jpod

Several factors here. 1. What does the plan doc. say about authority to adopt amendments? If the doc. explicitly says "Board of Directors," there's your answer, and you'll have a problem if the IRS raises the issue. 2. If the doc. says simply "the Employer" may amend the plan, is there anything in the corporate governing documents (articles of incorporation, bylaws, another Board resolution) that says, or can be construed to say, that the Board must approve qualified plan amendments? If not, the next line of inquiry would be who actually signed the amendment, and is there anything in the corporate governing documents that would prevent that individual from binding the corporation to the amendment. IRS has a knee-jerk reaction sometimes to the lack of a Board resolution, but if you can work through the above points and demonstrate that the execution of the amendment by the individual who executed it was sufficient to bind the corporation, you should be ok. The fact that the Board may have approved other amendments, or the original adoption of the plan, is not itself a reason why the Board must be involved in an amendment.

You are not missing anything. Also, the IRS has made it perfectly clear in their webinars that they would give the employer the benefit of the doubt in hard cases on whether a termination was "involuntary" (i.e., assuming the issue was ever spotted or raised in an employment tax audit, which I suspect would be darn near impossible). If the employer wishes to take an aggressive approach and deny the premium subsidy, I would counsel against that, notwithstanding the employee's ability to get a quickie DOL hearing on the issue.

Earl: Alternatively, giving EBSA the benefit of the doubt, they actually looked at the postmark and it said Oct. 16.

Perhaps the employer is funding some of the severance benefit through a QP enhancement for NHCEs, and outside the QP for HCEs. Total speculation on my part.

QDRO, thanks for the kind words. I respect your opinion too. The money must be worthwhile to the poster, otherwise why would he have raised the issue? Assuming part 4 of Title I applies (I guess it probably does), where is the "exclusive purpose" violation? The employee elected (presumably in writing or at least electronically) to have his pay reduced by $38 per month in exchange for FSA coverage. Is it implicit in that contract that the employer can never recover that money if it forgets to deduct it from pay? I think not. In any event, weighing the risks, I think it's worth the risk for the employer to implement what every rational person on the planet would consider to be the only fair result, legal technicalities aside.

George, it is not academic in my case. One member of a controlled group is inquiring about whether it can do a © termination of its plan; there will be no CC, so a (B) termination is not in the cards. I still don't understand how you explain away the words "would be."

George: My initial post was directed at the issue of whether you really had to aggregate plans of different members of a controlled group. I never thought that the issue you are raising had any legs. Your analysis seems to ignore the phrase "would be aggregated." To me, "would be" means that you aggregate plans that would be required to be aggregated if the same service provider had participated in them, whether or not he actually participated in them. The reason for the word "aggregated" is to reflect the rule that you only aggregate two elective account balance plans, or two non-elective account balance plans, or two DB plans, etc., but not an elective account balance plan with a DB plan, etc. Your analysis would work, I think, if the "would be aggregated" language was not there, but it is there. The fact that the other interpretation would have been obvious if the reg. had said, simply, that you must terminate all plans required to be aggregated, rather than the much lengthier and clumsy language that is there, suggests to me that the meaning is that you must terminate all plans of the same type. If you didn't have to terminate similar plans covering different participants, think of the abuse potential. Rather than set up one plan for all participants, the employer could set up separate clone plans for each participant. Then, when Executive #1 decides that he wants his money earlier than elected, and is willing to give up further deferral potential for 3 years, presto, his plan is terminated, but not the other participants' plans. Surely, Steve T. would never agree that this is how the reg works.

I've seen it many times. The downside is it might dissuade the lower paid people from participating, thereby hurting ADP and ACP. The upside is it's good policy (i.e., retirement plans should be used primarily to fund for retirement, not to save for the next car).

QDRO: You said: "While the employer might have some recourse to overpayment of the employee, I don't think it is worth pursuing and your suggestion of withholding from the benefit payment is definitely a bad one." I'm surprised you feel that way. Where is the real (as opposed to theoretical) risk here in the employer offsetting? There is nothing in the regulations that says you can't do this; they don't address the issue.

sniffles: When you call the IRS and DOL with questions like this, the answer is predictable and you get what you pay for. I can't speak for your State's Dep. of Insurance, but I'm not sure how it plays a role here anyway.

Sniffles: I assume you meant $38 per pay period, which times 26 equals $988. If I were the employer I would deduct the amount which he should have contributed from the $988 and give him the difference tax free. I realize that he is losing the tax benefit on the deducted amount. Let's say that the deducted amount for less than five months of work is $450, and the lost tax benefit is $150. What is the likelihood that he is going to sue the employer over $150? Probably zero, unless he's a nut. What is the likelihood that the IRS will audit the employer, discover this and blow up the plan? Probably zero.

George, what you say sounds reasonable. However, how do you get by the language of the regulation? Specifically (I'm paraphrasing): the service recipient must terminate all plans that would be aggregated under 1.409A-1© IF THE SAME SERVICE PROVIDER had deferrals of compensation under al of the plans.

Please let me know if you agree with my conclusion, or if you don't agree tell me why I am wrong. (Actually, I hope I am wrong, but I'm afraid I am not wrong.) 414(b) controlled group of corporations. One employer within the controlled group wishes to terminate its account balance deferred compensation plan for its employees under the "elective" termination rule in the regulations. Among other things, this rules requires that the service recipient terminate all plans that would be required to be aggregated under the 409A regs if the same service provider participated in those plans. Because of the definition of "service recipient" in the 409A regs (i.e., it includes all entities aggregated under 414(b) and ©), I believe that all plans of the entire controlled group that would be required to be aggregated must be terminated in order to use the elective termination rule.

I thought IRS allows loans to be rolled over from a QP to another QP. Why not to a 403(b)?

Don't ask; don't tell.

If the agent was pointing to facts that suggested there was earlier "current availability," you might have a problem, but that does not appear to be the case here. The agent either doesn't know the rules or doesn't care because he likes his own rules better (unfortunately the latter is all too common). Give the agent copies of the provisions of the regs. that set forth the current availability rule, and the definition of current availability. If the agent doesn't back off, request to speak with his manager.

There is no indication that a pt is involved here. The poster described the situation as "missed deferrals," not "late deposits."

The basic principle underlying EPCRS is to restore the plan to the same position it would have had absent the operational error. I can't remember if you're allowed to reduce the contribution by losses, but I cannot imagine that there is anything in the Rev. Proc. that would require the employer to kick in some earnings when under the appropriate earnings calculation methodology in the Appendix the employee would have suffered a loss.

GBurns: I am not getting the same impression from the original post. There may be facts not stated, such as that the employee was never interested in the profit sharing plan in the first place, and negotiated for and was offered more cash in exchange for being excluded from the profit sharing plan (except that maybe the employer realized too late that the plan had to be amended to exclude him). I can conjure up several scenarios that are just as plausible as your scenario, if not more so.

No; there must be a termination of employment. However, at the webcast last week the IRS said that future guidance will probably say that if an employee quits as a result of that type of action by the employer, the quit will be viewed as an "involuntary termination." I would wait for the guidance before acting on this, however.

GBurns: The original poster said that the parties have agreed to this, and I am taking him/her at his/her word. It's not even clear that the contribution has been made yet, and even if it has there could be a reduction in future salary to offset the profit sharing allocation, coupled with an amendment to exclude this employee by name from the plan going forward (assuming no 410b issues). Why are you so up in arms about this?

This appears to be the natural consequence of 4980B(f)(8), and I think this was confirmed during the webcast.

Is the COBRA period beginning immediately? If so, 6 months. Is the COBRA period beginning at the start of the 4th month (which presupposes that your group insurance contract will let you defer commencement of the maximum COBRA period, if you are insured)? If so, 9 months.

I am not going to propose a solution on a message board, but why must this inquiry be written off out of hand? The parties have made a business deal that the employee's total compensation will be X, and he can't have X plus a profit sharing contribution. While it is obviously not as simple an undertaking as the employer likely assumes, there very well may be a way to skin this cat, with some creativity. Experienced ERISA counsel should be sought for this purpose.

Lori: Yes, you still have to address 409A. I was just baking off from/apologizing for my 457(f) comment.