jpod

I haven't read the old revenue rulings in many years. I suggest you read them carefully, word by word, to make sure that the age contingency is permissible in all events and without any reservation by the IRS of the right to challenge a ridiculously young age (like 21) on the grounds that such a young age takes the plan out of the realm of 401(a).

Steelerfan, the plan asset reg. is not pertinent here because this is an issue of money not being withheld (as opposed to withheld money not being deposited).

The technically correct answer is "no," but the full explanation for that answer is very lengthy. Everything you need to know to answer your question is covered in the 5500 instructions.

I am not a TPA, but absent something very unusual in the engagement letter or other written agreement, I think the expectation is that the TPA is to advise in a timely manner as to all matters pertinent to compliance with ERISA and tax-qualification requirements, based on the plan design in effect. To the contrary, under a normal engagement it would NOT be expected (and a court is not likely to find) that the TPA has a duty to offer plan design recommendations early enough to avoid a TH minimum obligation, or to produce other cost savings for the employer.

Truth, obviously one of the key facts is that it was just 1, not 6 or 15. Let's just agree to disagree. If you are ever faced with this situation (one payroll error), please let us all know what your client's reaction is when you tell him or her that he/she has to make QNEC contributions.

Many corrections expressly permitted by EPCRS or if not expressly permitted within the spirit of EPCRS are technically operational diversions. The IRS is not looking to play gotcha with plans and employers.

mjb: Don't you think that an employer's promise to transfer cash or specific property to the employee upon termination of employment meets the ERISA definition of "pension plan?" In my view the fact that the property is LI is not relevant and does not convert the arrangement to a welfare plan, if that was your line of thinking.

Truth, you don't speak the truth. This was not an exclusion of an eligible employee. This was a payroll error.

I'm assuming that this is a calendar year plan and the failure to deduct occurred in 2007. Send a memo to affected employees giving them the opportunity to increase one or more future payroll deductions to make up for the omissions. If you're straddling plan years or there is a very short amount of time left in the plan year, this is a much more difficult case.

Forget about 409A; that is the least of the employer's worries here. The employer has been maintaining an ERISA pension plan, which probably is not a top hat plan, that is not in compliance with Title I of ERISA. Best and simplest result: transfer the policies to the employees now and get rid of these compliance issues going forward. The employees can use the cash value to pay the withholding taxes. Shouldn't be an impermissible acceleration under 409A, because of the short-term deferral rule and the present existence of a substantial risk of forfeiture (i.e., the requirement that the employees remain until "retirement"). These are my off-the-cuff observations. ERISA counsel should be retained to study this carefully.

Steelerfan: MJB and I were trying to suggest approaches to favorably resolve a problem that resulted from a mistake that already occurred. Using these approaches certainly seems better to me than simply giving up and paying the 20% tax plus the interest charge, etc. Therefore, I'm a bit confused by what you mean when you say these approaches "make you nervous."

In fact, a non-qualified plan CAN be the subject of a QDRO. The QDRO rules apply to any pension plan subject to part 2 of Title I of ERISA. While you don't see them too often, a non-qualified plan may be subject to part 2 of Title I. For example, a plan that was thought to be a top-hat plan but in fact is not a top-hat plan (e.g., because the participant group is too large) is a plan subject to part 2 of Title I (as well as parts 1, 3 and 4, but that's another story).

Last thing I read was that an IRS official said that he was "hopeful" that final regs. would be published by the end of March. Does anyone have any up-do-date information from the Horse's mouth that he or she would care to share with us?

I'm assuming the bonus was paid, and the failure to defer, occured in March of 2007. If wages (and the bonus constiutes "wages") mistakenly paid are repaid to the employer in the same taxable year, they are not reportable as gross wages on the W-2. I believe this is covered in Pub 15. Therefore, if the employee repays (which he must, technically, due to his irrevocable election; he had no legal right to receive the money), he has preserved his tax deferral. I don't think the proposed 409A regs. address this situation, but it seems like the perfect solution.

Reasons: 1. Fear (probably misguided) of increased risk of being selected for examination. 2. Desire not to extend the period of limitations for assessing tax deficiencies. 3. If it is an S corporation, in order to get K-1s to shareholders before April 15.

Not only does the client have an ERISA plan, it has an ERISA plan that is in violation of a ton of substantive requirements under parts 2, 3 and 4 of Title I of ERISA. This client needs experienced ERISA counsel, FAST.

My understanding has been that an ERISA 403(b) is subject to mandatory QJSA requirements (because it doesn't seem possible to characterize a 403(b) as a "profit sharing" plan). Therefore, you cannot eliminate the QJSA. As to other options, I can't think of a reason why you can't eliminate options to the full extent allowed by the 411(d)(6) regs, but only to the extent allowed by those regs.

This issue comes up quite frequently in connection with asset acquisitions. If this is what A and B have agreed to do, the lawyers should draft an agreement whereby the accounts of the employees in question will be spun-off and transferred to the acquiror's plan effective upon the closing of the acquisition transaction, with the money allocated to those account balances to be transferred as soon as practicable thereafter. The theory, which arguably has some holes in it but is used all the time in asset acquisitions, is that there is no "severance from employment" if the employees' account balances are part of their new employer's plan immediately upon their employment by the new employer.

Did the document exclude them? If so, would most or all of the temporaries never satisfy a one-year/1,000-hour eligibility requirement if that had been their eligibility requirement? If the answer is "yes," consider the possibility of VCP whereby you propose to correct the defect by retroactively amending the plan to permit temporaries to participate, but only if they satisfy a one-year/1,000-hour requirement. If there are few temporaries who would have satisfied that requirement, you would agree to make the corrective contributions for them (but only them). This may or may not work. You might want to pursue this on a John Doe basis.

Has Company A agreed to take over Company B's plan, or agreed to a plan-to-plan transfer, or agreed to something else that in fact creates a potential compliance issue for Company A to worry about? These are the questions which need to be asked. If the answer is "no," Company B nonetheless may have given reps and warranties to Company A concerning Company B's plan and/or promised to do something with respect to the plan. Company A now has Company B's employees and understandably Company A should be concerned about the fate of Company B's plan, for employee relations reasons if not for legal reasons. Check with Company A or Company A's lawyers who were involved in the transaction.

If he was eligible to file an EZ then the DOL would have no jurisdiction to assess penalties. IRS could assess penalties, however.

I had the same situation for a client at the end of 2006. Client did not read the 45-day letter carefully. After the 45-day period expired, DOL proposed assessing $80,000. We responded with a statement of reasonable cause and the client's promise to cooperate with the auditor to do all it could to complete the audit within 60 days. We filed the auditor's report within 60 days. Shortly thereafter DOL dropped the assessment down to $3,000.

Client's 401k plan is under examination. IRS agent correctly identifies an error previously unknown to the employer; namely due to a problem attributable to the transmission of payroll data, TPA did not count certain non-contributing employees in the ADP and ACP tests. Obviously, this throws the annual testing out of whack. Does anyone have a sense of how receptive the agent should be/will be to the notion that this is an "insignificant" operational violation that can be corrected via SCP (and, therefore, not subject to any audit CAP sanctions)? Rev. Proc. 2006-27 seems to leave this kind of determination wide open.

You need to report the nanny's social security number on your tax return, but beyond that it doesn't matter TO YOU whether the nanny reports the money as income. However, be aware that you are required to withhold and deposit FICA/Medicare taxes and prepare a W-2. (Remember "Nannygate"?)

Shouldn't be any tax or ERISA problems associated with it, but if you can find a carrier that will allow it please let us all in on it.