jpod

Usually it doesn't make any difference in a profit sharing plan with a discretionary employer contribution, so I'm not sure I know what went wrong. Are you saying that the employer resolved to contribute $x to the plan in a year, but what it meant was $x minus forfeitures, and only contributed $x minus forfeitures?

I guess Masteff is agreeing with me; thanks. However, no paragraph of the 401(a)(9) regulations is needed to confirm the fundamental principal that those regulations don't have a say in determining who gets the money, they only control how fast the money must be distributed for tax-qualification purposes and to avoid an excise tax.

401(a)(9) regulations are not relevant for purposes of determining who is entitled to receive the money. As to that issue, what does the Plan say? If the Plan says that the contingent beneficiary gets the money only if the primary beneficiary did not survive the participant, then the primary beneficiary's estate gets the money. If the Plan says that the contingent beneficiary gets any money left over after the primary beneficiary dies (or words to that effect), then the contingent beneficiary gets what's left. The former is likely and the latter is unlikely, but it's possible. You certainly don't want to pay it to the wrong person(s).

Under the facts which you presented there is no qualifying event triggering COBRA rights. Different issues under ACA starting in 2015 if it's a large employer.

Not all corporate/deal attorneys are familiar with this need to terminate the target's plan immediately prior to closing. The transaction documents should specifically require it as a condition to closing.

I assume the goal is to terminate the target's plan before the acquiring entity and the target merge or otherwise become part of the same controlled group, so that you can distribute the target plan's assets to participants even though they will participate in the acquiring entity's plan. The fiction which the IRS' regulations respect is that if you terminate the target company's 401(k) plan immediately prior to the closing of the transaction you will accomplish this goal. The fiction is that the act of termination is nothing more than an appropriate amendment to the target's plan and/or a resolution by the target's board declaring that the plan shall be terminated "immediately prior" to the closing of the corporate transaction, but then you can proceed to actually liquidate the plan's assets and distribute them to participants over how many weeks or months it takes to do so following the closing of the corporate transaction. So, there is nothing wrong with the termination to be effective as of the same date as of the closing, as long as the termination is effective "immediately prior" to the closing (e.g., one nano-second prior to closing). The lawyers for the deal should be overseeing this and making sure that the target's plan termination is handled appropriately.

Even if the owner is not explicitly a plan fiduciary, there still could be a self-dealing PT because the fiduciary who is nominally making the investment decision here may be under so much pressure to please the owner that either (a) the owner is acting as a fiduciary, and/or (b) the owner is someone in whom the fiduciary has "an interest." Bottom line is that regardless of whether this is a good investment for the plan, the facts as stated are such that I think we all know that there is probably a self-dealing PT going on here.

For what purpose are you seeking a definition of NQDC? For Code Section 409A purposes? For general conversational purposes?

Cynchbeast, what is your role here? I am assuming you are merely the TPA, and not a fiduciary with responsibility for making beneficiary determinations. All you can or should do is advise the plan sponsor (or the executor of the decedent if the decedent was an unincorporated sole proprietor) of what the plan says. It is up to the plan sponsor (or the executor) to proceed from there.

You definitely need to retain an attorney experienced with business acquisitions. While you generally avoid inheriting the seller's liabilities if it's an asset purchase, there may advantages to a stock purchase, such as (a) not having to wrestle with issues attributable to the fact that the employees are being terminated by seller and hired by buyer in an asset sale, and (b) not having to deal with the assignment of contracts, most significantly having to secure the consent of the seller's clients to the assignment of any service contracts they may have with seller.

On the other hand, I've been around the block a couple of times so the minute someone says "real estate" I expect to find other funny things going on (such as a use of the real estate that is a Section 4975 PT, paying RE taxes with non-plan assets, co-ownership of parcels by a non-plan party and the plan, etc.).

If this is an EZ then there is no DOL jurisdiction or Title I issue. So, the effect of an inaccurate valuation is that the spouse was overpaid or underpaid. I realize that there is a technical problem with qualification rules if gains/losses are not allocated accurately, but what is the IRS' end-game here? To disqualify the plan because too much was allocated to spouse and away from owner, or vice versa? If the facts are as simple as this, there is nothing here that constitutes some sort of abuse or even mis-use of the benefits of tax-qualification. I would call the IRS' bluff.

No, by it's terms that provision only applies to early-exercise options; i.e., those which can be exercised prior to vesting. In my case the options are all fully vested and upon excercise the shares would be fully vested, so in a way what we are kind of talking about is subjecting the option to a new vesting condition. Granted, 1.409A-1(b)(6) read literally appears to apply a blanket exemption for the transfer of restricted stock, but I'm not so sure that provision is not trumped by the rules limiting the kind of things you can do to/with stock options in order to avail yourself of the (b)(5) exemption for stock options.

I will assume that the plan document permits the plan to pay plan expenses. However, it would probably be a prohibited transaction to reimburse the employer for expenses incurred long ago, at least in the view of the DOL. You can reach this conclusion by looking at the preamble to the current version of the Class Exemption permitting short term loans by a party in interest to a plan. May also be an exclusive benefit problem under Section 401(a)(2).

Just mentioning the obvious, which is that there is no operational error requiring correction unless the terms of the employee's election are such that the election applied to his bonus, as opposed to simply "regular salary" or words to that effect.

Non-pubic company has employee stock options outstanding, all expire at 10-year anniversary very soon. The options are all exempt from 409A under the take-out provisions for stock options. Options are all well in-the-money, and will likely remain so through the end of the exercise period. For good reasons (which I won't bother to mention here), employer wants to offer the employees an incentive NOT TO EXERCISE. Essentially, if they allow the options to lapse at the 10-year point, they would receive restricted shares having a value equal to the in-the-money value (or perhaps as a further incentive shares worth something more than the in-the-money value). Those shares will be transferred to the employees subject to a 2-year vesting requirement, subject to accelerated vesting if terminated without cause, change in control or death. Thus, viewed in isolation, the transfer of those resricted shares would be a transfer of property subject to Section 83 and not a deferral of compensation subject to Section 409A. Nonetheless, if this offer is made, will it be an "extension" that causes the option to be treated as deferred compensation from the original grant date (resulting in a 409A violation)?

Interesting. So, if in a year you have out-of-pocket medical expenses of 7.49999% of your AGI you can be fully reimbursed for those expenses out of your HSA many years later. However, if your total out-of-pockets for a year were 7.50001% of your AGI and you claim a deduction for the 0.00001%, you can't apply any HSA distributions to your out-of-pockets for that year. You may be right, but it's a very strange result.

Again, I'm not sure that's right. An itemized deduction is an amount deducted. If it's a component that enters into calculation of the amount deductible, it's not an itemized deduction unless it was allowed as an amount deductible.

I'm not sure that's the right answer, and I'm very sure that 223(f)(6) is not support for that answer.

You could always assume that the plan was disqualified (with no consequences because no money ever went into it), and start a new plan.

It would be very odd if a discretionary contribution is authorized by the Plan trustee(s). I assume you mean the Plan sponsor/employer.

Gudgergirl: What you are doing seems perfectly fine to me, and typical. My only caution (as with all NQDC), is to think about whether the plan satisfies the top hat group exemption from ERISA. My response to Forksnknives' comment is that it is quite common, if not the norm, to have a for cause forfeiture, although clearly "cause" should be stealing, drugs, and other bad stuff, not poor performance. The discussion concerning cost and risk of litigation is a bit dramatic. If employer wishes to pull the "cause" card, obviously it must realize that it may have to negotiate a settlement, but the deferred compensation will be a bargaining chip which wouldn't be available absent the for cause forfeiture provision.

Found nothing in 411 regs, or 417 regs. No other IRS pronouncement found through fairly careful word searching. Wondering if all you actuaries out there have anything in grey books or blue books. What does IRS and/or PBGC say in connection with lump sum payments upon plan termination where a permanent COLA is baked into the plan? Perhaps it is so obvious to everyone (except me, Rohm and Haas and perhaps some others) that it is considered part of the "accrued benefit," but one would think that the IRS would have made a statement about it somewhere, some time.

Yes, that is just another in the line of Rohm and Hass cases. But, I wish to find a statement of the IRS' position.

DB Plan has a cola formula for participants in pay status baked into the plan. Where can I find the IRS' position on (a) whether the the cola needs to be included in determining actuarial equivalent lump sum, and (b) how (the heck) you assign a value to the prospective cola. I know there has been private party litigation concerning (a), but where in regulations or other guidance can one find the IRS' position?