30Rock

We are looking for other easier options than a spin -off. This would be a change of ownership scenario. Let's assume buyer does not want to accept a spin-off and the agreement is the PE will cease participation in the safe harbor plan before the purchase. Is this ok? Will the safe harbor plan, which is maintained by the current parent company, maintain safe harbor status for 2024? This is the question.

I am narrowing my prior question. If a subsidiary/Participating Employer (PE) is participating in a single employer safe harbor plan via a participation agreement and the company is purchased mid-year in a Code Section 410(b)(6) transaction, what are there options to leave the safe harbor plan mid-year? Assume the buyer does not sponsor a safe harbor plan. I think one options is to spin out into their own mirror safe harbor plan, and this will keep safe harbor status for the PE and the former parent plan. Is there another option - such as can the PE cease participation in the safe harbor plan before the sale and allow a distributable event without the plan losing safe harbor status? Appreciate any comments!

I have a safe harbor 401k plan using the safe harbor basic match formula. This plan has a few related employers (subsidiaries) that are participating via Participation Agreements. It appears that a couple of these employers will be sold mid-year, via a stock sale/change in ownership rather than an asset sale. My understanding is that this will create safe harbor problems and the only way to maintain safe harbor status for the plan is for each entity to spin out into its own mirror safe harbor plan. If correct and assuming we do not want to create new plans, would an option be to terminate/suspend the safe harbor mid year and convert to ADP/ACP testing - the plan is to continue the same match as a non-safe harbor match. The reasoning is that is will be easier to remove the participating employers. And as FYI - based on our projected testing, the plan will pass ADP and ACP anyways. Any thoughts? Thank y ou!

Thank you!

What is the correction method for an operational failure to exclude rollovers when applying the $5000 involuntary cashout distribution rule in a plan to termed participants? The plan has operated since 2018 as if rollovers were included. Do we go back to each prior plan year and look at the small accounts that should have been cashed out and cash them out now in 2024 even though the vested balance could now exceed $5000. Thank you for your thoughts.

Thank you very much! Our document just cites the regulations so that is why I was unclear.

I need clarification please on the rules related to unforeseeable emergencies under eligible 457(b) governmental plans. What are the requirements for exhausting all plan distributions and loans first? I've read Reg. 1.457-6(c) (ii) " distribution on account of unforeseeable emergency may not be made to the extent that such emergency is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or by cessation of deferrals under the plan." I believe the plan document can require a cessation of deferrals, but the language is not specific concerning a requirement to take a loan first and exhaust other available money sources in the plan such as rollover money or age 59 1/2 funds if applicable. Is this an option that a plan document could require, or is it basically required under the 457 regulations, or can it be an administrative requirement of the recordkeeper? Thank you for any comments!

Thank you Luke!

Hi Ilene, I am totally aware of the anti-cutback rules, yes they are complex!! With this post I was wanting to clarify what option I had with those under 3 years of service, since I want to know every nuance. I think I am good there. We have presented the options of the best of both worlds to the client - 2 blended vesting schedules to elect one for the entire plan population post-merger, and they have declined because they want to keep surviving plan at the 5 year graded schedule. So for this merging plan, they want to keep those employees at the 4 year graded for old and new monies. Actually we will grandfather existing accounts as of the merger and new hires will be on the 5 year schedule for entire plan population I do not see an anti-cutback issue here. I will check into the 401(a)(4) implications if any but I think ok in this merger situation. Thank you! Relius Vesting and cut back article.pdf Change in Plan Vesting Schedules _ Internal Revenue Service.pdf

Thank you! Could the plan state that the 4 year vesting schedule in Plan A will continue to apply in Plan B for old monies and new monies after the merger? I do not see a cutback in vesting. The other participants in Plan B after the merger will remain on their 5 year graded schedule. I admit there are recordkeeping challenges as with transfers and rehires.

They are tax exempt entities, so the acquisition is like a stock purchase, where you have 80% or more Board control. They were acquired I think earlier this year, so they have the transition period for coverage testing. Just want to make sure on the new vesting I am ok to use 5 year graded for new monies for the group with less than 3 years of service.

I am revising my question. I have Plan A merging into Plan B 12/31/23. Plan A has 4 year graded vesting - less than 2 years 0%, 2 years - 30%, 3 years - 60%, 4 years - 100%. Plan A will merge into successor plan B which has 5 year graded vesting - less than 1 year 0%, 1 year - 20%, 2 years - 40%, 3 years - 60%, 4 years - 80%, 5 years - 100%. For contributions accrued as of 12/31/23, I have to give participants with 3 or more years of service the right to elect to remain on the old schedule correct? What about participants with less than 3 years - can the old schedule continue to apply to accrued benefits even though the new schedule is better at year 1 and year 2? I am looking at the IRS example where they recommend a graded 3 year schedule even for a 0% vested participant in the accrued benefit. Please let me know your thoughts! Change in Plan Vesting Schedules | Internal Revenue Service (irs.gov)

Thank you very much I like your response and cites!

Under the IRS hardship distribution "safe harbor reasons", one safe harbor reason is for "Burial or Funeral Expenses". Payments for burial or funeral expenses for the employee's deceased parent, spouse, children, or dependents. What is the definition of children - for examine is it limited to biological and legally adopted children. Or would a stepchild qualify. Assume the stepchild is not the primary beneficiary. Is there a distinction between your stepchild and your biological child for this purpose? I am not sure if they are a dependent but I can look into that because it would seem a dependent would qualify. I appreciate any input.

I just want to confirm what the 415 limit will be for a plan year than runs from 7/1/23-6/30/24? It seems to me that it is based on the limit for 2024 but I do not have that yet. Thank you!

I guess since the plan document has the involuntary cash-out provision, how do you operate in compliance with the document? You are saying it is too late to comply with the plan and cash-out these small amounts?

I have a plan that is freezing on 3/4/23 with 100% vesting of all account balances as of that date, and then terminating on 3/31/23. There are small accounts $5000 and under for terminated participants that have not been cashed out yet and the recordkeeper informs us that there is no time to do the normal cash-out process where a distribution package is mailed to the terminated participants (with normally a 30 day period to respond or the account will be automatically rolled over to the IRA) and therefore the non-vested amounts cannot be forfeited. My question is - can we forfeit the non-vested amounts prior to the 3/4 freeze date without a corresponding cash-out process? They will get the termination package after the 3/31 termination date. Issues/comments? Thank you!

Thank you!

Thanks for the response. One tax exempt will become the plan sponsor and the other a participating employer, so each will have obligations to fund based on their financial strength. I think from a plan document perspective, we are ok to merge since plan years do not have to match?

I am looking for thoughts on merging 2 457(b) top hat plans when the plans have a different plan year end - for example one plan has a plan year end of 12/31 and the other plan has a plan year end of 9/30. In the qualified plan world, you cannot merge 2 plans if they have different plan years. I feel this is not really an issue in the non-qualified 457 plan context where there is no Form 5500 filing or testing requirements. Does anyone have any comments? Thank you!

Thanks!

The transition period will end on 9/30 for both plans, but not sure that is a concern - any thoughts on the 3rd option?

What if I merge Plan A into Plan B on 9/30 which coincides with the end of its plan year? Are there any issues? Both are safe harbor with the same basic match formula. THanks!

What if I merge Plan A into Plan B on 9/30 which coincides with the end of its plan year? Are there any issues? Both are safe harbor with the same basic match formula. THanks!

My question involves the merger during the 410(b)(6) transition period of 2 401k safe harbor plans with the same safe harbor match but Plan A has a plan year ending 9/30 and Plan B is a 12/31 calendar year end plan. The goal is to consolidate into Plan B by 1/1/2023 since the coverage transition period ends 12/31/22. What is the best way to accomplish this? Options I see are 1. freeze plan A 9/30 and adopt Plan B on 10/1 (transition period ends but does it matter?) so participants will be in Plan B with mirror safe harbor match, and then 12/31/22 merger Plan B into Plan A, or 2. change the plan year of Plan B to a short plan year from 10/1-12/31 and maintain safe harbor status, and then since both Plan A and Plan B will be calendar year plans they can merge on 12/31/2022. This option creates 2 5500's as well, a plan amendment and also the need for new safe harbor notices for the 10/1 short plan year, so it appears more burdensome. I do not think create a short plan year violates the transition period rule? I appreciate any comments, thoughts, help since I have not really had this issue post-transaction. Thank you!