Belgarath

Since I see DB plans so infrequently, I want see if I've got this straight... DB plans using pre-approved docs need to be restated by the deadline next year. DB plans using IDP documents, that already have a prior D-letter from the IRS, are not required to restate, (and generally can't apply for a D-letter) but do need to keep up their amendments required by the IRS annual list within the appropriate timeframes. I realize that D-letters are now available in certain situations where they weren't previously, but I'm just confirming what MUST be restated. Thanks.

I think I would just do a substitute page. Clearly it is impossible to have the SH date effective prior to effective date of plan. And a substitute SPD (with an effective date of 5/1/2018) if the document system produced a SPD showing the 4/1/2018. I wouldn't recommend a substitute page(s) in the SPD, 'cause participants will screw it up or throw it away, etc., etc. I'm not a fan of "finding" substitute pages, but some situations are so obvious that it just isn't reasonable to do anything else. I sure as heck wouldn't go through VCP for this, and I wouldn't amend.

Hi Peter - as you know, I am neither an attorney nor a legal expert. It does seem to me that Basch Engineering Inc. V. Commissioner clearly refers to a plan requiring compliance in both form and operation. This also provides links to Buzzetta and to Ludden, which say the same thing. Does this help at all? Excerpt from Basch below, as well as the Basch link which you can follow through to the others, if they are helpful "A qualified profit-sharing plan both by its terms and its operations must meet the statutory requirements. Buzzetta Construction Corp. v. Commissioner [Dec. 45,555], 92 T.C. 641 , 646 (1989). " https://www.leagle.com/decision/199054159ddtcm4821434

Thanks Luke - I agree, I don't see this as a viable SCP correction.

A. No, you aren't thick, obviously! B. No, this isn't my question, I may have been presenting it very poorly, but please don't pursue further - this has gone as far as I need to go, and I don't want you to waste your time! Thanks.

Agreed. We never put in a window period.

Thanks Kevin.

No, but the violation technically renders any rollovers of the elective deferrals invalid. Suppose everyone rolled over their account balance. So my question is, what methods might be employed and approved by the IRS to remove this result? I suppose one could technically somehow get the invalid rollovers restored to the terminated plan, but this seems realistically impossible. So I'm interested to see if anyone has experienced this, or knows of a valid correction method? Thanks.

So let's assume there is a successor plan rule violation - 401(k) or 403(b) plan, doesn't matter for purposes of this question. All participants in the terminated plan rolled their assets over to the new plan, which was established prior to the 12-month period. How would one even present this for correction under VCP? Anyone tried this, asking the IRS to allow it? Etc., etc.? - I don't recall ever seeing this - successor plan questions usually come up prior to the termination of the first plan. Any "fixes" that the IRS approved? I wouldn't think that this is very common, but maybe it is.

Thanks, but I still don't get it. This is not an employee deferral under a Section 125 plan. I don't see any reporting code on the W-2 that applies. And the employee election form in the original post even states that the IRA amount will be considered taxable income. Can you point me to anything official on the W-2 that indicates otherwise? Anyway, I'm not going to pursue this post further regardless of your answer, 'cause we don't have anything to do with a plan like this anyway - all this was merely for my information. And I thank you for taking the time to help educate me! All or some of the funds can be allocated for an IRA set up through the (employer). Please note: You may allocate funds not used for the above to be put into an IRA at the end of the year. However, this will be considered taxable income and must be reported.

A couple of observations - the 402(g) limit is a calendar year limit, and isn't pro-rated. Also, and you've probably encountered this - it is sometimes impossible to get the payouts done in time - sometimes participants just refuse to send their forms back in on a timely basis, and if you have many that are over the cashout limit, you may not be able to get it wrapped up by the end of the year. We always tell clients this in similar situations where they are anxious to get everything wrapped up before the end of a year. Also, watch out for top heavy if you have had people enter mid year and the plan excludes comp prior to participation date. (I'm assuming this termination is not due to "business hardship.")

Leevena - thanks, and I'm not meaning to be difficult, but I'm confused as to how an individual IRA contribution made from the unused pool of money the employer makes available to the participant can possibly be reported by the employer as pre-tax? The employer has no idea as to what the individual's filing status is, and whether they are eligible for a deductible IRA or not. Why wouldn't the employer have to simply report it on the W-2 as compensation? This isn't an employer contribution to an employer-sponsored qualified plan. Can you walk me through the mechanics of why you believe it is reported as pre-tax?

Thanks, but I think that discussion was where the termination date preceded the end of the plan year. When the plan termination date is the end of the plan year, then I can't find any problem. No different than if all non-key employees are laid off in July, and then employer decides to terminate plan as of December 31. Do you think top heavy is required in that circumstance? I'm not seeing a problem. (I am talking about DC plans, not DB) Thanks for any additional thoughts.

In the "old days" when we applied for determination letters on almost every plan, we frequently amended the plan to credit prior service with "x" employer. We often did this even for HCE's, and the IRS NEVER had a problem with it. Not saying they would be the same now, just tossing this out FWIW as another possible option.

Maybe I put it badly. What I meant is that the money that goes to the IRA is reported as taxable compensation, and then the individual claims a deductible (or possibly non-deductible, depending upon income/filing status) contribution to the IRA on their 1040. Would the other welfare benefits be non-taxable?

Gracias. Thanks for confirming.

I realize that Davis Bacon contributions can be used to offset employer contributions that are otherwise required if the plan document is set up to do that. However, for deferral purposes, I assume if compensation is defined as W-2, and there is no exclusion for Davis Bacon wages, then deferrals must be withheld, right? And if Davis Bacon comp is excluded, it would be subject to compensation ratio testing, which might very well fail? Let's say total compensation for the payroll for an individual is $2,000. But of this $2,000, the employer contributes $200 to profit sharing, under the Davis Bacon agreement. This means that if Davis Bacon wages are not excluded for deferral purposes, the employee's compensation for deferral purposes is $1,800, right?

Thanks - and all of these benefits would be non-taxable, other than the money used for the IRA?

Agree with Luke.

I haven't seen a plan document (if there is one) but here is the election form. Each employee that is given this form is allotted (x dollars). This is money the employer gives them. The employer does not deduct anything from their paychecks. The bookkeeper writes checks to employees directly after they submit supporting documents stating that they used the money for things such as medical bills and/or dependent care costs. I haven't seen such an arrangement before, as I don't deal with welfare benefit plans. Is this common? Given that they have a choice between the other benefits and cash to be deposited to an IRA, are the health/welfare benefits still non-taxable? If this is actually under a cafeteria plan, is there a problem with the IRA arrangement - since the money isn't actually put into the "plan" then this seems ok? I'm very confused by this arrangement... Flex Benefits Enrollment Options (Year) If you would like to participate in the Flex Benefits Program, please read the following and fill in the information on the included form. For the contract year 2018-2019, (employer) is offering the following Flex Benefits to each staff member who is currently working 30 hours or more: For the (x) contract year, the (employer) Flex Benefits amount is (x). This is to be prorated from date of hire. These funds may be used in the following ways: All or some of the funds can be allocated to purchase health insurance provided by the (employer). All or some of the funds can be allocated towards medical expenses not covered by other health insurance plans. Please note: Medical benefits may be paid to a designated beneficiary (other than the employee’s spouse or dependents) but this will then be considered taxable income and must be reported. All or some of the funds can be allocated for Dependent Care. All or some of the funds can be allocated for an IRA set up through the (employer). Please note: You may allocate funds not used for the above to be put into an IRA at the end of the year. However, this will be considered taxable income and must be reported. In addition, you may contribute your own PRE-TAX dollars into option number 5. By signing this, you acknowledge that you understand that you are committed to the enrollment choices on this form for the entire contract year of (X). Flex Benefits for Year (X) Name:___________________________ Social Security #:___________________ Flex Benefit Portion Employee Portion Health Insurance $_________________ Medical Expenses $_________________ Dependent Care $_________________ IRA $_________________ $_____________ IRA: I wish to allocate any unused portion of #1, 2 or 3 to an IRA, understanding that this will become taxable income and must be reported. _________Yes __________No AUTHORIZATION: I certify the above information to be true to the best of my knowledge and that the children for whom I will be claiming dependent or child care expenses either reside with me in a parent-child relationship or are legally dependent on me for their support. I further understand that the Flex Benefit amount will be in effect for the entire plan year and cannot be revoked except as permitted by federal law. Signature:___________________________ Date:________________

There are discussions of this subject, but didn't find one QUITE on point for this specific circumstance. 401(k) plan, key person has deferred more than 3%. Not a safe harbor, but there is a discretionary matching contribution. Business is ceasing operations, probably in September. Plan will be terminated. The employer does NOT want to provide a top heavy minimum. No employer match or profit sharing contribution will be made for 2019. Seems like if they make the plan termination date as 12/31/2019 rather than in September as they originally proposed, but all employees are gone as of, say, September 15, then they fail the last day requirement and no top heavy is due. Is it that simple, or am I missing the boat? (It would be different if they made the plan termination date, say, September 15th and that is the day all employees terminated employment.)

Thanks.

Leevena - is it doable if only 1 employee out of 7 or 8 "normal" full-time employees is eligible to participate, and that one person is an HCI? I'm not seeing how this would pass testing, unless there's an exemption I don't know about. Is there? Is there a reference to some official guidance that says an employer who has a group health plan can set up an HRA for only one person who is medicare eligible, exclude everyone else, and the plan is not subject to testing? LSon - I really don't know why - I'm just trying to find out if such a thing CAN be done without the plan being subject to eligibility/benefit testing. I'm not concerned, at least at this point, about age discrimination - I won't even go there until I attempt to determine whether this is a non-starter under normal eligibility/benefits testing for an HRA. Thank you both. P.S. - unless there is a definitive "yes" to my question to Leevena, then I won't bother y'all any further, and just tell them to seek competent advice.

Now they are asking if an HRA can be set up where only the Medicare-eligible employee is eligible? They thought this could be done. Well, I suppose it could perhaps be done IF it could pass nondiscrimination testing, but in this situation it won't. Is there any such arrangement that is exempt from the 25% HCI test under 105(h)? I haven't heard of such a thing, but that doesn't necessarily mean anything... I wonder if perhaps they might be thinking of a Retiree-only HRA? Which this wouldn't be anyway, as it is an active employee. Sigh...and THANK YOU for any input. I'm trying to answer this as a favor, and I think I made a big mistake by not turning it away immediately!

That is quite likely, because I don't have much to do with 125 plans. I suppose if I saw a plan where they withdrew the unused funds to pay the water/sewer bill on the theory that "it's ok as water/sewer is a municipal charge" I would call that weirdness as well. Anyway, I told the broker they can't do that, and I'd be very surprised if their document said they could. He said he's not even sure that they have a document... Things are never (or rarely) dull!