ERISA-Bubs

fmsinc is 100% correct. However, in addition to his/her advice, there are ways to delay taking the distribution, if you plan allows it. Under the rules for "subsequent deferral elections," you can (if your plan allows) defer the date you are to receive a distribution as long as: (1) you make the subsequent deferral election at least a year prior to the date the distribution otherwise would have occurred, and (2) you delay your distribution at least 5 years from the date the distribution otherwise would have occurred. The above is a very general description of the subsequent deferral election rule, and there are lots of ins and outs. To summarize: (1) fmsinc is right -- if you receive the distribution, you are going to be taxed. You cannot further delay taxation. But, (2) there are ways (see above) that you can delay receiving the distribution, which would further delay taxation.

Just to add a bit of context, the remaining loan balance is a little above $2,000. The VCP user fee (in this case) would exceed that amount. So, we are hoping for some sort of solution that would involve SCP, but which is still allowable under the correction procedures.

We have a typical situation where a participant went delinquent on his loan. We would normally correct by reamortizing the loan over the remainder of the loan term, but in this case, the loan term (which is the statutory term) is recently expired. According to EPCRS, if the statutory loan term is expired, the loan should be treated as a deemed distribution, not corrected according to the correction procedure. The problem is, we are a big cause of the delinquency. The 401(k) Plan under which the loan was granted was terminated (in connection with the employer/plan sponsor being acquired). The purchaser in the transaction is allowing all plan loans under the 401(k) Plan to be transferred to the purchaser's plan. Payment of loans was put on hold during the transition, the loan went into default, and now the loan term is expired. The Loan currently sits in the purchaser's plan, in default, and now past its term. Is there anything we can do?

We had an SEC audit recently, and the SEC found some issues that they say require remediation. I don't want to get into too much detail about the actual issues, but we would like to remediate them by contacting the affected parties directly and explaining to them the issue and what we are doing to correct it. We do not want to put anything in writing. While we want to fully correct the issues, we do not want to risk any reputational harm that may stem from having written documentation out there, implying that we did something nefarious. Is anyone aware whether the SEC ever allows "oral" remediation? Are there any examples out there of this ever happening? The SEC handbook defines remediation as "dismissing or appropriately disciplining wrongdoers, modifying and improving internal controls and procedures to prevent recurrence of the misconduct, and appropriately compensating those adversely affected." We intend to do this; we just want to do it orally. Thank you all!

I appreciate the advice. I have a couple follow ups. When it comes to potentially freezing the AP's benefit -- we would freeze the Participant's benefit if we were told a QDRO was forthcoming that will affect the Participant's benefit; can't we similarly freeze the AP's benefit if we are told a QDRO is forthcoming that will affect the AP's benefit? It certainly is possible that the original QDRO was a mistake that needs to be fixed, but that the AP (having already been awarded a portion of the Participant's benefit to which she isn't actually entitled) will not cooperate. Can an AP's awarded benefit be subject to a QDRO? In other words, instead of amending the original QDRO to say it is null and void, could the Participant get a QDRO that awards him the benefit that is now with the ex-spouse?

A QDRO was received and approved on a participant's pension (DB) benefit. The order was a separate-interest order (i.e. not a stream-of-payment). It turns out, it never should have been filed, and both parties agree (according to the participant, anyway). The Participant has not begun receiving payments. We don't know yet if the AP has. Assuming she has not begun her benefit, can we simply have them provide an amended QDRO, reversing everything? In the meantime, is it okay practice to lock her benefit until we can get it settled? (I realize this would only be necessary if she thinks she is entitled to the benefit, but we just don't know yet). If she has begun her benefit, is there anything we can do? We can't stop the benefit once it is in place, so the only option I can think of is for him to get a 100% stream-of-payment QDRO on what she is currently receiving. Thanks all!

We are terminating a Pension Plan. The insurance company we are using to purchase annuities to pay benefits doesn't like our "suspension of benefits" provision. the provision allows Participants in pay status to suspend benefits for any month during which the employee works at least 80 hours (service, as defined in ERISA Section 203(a)(3)(B)). Can we remove that provision to make the insurance company happy? Or is this some sort of protected benefit? Thank you!

Thanks CuseFan. That was my thought, too, but I ran across something that gave me second thoughts. Treas. Reg. Section 1.401(a)(17)-1(b)(4) says the limit applies separate with respect to compensation of an employer from each employer maintaining the plan (this is in the contexts of multiemployer/multiple employer). Treas. Reg. Section 1.415(a)-1(e) says the limit applies in the aggregate with respect to compensation in a plan that is maintained by more than one employer so that compensation to such participant from all employers must be taken into account. Thus, employees that work for more than one employer during a year – only get one 415 limit for a year. So, the compensation limit and the 415 limit don't work exactly the same. I just don't have clarity on the controlled group issue.

We have a 401(k) Plan in which several related (i.e. same controlled group) employers participate. An employee doesn't receive compensation in excess of the 401(a)(17) limit from any single employer in the Plan, but does have combined compensation in excess of the 401(a)(17) limit based on compensation received from the related employers. I know the 401(a)(17) limit is not combined (but rather a separate limit for each employer) if we are dealing with a multiemployer or a multiple employer plan (see Treas. Reg. Section 1.401(a)(17)-1(b)(4)). Since this participant is receiving combined compensation in excess of the limit from employers in the same controlled group, does that make a difference? Can we look at compensation from each related employer separately, or do we have to look at combined compensation from all related employers? Thank you.

Our Nonqual Plan provides that payment will be made 14 months following termination of employment. The idea is that if a participant terminates, he/she still has a couple months after termination to make a subsequent deferral election. This seems to be compliant, because the 12 month/5 year rule only requires that the subsequent deferral be made 12 months before the payment date, not the date that triggers payment (e.g. the termination date). Am I reading the rules correctly that this is allowed?

That is very helpful! Thank you!

Thank you. I am comfortable with designing something 409A-compliant.

Do you have some examples I can convey to help them determine whether they really want to do this?

A company wants to set up a 457(f) Plan. They are aware of the taxation upon vesting rule, but they don't want to make a full distribution upon vesting. Instead, they want to distribute a percentage to cover taxation, but leave the rest in the plan until a specified payment date. I don't see this as a problem, but what issues am I missing? The company is a nonprofit, so how are 990 tax returns handled for contributions/distributions. The money in the Plan will continue to accrue earnings after it is vested but before it is distributed -- is there a tax issue here, or are the investment earnings not realized until final distribution? Does the tax distribution (the amount distributed at vesting to cover taxes) have to be a set amount (specified in the plan ahead of time) or can it just be the amount necessary to cover taxes, which is calculated at the time of distribution? Thank you in advance!

We had an issue where our fees were disclosed to participants incorrectly (404(c) issue). Revenue sharing is allocated to participants in relation to the revenue sharing produced by their investments. Our disclosures say revenue sharing the the plan as a whole is allocated among all participants, pro rata, no matter their investments. This is only affecting pennies per Participant. What does this mean for us? Are we subject to some penalty? Do we need to send out corrected disclosures? Is there some sort of "de minimis" exception, where we don't have to worry about penalties or corrected disclosures, and we can just correct disclosures going forward? Thank you!

A previous employer (whom we acquired, but didn't take on their 401(k)) had a short limitation year, and, thus, a small 415(c) limit. Accordingly, a few employees hit the 415(c) Limit and the previous employer reclassified some as "catch-up" (even though they hadn't hit their deferral limit) so they could max out on 415. I don't think that affects us, but does anyone see any issues?

Thank you all!

Thanks Lou! Do you see any problem if there are no clearly documented administrative procedures? In other words, the procedures are the same for the entire plan and for all subs, but don't go into this level of detail on catch up processing and so neither Sub can be said to be violating the procedures?

All subs participate in the same 401(k) plan, which includes catch ups. In Sub 1, all catch-up eligible participants have their contribution limits automatically increased at the beginning of the Plan Year. In Sub 2, all catch-up eligible participants are given notice that they need to actively elect catch-up. They are given a notice at the beginning of the year and a follow-up mid-year. Accordingly, if someone in Sub 2 elects to defer 6% of comp, and that equals $30,000, they will be cut off at $22,500 unless they have actively elected catch-up. That same employee in Sub 1 would have the full $30,000 contributed, without ever having elected catch-up. We plan to make all catch-up administration consistent for future Plan Years, but what about this Plan Year? Is this a problem? If we change administration this year, does that create a problem where we otherwise wouldn't have one? If this is a problem, what is the solution?

Thanks Peter!

We received a DRO from July 2020 back in 2020. The order was clear, but contained some very odd terms, so we reached out to the parties to verify our interpretation. We just heard back from them this week that our interpretation of the order is correct. The DRO could be considered a QDRO, but can we process it now that its two years old? I know there is the 18 month rule, but that appears to be more of a deadline for the administrator to process the Order, not a limit on how old the order can be. Can we process the Order? Is there a limit as to how old an order can be and still be determined a QDRO and processed accordingly?

This is client driven. They want a single plan document so they can amend one plan when needed rather than amending several plans every time. It might be initially more work to implement, but for future purposes, updating the plan will be much easier.

We have a group of employers that are somewhat related, but definitely not considered the same "Service Recipient" under the 409A Regs. But, they all have identical Nonqualified Plans. We would like to combine the plans into a single plan. We would take pains under the Plan to make sure the definition of "Employer" was a reference to the individual Employer the Service Provider works for, including that the Employer is responsible for benefit payments out of their own general funds, and the Employer's creditors have access to those funds in the event of bankruptcy/insolvency, etc. Does this work? Some concerns I have are: Say one Employer goes bankrupt and their creditors wipe them out so they can't pay benefits under the Plan -- is there any risk the other Employers are on the hook for benefit payments for the bankrupt employer? Say one Employer goes bankrupt, would their creditors have any claim over accrued benefits owed to the Service Providers of other Employers under the Plan? Are there any other rules that would prevent a combined Plan just as a matter of statute or regulation? Thanks in advance!

I know part of the rule for SARs is that there not be a feature to further defer the compensation beyond exercise. So a couple scenarios: 1) assuming the SARs have an exercise feature, would it still be considered a feature to further defer if we allow participants to elect to defer payments of SARs under a NQDC Plan IF we require the participant to make the deferral election in the year before the SARs are granted? 2) assuming the SARs have no exercise feature (i.e. the SARs are paid out automatically as soon as vested) THEN would it be okay to defer the SARs under a NQDC Plan so long as we require the participant to make the deferral election in the year before the SARs are granted?

We have a couple former employees who are in our medical plan because they left on Long Term Disability -- our medical plan says former employees on LTD remain eligible. The medical plan is being amended to no longer cover employees on LTD. Normally, this wouldn't trigger COBRA, but, since we never offered COBRA when these employees initially left employment, do we need to offer them COBRA now? Thank you!