jpod

I guess I did miss your point, but now that I understand it I disagree with you even more. How can it be a 401(a)(4) problem if NCHEs are far more likely to take advantage of plan loans than HCEs?

. . . and perhaps also a 415© failure.

I think I am aligned with FGC in not being convinced that a loan at 12%, even within the past 5 years, is not a PT. I also am not convinced that it is a 401(a)(4) problem just because HCEs might be able to "afford" a super-high rate while NHCEs can't afford it. However, I do believe it is susceptible to being re-characterized as a vehicle for making non-deductible contributions which, presumably, aren't allowed by the plan document and would probably result in an ACP failure.

1. Consult with a lawyer knowledgeable about securities registration requirements/exemptions for NQ elective deferral plans. 2. Opening it up to all HCEs may cause the plan to fall out of the "top hat" exemption.

I am not going to look it up and study it myself, but there is a rule whereby the 60-day rollover period can be waived in certain circumstances. If anyone who reads this Board knows those rules hopefully they will either confirm that it's worth looking into or explain why it can't be used in this situation. Short of that you can find it somewhere in IRC Section 402. With all that said I think you need IRS blessing for this via a private ruling and depending upon the user fee and other costs associated with that it may not be worthwhile just to defer the tax on $10,000.

No, but depending upon the facts they may "need" your tax dollars in order for it to make sense, to them, to make a 5-7.5% contribution for their employees.

But, there's the rub. Many business owners have the following attitude, and whether it is the right way of looking at it or not it exists: I am not going to set up a plan and make contributions for my employees unless over time the benefit of the tax-deferral for me on the money which I would otherwise just pay myself as I earn it outweighs the cost of putting money away for my employees. Consequently, the flexibility/disparity permitted by the 401(a)(4) regulations is designed to encourage meaningful contributions for employees by juicing the pot for the owners. Is it too juiced? I don't think so.

I don't know if it has come up before. I think what you are proposing is fine, but for a different reason than the one you are suggesting. Even assuming for the sake of argument that the IRS' position is correct, this is not a "forfeiture." A forfeiture results from an allocation required under the terms of the plan which was subject to a vesting condition, i.e., a risk of forfeiture. While we call these corrections of impermissible allocations "forfeitures," they are not forfeitures.

I think you may be able to find an answer in Rev. Proc. 2013-12, but I'll caution that the situation is worse if the participant was married when he took an in-service distribution. EPCRS provides no protection from a spouse's claims under Title I of ERISA.

Perhaps some time-consuming research will yield an answer, but I would dispense with that. If the facts are as you say, i.e., each beneficiary has 100% inserted next to his name, and there is no other beneficiary with less than 100%, or nothing, next to his name, AND if you have found no subsequent beneficiary designation superseding the one you describe, I would get the beneficiaries together and propose to them that if they agree, in writing, to an even-Steven split within a reasonable amount of time, you will honor that, but if they don't you will consider your legal options. These legal options would include treating the designation as invalid and resorting to the Plan's default rules, or interpleader, but you don't have to make any commitment as to what option you will choose while you are negotiating with the named beneficiaries. P.s., I would not consider something other than an even-Steven split, even if they all agree that one should receive more than the others.

APApril: fair enough. However, your second post said "Plan Sponsor in question is trying to find a way to provide a benefit on behalf of a beloved longtime employee." Is the participant eligible for early retirement? If so, what if the Plan was amended to make the 10-year CC the default, normal form of benefit for just this one participant, and then terminate her before she dies? Ok, I'm done.

Agree that they are not corporate funds. Don't agree that the Plan Sponsor can't do what it wants with those funds as long as what it ends up doing is providing a new benefit under plan by means of a plan amendment.

Oy. TPApril is trying to help a client deal with a traumatic situation. Neither she nor her client needs a lecture about defined benefit plan design.

Interesting. So, I gather that if the participant was capable of "retiring" and electing a 10-year CC annuity there would be no experience loss. But, if the plan is amended to pay his estate a lump sum equal to the present value of what the payments over 10 years would have been if he dies before retiring there is an experience loss? I'll take your word for it.

Whether it is inappropriate or not is in the eye of the beholder, but absent evidence of discrimination on the basis of race, sex, etc., there is nothing illegal about it.

An amendment to provide a death benefit for one individual who would be named in the amendment would increase funding obligations moving forward?

You haven't told us what happens if participant dies without having done anything. Aside from that, I once had a similar situation with a DB plan. Participant was single and there was no death benefit for a single person. The employer wanted to be as generous as it could. The advice was don't monkey around with making elections on behalf of a participant as if he had retired and elected a form of benefit. In place of that, the employer can amend the plan to achieve the desired result without putting itself in the shoes of a fiduciary. Generally speaking you only have this flexibility if participant is a NHCE.

Again with the Wife A business! Why the fixation on that?

If those kids (presumably they are all adults) find a good lawyer they should be able to convince Wife B (or at least Wife's B competent attorney) to live up to her pre-nup. While it seems to be clear that only Wife B is entitled to the Plan distribution, I stop here at attempting to provide any advice about domestic relations law or how logistically to accomplish this.

How could you? I think you could and would in order to avoid a prohibited transaction.

In daily valued plans, isn't the 50% limit typically applied based on the balance at the previous day's close? In other words, the participant may ask for a loan of 50% of his balance on Tuesday, but if liquidation occurs on Friday he can't get more than 50% of his account balance on Friday morning.

Where did the OP or anyone else suggest that Wife A is entitled to anything? And, while you raise good questions unfortunately the only person at fault here can't defend himself, so what's the point.

I am assuming it is not a dc pension and the participant had not elected an annuity. It seems clear cut as David Rigby says that the surviving spouse is entitled to 100% of the benefits. Whether those "other beneficiaries" evidently identified in the pre-nup can recover $$ from the surviving spouse or the estate of the decedent is another story.

If it is an ERISA-governed plan, he could be liable only if a loss to the plan occurred due to some action or inaction by him as a plan fiduciary that constituted a breach of his fiduciary duty under ERISA, such as a prohibited transaction. If it is not an ERISA-governed plan, seems unlikely but that is a question under the applicable State's laws.

I pretty much think it's that simple too, but I am doing a sanity check because there are quite are few $$ in deferred comp. involved for the participant who is interested and the regs. don't address the question head on. Anyone have a contrary view?