if that amount is less than the bond amount), the fund may collect the entire bond amount. This seems rather unfair in light of the fact that the buyer's withdrawal liability is based, in part, on the seller's contribution history. Has there been any guidance with respect to this point? PBGC Opinion Letter 83-10 touches on some of the fairness issues, but it is not directly on point.

Bill: I do not see the attachment. Could you reattach? Thanks!

Does anyone have a 4204 bond document that they can share? I am looking for boilerplate with respect to terms to include (i.e., terms in the actual bond document - not the sale agreement) that would trigger the payment under the Seller's 4204 bond.

The PBGC has indicated that a letter of credit held in escrow satisfies the bonding requirement, but it also said that it is within a fund’s discretion as to whether a given institution is an acceptable party to hold a letter of credit in escrow. See PBGC Opinion Letter 1981-32 (addressing buyer’s bond, but I believe same rationale would apply to seller’s bond). Are funds reluctant to agree to letters of credit? Is it the normal course to approach the fund for permission to use a letter of credit?

ESOP currently provides that normal form of distribution is employer stock; ER would like to amend plan to make normal form of distribution cash, but have ER stock as optional form of distribuiton (i.e., participants have to affirmatively elect to receive distribution in ER stock). In my view, there is not a cutback issue because we are not eliminating an optional form of benefit (i.e., we are not eliminating optional protected right to receive distribution in form of employer securities). Any thoughts are appreciated.

It is my understanding that in a situation where an independent contractor (legitimately classified as such) is converting to an employee (not a reclassification situation), the employer does not give eligibility or vesting credit to the employee for the period of time that the employee was validly classified as an independent contrator (i.e., first day of credited service is first day as employee). But, I am having some trouble finding specific authority on this point.

Facts: Plan is Cycle B, so its cycle ends 1/31/2013; Plan will be terminated as of 1/15/2013. Am I correct that the sponsor does not need to file a 5300 during its normal cycle, but may file a 5310 in connection with the termination instead? Any suggested approach?

Under my reading of the Code/Regulations, the earliest a 403(b) plan may allow a distribution is upon a "triggering event" (e.g., 59.5, etc.), but a plan may be more restrictive than the code. In other words, a plan is not required to allow a distribution at age 59.5 or a plan may limit distributions upon attaining age 59.5 to 50% of account balance. Is this correct?

Question 6 of IRS Form 5310 asks whether the employer/sponsor is part of a controlled group. The 401(k) plan was terminated immediately prior to buyer's stock purchase of sponsor. With respect to Question 6, if you answer that question as of the date of plan termination, the answer is "no," not part of a controlled group, but if you use the date of filing, the employer is part of a controlled group. Can we use the date of termination to determine controlled group status for purposes of Form 5310? Any guidance on this?

I could be wrong on this, but I looked to the definition in E. 3(14). I do not see how a former employee fits in any of these categories unless they have some ownership of the company. Here's 3(14): The term “party in interest” means, as to an employee benefit plan— (A) any fiduciary (including, but not limited to, any administrator, officer, trustee, or custodian), counsel, or employee of such employee benefit plan; (B) a person providing services to such plan; © an employer any of whose employees are covered by such plan; (D) an employee organization any of whose members are covered by such plan; (E) an owner, direct or indirect, of 50 percent or more of— (i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation. (ii) the capital interest or the profits interest of a partnership, or (iii) the beneficial interest of a trust or unincorporated enterprise, which is an employer or an employee organization described insubparagraph © or (D) ; (F) a relative (as defined in paragraph (15)) of any individual described in subparagraph (A), (B) , ©, or (E) ; (G) a corporation, partnership, or trust or estate of which (or in which) 50 percent or more of— (i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation, (ii) the capital interest or profits interest of such partnership, or (iii) the beneficial interest of such trust or estate, is owned directly or indirectly, or held by persons described insubparagraph (A) , (B) , ©, (D) , or (E); (H) an employee, officer, director (or an individual having powers or responsibilities similar to those of officers or directors), or a 10 percent or more shareholder directly or indirectly, of a person described insubparagraph (B) , ©, (D) , (E), or (G) , or of the employee benefit plan; or (I) a 10 percent or more (directly or indirectly in capital or profits) partner or joint venturer of a person described in subparagraph (B) ,© , (D), (E) , or (G). The Secretary, after consultation and coordination with the Secretary of the Treasury, may by regulation prescribe a percentage lower than 50 percent for subparagraph (E) and (G) and lower than 10 percent forsubparagraph (H) or (I) . The Secretary may prescribe regulations for determining the ownership (direct or indirect) of profits and beneficial interests, and the manner in which indirect stockholdings are taken into account. Any person who is a party in interest with respect to a plan to which a trust described in section 501©(22) of the Internal Revenue Code of 1986 is permitted to make payments under section 4223 [29 USC §1403] shall be treated as a party in interest with respect to such trust.

The company will have a valuation done within 30 days of opening the buy/sell window (window will last 60 days) that will serve as the FMV for the transactions. I am considering a number of options, but let's say that only terminated particpants may sell the employer stock and only active EEs may purchase.

The Plan document allows the plan administrator to establish a buy/sell window during which participants may buy or sell employer stock. We would like to set up a window under which terminated participants may sell the ER stock held in their accounts to active participants. Does this raise any prohibited transaction issues? In most cases, a terminated participant will not be a party-in-interest, so would it just be a transaction between a party-in-interest (active participant) and a person that is not a fiduciary or party-in-interest (i.e., terminated participant). I'm still thinking through these issues, but any thoughts would be appreciated.

Yes, it was inadvertently distributed in 2012

Administrator inadvertently distributed $150 out of participant's Roth 401(k) account. I am wondering whether the distribution should be reported on 1099-R and subject to premature distribution penalty (participant not eligible for qualified distribution)? I can't seem to find any exemption from the premature distribution penalty for this type of mistake. If the participant agrees to put the money back into plan, is it just a wash and there is no 1099-R reporting and no penalty?

Plan was created for employees to require payment only upon involuntary separation from service. The company decided to include a director in the plan and just slotted him in under same terms as employees. It was not intended to limit payment for director to only involuntary sepration from service as that term would not seem to apply to a Director in the same way as an employee. I would like to change the payment term from involuntary to any separation from service, but it does not appear as though I can do that under the regulations without running afoul of accelleration/re-deferral rules. One potential argument is that this was a scrivener's error or that the term "involuntary separation" is ambiguous and subject to interpretation as applied to a director. Any thoughts?