ERISA-Bubs

We received a 401(k) Plan QDRO that assigns to the Alternate Payee (a former spouse) 50% of the Participant's account balance, to come from the Roth portion of the Participant's account balance. The Participant has both Roth and pre-tax contributions in his account. 72(m)(10) provides that if the Alternate Payee is a former spouse, the "investment in contract" must be allocated pro-rata between the Alternate Payee and the Participant. "Investment in contract" is defined in other subsections of Section 72, but only for those specific subsections. Would 72(m)(10) require that the Roth and pre-tax money types be allocated pro-rata between the Participant and the Alternate Payee? Or can I allow the account to be divided to give the Alternate Payee money exclusively from the Roth portion of the Participant's account? Thank you!

We have an ESPP that has offering periods that go from the first to the last day of each month. Over the offering period, we deduct money from paychecks. On the last day of the month, the stock is purchased. Our provider (etrade) reports that "grant date" and the "exercise date" as both being on the last day of the month. They are not easily able to report on Form 3922 that the grant date (Box 1) is the first of the month and the exercise date (Box 2) is the last day of the month. Rather, they'd like to use the last of the month for both the grant date and the exercise date. Is there any problem with reporting both the grant date and exercise date as the last day of the month? If we can get comfortable doing it this way this year, should we keep it that way for 2016, or should we try to get etrade to change it going forward? NOTE: The purchase price under the ESPP is 85% of the fair market value on the purchase date.

Wait, is there a mandatory reporting requirement? If we think we have a possible violation, are we required to report that and invite an IRS agent in to verify? Or are you saying we just need to do our tax reporting as if there is a violation? Isn't the penalty on the Participant -- so what exactly would the employer need to report?

We just discovered an operational error in our Nonqualified Savings Plan (NQSP) that goes back to when 409A was first effective. Given that you can only correct errors under the 2008-113 correction procedure going back a couple years, does it even make sense to do that. If a participant is corrected for 2015 and 2014 but still has amount deferred in 2010, wouldn't all the deferrals (even 2015 and 2014) be subject to the penalty? If we terminate the NQSP now and wait a few years, can we wait a certain amount of time and start a new NQSP or will it be aggregated with the current NQSP? Will they be aggregated as long as they both exist even if one has been frozen for years? I understand IRS audits generally only go back 3 years. If that's true, is it really only the last three years of contributions that are at risk for penalty? If I freeze the plan now and make it 3 years without getting caught, am I generally in the clear?

I thought about that too. I think that helps, but doesn't get us there. Under that section, we could allow an election to defer within 30 days of the grant of RSUs (assuming the performance period is at least 12 months and the election precedes the vesting date by at least 12 months). Under the RSU award, that wouldn't always be the case. Half the RSUs vest 2 years after grant, so making an election 12 months before those vest wouldn't meed the 30 day window requirement for 1.409A-2(a)(5). Good suggestion, though!

I have an RSU agreement. Normally the RSUs are to be paid out on their vesting date. Pursuant to the agreement, the RSUs can be deferred past their vesting date so long as the election to defer them is made at least 12 months prior to the vesting date. This doesn't sit right with me. Once they are vested, they are no longer subject to a substantial risk of forfeiture. Grantees will be able to defer past the short term deferral date. The RSUs are now deferred compensation. The compensation must be deferred before the year in which the services are performed. That means, to defer the RSUs, you would generally have to defer them prior to the date they are granted, since the services are the services performed during the restricted period (from grant to vest). Normally I would push back, but this was drafted by a very intelligent executive compensation attorney. Further, I found the following in Melbinger's materials which also goes against my understanding, which makes me think I might be missing something: Melbinger uses this as an example of how an RSU might be structured: "Pursuant to the ABC Corporation Stock Incentive Plan, ABC awarded 10,000 RSUs to Executive D on July 1, 2008, vesting at 25% per year. The terms of the award agreement provide that D can elect to receive a distribution of a like number of shares of ABC stock (in increments of at least 1,000 shares) at any time after the RSUs become vested, by filing a written election with ABC at least 12 months before the designated distribution date." Can somebody please let me know what I'm missing???

EBECatty - There is already a NQDCD plan with the parent under which the executive has a balance, but it allows for this, so that is not an issue here. We were careful in designing the plan to make it clear the executive doesn't own the shares until they are transferred to him upon the payment date--he is an unsecured creditor. The main issue here is that the Sub holds the shares and that when it's time to pay him out under the NQDC plan, the shares will be coming from the Sub. So, should the exec receive a W-2 from the parent (who maintains the plan) or a 1099 from the Sub (who is paying the balance)? Thank you!

We have a subsidary that is holding some units of another company. We want to allow an executive of the parent to "purchase" those units with his nonqualified deferred compensation balance. When he retires, we plan to just have our sub give him the units. If the NQDC obligation is satisfied this way, how does taxation work? We would like the parent to still issue a W-2 and take a deduction upon payment. Is this an issue since the units are being provided to the executive through the subsidiary? Unfortunately, we can't transfer the units to the parent and provide them to the executive through the parent because, in this case, the parent is prohibited from owing these particular units.

Unfortunately the CIC bonus is not a short-term deferral -- the bonus will meet the definition of "deferred compensation" under the regs. Does this mean it's an impermissible acceleration? Does it matter that no one is vested in anything yet?

We have a change in control plan where if there is a change in control followed by termination, the executives get a separation payment. For 280G reasons, we want to reduce the separation payment and give the participants a bonus equal to the reduction in the separation payment. We anticipate a change in control next year. Is this OK, or does it constitute an impermissable acceleration? Are there any 280G issues I"m missing?

For several years now, a man has unknowingly been paying his ex-wife's insurance with pre-tax withholdings through the cafeteria plan. He caught this and wants a refund. We are processing the refund, but we need to know how to report it. Can we treat it as compensation paid this year, or do we have to go back to the year we withheld the amount and treat it as compensation paid that year (this would require us to go back and amend several years of W-2s, employer reporting, etc.)? If you have any support for your conclusion, that would be great!

It's a bad situation, but assuming it doesn't go back further than a couple taxable years, you might be able to use a combination of 2008-113 and 2010-6. First, you correct the operational failure under 2008-113. Something was deferred that should have been paid in an earlier taxable year. Correct under IV.C., V.D., VI.C. or VII.D. (depending on the year/amount of the failure). Second, you correct the bad plan language (ambiguous term) under 2010-6, Section IV.A. There are other options, but they probably dont' apply: 1) You didn't pay because it was not administratively feasible and you paid in the first year is was administratively feasible. 2) You didn't pay because it would have jeoparized the company's ability to continue as a going concern and you paid in the first year that was not longer the case. I think this is the best I can do for you.

Basically, we missed a couple loan payments (withheld and not delivered) and before we could get them into the Plan, the participant exercised his option to pay off the plan early in full.

We withheld loan payments from a participant's pay but didn't timely remit them to the plan. Now we are going to get them in the plan, but the loan is paid off. How do we get the loan payments in the plan? How do we classify them?

The CEO of a company is owed $100,000 per year. In 2012 and 2013 the company was struggling so the CEO didn't take compensation. He didn't waive it either, he just didn't take it those years thinking he'd take it later when the company was doing better. In 2014 the CEO waived his right to the $200,000 salary for 2012 and 2013 in exchange for a $1 million loan from the company. 1) It seems to me the CEO impermissibly deferred his 2012 and 2013 compensation to 2014. There was no agreement deferring it to a permissible trigger date under 409A. Is there any way to categorize this as anything other than a deferral under 409A? 2) The company was struggling but probably not to the extent that paying the CEO would have risked the company's ability to continue as a going concern, so I can't get out of 409A that way. Is there any other argument to get out of 409A? 3) Since this only dates back to 2012, I can use the correction procedure under Notice 2008-113. Part of that correction procedure says the company must pay the distribution to the employee and cannot compensate him (interest, etc.) for the late payment. So are we going to have issues since we traded the $200,000 for a $1 million loan? Any help is appreciated.

1. You're right, a defaulted loan doesn't comply with 72(p), but the way I read EPCRS is you have to use VCP if your loan was designed in a way that doesn't comply with 72(p). In our case the loan was designed to comply with 72(p), but operationally did not. 2. A defaulted loan is a deemed distribution, but I want to correct it (preferably through SCP) so that is is not a deemed distribution. Can't this be done?

I've heard many times that all plan loan errors have to be corrected through VCP. I just looked at 2013-04, though, and it really only says you have to use VCP if your loan didn't comply with 72(p)(2). I have more of a defaulted loan situation that I don't plan on treating as a deemed distribution. Can I use SCP???

In a typical mirrored loan, the company will get a loan from the bank and then loan the money to the ESOP pursuant to identical terms. We have a company that would like to get a loan from a bank and then loan the money to the ESOP with more favorable terms. Does this work? Does this provide greater protection, since they are charging the ESOP less? (then again, the ESOP owns 100% of the Company, so maybe it doesn't matter.

Can we have a negative election applicable to one group of employees, but not applicable to all groups of employees? For example, the plan will say, "if you are a salaried employee, you must elect to defer compensation or no compensation will be deferred. If you are an hourly paid employee, we will automatically defer 3% of your salary unless you elect otherwise." Are there any issued with this?

It can be. The employer can easily get around it by paying it within 2 1/2 months of the year starting, though.

Say I have a Nonqualified Deferred Compensation ("NQDC") Plan that allows only for lump sums or installments over 10 years. I would like to add by amendment, effective 1/1/2014, that allows participants to also chose 5 year installments. Can I allow an employee to make a subsequent election whereby he changes a 2008 election (deferring 2008 compensation) from a lump sum to the new 5 year installment option? Of course, I would apply the subsequent election rule -- the election isn't effective for 12 months and delays the initial payment by 5 years. But can I allow him to change to an option that wasn't around when the money was originally deferred?

Thank you! I did not see this in EPCRS. Did I miss it, or should I be checking 415?

We have some highly paid employees who get a good employer contribution based on a flat percentage of their compensation. This, plus the elective deferrals get us close to the 415 limit. If earnings are added, it gets at least one person over the 415 limit, but I'm not sure whether they should count.

We are doing a correction for failure to allow an eligible employee to defer. Making up the missed deferral opportunity does not cause any problems, but the earnings in the QNEC would put the employee over the 415 limit, if counted toward the limit. Should we reduce the QNEC to fall under the 415 limit, or does the earnings in the QNEC not count toward the limit? Thank you!

The ESOP statute requires an ESOP of a private companies to hold the Common Stock of the company with the best voting power and dividend rights. Can a private company have an ESOP that holds Common Stock with the best voting power and dividend rights and also have preferred stock with better voting power and/or dividend rights than the Common Stock held by the ESOP? Any cites to official or unoffical guidance are greatly appreciated.