Belgarath

No idea whatsoever, but I offer the following: https://www.songfacts.com/facts/the-beatles/when-im-64

The following is just some general blathering as random thoughts occur to me. What recourse might you be talking about? Unless I'm misunderstanding, the participants just have to pay what they are otherwise required to pay, right? Granted that they might not be EXPECTING it at this time and it may be inconvenient, etc. - but they received the full distribution, so the state withholding that they WANTED withheld is still in their pockets, or is part of their new living room set that they are sitting on, etc. They probably don't owe any interest, but if they did ('cause they didn't make any quarterly estimated payments if required by the State, or something like that) then perhaps they would have an argument, and I suppose other scenarios could be created. But I suspect that any recourse requiring legal action would likely be either unwarranted or far more expensive than the "damages."

I've found conflicting opinions. Some say yes, others say that you fail the 25% Key employee test. Seems to me the latter is correct based on a literal reading, but maybe I'm missing something, or perhaps the IRS has opined informally on this, etc...

Thanks!

Way more information is needed. Don't assume anything at this point. For example, has this ownership been the same for all years, including 2017? Was company B acquired in a 410(b)(6)(C) transaction, so that a transition period might apply? Are all of the employees ELIGIBLE employees? Perfectly ok to exclude some or all employees of a Controlled group IF you can pass coverage testing. Based upon the ownership you give above, it would appear to be a controlled group now.

Ok, thanks!

I'm a little confused by this. So let's say you have a plan with a Health FSA, that has a rollover provision, but NOT a grace period. It does have a 30 day "runout" period to submit claims for prior year. Now assume they executed a CARES amendment, which states, to paraphrase, that the plan's claims procedures and other statutory deadlines are temporarily extended by the "outbreak period" , and the outbreak period extends until 60 days after the end of the National Emergency, etc... We of course are not past the end of the National Emergency. So, would you interpret this as allowing the 30 day "runout" period to be extended, for submission of 2020 claims?

Agreed. IRS Notice 2009-65 sample amendment for a non-EACA doesn't include any limitations either. https://www.irs.gov/pub/irs-drop/n-09-65.pdf

Hi Luke - thanks. By the way, how did you find 94-101? I couldn't find a link to the blasted thing anywhere - obviously looking in the wrong places!

Hi Luke - I know there was something, but darned if I can find it. Could have been made obsolete by later guidance, etc. The issue is discussed in the IRS audit procedures, but not in great detail. I tried to see if the EOB has anything on it, and there is an extensive discussion, and there is reference to an an IRS Announcement 94-101, but I can't find that. At any rate, I agree that it is a thorny issue requiring careful consideration!

In the "old days" we used to call this a "waiver of compensation" and it was used a lot. As mentioned above, this largely went away with the CODA concern. I seem to recall, without further research, that this is a real problem - maybe even automatic - for unincorporated partners/sole props, but not necessarily a problem (facts and circumstances) for, say, a corporation. There was some sort of Revenue Ruling/Announcement/whatever back in the 90's on this issue.

Personally, I would never want to go down this rabbit hole. We do qualified plan administration, not investment counseling. Could you do something like this? I'm certain you could. I just wouldn't want to - at least up front, I can't see that it would add enough "value" to our services (by the time you have disclosed and CYA to the nth degree) to ever make it worth it. If you do, have fun!

Thank you. This is actually precisely what we decided on Friday as the "best" course of action, taking into account all factors.

Thanks for the responses.

Just had an interesting question presented to me - real life case. 401(k) plan with several hundred participants had an ADP failure. Small failure - between $1,000 and $1,500 had to be distributed to 1 HCE. This was done timely in March of 2020 - BUT, 3 days after the deadline, the custodian reversed the distribution - due to some BS paperwork question. They never notified anyone of this, and the distribution was never reprocessed. Fast forward to now, when it was just discovered. Of course it can be corrected by a QNEC (prohibitively expensive) or the "one to one" correction method. Problem with one-to-one is that the amounts are so small that it amounts to a QNEC of just a few cents for many eligible NHCE's. Anyone have brilliant creative thoughts? VCP is prohibitively expensive, and any solution under SCP, while possible, carries no guarantees. Many fixes, while "reasonable" by ordinary standards, might not stand up under audit. However, short of an "approved" fix, then some risk must be assumed. Thanks for any thoughts.

Tried to post this before, but I think I botched it. Spirit - you may find this post helpful:

Good for you! Your participation will be missed. Enjoy every minute! I'm reminded of a quote I read a LONG, LONG time ago - rather corny, but the point of the message has always stuck with me. Lost between sunrise and sunset. One golden hour, set with sixty diamond minutes. No reward is offered, for it is gone forever.

Great, thank you. As I said, I just wanted to make sure I wasn't missing anything.

I haven't really, but my inclination is that as long as they can elect to be covered under the 401(k), then not to worry about it. If there isn't a 401(k) and the CBA excludes them from the 403(b), I think there's a problem. Turns out that the 403(b) plan document allows the union employees to CHOOSE whether to participate in the employer's 403(b) plan, or the union 401(k) plan, so they aren't excluded under the 403(b) plan after all. But, if questionable, I'd tell them to get an opinion from their ERISA attorney.

Thanks. Haven't seen the wrap document, so I don't know what it says...

Suppose an employer has been filing several 5500 forms - one for each plan - Dental, Disability, whatever. Has not been filing for certain plans due to less than 100 participants - say, Vision plan has only 40 participants. Now they institute a "wrap" plan. Are they required to include the Vision participants, or can they still exclude them? Do they have the option to include or not include, and still file multiple 5500 forms, or must it be one form? I'd assume they want to file just one form, and must all sub-plans then be included?

Thanks, but I want to make sure I am properly understanding what you are saying. When I said he "terminates" employment with A, he does in fact terminate employment with corporation A. I was trying to show the chain of events. I do understand that for qualified plan/controlled group purposes, this isn't a termination from the employer group. So, are you saying that vesting in Plan A does continue to increase while he is employed by corporation B, or are you saying that it does not increase? Thanks again!

Corporation A and B are a controlled group. They have identical separate plans. Participant is partially vested in Corp A plan, then terminates employment with A and moves to B. Account balance remains in the A plan. Since all service with all members of the CG is counted for Years of Service, then as long as participant works for B with 1,000 hours each year, the vesting under the A plan will continue to increase, even though participant is no longer working there. Is there any dispensation that I'm missing that would allow vesting in A plan to remain frozen?

As an official Geezer, I'll give it a shot. However, one of the downsides to being a Geezer (unretired) is that one of the first things to go is memory. I kind of think this was a PLR, although of course there could be a subsequent Revenue Ruling that makes it official - I don't have time to check. Here's the PLR I was thinking of: Private Letter Ruling 8721083 Annuities: endowment and life insurance, Employee contributions, Letter Ruling 8721083, (Feb. 25, 1987),Internal Revenue Service, (Feb. 25, 1987) Letter Ruling 8721083, February 25, 1987 Uniform Issue List Information: UIL No. 0072.05-00 Annuities: endowment and life insurance - Employee contributions This is in response to a ruling request dated April 17, 1985, as supplemented by a letter dated December 16, 1985, and a telephone conversation on February 3, 1987, submitted on your behalf by your authorized representative concerning the federal income tax consequences of distributions from Plan X. The information submitted shows that Company M adopted Plan X, a defined benefit plan, on September 1, 1959. On May 5, 1977, the Internal Revenue Service issued a favorable determination letter as to Plan X’s qualification under section 401(a) of the Internal Revenue Code. A subsequent letter dated April 23, 1979, was issued, and an application for a new favorable determination letter is currently pending. Plan X’s trustee has maintained an investment fund to accumulate the funds necessary to provide the participants’ retirement benefits. Prior to September of 1978, Plan X’s trustee invested the trust funds in whole life insurance policies on the lives of the various participants as well as in an auxiliary investment fund. For each year prior to September, 1978, Company M reported to each participant an additional amount representing the P.S. 58 costs (those costs of the participant’s current life insurance under Plan X). This amount was includible in the participant’s taxable income. On September 12, 1978, Plan X was amended in its entirety and restated effective September 1, 1978. Two major changes caused by Plan X’s amendment were that death benefits for participants before age 65 were eliminated and the trust was to be funded entirely by employer contributions invested in various securities rather than partially, as before, in whole life insurance policies. On October 5, 1978, Plan X’s trustees unilaterally decided to redeem the individual whole life policies and invested the trust proceeds thereof in securities. None of the participants had any control or voice in the conversion or change in Plan X’s investment vehicle. However, prior to the funding conversion, the participants could have assumed their individual whole life insurance policies if they paid the cash surrender value of the policies. None of the participants did so. On February 11, 1980, Company M obtained a letter of approval from the Internal Revenue Service regarding the change in Plan X’s funding method. In part, the letter also approved the method by which the transition from the prior to the new funding method was to be made whereby Plan X’s unfunded accrued liability due to the change, plus the credit balance at the time of change, was to be amortized over thirty years. In accordance with the foregoing, you have requested the following rulings: 1. That the entire employee benefit arrangement between the employee/participant and Company M as the trustee and plan administrator embodied in Plan X consisting of the various programs and deductions, contributions, and payments pursuant to Plan X is a single contract for federal tax purposes. 2. That the portion of the employer contributions which was included in the gross income of the employee/participant as P.S. 58 costs constitutes consideration paid for the ‘contract‘ by the employee/participant for purposes of determining the employee/participant’s investment in the contract. 3. That upon a distribution from Plan X with respect to a particular participant, the portion of such distribution representing a return of that participant’s investment in the ‘contract‘ shall be received, tax free, by the distributee. 4. That in completing a Form 1099 for any year in which there was any distribution from Plan X with regard to a participant who was previously taxed on a portion of such distribution as P.S. 58 costs, the trustee of Plan X shall not include the portion attributable to such P.S. 58 costs in the amount of the distribution from Plan X taxable to the recipient but rather shall indicate that such portion is a tax-free return of investment in the contract. Section 402(a)(1) of the Code provides, in part, that the amount actually distributed to any distributee by any employee’s trust described in section 401(a) which is exempt from tax under section 501(a) shall be taxable to such distributee in the year distributed under section 72 . Section 1.72-2(a)(3)(i) of the Income Tax Regulations provides that for the purposes of applying section 72 of the Code to distributions and payments from qualified plans, each separate program of the employer consisting of interrelated contributions and benefits shall be considered a single contract. Section 1.72 - 2(a)(3)(ii) of the regulations lists the following types of benefits and the contributions used to provide them, as examples of separate programs of interrelated contributions and benefits: (a) Definitely determinable retirement benefits. (b) Definitely determinable benefits payable prior to retirement in case of disability. © Life insurance. (d) Accident and health insurance. The regulation, however, states that retirement benefits and life insurance will be considered part of a single, separate program of interrelated contributions and benefits to the extent they are provided under retirement income, endowment or other contracts providing life insurance protection. Example (7) of section 1.72-2(a)(3) (iv) of the regulations describes a situation in which a plan provided both retirement and death benefits through the purchase of individual retirement income contracts from an insurance company. Any distribution received by an employee under such a plan, whether attributable to one or more retirement income contracts and whether made directly from an insurance company to the employee or made through the trustee shall be considered as received under a single contract for the purposes of section 72 of the Code. The facts of Example (8) of section 1.72-2(a)(3) (iv) of the regulations are similar to those with regard to Plan X prior to its 1978 amendment and change in funding method. In Example (8), the plan funded the death benefits and part of the retirement benefits by purchasing individual retirement contracts from an insurance company. The remaining part of the retirement benefits are to be paid out of a separate investment fund. Accordingly, the pension plan includes, with respect to each participant, two separate contracts for purposes of section 72 of the Code. The retirement income contract purchased by the trust for each participant is a separate program of interrelated contributions and benefits and all distributions attributable to such contact (whether made directly from the insurance company to the employee or made through the trustee) are considered as received under a single contract. The facts submitted show that prior to the cashing out of the whole life insurance policies, Plan X’s trust fund consisted of these policies and an auxiliary investment fund. However, after the redemption of the policies on October 5, 1978, and the investment of their proceeds in securities, the trust fund was composed only of securities. As the examples in the regulations indicate, the individual whole life insurance policies and the investment fund were two separate programs. But after the whole life insurance policies were redeemed and invested in securities, Plan X became a single program of interrelated contributions and benefits. Accordingly, with respect to your first ruling request, we conclude that the entire employee benefit arrangement of interrelated contributions and benefits between the employee/participant and Company M as the trustee and plan administrator embodied in Plan X after the redemption of the whole life policies is a single contract for purposes of section 72 of the Code. However, please note that in conformity with Example 8 of section 1.72-2(a)(3) (iv) of the regulations, all benefits and distributions attributable to the redeemed whole life policies are, for purposes of section 72 , considered as received under a single contract. Section 72(a) of the Code provides, as a general rule, that gross income includes any amount received as an annuity under an annuity, endowment, or life insurance contract. Section 72(b)(1) of the Code provides, in part, that gross income does not include that part of any amount received as an annuity which bears the same ratio to such amount as the investment in the contract bears to the expected return under the contract. Section 72(m)(3) of the Code provides, in part, that any deductible contribution to a trust described in section 401(a) and exempt from tax under section 501(a) , which has been used to purchase life insurance protection for a participant is includible in the gross income of the participant for the appropriate taxable year. Section 1.72-8(a)(1) of the regulations provides that an employee’s investment in an annuity contract includes those employer contributions to the benefit of an employee or his beneficiaries to the extent they were includible in the employee’s gross income under subtitle A of the Code or prior income tax laws. Section 1.72-16(b)(4) of the regulations, dealing with the treatment of the cost of life insurance protection, however, provides that the amount includible in the gross income of the employee under this paragraph shall be considered as premiums or other consideration paid or contributed by the employee only with respect to any benefits attributable to the contract (within the meaning of section 1.72 - 2(a)(3)) providing the life insurance protection. Thus, this provision is authority for treating an individual’s P.S. 58 costs under Plan X as consideration paid by the employee for the original life insurance contracts because these amounts were included in the employee’s gross income. In addition, section 1.72 - 16(b)(1)(ii) of the regulations provides that the rules of that paragraph (relating to whether employee contributions constitute consideration for benefits received) apply whether the proceeds of the contract are payable directly or indirectly to the participant. Proceeds are considered indirectly payable to a participant, for this purpose, if they are paid to the plan’s trustee, who then disburses them. Since, in the instant case, the proceeds of the redeemed policies were payable to Plan X’s trustees to invest in securities so as to fund the plan benefits, they are thus paid indirectly to participants and the rules in the regulations apply as well as if Plan X distributions consisted of the life insurance contracts and the participants personally cashed in the contracts. Accordingly, in response to your second, third and fourth ruling requests, we conclude as follows: 2. The portion of the employer contributions which was included in the gross income of Plan X’s participants as P.S. 58 costs constitutes consideration paid for the ‘contract‘ by the participant for purposes of determining a participant’s investment in the ‘contract.‘ 3. Upon a distribution from Plan X with respect to a particular participant, the portion of such distribution representing a return of that participant’s investment in the ‘contract‘ shall be received, tax free, by the distributee. 4. In completing Form 1099 for any year in which there is any distribution from Plan X with regard to a participant who was previously taxed on such portion of the distribution as P.S. 58 costs, the trustee shall indicate that such portion is a tax-free return of investment in the contract. Please note that for purposes of the conclusions reached in ruling requests 3 and 4, section 1122© of the Tax Reform Act of 1986 has amended section 72(b) of the Code so that an individual whose annuity starting date is before January 1, 1987, must exclude the same percentage of each distribution from taxation no matter for how long annuity payments are received. An individual with a later annuity starting date, however, must stop excluding a portion of the distribution from taxation when the individual has recovered tax-free the actual amount of employee contributions. This ruling is based upon the assumption that Plan X was and will be qualified under section 401(a) of the Code and its related trust was and will be exempt from tax under section 501 (a) at all time relevant to this ruling request. A copy of this ruling has been sent to your authorized representative in accordance with the power of attorney on file with this office. Allen Katz Chief, Employee Plans Rulings Branch

Interesting that you steadfastly refuse to identify the source. At any rate, I'm all done with this foolishness. Good luck with whatever you are trying to accomplish.