jpod

Was there any kind of written deferral election in existence prior to the deposit of the $16,500 that can be interpreted to apply to that $16,500? If not, then I see no basis for treating it as an elective deferral. If there was such a written deferral election, I believe there is a basis for taking the position that the $16,500 was a good elective deferral, and a 941-X and a W-2c can be filed to correct the employment tax reporting, with appropriate deposits of soc. sec. and medicare taxes.

I am questioning whether the PA must actually go through the 503 procedures. I doubt that it must or should if a frivolous claim is made, so I am suggesting that perhaps the girlfriend's inquiry/claim is on the same side of the grey line.

Wouldn't the girlfriend have to have a "colorable" claim to have standing to sue as a beneficiary in court, and if she doesn't have such a colorable claim, why should her inquiry/claim trigger the ERISA review procedures? Of course, one first needs to figure out what "colorable" means and what the girlfriend has to demonstrate that her claim is colorable.

If the individual himself/herself sent in the check, I probably wouldn't take a risk and I would accept the check as an "election." However, the individual did not send in the check. Is there any way that the State Medicaid office could have elected COBRA on behalf of this individual? I would look into this question first, and if the answer is "no" I would feel more comfortable denying COBRA.

On the Federal tax side of things, see IRS Forms W-2c and 941-X and their respective instructions. Most likely employees reported what their W-2s told them to report. If pre-tax is allowed for State and local income tax purposes, you'll have to check the rules for that State and municipality to figure out what to do.

You should take a look at the DOL opinion letter concluding that a dependent care reimbursement plan was not an ERISA welfare plan. I don't remember it too well, but the DOL's reasoning in that case may be helpful in this case.

I don't think you will find it in the regs themselves, but the definition of SRF is such that the non-occurrence of a CIC (coupled with continued employment) can easily qualify as a SRF, assuming that no CIC is about to occur when the plan is set up. If continued employment is not required, and if there is no deadline for when a CIC triggering benefits may occur, then I think you have at least an academic issue as to whether there really is a SRF if the benefits vest no matter when a SRF occurs (e.g., 100 years from now).

No takers on my Q from yesterday?

Follow up on this, particularly concerning J Simmons' experience. I am looking at a money purchase plan that has a, shall we say, very "flexible" Normal Retirement Age. It absolutely would not pass muster under the 2007 regulations. However, the Plan does not permit in-service distributions (except for MRDs, which won't ever happen because there won't be any 5% owners), and the only relevance of the definition of NRA is to accelerate vesting for someone who would not otherwise be fully vested under the regular vesting schedule. So, can the NRA definition be whatever it is without regard to the 2007 regulations? My view is "yes."

I can't tell you why, but I don't think even the most aggressive Treasury/IRS person involved in the development of the 409A regs ever felt that you could create deferred compensation by virtue of an employment agreement providing specified compensation for services. Maybe the answer is derived as follows: there is no "legally binding right" until the employee works a day (or whatever increment you choose), at which point he has a legally binding right to compensation for that day's work which will be paid currently (and not in a subsequent year).

(1) IRS would say "no." I would too, probably. (2) Yes, I think. Hope your advice was in writing.

Why do you think there is any "deferred compensation" here subject to 409A?

Wouldn't you have the same withholding issue whether or not the excess above the minimum was permitted by the terms of the plan?

Tom Poje: I think what Bird was suggesting is that the language he provided as an illustration can be interpreted to mean that the MRD requirement is an exception to the general rule of the plan (presumably) not allowing in-service distributions, and given that it is an exception only the minimum can be distributed.

Bird, I would say that what you displayed was drafting which someone did with great care. You will find that in some, but not all plan documents.

The fact of the matter is that unless there is a rule that says flat out and with no ambiguity that only the mnimum may be distributed, this is not something the IRS would raise as a disqualification issue and in fact it would be quite happy to have the taxes paid on the excess distribution earlier rather than later. Unless someone took great care in drafting the MRD provisions of the plan (as opposed to merely stapling in the 2003 Model Amendment or the LRM Language), you will have ambiguity.

Not an employee; therefore, not even an "excludable."

I am not doubting that you are reading the plan correctly. But: are they in fact handling employee contributions on a pre-tax basis and that would explain why it was "described" to you as a 401k? If so, good luck.

A plan must reflect, or be amended to reflect, all applicable changes in law and regulations up through the termination date. Assuming the liquidation did not occur "as soon as administratively feasible" after the termination date, you will have to "re-terminate" the plan and make sure that it reflects all changes in law and regulations through the new termination date, and that any necessary amendments were adopted in a timely manner. Another ramification pertinent to 401k plans is that the clock for starting another defined contribution plan woulnd't start to run until the "re-termination" date. (This can have serious consequences if the plan was supposed to be terminated prior to the closing of an acquisition of the employer that maintained the plan.)

No, but if they file and attach a Reasonable Cause Statement to each EZ stating that the employer is a "first time filer" and prepared and filed the EZs as soon as this failure was brought to its attention, quite likely no penalties will be assessed.

ERISA Section 404©(1)(A).

Non-compliance with 404a-5 results in a breach of fiduciary duty (but I'm not sure there are any damages if there is such a breach with respect to a participant who has no balance). 404c provides transactional protection, and on a participant-by-participant basis, so I don't see why one might need 404c protection for someone with no balance.

From what I know about Federal estate and gift tax I have no reason to quarrel with MJB's analysis, except that I doubt that the E&G ramifications play a role in very many plan sponsors' decision not to allow for non-spouse surviving annuitants.

You can file a proposed document.

Saying he is "still on the books" clouds the issue. If all you mean is that his severance is being run through normal payroll and subjected to normal tax withholdings, which would be appropriate, then it sounds to me like there are no indicia of current employment and he is terminated. PMacduff's points are worth considering, however.