Belgarath

Sal also discusses this issue in the QDRO definition of the EOB.

Mbozek - thanks for this information - I was not aware of this. What constitutes "pay status" (for purposes of this law) for a DC plan - does it mean, for example, that if you are entitled to receive an in-service distribution of your profit sharing account if you request it, that this would be considered "pay status" or are the requirements more rigid? Thanks.

It seems rather brazen for a company to pull something like that out of the blue. Hard to figure...I've never heard of anything like this. Can the DOL fine people for falsely advertising DOL review and approval?

Here's the PLR http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irl20b6/1/doc

Hey - look what I found - granted that it is old, still interesting in light of this conversation. I haven't yet been able to find the PLR being referenced. http://benefitslink.com/boards/index.php/topic/8553-considering-service-for-a-prior-company/

Hi Austin - in the absence of guidance saying otherwise, how could you have identical stock ownership in EACH corporation, if those corporations don't exist at the same point in time? I was thinking specifically about 1563 - how can 5 or fewer/80% test be met with regards to corporation A and B if corporation A doesn't exist? What day are you testing? Suppose instead of being formed next day, new corporation B isn't formed until 2 weeks later, but in the same calendar/plan year - would you assert this is a CG as well? Is there a statutory/regulatory "time limit" that you can point to that clarifies this? There was some stuff in the proposed 414(o) regulations addressing this, but that portion of the proposed reg was withdrawn. I'm just saying I don't think this issue is necessarily a slam dunk either way, and I'd be careful opining either that it is or is not a CG. In fact, I might give "input" but I'd make darn sure I wasn't the one making this decision, cause the ramifications for being wrong in either direction could be unsavory. P.S. - perhaps as support for the fact that this is merely a reorganization, and therefore a CG, you could use 368(a)(1)(F)? I'd still defer to counsel!

I'm not so certain of that. If both entities are corporations, since they don't exist on the same day, there may not be a CG. On the other hand, if it is a mere change in form, for example a sole prop or partnership that incorporates, then I think you do have a CG. This one could be tricky, and I'd recommend ERISA counsel. The 415 regulations (1.415(f)-1©(2)) might also consider this a predecessor employer situation. So I think there is the potential for some "gray" in this situation, depending upon facts and circumstances.

What an enlightening response! If you only a bit weary, I admire your patience.

Since I rarely see a governmental plan, I was just curious if it is a common provision in a governmental profit sharing plan, to offer a matching contribution, which is based solely upon deferrals to the 457 plan?

I think if you submit this under VCP, you are likely to be unsuccessful for the reasons Kevin already mentioned. My vote is that the client is probably up the creek without a paddle. How much money is involved? If a big plan and a lot of money, they might want to engage ERISA counsel to see about a court approved reformation of the plan, or the combined "writings" that constitute the "Plan" being sufficient to ignore this error, but that's getting out of my league.

I still think that's what it is. You have an approved EGTRRA document, to which a bunch of amendments were made - you are now submitting for a new D-letter, and you have to do the statement regarding those amendments. Also take a look at the "procedural requirements" checklist, #8 - see below. This statement is required, and I believe that is what 3g(ix) is referring to. But don't take my word for it, contact the IRS and ask them. Of course, good luck with getting a response within the next 6 months...you might also consider contacting Sungard and asking them - their support is very good. A list of modifications (For each modification of the approved specimen, is a separate written representation made by the VS practitioner that explains how the plan or trust instrument differs from the approved specimenplan and explains the effect of the modification of the approved specimen plan attached?);

Good point! I was wandering in the murk, and somehow thinking that the niece was a secondary beneficiary, but when I go back and tread the post, that doesn't follow.

Ignoring the tax aspects, I do believe it is possible for a beneficiary to do a legal and valid "disclaimer" - but this is most definitely something I would check with an attorney licensed in your jurisdiction. I seem to recall there were some pretty rigid requirements for timing, etc...

I agree with Bill - assuming the plan language allows it - I'm only fixating on this because I have worked with documents that would NOT permit this, so just be careful. Odds are good that the document doesn't contain any such restriction as I originally mentioned on loans from insurance cash value anyway.

I believe it refers to this - naturally not explained in the 3g instructions, which would be too easy, but on the second page of the 5307 instructions...and I'd answer it "yes" and attach the statement. If it ain't what they want, they will ask for what they want. A written representation (signature optional) made by the VS sponsor under penalty of perjury, that explains that the plan and trust instrument are not word-for-word identical to the approved specimen plan and describes the location, nature and effect of each deviation from the language of the approved specimen plan

First, and I'm not being a wise-guy, check the plan document. The insurance policy should be owned by the Trustees of the Plan, so the participant can't simply borrow from the policy. The plan may allow participant loans, and the policy cash value may be included when calculating the total vested interest for purposes of maximum loan amount, BUT, many Plans limit the loan proceeds to coming out of assets OTHER THAN the insurance policies.

From the IRS Employee Plans News - in March, I think... Tax Consequences of Plan Disqualification When an Internal Revenue Code section 401(a) retirement plan is disqualified, the plan’s trust loses its tax-exempt status and becomes a nonexempt trust. Plan disqualification affects three groups: 1. Employees 2. Employer 3. The plan’s trust Example: Pat is a participant in the XYZ Profit-Sharing Plan. The plan has immediate vesting of all employer contributions. In calendar year 1, the employer makes a $3,000 contribution to the trust under the plan for Pat’s benefit. In calendar year 2, the employer contributes $4,000 to the trust for Pat’s benefit. In calendar year 2, the IRS disqualifies the plan retroactively to the beginning of calendar year 1. Consequence 1: General Rule - Employees Include Contributions in Gross Income Generally, an employee would include in income any employer contributions made to the trust for his or her benefit in the calendar years the plan is disqualified to the extent the employee is vested in those contributions. In our example, Pat would have to include $3,000 in her income in calendar year 1 and $4,000 in her income in calendar year 2 to reflect the employer contributions paid to the trust for her benefit in each of those calendar years. If Pat was only 20% vested in her employer contributions in calendar year 1, then she would only include $600 in her calendar year 1 income. Exceptions: There are exceptions to the general rule (see IRC section 402(b)(4)): • If one of the reasons the plan is disqualified is for failure to meet either the additional participation or minimum coverage requirements (see IRC sections 401(a)(26) and 410(b)) and Pat is a highly compensated employee (see IRC section 414(q)), then Pat would include all of her vested account balance (any amount that wasn’t already taxed) in her income. A non-highly compensated employee would only include employer contributions made to his or her account in the years that the plan is not qualified to the extent the employee is vested in those contributions. • If the sole reason the plan is disqualified is that it fails either the additional participation or minimum coverage requirements, and Pat is a highly compensated employee, then Pat still would include any previously untaxed amount of her entire vested account balance in her income. Non-highly compensated employees, however, don’t include in income any employer contributions made to their accounts in the disqualified years in that case until the amounts are paid to them. Note: Any failure to satisfy the nondiscrimination requirements (see IRC section 401(a)(4)) is considered a failure to meet the minimum coverage requirements. Consequence 2: Employer Deductions are Limited Once the plan is disqualified, different rules apply to the timing and amount of the employer’s deduction for amounts it contributes to the trust. Unlike the rules for contributions to a trust under a qualified plan, if an employer contributes to a nonexempt employees’ trust, it cannot deduct the contribution until the contribution is includible in the employee’s gross income. • If both the employer and employee are calendar year taxpayers, the employer’s deduction is delayed until the calendar year in which the contribution amount is includible in the employee’s gross income. • If the employer has a different taxable year than the employee (a non-calendar fiscal year), the employer cannot take a deduction for its contribution until its first taxable year that ends after the last day of the employee’s taxable year in which the amount is includible in the employee’s income. For example, if the employer’s taxable year ends September 30 and a contribution amount is includible in an employee’s gross income for the employee’s taxable year that ends on December 31 of year 1, the employer cannot take a deduction for its contribution until its taxable year that ends on September 30 of year 2. 9 For example, if the employer’s taxable year ends September 30 and a contribution amount is includible in an employee’s For example, if the employer’s taxable year ends September 30 and a contribution amount is includible in an employee’s gross income for the employee’s taxable year that ends on December 31 of year 1, the employer cannot take a deduction for its contribution until its taxable year that ends on September 30 of year 2. Also, the amount of the employer’s deduction is limited to the amount of the contribution that is includible in the employee’s income and whether a deduction is allowed depends on whether the contribution amount is otherwise deductible by the employer. Finally, if the plan covers more than one employee and it does not maintain separate accounts for each employee (as may be the case with a defined benefit plan), then the employer is not able to deduct any contributions. In our example, assuming both the employer and Pat are calendar year taxpayers, the employer’s $3,000 deduction in calendar year 1 and $4,000 in calendar year 2 would be unchanged because that is when Pat would include these amounts in her income. However, if Pat were only 20% vested, then the employer would only be able to deduct $600 in calendar year 1 (the vested part of her employer contribution) which is the amount Pat would include in her calendar year 1 income. Consequence 3: Plan Trust Owes Income Taxes on the Trust Earnings The XYZ Profit-Sharing plan’s tax-exempt trust is a separate legal entity. When a retirement plan is disqualified, the plan’s trust loses its tax-exempt status and must file Form 1041, U.S. Income Tax Return for Estates and Trusts (instructions), and pay income tax on trust earnings. Revenue Ruling 74-299 as amplified by Revenue Ruling 2007-48 provides guidance on the taxation of a nonexempt trust. Consequence 4: Rollovers are Disallowed A distribution from a plan that has been disqualified is not an eligible rollover distribution and can’t be rolled over to either another eligible retirement plan or to an IRA rollover account. When a disqualified plan distributes benefits, they are subject to taxation. Consequence 5: Contributions Subject to Social Security, Medicare and Federal Unemployment (FUTA) Taxes When an employer contributes to a nonexempt employees’ trust on behalf of an employee, the FICA and FUTA taxation of these contributions depends on whether the employee’s interest in the contribution is vested at the time of contribution. If the contribution is vested at the time it is made, then the amount of the contribution is subject to FICA and FUTA taxes at the time of contribution. The employer is liable for the payment of FICA and FUTA taxes on them. If the contribution is not vested at the time it is made, then the amount of the contribution and its earnings are subject to FICA and FUTA taxation at the time of vesting. For contributions and their earnings that become vested after the date of contribution, the nonexempt employees’ trust is considered the employer under IRC section 3401(d)(1) who is responsible for withholding from contributions as they become vested. Calculating Specific Plan Disqualification Consequences Calculating the tax consequences of plan disqualification depends on the type of retirement plan. For example, the tax consequences for a 401(k) plan differ from the consequences for a SEP or SIMPLE IRA plan. How to Regain Your Plan’s Tax-Exempt Status Generally, if a plan loses its tax-exempt status, the error that caused it to become disqualified must be corrected before the IRS will re-qualify the plan. You may correct plan errors through the IRS Voluntary Correction Program. However, if your plan is under examination by the IRS, you must correct the errors through the Audit Closing Agreement Program. Note: This is a general overview of what happens when a plan becomes disqualified for failure to meet qualification requirements (see IRC section 401(a)). These examples provide general information and you should not rely on them as legal authority as they do not apply to every situation. For more information, see Rev. Rul. 74-299 and Rev. Rul. 2007-48 (and the law and regulations discussed in those rulings).

I'm going from memory here, but as I recall you need to get something like 64 out of 75 correct - basically 85%.

From IRS Notice 2013-74: Q–7. Would a plan with an ongoing qualified Roth contribution program violate § 411(d)(6) if it discontinued in-plan Roth rollovers? A–7. No. An employee’s ability to make an in-plan Roth rollover is not a section 411(d)(6) protected benefit. However, an amendment to eliminate in-plan Roth rollovers is subject to the rules in § 1.401(a)(4)–5, relating to whether the timing of a plan amendment or a series of plan amendments has the effect of discriminating significantly in favor of highly compensated employees or former highly compensated employees.

Gracias.

Hmm - good point! So, do you interpret this such that if there is someone who only makes, say, $10,000, and can't defer the entire $10,000, that you have a violation?

Thanks for all the comments. Believe me, none of this is my idea. I also have never seen such an election. But someone has done it, so now I'm just looking for ways the reasonably argue that what they already did was allowable. They may well still "make up" the May payroll... Confusing? You have no idea! It is much worse than you think - I'm only discussing 1 piece of this oddity, and not by any means giving you all the issues/details. I keep thinking it is a bad dream from which I will awake, carefree and happy. Kevin - your point is well taken, but in this case I actually have no worries about that. Since they had to sign a new election for 2015, are informed up front that it is based on 24 pay periods, and can change during the year, I think the facts and circumstances would pretty clearly support that they have an effective opportunity to defer the max. But maybe my normal conservatism is on vacation today.

P.S. - here's the note that appears on the salary deferral form. Fairly specific. They also have all benefit deductions for cafeteria plan, etc., done on one form, hence the reference to Flexible Benefits, which has nothing to do with the 403(b) deferral... **NOTE** All Flexible Benefits will be paid out based on 26 pay periods, however elected benefit deductions will be paid out based on 24 pay periods, resulting in 2 paychecks each year with zero deductions. This will take place when there are 3 pay periods in a month, which you will see in May & October for 2015.

Thanks. Match is discretionary, and is on a "per payroll" basis, so for any payroll (the 3rd payroll in each of the 2 months that have three payrolls) there would be no deferral and no match. We would recommend that this be modified for 2016, by the way, or at least referred to counsel... And, I just found out this is a 403(b) and not a 401(k), so ADP and Top Heavy wouldn't be an issue even if they had HC/Key, but they don't anyway. The document is pretty open-ended on deferral procedures - allows a lot of employer latitude, so I'm thinking that as long as the participants are appropriately notified. One of the clauses that seems to allow some wiggle room is: © Additional Rules. The Plan in the Plan's Salary Reduction Agreement form, or in a Salary Reduction Agreement policy will specify additional rules and restrictions applicable to a Participant's Salary Reduction Agreement. Any such rules and restrictions must be consistent with the Plan and with Applicable Law. Also, compensation refers to... (2) to all Elective Deferral Compensation or Salary Reduction Agreement Compensation as the Employer elects in its Adoption Agreement, unless the Participant in his/her Salary Reduction Agreement elects to apply the Agreement only to a lesser amount of such Compensation. Anyway, I don't know what an auditor would think, but the question becomes whether some sort of self-correction is required, or if the Plan is ok on this issue. And one could argue that "correcting" the plan - that is, requiring an additional deferral on the two extra paychecks - would itself be a violation if the clear intent of the deferral forms (with latitude permitted by the plan, and forms signed by the participants) is to limit the deferrals only to the 24 payrolls. There's way too much gray here for my taste!

Here's a new one to me. Plan deferral procedures and deferral forms specify that all deferrals, whether by percentage or by flat amount, will be deducted twice monthly (24 pay periods per year) even though they actually do bi-weekly payroll (26 per year.) Match is on a "per payroll" basis. Not a safe harbor plan, not top heavy. Although odd (in my experience) is there really a problem with this? Plan is allowed to establish deferral procedures, so do you foresee problems for an auditor with this practice? Assume no HC, so no possible testing failures involved. Seems to me that this should be ok, even though it feels a little funny in that plan definition of compensation doesn't specifically refer to this. But for a flat dollar deferral amount, the number of payrolls is ultimately immaterial, and for a percentage, as long as forms clearly specify that it is for 24 payrolls only, participants know exactly what they are signing up for. Any thoughts?