jpod

jhall: I think it would be a problem if the participant separated from service in 2007 if the plan says you get paid in the year of separation. What you have to do, and the best you can do, is write the amendment to say that the change in payment schedule is inapplicable if the participant separates from service in 2007 (or at a time in 2007 that would trigger a payment in 2007 under the terms of the plan prior to the amendment).

Blinky: 1. If a small plan, the vcp compliance fee should be manageable. I would consider correcting via a retroactive amendment via vcp. I think the employer would have a good shot at success if (a) nobody, ever, made elective contributions, and (b) you can demonstrate that there never was any intention to adopt 401k provisions, let alone implement same. 2. Assuming (b) is true, I would contact the guilty TPA or other advisor and suggest that he or she put his or her insurance company on notice.

I assumed from the OP that the $14,000 was paid to the Doc, rather than contributed to the Plan, in which case the corporation is entitled to a tax deduction, although not as a plan contribution. The W-2 and the Doc's 2005 tax return are wrong. If, on the other hand, the $14,000 never left the corporation, the corp. gets no deduction and presumably owes back taxes for 2005, but the Doc would not. Query, however, whether FICA or at least Medicare was overpaid on the $14,000.

Santo: You probably know this, but just in case you don't, if the only contributions under the 403b program are employee contributions, you may not need a 5500 at all. Check the instructions.

I think it is an open question whether you can amend retroactively, even within the same plan year, to cure an operational violation of this nature, absent VCP. Of course, that's putting the rabbit in the hat, because if you can eliminate this type of feature retroactively, within the same plan year, then arguably there is no operational violation in the first place. Regardless of the theoretical lense one views this through, I think it's an open question as to whether this would work, absent vcp. However, if you can get someone from the IRS' EPCRS unit on the 'phone really fast, I would ask whether this situation is correctable via vcp. The question is urgent because if it is correctable via vcp (and only vcp), I would not announce the Roth, but I would file the vcp. Assuming no HCEs have used the Roth, which seems to be clear from the OP, the IRS just might go for it. If IRS does not think it is correctable via vcp, then I would revert to my original thought and announce the Roth asap.

My off the cuff reaction is: announce it NOW and stop the bleeding. Don't propose to those people who made pre-tax contributions through the year that they may convert contributions already made to post-tax. Whether you should then do or consider any remediation is another issue.

Santo: Interesting proposition, but I believe the answer is "no." The DOL amnesty program applies only to plans subject to Title I of ERISA, and an "owner-only" plan is not subject to Title I of ERISA (according to DOL regs and at least a couple of court opinions). The IRS has agreed to waive penalties only for plans eligible for the DOL amnesty program.

mjb: Unfortunately, or fortunately, I can't decide, the 403b regs. reference 414(l) as the analogous source for resolving the Q raised in this thread. By the way, the rules of 414(l) do apply to ERISA-governed 403(b)plans, to the extent you have a transaction that is described in 414(l), which I admit is a questionable proposition. See ERISA Section 208.

Astro: Don't get me wrong; I don't know the answer to the Q. I just think it's still an open Q.

Is it "obvious" that a surrender charge on the outgoing contract violates the regs? I was just thinking about that the other day in reviewing the regs. I don't see anything in the regs. or the preamble that addresses the issue. Same issue for a sales load on the new contract.

I'm not sure I would recommend documenting the reason; you never know when it might be used against you the next time (e.g., if the next time you deposit three days later rather than only one day later). Why bother documenting when you don't need a reason?

Chaz: IRS position (and the law) is that as long as the plan or agreement provides for hardship w/drawal availability at the option of the service provider who experiences a qualifying hardship (I intentionally am not using the word "election"), a service provider who later suffers a qualifying hardship will be able to take a withdrawal upon request, without that request being treated as an election (second or otherwise). Similarly, a service provider who later suffers a qualifying hardship but who does not request a distribution will not be treated as making an election (second or otherwise). There may be gaps or gliches in the regs., but any other application of the hardship rules would be completely inconsistent with what the Congress and the IRS are trying to accomplish via 409A.

I regret to inform you that Brett Kates, age 51, a frequent contributor to this message board as B2Kates. and someone I knew for 20 years, died Wednesday, August 8. Brett was an accomplished lawyer, practising in the areas of employee benefits, primarily, but also estate planning and asset protection. He was an author of law-oriented books, and for a period of years in the 90s he spoke to accountants and other professional audiences throughout the USA on Form 5500 reporting and other plan administration issues. Brett also had plenty of non-professional interests, most notably his beloved Philadelphia Eagles, to whom (which?) he was devoted in the bad years as well as the good years. Unfortunately, Brett suffered from serious health problems starting as a very young man. While he had successful heart transplant surgery a couple of years ago, he had his ups and downs since then. For the months preceding his passing he was working and enjoying life with his family while waiting for a kidney transplant opportunity. Nevertheless, Brett and his wife and children and extended family fought through his travails with courage and strength, which was and will always be an inspiration to his wide network of friends.

The correct perspective with respect to 457f is that it does NOT establish rules which must be followed in order to secure special tax treatment. To the contrary, 457f contains a special rule that overrides the general Section 451 accounting rules. So, to answer your question, if everyone understands that amounts deferred become taxable to the employee as they vest, regardless of when they are paid, then I guess there is "no problem."

It doesn't matter that the owner doesn't know. What would matter is that the CEO knows that his boss - the owner - is an indirect investor in Company B. That is how the self-dealing issue (or at least the DOL's typical reaction) could occur. However, if what we have here is a situation where the owner is not involved in the decision-making, and the owner's indirect ownership interest in Company B is only 3% (10% x 30%), then I think any allegation of self-dealing would be quite a stretch. Keep in mind, however, that this is an informal message-board reaction, and Company A should consult with its own ERISA counsel.

Sounds to me like (a) no 406(a) pt, and (b) probably no 406(b) pt. Two more questions: 1. What percentage of Company B does the venture capital fund own? 2. Do the owner and/or his family and affiliated entities own any additional interests (directly or indirectly) in Company B outside of of the venture capital fund? The point of these Qs is that for purposes of the 406(b) analysis, one needs to assess the owner's level of interest in in seeing that Company B gets the plan's business. I understand that the CEO is supposedly making the decision, but the DOL would ignore that supposed fact, at least initially, if other facts suggest self-dealing on the owner's part.

There are at least 3 Qs which need to be answered before your Q can be addressed: 1. What percentage of the Venture Capital fund do the owner and his family members and his affiliated entities own in the aggregate? 2. Is this just an "amazing coincidence," or is there some other explanation as to why the CEO decided to send the business to Company B? 3. Who will pay Company B's fees: the Plan or Company A?

I am confused as to why there can even be a question relating to summer camp in view of the last sentence below. Am I not seeing some nuance? (2) Employment-related expenses (A) In general The term ``employment-related expenses'' means amounts paid for the following expenses, but only if such expenses are incurred to enable the taxpayer to be gainfully employed for any period for which there are 1 or more qualifying individuals with respect to the taxpayer: (i) expenses for household services, and (ii) expenses for the care of a qualifying individual. Such term shall not include any amount paid for services outside the taxpayer's household at a camp where the qualifying individual stays overnight.

As a practical, operational matter, vesting is "required," because the deferred comp. is taken into account against the annual limit in the year in which it vests. However, if you wish to split hairs, no, it is not "required."

The limit on contributions to a 457(b) is the same as 401k, but all contributions are counted towards the limit, elective and non-elective. The annual age 50+ catch-up is available if the employer is a governmental entity (but not if it a non-governmental nonprofit). There is also a special 457b catch-up for people who are very close to the 457b plan's normal retirement age. There are also a bunch of document and operating rules required in order to have a compliant 457b plan. I can't recite them all here.

I am assuming from your post, particularly the information provided near the end, that the individuals who would be "shortchanged" are happy to do whatever needs to be done to close the deal. In other words, they won't sue because they are not getting their full benefits. Have you considered amending the Plan(s) to say that the participants will be entitled to benefits only to the extent the money is available, and that they waive any claims to anything more? The consideration is that they have their own personal interests in getting this deal done. Reduction of benefits is not a problem under 409A.

If this is a huge plan and you get 12 Orders a month for this plan and you've experienced this before, why are you asking this Message Board what to do? Just to be clear, was it a draft Order which was received 14 years ago, or a final Order? If it was a draft, I take back everything I said, assuming the Plan Sponsor/Administrator has reasonable confidence that there was no final Order received. Assuming it was a final Order, and given that it's a huge plan, that presumably means it is a huge employer with deep pockets willing to risk having to deal with aggravation later. I guess if the employer is willing to take this risk, who am I to argue. By the way, with large employers with worksites all over the place, I've found on many occasions that a DRO was handed to the local HR person at some far-off location who stuck it in a drawer and forgot about it. Could that be a possible scenario in this case?

I think you'd be asking for trouble if you keep quiet and pay out the P's benefit as if there is no QDRO. Who knows, a judge may ultimately determine that it is a perfectly nice QDRO, notwithstanding what the Plan thought 13 years ago (judges sometimes do very strange things, and even more often they do the "right" thing even if they have to stretch the law a bit to do so). I find it hard to believe that the P, AP and their lawyers actually received a letter in 1993 and did nothing. So, either no such letter was actually sent, or there was follow-up and someone on the Plan's end of things dropped the ball. Some might say that the Plan and its fiduciaries have unclean hands by not being the slightest bit proactive in 1993 when it received no response, if in fact a letter was sent and received and there was no response. Also, it sounds like the Plan did not comply in full with all of the QDRO procedures, which raises issues for the Plan Sponsor and/or Plan Administrator under Title I of ERISA. I just can't see the harm in contacting everyone and resurrecting the issue (that is, of course, after you and your client undertake a thorough search of your files and records). As to the AP's current address, I can't imagine that finding it will be too difficult in this internet/Google age. To fold your arms and sit back and say "we sent a letter, so we're in the clear" is not a good idea, in my judgment.

Assuming there is in fact a 401k element to the plan in question, are you sure there isn't the boilerplate language restricting distributions of elective deferrals buried somewhere in the plan? If it is a prototype or volume submitter document, that language has to be there. If the distribution restrictions are not recited somewhere, your client has a different problem than the one you've identified (or perhaps an additional problem). On the other hand, if there never was never any 401k element to the plan, you don't have a problem.

I think it is pretty clear that the regs. embrace the "pay date" concept. In other words, an election is effective for pay if it is made before the pay date (i.e., it does not have to be made before the payroll period begins, or even before it ends).