jpod

I didn't think the rule that required a valuation was an independent qualification requirement. I thought it was only a qualification requirement if some operational event keyed off of the value, such as an RMD, or allocating gains/losses to individual participants for purposes of determining the amount of a distribution. In this context, with one participant, what qualification requirement is the agent saying is not being followed?

The answer is that the concept of "pay period" is inapplicable to partners, unless they receive guaranteed payments. Partners have one "deemed pay period" and that is 11:59:59 pm on the last day of the partnership's taxable year.

I would be concerned about relying on Fr. Halifax. As I recall that was a pre-emption case involving a state law requiring plant closing benefits or the like, and the court reasoned that it was not an employer-established or-maintained "plan" because no administration was required. I think some administration is required here, because you have to keep track of ages and service years. If it is an ERISA plan, it sounds like a pension plan to me - not a welfare plan.

Toolkit draws an important distinction. Also, even if you do make 401k contributions, your IRA contributions would be non-deductible (or partially non-deductible) only if your adjusted gross income (or if married your and your spouse's AGI combined) is high enough.

Isn't the more important question whether the FICA exemption applies to them in the summer? The answer to that will give you the answer to the 403(b) question. If the answer is no FICA exemption, then they must be eligible to participate (unless you also use the less-than-20 hours exemption and they would fall under that). If they have to be eligible, why is it impractical? You tell them they can contribute, and if they do they do and if they don't they don't.

Maybe we are saying the same thing, but in order to be a statutory employee they must not be common law employees. They are TREATED as employees for some very limited purposes under the IRC only (unless a state law has borrowed the concept), most notably FICA/Medicare.

Statutory employees are by definition people who are not common law employees, so I am not seeing the linkage between someone being a statutory employees for IRC purposes and also being entitled to health insurance under the terms of a group policy (unless the state insurance law compels the insurance companies to treat IRC statutory employees that way). Actually, I think the only (or perhaps merely the very most significant) reason they are statutory employees is because there was too much self-employment tax not being paid.

zero risk

It doesn't sound right that they effected the $100k buy-in by paying him $100k less in salary over three years, because the receipt of the stock would then be taxable; i.e., from a tax viewpoint he purchased the stock for $0, and if it had a floor repurchase price of $100k then he would have $100k of taxable income upon receipt of the shares (see IRC Section 83). If he paid $100k of after-tax money for the stock, he has a tax basis of $100k for the shares. Upon redemption he gets $100k or book value if higher. Under these facts where is the "deferred compensation"? Note: it needs to be "compensation" before it can be "deferred compensation."

1. See Treas. Reg. Section 1.401(k)-1(e)(6). 2. Because it's not "real;" it doesn't exist, i.e., it is "phantom." If what you mean is that the employer intends to put into the plan as a match an i.o.u. that is intended to function as phantom stock, that would be a prohibited transaction.

Alexa, please elaborate. If you mean allocating phantom stock to employees based on their elective deferrals to a qualified plan, doesn't that violate the "contingent benefits" prohibition? If you mean actually putting "phantom stock" into the 401(k) as a match, that's impossible.

I am not so sure it is disquised deferred compensation. It sounds like a perfectly sensible business deal that the redemption price will be book value, but not less than the capital which the shareholder has contributed to the enterprise. Assuming for the sake of argument it is deferred compensation, why is it not compliant with 409A?

I don't see any ambiguity, frankly: the notification from DOL disqualifies you from DFVCP only with respect to the 5500(s) to which the notification relates. If it didn't mean that, what would it mean? Would you be disqualified from the program for all 5500s not yet filed, or only those already late? And, as a policy matter, why would DOL wish to discourage voluntary compliance by disqualifying you from using the program for other years?

We're trying to direct you to the points to consider in analyzing the issue and resolving it for yourself. I can't speak for others but you're not paying me enough to give you an opinion on the issue.

If the repayment is being made in a subsequent taxable year, the employer can't and shouldn't try to do anything to "undue" $5,000 of W-2 wages for the prior year. Employee may or may not be entitled to a tax deduction for a repayment in 2012, but that would have no effect on employer's tax reporting or tax withholding.

What I was hinting at by my question is that you don't need to undertake any inquiries concerning the attorney's fees unless the attorney had a "contract or arrangement with the plan," and unless the attorney was retained as the plan's counsel - as opposed to the plan sponsor's counsel, as is typical - there would be no such contract or arrangement, IMHO.

To be a CSP the law firm needs to have a contract or arrangement "with the plan." Does it?

While there might be a 406(b) issue due to the mutual fund's investment in the securities of the investment advisor/manager, why do you think 77-3 and 79-13 would not provide an exemption? There is no 407 PT because the assets of the mutual fund are not "plan assets" subject to ERISA.

Is a "pink sheet" traded company considered "publicly traded on an established securities market or otherwise" within the meaning of the 409A definition of "specified employee"?

If there was an amendment dated in 2010, I'd agree. It's the July 2011 amendment combined with a Board resolution dated New Years Day 2010 that creates an issue.

So, is there really a Board of Directors and they met on New Year's Day 2010? That, in and of itself, is fishy.

FormsR: Not correct, for the reason I stated.

As to #2, I thought the IRS finally gave up years ago and agreed that if you had "deemed cash-out" language in the plan for participants who are 0% vested that the result would be the same as in #1.

We know what the IRS' correction methodologies are for failures to implement salary deferral elections. However, has anyone seen any literature on how one would measure someone's damages because the employer did not implement a salary deferral election (i.e., the loss of tax-deferred investing over a period of years)? If so, please share. Let's ignore for the sake of argument whether there is a cause of action against the employer or the fact which I recognize that any measure of damages has to be based on speculative assumptions, but I am trying to find out if any courts have laid out some standards.

With all due respect you're not looking at 457 correctly. 457 is a restrictive rule, basically saying that if you are subject to 457 your employees cannot defer taxes on vested compensation unless it is done in accordance with 457(b). Employers described in 3121(w)(3)(A) or (B) are not subject to 457. Therefore, they can structure deferred compensation without regard to 457, including 457(b), just like a for profit entity.