holdco

Hello, everyone! A question. We have an ERISA trust that maintains funds for training union apprentices. For whatever reason, an entity with the same name as the trust was recently incorporated as a New York corporation, under which the funds are intended to be managed. The trust isn't registered anywhere, except on its Form 5500 filings. There is a trust document. Does this constitute a plan termination, if we move all trust assets and liabilities to the new corporation? We simply want to roll all of that into the corporation and operate exactly as before. Does anyone have familiarity with this issue, and perhaps suggest any authority on it? Thanks in advance for any help!

Hello, everyone A question. Two companies in a controlled group don't have a high deductible health plan (HDHP), nor a corresponding HSA. A third company, to be acquired, offers a fully insured HDHP to its employees. It's thinking of offering them an HSA as well. IRS Notice 2011-1 doesn't require compliance with controlled group nondiscrimination test in respect of insured group health plans. Does adding the HSA option somehow take away that exemption, so now we have to offer the HSA to the other two companies as well? Note that the HSA isn't likely to be offered through a cafeteria plan. Any thoughts you have would be much appreciated. Thank you!

Hello Lou Thanks for the reply. The employee has a nontaxable benefit under the 125 plan, a portion of which has now become taxable by virtue of the plan failing NDT testing. Consequently, the employee is responsible for a portion of the FICA taxes due on that benefit amount. The employer will pay its portion of the tax on the newly taxable benefit amount, and will also pay the employee portion for the 2013 taxable year. In 2014, the employee will cut a check to the employer for the taxes it paid in respect of that previously nontaxable benefit. If the employee doesn't, he will receive his usual paycheck, but in addition to the typical withholding, there will be additional withholding in the amount of the tax paid. Substance over form, it is a loan. I don't see any federal prohibitions on this. State is another matter.

Hello, QDRO! Thank you. I am aware of that point, but let's say that's not a problem (although it likely is) in our state, or that we obtain any requisite written consent. From the federal income tax side, is there a prohibition that you are aware of in the context of an employee who agrees to reimburse the company for taxes it advances on that employee's behalf, but then refuses to write the company a check reimbursing those taxes, forcing the company to withhold from the paycheck? Thanks again.

Hello, everyone! Question for you all. We have a company that failed Section 125 ND testing for the year-end 2013. Most of the folks in the plan are highly compensated. To that end, the company plans to go out of pocket and pay the taxes dues on the portion of taxable benefits for each highly compensated employee for the 2013 taxable year. Subsequent to this, the company would like to ask each employee to reimburse it for the taxes paid on their behalf. This reimbursement will be requested in 2014. If an employee refuses to pay the company back, can the company simply withhold what it paid on that employee's behalf from that employee's next paycheck? This feels a bit wrong...the company may have to eat the tax payment, or just require all employees to pay their own way? Does anyone have any tax authority or other guidance they could point me too on this issue? Thanks so much!

Hello, everyone A question for you all. Under IRC 280G, the shareholders of a privately held company can agree to exempt a private company's payments from the 280G golden parachute provisions, and also avoid the gross-up (which is provided for in the company's current golden parachute provisions). The company is contemplating sale, and wants to ease its own financial burdens, such as the gross-up. The golden parachute payment must be approved by more than 75% of the company's owners in order for it to be exempt from 280G. However, if the payment is not approved, the payee gets nothing, and thus surely won't waive any contractual right to payment prior to the vote in such a case. Does anyone know of any risk minimization strategy (or any authoritative pronouncements or discussion on the subject) in such a case that could ensure (or maximize) passage of the vote? Perhaps a voting trust of some kind? I feel this might run into a substance over form problem, since the approval vote has to be a voluntary decision of the shareholders. Any thoughts you have would be much appreciated. Thanks!

Good evening, everyone! We have a client that sponsors an ERISA executive life insurance and executive disability plan. Each plan is fully insured, and has fewer than 100 participants. A few years ago, the client set up a wrap document that included all company benefits under one ERISA plan number (with separate SPDs for these two component small plans), several plans under which have more than 100 participants. There is little doubt that each executive plan standing alone would not need to file a Form 5500. However, what if it is part of the wrap? Should the details be included in the form of a Schedule A, or be named if self-funded and no Schedule A is available? Can anyone point to any IRS or DOL authority on the subject? I can't seem to find anything conclusive. Finally, is there any reason to think that a severance plan with more than 100 participants wouldn't need to file a Form 5500? I think ERISA covers these under Section 3(1)... Thanks so much for the insight!

A question concerning the taxation of long-term care (LTC). Assume a C corporation, with shareholder-employees (in this case, law firm "partners"). At the beginning of the year, the law firm pays a LTC premium on behalf of a few partners in the amount of $5,000 each. At the end of the year, each partner is entitled to a $100,000 bonus. Instead, the law firm books each partner a $95,000 bonus, conducts the requisite withholding, and gives the balance as bonus to the partner. The employer is not ultimately paying the premium. The employee is. The employer not deducting anything in connection with this LTC premium. If it did, I understand certain requirements come into play to permit the deduction, and that the this coverage isn't includable in the gross income of the partner. I also understand that any premium paid by the employee is after-tax and can be treated as unreimbursed medical expense (limited to an amount no greater than the eligible LTC premium). However, in the example above, the reduction in bonus is de facto pre tax, and that isn't allowed when an employee is paying the premiums. However, brokers are saying that this is a common arrangement, that everyone uses it, and that it's been done for years. One lone broker we've spoken with says you simply can't "pre tax LTC." Who is right? Does the law firm have to give the employee $100,000 (minus withholding), and then reduce that amount by $5,000? Is there tax revenue the IRS is missing if the firm continues to do what it's been doing? Any thoughts will be appreciated.

Hello everyone Hopefully an easier question, if anyone is familiar with the new EPCRS for 403(b) plans. We had an employer adopt a written prototype 403(b) plan in December 2008. Various affiliated entities were participating employers in the plan since the very beginning, and a few others tacked on until about the end of 2011. These employers participated in the 403(b) plan, but never formally adopted the plan and their participation in it until the end of 2011/beginning of 2012. Does this constitute a VCP-able error? It looks like it's under 10.08(2)(b) of the new EPCRS (failure to adopt 403(b) plan timely), but I'm not sure, since a 403(b) plan was in effect and only certain participating employers didn't adopt it. Perhaps for them, it's a failure to timely adopt a 403(b) plan? Or am I getting lost in semantics? Alternatively, is it just an operational failure under 5.02(1)(b) of the new EPCRS (failure to follow plan provisions, ostensibly requiring adoption of the plan by participating employer prior to participation)? Again though, I'm not sure if this is accurate, since I don't see any strict language in the prototype doc requiring adoption of the plan by additional participating emploeyrs. That seems to be more a question on the corporate side, not the plan side? Any thoughts would be greatly appreciated. Thank you.

Hello everyone A quick question. A company is currently negotiating a collectively bargained agreement with a union. At the same time, they are instituting a new 401(k) plan, and wish to know if the exclusion under Code section 410(b)(3)(A) (allowing for collectively bargained employees to be excluded) will apply when the CBA is not finalized. Has anyone come across this issue before? Any advice or guidance will be much appreciated. Thank you!

Hello everyone A quick question. A company is currently negotiating a collectively bargained agreement with a union. At the same time, they are instituting a new 401(k) plan, and wish to know if the exclusion under Code section 410(b)(3)(A) (allowing for collectively bargained employees to be excluded) will apply when the CBA is not finalized. Has anyone come across this issue before? Any advice or guidance will be much appreciated. Thank you!

Good afternoon, everyone Hopefully an easy question: we'd like to VFCP a plan for delinquent contributions. Section 5(b)(5)(ii) says that Lost Earnings SHALL (emphasis mine) be calculated by the IRC 6621 underpayment rate, etc., etc. However, the DOL says the following on their website (http://www.dol.gov/ebsa/faqs/faq_vfcp2.html): In order to correct under the program, you will need to calculate the lost earnings on the delinquent contributions. For purposes of correction under the program, the rate of return to use is the highest of: The rate of return of the plan for non-participant directed plans or of individual participant accounts Restoration of profits (as defined under the program) The Internal Revenue Code §6621 rate. How to calculate each of those amounts is demonstrated in the questions and answers below However, I have to think that the actual reference to this has to be in the VCFP procedure (Federal Register Vol. 71, No. 75, April 19, 2006). I can't find it anywhere. The word "highest" doesn't even appear in the procedure, and the word "higher" is only in the context of transactions that aren't ours, and still referencing the 5(b)(5) calculation. Can anyone point me to a point in the procedure where it says we can choose between the IRS rates via the VFCP calculator, or our plan's highest rate? I realize it's usually advantageous to use the IRS rate, it being lower, but not always, such as in the case of losses. Any help would be greatly appreciated. Thank you!

Thanks much for the comments. I rushed the first message, so I was less precise than I would have liked to be. Yes, the companies are aggregated under 414 controlled group rules. Employer A has a 401(k) plan with a matching and profit sharing component (Plan A). Employer B (wholly-owned by Employer A) has a 401(k) plan also (Plan B). We're unclear what kinds of contributions are permitted by this plan. Employer B did not conduct separate testing, and their Plan B was aggregated with Plan A. Plan A fails the ratio test and is currently conducting the average benefit test. I agree that the profit sharing component must be tested separately to satisfy 410(b). The testing group consists of the 401(k) plan and all other plans that could be combined with the plan for purpsoes of satisfying the ratio percentage or the nondiscriminatroy classification test. The rules requiring disaggregation on the basis of types of contributions are ignored. So, are you saying we have to split the 401(k) and (m) components in Plan A and Plan B and combine them with their counterparts for the test? I thought we did not have to segregate the 401(k) and (m). That said, I'm assuming that we'll fail the average benefit test (401(k) and/or profit sharing component). The Regs. provide for corrective amendment, by which we'll increase our allocation. Broadly speaking, I'm not sure where this corrective allocation goes, Plan A or Plan B, or what form it takes.

Hello everyone! A 410(b) nondiscrimination testing question I was hoping someone might be able to weigh in on. Employer has a retirement plan that allows for 401(k) and profit sharing. Employer has a wholly-owned subsidiary with a separate plan (not sponsored by Employer), which is another 401(k) plan. The two plans have to be aggregated under 414, but the two companies operate entirely independently. When tested, the employer fails 410(b) average benefit testing. The subsidiary passes. 1. We plan to make a corrective amendment allowing for an increased allocation. Does this allocation have to be made to the employer plan, or the subsidiary plan? 2. Do the profit sharing contributions of the employer plan have to be considered in some way (in respect of the allocation or otherwise)?

Thank you both for the replies. I will check the plan document once more. Assuming it doesn't provide a remedy, and no amount of maneuvering allows it to pass the average benefits test (so we fail nondiscrimination testing under section 410(b)), what are our options? My understanding is that we can make a plan amendment allowing for a corrective contribution if it's with 9.5 months of the end of the plan year (10/15). If it's after that, we VCP it as a demographic failure? Is this somewhat accurate?