jpod

While there have been 45 viewers, nobody has commented. Will anyone step up and agree with me that the situation appears to be completely hopeless?

Assume employer awarded restricted stock units (RSUs) that by their terms required the shares to be awarded immediately upon vesting of the RSUs. Ordinarily this would be a short-term deferral program exempt from 409A. Suppose, however, that in fact the employer never transferred the shares, not even before the end of the 2-1/2 stub period. Is there any way to "fix" the 409A problem? Assume the statute of limitations for the tax year in which the RSUs vested is still open.

QDRO, the problem with the VCP option in my case is that it would have cost the client $8,000 in compliance fee to do a fix via amendment for one participant. The client was able to entice the participant into agreeing to the shorter amortization period and that enticement cost the client a whole lot less than $8,000 plus the cost of paying me to prepare and file a VCP submission.

Belgarath, I just had your exact situation: no 72(p) violation, just a failure to follow plan terms. I concluded that it could be self-corrected by reamortizing over the remaining period of the maximum 5-year term allowed by the plan. I also concluded that it definitely could not be self-corrected via a retroactive amendment to allow a longer-term residential loan.

But, if the reg acknowledges that you can have either the greater of the two formulas or the SUM of the two formulas, why can't one of the formulas yield ZERO so you get the SUM of two formulas (one being ZERO and the other being whatever)?

I intentionally held back because I wanted to hear all ideas, but what I was primarily concerned with is whether the two-tiered structure somehow is inconsistent with the "definite allocation" principle.

Anyone see a qualification problem with the following in a profit sharing plan document? Plan has two tiers of employer profit sharing contributions. The Company can declare a contribution under one of the two, separate contributions under both, or none. The annual Board resolution or other written declaration will be very specific as to what is being declared. 1. Contribution allocated uniformly to all participants based on their compensation. 2. Contribution allocated in a uniform flat dollar amount for each participant.

Who is the tax imposed on? The lender or the borrower? If it is the lender (i.e., the plan), I would think that any attempt to collect the tax would be unenforceable on preemption grounds, in which case you are then left merely with the theoretical issue of the "loan" not truly being a loan and therefore a taxable distribution, or a prohibited transaction, or both.

"Going through payroll" really doesn't mean anything, technically, in terms of Internal Revenue Code compliance, but I think we all know what you mean. No, i don't see how it's possible.

If the employee population is small enough Federal ADEA doesn't apply to the employer. There may be a State ADEA law to consider, however, that does not have a minimum size threshold.

My guess is that the parties' lawyers never told the judge all the facts when they went back with a revised Order. If the judge gets wind of this he/she is liable to smack their heads together a la the 3 Stooges, or worse. I think if you tell the lawyers that the Order is not a good QDRO and if necessary you will write a letter to the judge to explain why that's the case, they will come up with a resolution that does not involve the plan.

QDRO, you're right, my bad, the first plan is at risk.

It is the second plan that is at risk, not the first plan. Can you get VCP relief on the second plan if it is contingent on doing something that involves the first plan? Interesting question. I may give the VCP submission a shot but I would probably recommend it be done on an anonymous basis. Also, to "stop the bleeding," think about freezing the second plan asap, and if it's been more than one year since the last dollar was distributed from the first plan set up a third plan to accept contributions going forward.

I think you (may) have a problem under the rule in the regulations which austin correctly recalled if you make a commitment before the fact to give them a bonus equal to the missed match. But if it is entirely after-the-fact I think it's ok.

I have no idea as to the answer, but what I do know is that the UBTI rules are overloaded with so many exceptions to accomodate various goals and other twists and turns that i would never try to answer without plowing through the rules, or better yet checking with someone who is proficient with those rules.

I am assuming that it either is not an ERISA pension plan or it is an ERISA top hat pension plan, and therefore in either case it would not be subject to the ERISA vesting requirements or have "plan assets." I agree that if neither assumption is sound there would be a potential problem. I am also assuming that by the terms "contractually" of the plan he is vested in at least some part of the benefit, but so what? If the claim of embezzlement is not merely a wild accusation but one based on some concrete facts, in the first place the likelihood of the former employee sticking his head up and filing a lawsuit seems minimal, but even if he did the employer's liability to him may be offset fully by his liability to the employer.

The S&P has not doubled in the past 27 months. Maybe +40%, but not doubled. Ironically, however, 40% would just about get you $37,000 and change.

My recollection is that there is something that calls off 409A non-compliance if the failure to pay in accordance with the stated terms is due to a unilateral refusal to pay by the service-recipient. Of course this is only my recollection and i would check that first. On the other hand, if the employer was my client I would have no hesitation to advise it not to pay if it has reasonable proof of embezzlement, and I really don't think the client should care about 409A consequences under that scenario.

It is quite possible that the "declared" profit sharing contribution became an accrued benefit, once declared. One needs to review the plan document and see what it says, then review the corporate governance documents to see what was done to effect the "declaration." Case law may also be relevant, and case law may even say that the communication of a contribution to participants is enough to establish an accrued benefit. Sorry I can't be more definitive but it seems to me that one may have a much harder time here concluding that there was NO accrued benefit rather than the reverse. I think what the client wants is at least a little bit relevant because if the client has no stomach for risk then it's probably not worth the time and money to undertake a significant research project only to come out with a wishy-washy answer at best.

I realize that this might be the last technicality which IRS and/or PBGC may care about, but I didn't think you can force an immediate annuity on someone who is younger than NRA.

The plan must be a plan maintained by the employer that issued the stock. ERISA Section 408(e) provides a complete exemption from the PT rules for purchase-sales of employer stock between a plan and the employer. There are some conditions, the most challenging being in a sale back to the employer the plan must receive at least "adequate consideration," and to be safe you pretty much need to get an independent valuation.

Do they have an employer-maintained DC plan they can first roll the stock over to and then sell per the ERISA 408(e) exemption?

Just curious, but what prompted you to ask the question?

I don't see how it is a taxable fringe benefit when it more closely aligns with "other expense allowance." With that said, i think it is reasonable to treat a modest or even a generous car allowance as an "other expense allowance" for purposes of applying the definition of "compensation," provided that the employee does actually drive his car for work to some degree, If there is no driving required for work then I think it's just a rose by another name and not an "other expense allowance."

Grumpy: In the scenario you stated, the estate (and, consequently, Gloria) most definitely would have at a minimum a strong claim, if not an air-tight case. Also, in your scenario, there will be no executor; there will be a court-appointed administrator. That adminstrator may end up being the person who is entitled to receive all or a portion of the assets of the estate, including the plan account balance, and even if he or she isn't entitled to anything from the estate he or she will have a legal fiduciary duty to make sure that the intestate heirs AND DAVE'S CREDITORS receive that to which they are entitled (not to mention the State's entitlement to any death taxes). If I were advising the employer, I would advise that it would be playing with fire to do what you are describing.