ERISA-Bubs

It depends on what you are trying to do. If you are trying to defer the same money that was deferred under the current 457(f) plan, that would be a problem. The services provided that relate to that money go back to the year the amounts were originally deferred. For example, an amount deferred in 2001 that vests in 2011 cannot be deferred under a new plan established in 2010, because the election (made before 12/31/2010) would come after the year the services are performed relating to that compensation (2001). If you are trying to create a new plan to defer new compensation (for example, a 2010 plan that defers money earned in 2011), I do not see any problem with doing this.

I don't think we have a problem there. The division was actually a sub. The employees remained employees of the same employer (the sub) when it was spun off, so there was no separation. The question is this -- the plan covers the entire control group that the sub used to be part of. Can we terminate the plan and accelerate payments to employees of the sub? If we do that, does it require the control group to terminate all like plans and not adopt a new one for several years?

We have a service provider who does first-level appeals. This service provider asserts that they are not a fiduciary because the plan also has a second-level appeal. The service provider says there is caselaw out there supporting this position, but I have not found it. Is anyone familiar with such caselaw? Does anyone know whether a second-level appeal would relieve this provider of fiduciary status? Since claims are required to be reviewed by the appropriate fiduciary, is it even possible to allow a service provider to review claims if the service provider refuses to be a fiduciary?

We have a plan that covers our control group. We spun off a division years ago and they are no longer part of our control group. Can we cancel the plan and accelerate payments just with respect to the spin-off? Or can we cancel the plan just with respect to the spin off and accelerate those payments? My concern is I don't want to have to cancel other nonqualified plans of the control group as a result of accelerating payments for a spun off entity.

Situation -- Director X is working for a company, but not directly for subsidiary A. Subsidiary A is spun off and the Director X begins working for Subsidiary A. The spin off documents provide that it won't constitute a separation from service. Does it constitute a separation from service anyway. I know someone who works for a sub does not experience a separation when that sub is spun off. And I know that in the case of a sold subsidiary, if the selling documents provide there is no separation, there is no separation. But this is unique to both those situations -- the person wasn't an employee of the sub before the spin off and it is not an arms length sale. I think there is a separation, regardless of the language in the spin off documents. Does anyone agree?

XTitan - I believe you are right. There is some language in the preamble to the final regs that says, if a participant is given an election to deferr, the employer may not override that election after the due date for the participant's election. Thanks for your help.

Our plan says that participants can defer up to $50,000 and more in the employer allows it. In the past we have allowed Employee to defer more. This year he elected to defer more than $50,000. We now have decided we do not want him to defer more. Can we impose the $50,000 on him even though the year has already started and he elected to defer more?

We have a VEBA trust that is running out of money and can't continue in operation. How do we wrap up the VEBA trust? Is there a specific process for this? If we cannot finish out the year or cover current costs (no money) are the trustees going to be on the hook? The employers?

You absolutely can defer restricted stock. The only question is timing. If you are going to defer it, it must be deferred compliant with 409A because you are not longer under the restricted property exception to 409A. The election to defer would have to occur in the year prior to the services to which the restricted stock relates. That would be the year prior to the year of the restricted stock grant. You could make an argument that the restricted stock relates to services performed over the restricted period and try to divide it up. For example, if the restricted period is 5 years, 20% of the grant relates to each year. Therefore, you could take the position that a deferral election made in before the last vesting year could defer 20% of the award. I think this is risky. But, clearly, if the intent is to defer the entire award, it must be made before the year of grant. There is also the special rule for making elections to defer compensation that requires at least a year of services to vest. But even that special rule would require an election around the date of grant.

This is not the case of a new enrollee. This person is a participant whom we have deducted a deferral from each paycheck and one paycheck was missed. We plan to make it up by deferring double from the next paycheck, if we can. A conservative reading would be this is a missed deferral that is being corrected later in the year. It could be corrected under 2008-113. A more realistic, and I think defensible approach, is that the participant elected 10% deferrals from regular compensation and that is what he is getting, even if not perfectly proportional in each paycheck. From your answer I understand that you think the second approach is fine. Do you think there is any risk here?

I agree. Even if you could possibly classify this as a legally binding right, in all cases it is paid within 2 1/2 months of the end of the year (unless you have some strange payment cycle), so it would never constitute a deferral of compensation thanks to the short term deferral rule.

Restricted stock is not subject to 409A as long as there is further deferral mechanism. In other words, when it is no longer restricted, it is received. There are two ways I can see around this. 1) you can comply with 409A, but in order to do that the deferral election would have to be made before the year the restricted stock is granted. 2) you can make sure the restricted stock stays subject to a substantial risk of forfeiture until retirement and then pay it out within the short term deferral period. This could be impossible if you want to allow the employee to retire at a date of his choosing. But you could set it up so that the employee has to stay employed until a date certain (maybe the year he turns 65) otherwise he loses the money, and then it's paid within 2 1/2 months after that year.

We missed a deferral in one paycheck. Can we make it up in the next paycheck? I know under Notice 2008-113 it is a failure to pay compensation that should have been deferred. There is a special procedure even if the failure is caught and correctd in the same year. However, the examples for that correction involve bonuses--a one time payment. So, clearly, if an amount is not deducted from the bonus, a one time payment, there is a failure. However, in our case we're looking at regular compensation. We will still be deducting from compensation, just a couple weeks later than we normally do in practice. Do I have an argument here? If so, does my argument go out the window if the plan or the election form specifies that deferrals will be made proportionally on each paycheck?

Can a multiemployer pension plan require contributing employers to increase plan contributions without having to re-open collective bargaining? Is this purely a contractual issue, or is there controlling authority on point?

What type of policy is an Accidental Death and Disability under ERISA? Does it classify as a life, disability, health or welfare benefit? Something else? Any help is appreciated. Thank you.

We have a new plan that allows individuals to defer base pay and bonus. The company has two divisions, employees from both divisions participate. Because payroll is processed differently in the different divisions, under division 1 commission was deferred as bonus. Under division 2, it was not deferred. Division 2 employees have complained that they thought they deferred commissions by deferring base pay. We want to amend the plan for this year so that division 1 commissions are deferred as bonus and division 2 commissions are deferred as base. We think an amendment is necessary if we're going to treat commissions differently for the divisions. Here's the question -- can we make that amendment today so that it is retroactive to 1/1/2012? What is the alternative? To treat commission the same at each division (this would cause us a lot of trouble with division 2 employees)? Can we make an amendment the is prospective only (in which case, what do we do with the commission that wasn't deferred so far)? The regulations provide the following, which makes me think we can do this retroactive. Section 1.409A-1©(3), the written plan requirement: "Notwithstanding the foregoing, a plan will be deemed to be established as of the date the participant obtains a legally binding right to a deferral of compensation, provided that the plan is otherwise established under the rules of this paragraph ©(3)(i) by the end of the taxable year of the service provider in which the legally binding right arises, or with respect to an amount not payable in the year immediately following the taxable year of the service provider in which the legally binding right arises (the subsequent year), the 15th day of the third month of the subsequent year. "

I agree with XTitan. There is nothing in 409A that allows the company to terminate the election just because the compensation earned while an employee isn't paid out until after termination.

I had a client ask me whether an agreement was structured correctly for the company to receive a tax deduction for the separation payments. How can I tell? Isn't the employer always entitled to a tax deduction for compensation paid (and reported)?

Can anyone explain the individual notice requirement under 8955-SSA that requires notice of any benefits that are forfeitable if the participant dies before a certain date (See IRC Section 6057(e))? What would be an example of such an occurrence?

By 409A Hotline, I simply mean the number in the preamble of the 409A regulations. Fair warning -- you will get a voicemail box. I have been told they strive to return calls within a week, so if you're looking for a quick answer, it's probably not the best place to start.

There has been plenty of discussion on these boards regarding reporting of distributions of nonqualified deferred compensation to beneficiaries after death of the participant. In short, if any of the deferrals vest in the year of death, FICA is reported on the employee's final W-2 and a Form 1099-Misc is issued to the beneficiary. If FICA has already been paid, you just need the Form 1099-Misc. The question I have is what tax rate do we use? Do we use the employee's tax rate, or the beneficiaries tax rate? What if it is paid in installments beginning in the year of death--employee's rate for the installment that year and beneficiaries rate for payments in subsequent years? I would appreciate any advice and any citations you have available!

Under certain corrections under 2008-113, an employee is required to repay amounts erroneously paid to the employee, including interest. The correction procedure specifically says the employee should have a legally binding right to the amount that had been erroneously paid, but doesn't say what happens to the interest. Does the employer just get to keep this amount? I realize that the penalties under 409A fall on the employee, but I fail to see why the employer should benefit from the failure.

Notice to interested parties must go to all employed participants, all who could become participants and all who are employed in the same location. For a frozen DB plan, the only people in the plan are individuals with accrued benefits. Are they considered participants?

We have a nonqualified plan. The plan has the following provisions for mistaken or omitted participation: If you are participating and Employer determines should should not be, your deferrals will immediately stop. If you are not participating and Employer determines you should have been, you will receive a special contribution. Is this allowable under 409A?

No, I'm not referring to in-plan Roth -- I'm refering to the external conversion to a Roth IRA