jpod

I haven't read every word of every post here, but isn't this the analysis: If it's a ST Deferral, it is not "deferred compensation" and, therefore, it isn't subject to 457(f) in the first place, the same result as 409A. I also think the same rule is in the 3121(v) regs, i.e., it is not "deferred compensation" for purposes of 3121.

I agree that this is NOT a plan issue and that the money impermissibly withheld was not taxable in 2017, either for FIT purposes or FICA/Medicare, but is taxable if and when it is paid to the employees. For $10 per person and $700 total the technically correct correction is way too complicated. That would entail filing and distributing corrected 2017 W-2s to back out the amount reported as FICA/Medicare wages and filing a 941c for the fourth quarter 2017. I think the simplest reasonable approach is to just pay the employees what they should have received, report it as current W-2 wages, and withhold the FIT and FICA/Medicare taxes. Yes, they and the employer will be paying the FICA/Medicare tax twice on the same dollars, but on $10 that amounts to a maximum of $0.765 each for the employee and the employer. If you skip the FICA/Medicare taxes on this payment you will be asking for trouble from the IRS. Whether State employment law requires something further beyond just paying out the $10 is not something I know anything about.

The best answer which anyone can give you is this: Any entity that is a registered investment company under IRC Section 851(a) (and many/most ETFs are) is eligible to be held in a 403(b)(7) custodial account. Not really possible to provide a citation, but if you pull the prospectus for a couple of ETFs you likely will find in the tax disclosure that they are intended to be 851(a) tax RICs.

I think Mike Preston meant "DOL top hat eligibility," but he'll let us know if I am wrong.

FGC: Irrelevant to my question.

No need to get into the "why" here. Employer's mind is made up.

Any takers on this? Although I haven't seen it done before and it seems like something that is likely to create mistakes, off the cuff I don't see any legal problems with it.

Unless they are not counting pre-plan service for 5500 purposes there will be participants both as of the ED and the end of the year.

Am I on Candid Camera?

Huh? That they won't be able to get anywhere NEAR maxing out is the entire point of this discussion!

Were there less than that # of participants as of the 2018 ED that would trigger an audit requirement? If so I would file the 5500-SF without giving it a second thought. I am not sure the DOL would agree with the "no corpus" theory.

Anyone see any concerns with this structure: New hires eligible to participate voluntarily after 90 days of employment. Auto-enrollment kicks in after 12 months of employment for those who as of that date have not voluntarily enrolled.

Another idea might be to experiment with auto-enrollment in the 401k plan and see how it goes. I am pretty sure the statistics show that a high percentage of those auto-enrolled do not opt out.

Also, some employers in your situation would consider implementing a 3% SH non-elective in conjunction with a 3% hourly wage rate reduction, or foregoing one year's worth of hourly wage increase, depending upon how easily that can be "sold" to the employees and/or it's impact on retention and hiring.

There is no law that requires a plan to permit beneficiary designations. I've never seen a plan that doesn't permit them, but if you really want to simplify plan administration it is possible (e.g., in all events the beneficiary shall be the surviving spouse, and if no surviving spouse the benefit is payable to the participant's estate, or to the participant's issue per stirpes, etc.) This might be something to think about at least in the case of the ESOP where the employees are not contributing any of their own money.

I agree that they are popular, but all of the risks which ldr outlined do often scare people away from contributing their own money to a NQ plan, and rightly so in my opinion. Then again, the more generous the match, the more enticing it becomes and could convert someone from being risk-adverse to a risk-taker. For example, if it's $.25 on the $1.00 subject to a vesting requirement, not so generous; but $1.00 on the $1.00 without a vesting requirement, maybe so. Also, note that just because someone is an NHCE doesn't mean necessarily that he/she is a member of the requisite "top hat" group.

I think the law is agnostic on this. I don't see any obstacles as long as the form gives a participant as much flexibility as the two plans gives him. For example, if under the terms of the two plans the beneficiary designation under one plan can be completely different than under the other plan, the form needs to accommodate that. Strikes me as a messy/confusing form, however.

You probably meant 410(b), not (a), because limiting "who" may participate is not an issue under 410(a). Presumably they took 410(b) into account in the plan design (e.g., enough HCEs are excluded to comfortably pass coverage).

Understood.

Sounds like 990 is a very safe bet.

You'd still have at least one year's worth of the 10% excise tax on non-deductible contributions to the X plan.

I admit this is a problem that deserves a painless solution, and you should be looking for a correct patch to move forward, or at least the one that is the "closest" to being a correct path. I'm not sure that mistake of fact is that path. What if this plan was merged into the partnership plan and the 415 surplus is applied to employer contributions under that plan? Maybe the partnership can treat that $15,000 as an indirect capital contribution by X to the partnership and, if so, eventually get it back tax-free?

Wouldn't a 415 surplus held in suspense and then returned to employer on plan termination be subject to the 50% reversion excise tax?

MoJo, I thought about 415 too, but isn't a 415 excess required to go into a suspense account to be used to offset future contributions?