ERISA-Bubs

I don't want to disclose too much detail, but, yes, we are starting a new plan. Currently, the employer is running the plan. We wanted to offer the participants more options in the plan but the employer is not able to run the more complicated plan, so we need a recordkeeper for the new options. Unfortunately, there are a couple things about the existing plan that the recordkeeper cannot do, so we have to freeze the old plan and let the employer keep running it and start a new plan with the new recordkeeper running it. We'd like to offer participants in the old plan the option to transfer funds to the new plan (to take advantage of the new features), but the regs appear to prohibit that. It makes me very nervous to just trade one unfunded benefit for another since the 457 regs do not appear to allow that. If we don't follow the 457 regs, we won't be a 457(b) plan, and all the benefits will be taxable when vested (i.e. immediately) under 457(f).

Also, does anyone know the reasoning behind allowing plan-to-plan transfers in tax-exempt employers only where there is a severance from employment? It seems like with any other type of plan (government 457(b), 403(b), 401(a)), we'd be able to do this, but not here.

We have an employer who wants to freeze their current 457(b) plan and start a new 457(b) plan. The employer also wants to allow participants to roll their account balances from the current 457(b) plan into the new one. The employer is tax exempt (not governmental) and the plan-to-plan transfer rules in 1.457-10(5) require that "the participant has had a severance from employment with the transferring employer and is performing services for the entity maintaining the receiving plan." (Interestingly enough, there are specific rules for plan-to-plan transfers in a government 457(b) plan within the same employer). This would seem to ruin our client's plans. Is there any other way to get money from the current 457(b) plan into the new 457(b) plan?

We have an employer with a 457(b) plan that currently has a distribution option of "life certain." They want to get rid of this option and instead offer 10 year certain and 20 year certain. Is this allowed? They also want to freeze their 457(b) plan and allow participants to roll over ALL their money to a new 457(b) plan (there is no option to move just some but not all money). Is this allowed? Thank you in advance!

Catty - Upon further reflection, I believe you're right. The regulations on substitutions of payments cover both "forfeitures" and "voluntary relinquishment" and are not limited to voluntary forfeitures. Thanks for the help!

OK, the additional facts are, it is to be paid in 3 years, but only if the participant is still employed at the time. The participant is leaving, so the benefit will be forfeited as soon as he leaves. I understand if we accelerate vesting, we will have to stay on the same payment schedule and pay him out in 3 years. But, what if we just offer him an identical benefit (not conditioned on him forfeiting the current benefit, but in reality, the current benefit will be forfeited by reason of him leaving) and make it payable at an earlier date of our choosing. I don't know if that constitutes an acceleration because the original payment is forfeited pursuant to the terms of the plan, and the new payment is not being paid in consideration of the participant forfeiting the original payment.

We have an employee who is leaving and his benefit will be forfeited because he is not due to vest for a couple years. Can we do the following: 1) accelerate vesting and pay the benefit according to the schedule? 2) offer him the exact same (or modified, even) benefit in a second agreement that is fully vested, and then just let the current benefit forfeit? I'm concerned with (2) because I know that there are issues with replacing one benefit for another, but that doesn't seem to be the case here. The current benefit is being forfeited pursuant to the terms of the plan, so we are in a position where we don't owe him anything -- why shouldn't we be able to provide a separate benefit, even if it looks like the one being forfeited? It would be maybe an issue if he voluntarily forfeited it for a new benefit, but that isn't the case here. Second random question. If the Plan currently says the benefit will grow at 5% annually, can we revise the Plan to say the benefit will grow based on some other metric (e.g. company performance) starting on a future date (e.g. tomorrow or next month)? Or is that an impermissible modification?

Under the prohibited transaction rules, an employer can make an in-kind contribution of real property to a DB plan if (among other things) the real property constitutes "Qualifying Employer Real Property." I have a few questions regarding what constitutes QERP. One requirement for property to be QERP is that it must be suitable for more than one use. This is a "facts and circumstances" determination, but I haven't seen any real guidance as to what this means. Does anyone have anything on that? I have read through all the PTEs I can find, but I can't find a case of an employer donating foreign property to a DB plan. Is there any reason foreign property shouldn't constitute QERP? Thanks in advance for any help!

We have a client who is thinking about contributing real property to it's underfunded pension plan. We know of a few companies that have done this, such as Anheuser-Busch and Coca Cola, and we're trying to find more examples. Are you aware of any employers who have done this? If so, who (extra points if you have a link to an individual prohibited transaction exemption for the company!)?

Employer S (Seller) has an HMO and a PPO. There are COBRA beneficiaries in each. Employer S will sell substantially all its assets to Employer B (Buyer). Employer B is a successor employer. Employer B only has a PPO. The parties have agreed Employer S will continue to run the HMO through the end of the year. Accordingly, Employer S will continue COBRA coverage for COBRA beneficiaries in the HMO plan. Employer B will continue COBRA coverage for COBRA beneficiaries in the PPO plan under Employer B's plan. Questions: Is it appropriate that responsibility for coverage be split up like this? If not, what are the issues? When the HMO plan ends at the end of the year, should those COBRA beneficiaries receiving HMO COBRA coverage from Employer S begin receiving PPO COBRA coverage under Employer B's plan? If not, what is the best way to continue their COBRA coverage? Thank you for any help!

I see what you mean. "We" are the employer of the participants / the company that runs the NQDC plan (a single entity). Administrator is the outside company that we hired to run the plan -- perhaps "record keeper" would be a better word?

Thanks jpod. In your experience, how does it normally work? The Administrator doesn't issue any tax document? In which case, they give us the withholdings and we issue a W-2?

We have a NQDC Plan. When a distribution comes due, the Administrator sends the money we have set aside to us, we cut a check to the participant, and we issue a W-2. The Administrator said it can cut the check to the participant itself, but since the check will be coming from them, they will have to issue a 1099. I've always understood that NQDC distributions are to be issued with a W-2, since the money represents compensation earned from an employer for work performed. Would it be appropriate to allow the Administrator to cut the check and issue a 1099? Can the Administrator legally issue a W-2? Another option might be for the Administrator to cut the check, send any withholdings to us, and then we issue a W-2 from that point. But the point of the change to to have the Administrator take over the entirety of the distribution process, so that is not ideal.

As I read it, the language has to do with what form of benefit the AP can choose with respect to the AP's separate interest. It is basically saying the AP can choose any form of benefit except the AP cannot choose a JSA and name her current spouse as the survivor. This shouldn't affect the Participant's separate interest in any way. Once the account has been divided between the AP and Participant, whatever form the AP chooses shouldn't have any affect on the Participant's account. So I guess the question is, can the Order limit AP's form of payment election options once the account has been divided?

We received a separate interest Order for our Pension (Defined Benefit) plan that allows the Alternate Payee to elect any form of benefit available under the plan an applicable law except that "the Alternate Payee may not elect a joint and survivor annuity where her current spouse, at the time of election, is designated to be the surviving spouse." Have you seen this? Is there any issue with accepting the Order as a QDRO with this language that limits the Alternate Payee's distribution options?

We have a few executives that want to max out their 401(k)'s as early as possible in 2017. This basically means they will be deferring 100% of their first 2 or 3 paychecks. The problem is, under our system 401(k) contributions are deducted first, and then we deduct for other things, such as health plan premiums. So once we take 100% of their paychecks to cover their 401(k) contribution, there is nothing left to fund the other deductions. Is there an easy way around this?

We have an specified employee who made a subsequent change to his election. He changed his election to receive payment upon separation from service to receive payment 5 years following separation from service. Should we pay: 1) exactly 5 years following separation, since the 6 month delay will automatically be satisfied, or 2) 5 years + 6 months following separation, since the payment would have originally been paid 6 months after separation due to the specified employee delay? I'm inclined to go with 2, because the regulations state a subsequent change should "be deferred for a period of not less than five years from the date such payment would otherwise have been paid," and that date would have been 6 months following separation. Anyone agree/disagree?

We were informed that a QDRO would be forthcoming on a Participant's account, so we put a lock on the account. Now the Participant is due to receive a required minimum distribution. Should we make the RMD even though the account is currently locked?

We have a plan that allows certain employees to purchase equity interests in our company. Is that an ERISA plan? Would any of the following features make it an ERISA plan: Right of first refusal. Employee required to sell stock back to company upon separation from service. Employee required to sell stock back to company upon death. Thanks in advance for any help!

Does anyone know of a good resource for how to apply the 409(p) test when the S-Corporation has subsidiaries and certain participants own stock in the subsidiaries? The guidance is clear that an option to purchase the stock of a related entity should be counted as synthetic equity. But what if the participant owns the stock outright, rather than an option to purchase the stock? Is that included in the test? If so, is all of the stock in the subsidiary included in the denominator when determining a nonallocation year? I don't necessarily need someone to answer these questions, but if anyone knows of a good 409(p) resource that includes guidance on these kind of questions (even if it costs money), I'd be incredibly grateful. Thanks everyone.

I agree with JPOD's line of thinking. What if, instead of dropping the SROF on the last day of the plan year in which the bonus is earned, you drop the SROF on the first day of the plan year following the plan year in which the bonus is earned. That would buy you an extra year by just waiting one day.

I posted this once before without luck. I'm hoping someone can help me on this because I appear to be stuck. The 409(p) regulations define "related entity" as: "any entity in which the S corporation holds an interest and which is a partnership, a trust, an eligible entity that is disregarded as an entity that is separate from its owner under § 301.7701-3 of this chapter, or a qualified subchapter S subsidiary under section 1361(b)(3)." Is a subsidiary of a subsidiary considered a "related entity"? For example, the S Corporation owns Subsidiary A and Subsidiary A owns Subsidiary B. Is Sub B a "related entity" to the S Corporation? I appreciate any help / thoughts / answers anyone can provide. Thank you!

Our ESOP is maintained by the Holding Company and the ESOP has borrowed from the subsidiary directly under the Holding Company. We are restructuring to put a new entity between the holding company and the current subsidiary that is the lender to the ESOP. Is it OK for the same entity to continue to be lender (the sub of the sub of the Holding Company that maintains the ESOP)? Or should be get the loan transferred to the new subsidiary?

Sorry, should have specified. It is a 457(b) top-hat plan for a nonprofit corporation.

Our plan currently provides distributions will be made in the form determined by the Committee in one of the following forms: 1) lump sum 2) monthly or annual installments (not to exceed life expectancy) 3) monthly payments based on single life annuity, paid until the account is exhausted. 4) another option requested by participant and agreed by the committee. We want to change it so for people separating from service next year there are only two options: 1) lump sum 2) installments that are accelerated to lump sum upon death of the participant. Anyone who is retired or retired before next year still get the original (4) options above. Is this permissible?