jpod

Randy: This doesn't sound like a possibility in this case, but if the future payment is still subject to a substantial risk of forfeiture within the meaning of the 409A regs, that can be waived and payment can be accelerated.

What the plan says is what the plan says. There is no such thing as superfluous language, unless the Plan is written in a way that makes it superfluous. For example, if the drafter doctored up the vs plan to say something like "Sections so-and-so do not apply to a governmental plan described in Section 414(d) of the Code," than those Sections are inapplicable.

What if employer choses to ignore it (i.e., Tom gives accurate advice, but client ignores it). Would that be covered by any of the "small amount" thresholds under EPCRS?

None. This is tax rules for FSAs 101, or should I say the poster child for carefully thinking through all issues before making an election. If I were advising the employee, I would find out if she has any colorable claim against the employer for having mislead her or not giving her complete information about the use it or lose it feature. Assuming there is a basis for at least a colorful claim, I would contact the employer and say that my client has this colorable claim and also suggest how the employer may settle the claim without putting the integrity of its dependent care plan/fsa at risk. If the employer is sympathetic it may be looking for a viable way to give the money back to the employee and having a threatening letter from a former employee's lawyer in its file may be the hook on which it can hang its hat.

As QDRO said there are no laws that could trump what the Plan says. However, the named beneficiary be the beneficiary only if the plan says so. Be careful.

Employer wishes to roll out a plan that will allow employees to purchase stock at a deep discount; purchase price is $1 and FMV is a few dollars more than that. The stock, if purchased, will be subject to vesting conditions. If shares are forfeited, employee gets his/her $1 back, and nothing more. The window for exercising the "option" to purchase the stock will be very short: only a couple of months from the time that the program is announced, and the entire "option" period is within a single calendar year. There is no other feature that would provide for the deferral of compensation. Although this does not satisfy the exemption in the regs for stock options, isn't it exempt because there is no deferral of compensation involved?

Not sure what you mean by "first potential answer." If I understand you correctly, you believe the answer is that all of hours for which unused vacation is paid upon termination of employment are counted as hours of service in the computation period paid.

I have studied the hours-counting requirements of Reg. Section 2530.200b. Scenario is this. Employee terminates employment. Immediately or thereafter he is paid for unused vacation. Does the payment for unused vacation pay give him additional hours of service for the computation period in which paid? I am aware of the general rule that you count hours for services not performed "irrespective of whether the employment relationship" has terminated. However, there is also a rule against "double counting" of hours to the same period of time. Based on these two rules, is this the answer: To the extent that the unpaid vacation represented hours earned in a prior computation period, the corresponding hours are not counted, but hours earned in the current computation period are counted. If this is not the answer, the only other answer, I think, is that that you count all the hours, and the double counting prohibition really has no application. A third answer is that you don't count any of the hours, but that would seem to make the "irrespective of" language in the regulation completely meaningless. Any takers?

If all else fails you can use the forfeitures to play plan administrative expenses, assuming the plan document gives you that flexibility.

I agree with Blinky. You need to scrutinize all pertinent provisions of the plan to find the best interpretation. If the plan simply says, for example, all "owners," and there is no definition of "owner" that is date-specific, and there is nothing else helpful in the plan document, it seems to me that the only reasonable interpretation is a participant is an "owner" if he is an owner at any point in time during the plan year. Stated differently, what would be the reasonable basis for concluding that it means someone who was an owner at any particular date, or someone who was an owner for the entire plan year?

This is impermissible under the Federal ADEA (i.e., age discrimination law). If your plan is subject to the Federal pension law - ERISA - it is also impermissible under ERISA.

There is a criminal sanction for a willful violation of ERISA's reporting and disclosure requirements. I think if a DOL auditor tells you to do it and you don't do it, that might suggest some willfulness. On a more practical level, let me suggest: (a) If a participant or beneficiary requests an SPD, and you don't hand one over within 30 days, you are at risk for a civil penalty of up to $100 per day; and (b) if something goes wrong and a participant loses a benefit to which he/she was entitled because he/she did not follow through on the procedural requirements (e.g., the right to convert group life insurance to individual coverage; failure to comply with a medical plan's appeal procedures; etc.), the employer may be in a weak position where there has been no distribution of a compliant SPD.

I don't see a 409A problem, although if he is the sole owner query whether IRS might question whether there was no substance to it and its sole purposes was to attempt to convert ordinary income into more long term capital gain. Probably not much of a risk unless they have an offer on the table already. Another thought, perhaps an overly simplistic one: why bother? If the liability for the deferred comp. is X, and a buyer would pay Y for the company if the liability disappeared, why should a buyer care if it pays Y for the company free of the liability or Y-X for the company with the liability (unless, of course, X is greater than Y)?

If there is a loan, why can't the asset - the receivable, as evidenced by the promissory note and/or other documents - be held by the custodian of the custodial account or by the insurance company that issued the annuity?

Lots of moving parts here. If I understand the facts correctly, boiled down to its essence the employer screwed up by not withholding from pay, yet the employee got the full benefit of participation in the plan: tax-free reimbursements of dependent care costs. If the employer is willing to eat its loss, then nothing needs to be done. If the employer would like to get back from the employee the money it should have withheld from his pay during 2009, the first thing to do is to confer with employment law counsel, not necessarily an ERISA specialist, but someone who is very knowledgeable about employment law in the State in question. Does employer have a valid claim for reimbursement from the employee, and can the employer use some sort of self-help to recover it via reductions in the employee's future pay? If so, I think the employer can just reduce future pay until it recovers the overpayment, and those amounts will not be reportable on a 2010 W-2 or future W-2s or subject to withholding, and you just leave the 2009 tax reporting alone. If that can't be done, and the employer and the employee negotiate some sort of pay back through other means, the tax issues from the employee's perspective become much trickier and too complicated to address in this venue.

Is there not some linkage in the plan document to the concept that the consenting spouse must be the spouse at death of the participant?

mbozek: Clearly a gov'tal plan cannot elect ERISA status, and cannot "elect" to be subject to 5500 filing obligations and the like. But don't you agree that by its terms - incorporating provisions of ERISA - it can be bound by contract to ERISA rules (e.g., spousal consent, service-crediting methodologies, claims procedures)? Also, I don't know what you mean when you say a gov'tal plan cannot adopt a prototype. It most certainly can use a prototype to evidence its plan and its contractual commitment to participants; it just can't get reliance under the prototype rules. In any event, we're talking about a 403b.

QDRO: Absolutely that happens. But even if that is davef's situation he may be wondering, for example, whether a 5500 is required (and under the new regime that's a big deal), or whether there is ERISA preemption, etc.

davef: I am afraid to answer the question other than by answering it with more questions: 1. What causes you to doubt that it may be a plan "established or maintained for its employees by [an agancy or instrumentality of the government of a State]"? 2. Is it a "no brainer," e.g., Ohio State, Penn State, or is it merely a State-supported university? 3. Is it a plan that also covers employees of other entities that would not meet the "instrumentality" standard?

. . . but I would also include the restatement for which you are seeking a new DL as one of the "number of amendments." You can avoid confusion by explaining in your cover letter what you are counting in the number reported on line 3.

There may have been nothing inappropriate about kicking the participant's dependents out of the plan if (a) the governing plan document(s) - insured or otherwise - permitted this (otherwise what leverage does a carrier or plan sponsor have in getting participant cooperation in connection with a dependent audit?), and (b) participant was provided notice of what would happen if he/she failed to respond. A bit dicey, but not necessarily illegal. As to whether a fee can be charged for coming back in, what does the plan say? A more important question not yet asked is does the dependent come back in retroactively or prospectively only? Again, a document question, but I could understand if the document said that you can't get back in until the next open season.

FGuidance: Thanks for the advice about lawyering, but I have no idea what are you talking about. The regulation you cited says that IRS can prescribe filing requirements through forms and instructions. It has done that.

Sieve, I'll bet you a nickle that the trustee is the owner of the company or at least a significant owner of the company or someone who has a relationship to the company or an owner of the company that clouds his judgment and raises self dealing issues as desribed in the reg under the service-provider exemption.

Sieve, you raised a good point: not enough facts to identify a pt. I assumed that the OP already identified a pt and was searching for an exemption, but you know what they say about people who make assumptions. Anyway, it is just giving off the scent of self-dealing, but maybe I've been at this too long.

What have you found that could treat "equipment" as "real property"? In all likelihood there is no statutory or class exempton that would permit the transaction you described. Even the new PPA statutory exemption that permits (A), (B) and (D) transactions doesn't seem to fit, and if there is any (E) or (F) self-dealing involved, you have no chance.