Everett Moreland

If you read IRC Section 409A you might conclude that you never want to have a disqualified plan

http://www.ca9.uscourts.gov/ca9/newopinion...pdf?openelement As a follow-up to mjb's post, see the 9th Circuit decision at the above link

PLR 200450010, at ftp://ftp.irs.gov/pub/irs-wd/0450010.pdf, provides some guidance

TBob: Without knowing the facts or plan terms are you are dealing with, I think Bird's first answer answers your question. Here's at least one statement in the regulations suggesting that more than the minimum can be distributed; there are probably other such statements: "Q–2. If an employee’s benefit is in the form of an individual account and, in any calendar year, the amount distributed exceeds the minimum required, will credit be given in subsequent calendar years for such excess distribution? "A–2. If, for any distribution calendar year, the amount distributed exceeds the minimum required, no credit will be given in subsequent calendar years for such excess distribution."

IRC Section 401(a)(9)(B)(iv): "If the designated beneficiary referred to in clause (iii)(I) is the surviving spouse of the employee . . . the date on which the distributions are required to begin under clause (iii)(III) shall not be earlier than the date on which the employee would have attained age 70 1/2 . . . ."

To supplement my earlier reply, I don't know the context of your question, so my reply might not be relevant to your question. My reply was to the question of how to compute the death benefit.

The answer depends entirely on what the plan document states. Most of the governmental plan documents I've read reduce the death benefit by 100% of the annuity payments, but I have read some governmental plans that use the pro rata approach for a particular form of annuity.

ftp://ftp.irs.gov/pub/irs-tege/qab_021406.pdf

Consider whether the employment contracts are effective to amend the plan

http://www.irs.gov/pub/irs-tege/irc415b_eg.pdf See the above at 4.72.6.3.5, pages 41-42

Sal Tripodi, The ERISA Outline Book 15.7 (2005 Edition), is where I looked recently when I got frustrated with the time it was taking to anwer this question.

katieinny: I don't have another weblink up my sleeve. I provided the link because I assumed your cafeteria plan issue turns on the 105 issue, but I only know enough about cafeteria plans to be dangerous.

ftp://ftp.irs.gov/pub/irs-isp/all-cafh.pdf

1.401-1(b)(4): "A plan is for the exclusive benefit of employees or their beneficiaries even though it may cover former employees as well as present employees and employees who are temporarily on leave, as, for example, in the Armed Forces of the United States. A plan covering only former employees may qualify under section 401(a) if it complies with the provisions of section 401(a)(3)(B), with respect to coverage, and section 401(a)(4), with respect to contributions and benefits, as applied to all of the former employees." It is not clear to me that the above allows a plan initially to cover only former employees, although I can't think of a reason a plan should not be able initially to cover only former employees. My understanding is that the IRS recently refused to approve as qualified a plan that was only funded with leave cash outs at termination of employment. The IRS might have viewed this as not qualified because it was a severance pay plan and not a retirement plan, and so maybe this is not relevant to your question. Revenue Ruling 73-238 prohibits benefit credits for former employees for periods after termination of employment, but this does not prohibit benefit credits for former employees for periods of employment.

GBurns: http://www.hraveba.org/

409A might apply to a VEBA that does not satisfy 105(h). There is a commercially marketed VEBA that reimburses employees (during employment and during retirement) for medical expenses from an account to which employer contributions are made over a period of years. I've not run this through the regulations, but my guess is this is deferred compensation.

Following are comments I made about this based on Notice 2005-1. My memory is that the same analysis applies under the proposed regulations. Notice 2005-1, Q&A-3©: "The term nonqualified deferred compensation plan also does not include any . . . medical reimbursement arrangement . . . that satisfies the requirements of § 105 and § 106." This statement is not clear about whether a medical reimbursement arrangement that pays partially taxable benefits (because it violates the nondiscrimination rules in IRC Section 105(h)) "satisfies the requirements of § 105." The following from Treasury Regulation Section 1.105-11(a) suggests that a medical reimbursement arrangement that pays taxable benefits (because it violates the nondiscrimination rules in IRC Section 105(h)) would not satisfy the requirements of IRC Section 105 and so would be subject to the new rules in Section 409A: "For amounts reimbursed to a highly compensated individual to be fully excludable from such individual's gross income under section 105(b), the plan must SATISFY THE REQUIREMENTS OF SECTION 105(h) and this section. Section 105(h) IS NOT SATISFIED if the plan discriminates in favor of highly compensated individuals as to eligibility to participate or benefits." (Emphasis added.)

My memory is the 457 regs tell you in detail what to do

AndyH: I don't know. My impression is no weight. I think the question is whether the proposed regulation accurately states existing law. Some years ago I looked at this and convinced myself that, at least for a DC plan, the informal IRS position was that NRA could be unreasonably low. Either my assessment was wrong or IRS personnel now have a different view.

Proposed Treasury Regulation Section 1.401(a)-1(b)(1)(i): "[N]ormal retirement age cannot be set so low as to be a subterfuge to avoid the requirements of section 401(a), and, accordingly, normal retirement age cannot be earlier than the earliest age that is reasonably representative of a typical retirement age for the covered workforce."

vebaguru: The accrued sick leave benefit is not a defined contribution benefit. There is no contribution and no account. It is a defined benefit, defined as a function of salary and accrued sick leave hours.

mbozek: The personnel policies and labor agreements of the local governments I am familiar with that provide this sick leave benefit through their defined benefit plan do not provide for cashing out the sick leave outside the plan. The plan is the only source of payment for unused sick leave. The particular local government I am dealing with that wants to add this sick leave benefit has provided this benefit through a defined contribution plan. The provider of that defined contribution plan is discontinuing the local government's participation, because the IRS has taken the position that, where the employer's only contribution to the defined contribution plan is for unused sick leave, the plan fails the requirement in 1.401-1(b)(2) that the employer make recurring and substantial contributions.

vebaguru: Some governmental defined benefit plans with a current IRS determination letter have provided such a benefit for many years.

Does IRC Section 401(a)(9) allow a governmental defined benefit plan to add, as a new benefit, a lump sum payment of the value of a participant's accrued sick leave at termination of employment, with the option to receive the value as a life annuity? The terminated employee would also receive a life annuity starting at the same time, based on years of service and final average compensation. This appears to have been allowed under the 1987 and 2001 proposed regulations, but not under the 2002 temporary or 2004 final regulations. The 2002 temporary and 2004 final regulations appear to require that a participant's entire benefit be paid in either an annuity or a lump sum, and not to allow payment of part in annuity and part in a lump sum. Any thoughts?