Belgarath

Boy, I'm glad I'm retired, other than a very few days during the next month to help my employer through the transition. I've already forgotten most of what little I ever knew. The legal issues are far beyond my understanding. While I like Cuse's solution, I recall that at least at one time (and it may have changed) there was a potential issue with this - I had written this note to myself back in the day: There is a potential problem for COVERAGE using the Average Benefits Test, due to the requirements of 1.410(b)-4(b), and whether the IRS believes that having each person in their own group is tantamount to “enumerating by name.” If they believe this, then the ratio test must be passed, because the average benefits test for COVERAGE requires a “reasonable classification” – and enumerating by name or having the same effect is by definition not a reasonable classification. In addition, I provide this excerpt from ERISApedia (caveat - I have NOT checked ERISApedia to see if the following has been updated in any way!) purely for purposes of possibly adding (or not, as y'all determine) to the discussion. It is oftentimes overlooked that a waiver must also comply with any ERISA Title I rules regarding the waiver of benefits. Courts often take a dim view of waivers because it is generally not in a participant's best interest to waive a benefit. In Laniok v. Advisory Committee, the court applied a six factor test in determining whether there was a valid waiver of participation in a pension plan: 1) the employee's education and business experience, 2) the amount of time the employee had possession of or access to the agreement before signing it, 3) the role of the employee in deciding the terms of the agreement, 4) the clarity of the agreement, 5) whether the employee was represented by or consulted with an attorney, [as well as whether an employer encouraged the employee to consult an attorney and whether the employee had a fair opportunity to do so], and 6) whether the consideration (e.g., payment) given in exchange for the waiver exceeds the value of the employee benefits to which the employee was already entitled by contract or law. Please note that if the plan is a 401(k) plan, giving consideration for someone to waive participation in the 401(k) portion of the plan would violate the contingent benefit rule (see Chapter 14, Contingent Benefit Rule). It is the author's experience that few waivers of benefits comply with the Title I (e.g., DOL) rules as described by the court in Laniok. Failure to follow the Title I rules may result in the reinstatement of the participant's benefit.

It is a difficult issue. I remember talking to Robert Richter about this many years ago. The gist of his advice was, "If you use it, you'll live to regret it."

I know of several people who are dropping (or have dropped) their ERPA designation - in their opinion, it simply isn't worth the hassle.

I didn't see a date - has anyone heard anything from recordkeeping platforms? I'm just assuming we use the new ones (modified if we feel like it) as reasonably possible.

Thanks all. Effen, just fyi - this is a DC plan. Like y'all, I'd follow the instruction of the Plan Administrator and the ERISA attorney, with appropriate CYA. I don't believe it will come to this at all, but I like to know in advance as much as possible. Your information was very helpful.

Say you have a DC plan (ERISA 403(b)) covering both non-union and union employees, with a good faith CBA negotiated, etc., etc. Plan, by its terms, requires a fixed employer contribution, NO allocation requirements for a plan year. Employer is in financial difficulties, and union may be willing to renegotiate the CBA to remove or reduce the required employer contribution for 2026. But under the terms of the plan, benefit is already accrued. I think even if union is willing to open up the CBA and renegotiate, they still can't overcome the ERISA anti-cutback requirements - is there any way around that? I'm not aware of one, but don't really deal with ERISA plans with union involvement. Thanks.

There was a time, in the days of old when knights were bold, (and with a prior employer) when we would receive a suspicious number of signed and dated resolutions and document signature pages at year end, and the rest of the document later on after the end of the year. Fortunately we don't see that these days.

Re followups - we were late to the party for implementing electronic signature software. I'm not sure what the technical name is (that's for the systems wizards - I'm just a user). It is an Adobe system, and OMG, the time it saves! When you send the document to be signed and dated, you input the need=by date, and the follow-up frequency - once every week, for example. System does it for you, and sends you the signed and dated document once the client does it. I love it!

Arggh. Going from memory only, (so don't trust me) the problem is less about the plan year (if you subscribe to the theory that the plan year can begin prior to company being formed - we've done it, and upon audit IRS never questioned it) than it is the short taxable year. With a short taxable year, the 404(a)(3) limit is based on compensation for that short period, and the compensation limit is prorated to calculate the deduction limit. Hopefully someone with a sharper memory can point out corrections to the above...

Hey, for an International Man of Mystery, anything is possible!

I have made the (not all all difficult) decision to retire at the end of this year. I have agreed to work a couple of days a week during the early part of next year to help out my employer while they hire a replacement, but it's a limited engagement. I'll be lurking on these boards for a while yet. I'd like to take this opportunity to thank Dave and Lois for providing this magnificent resource - it has been a tremendous asset! I'd also like to thank all of you folks, past and present, for the invaluable assistance you have given to me over the years. I've certainly taken more than I've given, and your time, generosity, and expertise is appreciated more than you can ever know. It's not just the technical expertise, but the sounding board for discussions, sometimes griping (misery loves company) and humor in the face of statutory and regulatory foolishness that makes this such a great community. I wish you all the best in your future endeavors (I'm trying hard not to gloat) as you continue in this business, and I hope you all have a great Holiday season! Take care, and again, a heartfelt thanks!!!

Yes, I'd allow.

I hope you all have a great Thanksgiving, unsullied by productive thought. (We are having our meal on Saturday, as many family members can't make it tomorrow, so I'll be working tomorrow - great time to catch up on stuff with no phone/e-mails!)

I'm frequently surprised at the litany of reasons why some people may not want to be found (or accept payment). Divorce, separation, child support, legal or illegal debt, avoiding a stalker, it goes on and on... we had one where the former employee was collecting disability, and getting a payment from the plan would have reduced or eliminated her disability payment. It'll probably get worse now with the ICE crackdowns.

Not a CG on the face of it. But there could be other factors, like options to purchase the stock, etc., so recommend that they check with their attorney.

It isn't really possible to adequately describe the profound impact (all good!) that you have had during my career in this business. Congratulations on the "slowdown" - and from a purely selfish standpoint, we are delighted to hear that the teaching and the ASK will still be on the table for now. Best wishes!

THANKS PETER! This is very informative - I do appreciate it. I'm sometimes disgusted at how much I don't know after all these years in the business.

I agree. We've also had DOL audits (excuse me, "investigations" - we had a DOL "auditor" get snippy when we referred to her as an "auditor" rather than an "investigator") where the response was identical - "get a bond" - and no penalty was imposed.

Agree. See Peter's point below. I assumed not 50 by EOY, and you know what assuming can do...

At this point, going on nearly NO details - just a quick second-hand question based on a phone call from a plaintiff's attorney. We will of course be telling the client to talk with his legal counsel. But as much as I understand the situation so far: A participant terminated employment in 2023. He was an owner, and was bought out. Apparently, there is some sort of a lawsuit - the nature of which I have no idea, but the terminated participant is apparently getting some sort of settlement, and wants to know if he can contribute to the 401(k) for 2025 to save on taxes. The plaintiff's attorney wants to talk to us, apparently. This is way above my pay grade/knowledge, but I'd like to have some idea for my own background. I "think" I generally have an idea that a "restorative payment" which is determined under the facts and circumstances (Revenue Ruling 20something-25 - can't remember specific number) is not considered a contribution subject to 404, 415, etc., etc.) But this dealt with fiduciary breach-type situations as I recall. Assuming for the moment that this lawsuit is for other reasons, perhaps wage issues, unjust termination of employment, whatever, if the settlement is considered wages, then if he was still employed by the employer, he should be able to defer up to the normal limit. But, since he terminated in 2023 I don't believe he could defer into the plan. Could he? Please don't waste a lot of time on this, because as I said, it'll be handled by the client's ERISA attorney, and/or the plaintiff's attorney and/or tax counsel. But for my own edification, if you might have any quick general info based on your experience, I'd be grateful for anything you might care to share. We've been fortunate to never have run into this situation. Thanks! P.S. - The Revenue Ruling I was thinking of is old - 2002-45. No wonder I couldn't remember...

Special deluxe a la Peter T. Hooper.

I agree with Cuse. We tell them to keep everything forever, and if they want to do otherwise, (with or without their lawyer's advice) it is up to them.

Thanks for the info. (In this particular case, since they are all >5% owners, the top 20% election wouldn't help.)

I don't think you need to bother with IRS regulations. A plan must operate according to its terms, and this specific language does not appear to allow such an allocation, absent some additional "notes" in the AA or overriding language in the body of the document. Most of these HCE SH exclusions that I've seen have a short additional bit of language to the effect the discretionary contribution is for "any or all HCE's" or something like that. P.S. are you certain that you are looking at a Cycle 3 document? The slightly less flexible language in your excerpt, or similar language, was present in some Cycle 2 documents that I've seen. Then updated for Cycle 3.

Thanks Gentlemen. Very interesting.