Belgarath

Well, if you are very clear that you are drafting it for their ATTORNEY, to review, and modify as their attorney sees fit, then it seems like this should probably be ok. If you are drafting it for the parties involved without this disclaimer and instruction, seems like that does cross the line. Others might have a stricter interpretation. On a personal level, I wouldn't draft a QDRO for someone, even WITH the disclaimer. I'd tell 'em to see their attorney.

Gracias.

Thanks Kevin - I had looked at this, as well as the normal 401(b)(6)(C), and I guess the crux of my question really boils down to this: Are you allowed to use these transition dispensations when two corporations "merge" to form a completely new corporation? Logically, it should be yes, but I'm just not certain. What do you think?

Thanks MoJo. At this point, I have no direct information, and only sketchy information second-hand. Let's assume that: Neither A nor B still exist, therefore any assets they may have had were contributed to C. Let's also assume that both plans have continued to operate separately, with regard to the employees of each prior corporation prior to the merger. Was counsel involved? Perhaps, but I'm merely guessing that it may have been counsel where employee benefits plans were not addressed. These are not large, wealthy non-profit corporations, so this is the type of stuff where in my experience, counsel is rarely involved in discussion of the benefit plans.

A situation I haven't encountered before, and I'm wrestling with it. Suppose you have two non-profit corporations, A and B. A sponsors a non-ERISA 403(b) plan. B sponsors a SIMPLE-IRA. They merge, mid year, to form a new non-profit corporation C, with a new EIN, etc. Apparently A & B no longer exist, although the information I have is far from comprehensive. These are not plans that can be merged with any other plans. Can you, for the remainder of 2017, treat each set of employees as still "separate" and continue the plans as before, and hope that if ever audited, the IRS is reasonable and accepts this as a good faith compliance effort? Do you treat each plan as terminated as of the merger date, and just start fresh with a new plan - which is problematic at best, since the merger took place some time ago (date unknown - I only know that it was in 2017)? I'm reasonably certain that no plan termination notifications/resolutions/amendments were ever done prior to the merger. I don't yet know if deferrals/employer contributions to one or both plans have been made since the merger. Quite a fiasco... All thoughts appreciated!

I'm not finding anything in the cafeteria plan proposed regs that deals with this. So, let's say you have two non-profit corporations, only one of whom sponsors a cafeteria plan. The two corporations "merge" to form a new corporation, with a new employer id #. They do this mid-year. In the qualified plan world, there is certain guidance for merger and acquisition situations, but I haven't seen anything on this for cafeteria plans. Anyone have any experience with this, or know of any guidance? If not, opinions on what is normally (or should be) done? Thanks. Found some small amount of guidance which isn't really on point, but perhaps gives a tiny insight into general thinking by the IRS - seems tilted toward being reasonable - Revenue Ruling 2002-32. Since this is not on point, very old, and prior to the proposed regulations under 125, it ultimately isn't very useful, but is all I've been able to find...

Hmmm - I'm not so sure about that. 1.72(p)1, Q&A-7 refer you to the "tracing rules" in 163(h)(3)(B). As I read those rules, if you can't prove that the funds were actually used in "acquiring, constructing, or substantially improving" the qualified residence, then I don't necessarily think it qualifies. So, if you buy a house for $200,000, and take a mortgage loan from the bank for $180,000, and said loan is secured by the residence, and you additionally take a $50,000 loan from your plan, and use $20,000 for the difference, and then spend the other $30,000 on a trip to Monaco, do you think this qualifies? More to the point, do you think the IRS would agree? Just curious.

So were the allocations actually affected? What is the "fixed dollar" amount for each group, and does whatever percentage that was used produce a lower or higher result? My initial inclination is that if the results are actually different, then VCP is indicated. If not, I could perhaps be persuaded otherwise.

Yes, I think the term "design based" safe harbor is sometimes a little confusing. The uniform points plan is a "safe harbor" but it is a NON design based safe harbor. In the design based safe harbor, you don't have to test the allocations. In this uniform points non-designed based safe harbor, you do, as Mike pointed out. And I agree that while you must grant points for service or age (or both) granting points for compensation is optional.

I thought that mostly applied to 25 year old trophy wives (or husbands - let's have equality here) marrying wealthy 80+ year old spouses. Kidding aside, I like much of what I'm hearing about this docusign stuff. How expensive is it, and what kind of a learning curve (for someone who isn't all that swift on computer applications...) Thanks.

How did you advise them to correct? VCP or SCP? If they were the only two eligible employees, and they were both excluded for 5 years, then I think you have to correct under VCP. That aside, what are the possible consequences? Loss of deductions, penalties, and possible plan disqualification. I don't have time to look for any citations for SEP's specifically, but for plans under 401(a), where you have an operational violation, see Martin Fireproofing Profit-Sharing Plan & Tr. v. Commissioner, or Michael C. Hollen, D.D.S., P.C. v. Commissioner. A plan that does not follow the terms of the plan document is not a "definite written program: as required under 1.401-1(a)(2. Perhaps someone else here has a citation handy for a SEP.

I wonder why the difference (last known mailing address for the participant, but omitting the words "last known" for the alternate payee)? Maybe because the alternate payee is actually the one receiving the funds, so a current address is more important? Or maybe just a drafting error? Not that the reason really matters at this point...

You should be grateful. We had cows when I was growing up, and although they are stupid, they do possess a low peasant cunning when it comes to getting out of the fences and terrorizing the local countryside. At one time, there was a theory that the wrinkles on the brain equated to intelligence - the more wrinkles, the more intelligence. We had a neighbor who lived up the road a few miles, and he stopped by one day when I was working on the fence with my Dad, and after observing a cow doing something ridiculous, he said, "There ain't NUTHIN as stupid as a cow. Brain as big as a washtub, and not a gawd damned wrinkle on it!" Tom, I saw (really) some stationary made of sheep excrement. If I see it again, I'll try to remember to send you some...

For smaller firms, I prefer the "one-person handles it all" approach, with some modifications if staffing allows - an IT person, perhaps, or a document/compliance person, etc. There's a certain comfort level in this, particularly in a small firm that has to run lean, in that when "something" happens (and it always does - sickness, disability, someone quits, gets fired, caring for aged parent, whatever) it is much easier for remaining folks to temporarily pick up the slack. If everything is compartmentalized, it is much more difficult for someone else to step in, as a general rule. But as Mr. Bagwell notes, either approach can (and does) work.

Aw, c'mon, you're just Putin me on...

I'm guessing that the document was a non-standardized PROTOTYPE? If so, then even though I believe the insurance company probably CAN find a blank document in their archives, or obtain one from the IRS, they may just not be willing to try very hard. The IRS will certainly have on file a listing of all prototypes sponsored by that insurance company during that time period. So you might possibly at least be able to obtain a blank document. Is there life insurance involved, or just investment funds? If life or annuity, the actual application might have some useful information. Also, you might consider a formal complaint to the state Banking and Insurance department. This might move the insurance company to a more diligent search. A blank document would at least give you some small amount of information that might be helpful. Presumably, the investments held under the plan are registered to the Trustees of the "X" Profit Sharing Plan, or whatever it is titled. This is a job for an ERISA attorney - presumably the surviving spouse/estate can apply for benefits, and possibly at some point an interpleader motion can be filed to let the courts determine who is entitled to the funds. So I have no good ideas here, other than to take this to an ERISA attorney to tell you what can be done, and how to go about it. Way outside of my knowledge base. Good luck!

Your thoughts are certainly reasonable, but I'm inclined to think the IRS might view it differently. If employer matching contributions were made, then the HCE's have lost certain amounts. If they are inconsequential, why not just give it to them as part of the correction? If the amounts are substantial, then that may push it in the direction of the IRS not accepting this correction. But to answer your other question, I haven't had a situation quite like this, so maybe someone else has, and can give you a different and better answer.

Sure, no problem.

1.401(k)-1(d)(3)(iv)(E) is where the distribution is "deemed" necessary to satisfy the immediate and heavy financial need. And one of those conditions is the 6-month suspension. However, if you use the facts and circumstances test under 1.401(k)-1(d)(3)(iv)(B), the "non-safe harbor" determination, then the 6-month suspension requirement doesn't apply. If you are using a pre-approved document, check the language. Many of them have the different language - i.e. suspension for 6 months if you are using the "safe harbor" definition, no 6-month suspension if using the facts and circumstances determination. About 95% of our plans use the safe harbor, but some don't - and it is generally a royal PIA.

I would LOVE a job classification(s) that work. As I said earlier, however, I've got no good information at this point, and I'm operating on a mostly theoretical basis until then. Thanks.

Thanks. Yeah, like I said, at this point, don't really have any good data - just a general expressed "desire" on a potential plan. Once we actually have specifics on employment classifications, etc., etc. then we may be able to narrow this down. And yes, if questionable we would, as always, recommend ERISA counsel. I'm just trying to think ahead to some possibilities.

If I were the Plan Administrator, I'd deny the request, absent unusual circumstances. To take an extreme example, just to illustrate the point: Suppose the second request is made 1 week later. Then a week after that a third request is made. Then a week after that, a 4th request is made. Do you keep allowing "hardship" withdrawals just because the "need" still exists, while the participant then jets off to Bermuda on vacation using all of the previous "hardship" withdrawals? I grant you that my example is absurd, but I'm just saying... I would generally not want to be in the position of defending the second withdrawal for the same invoice, although things are not always black and white and I can imagine an unusual set of circumstances where it might be legit. You take a hardship to prevent eviction in 30 days, but next day your spouse dies, and you have to pay for funeral expenses right now, so you use the "eviction hardship distribution" to pay funeral expenses. You still face eviction. In a circumstance such as this, I'd approve a second withdrawal to pay the mortgage. In the far more likely scenario where the employee just spent the money for a "non-hardship" purpose, then I'd deny the second request for the same invoice.

FWIW, I posed the following to a friend who was a senior claims examiner for many years at a major insurance company: Suppose you had a policy (sold in a Section 125 cafeteria plan) that by its legal terms stated that the death benefit on a spousal insurance policy (not on the employee) could ONLY have the employee as beneficiary. The spouse incorrectly fills out the beneficiary designation naming the children as beneficiaries, and the insurance company doesn’t notice. Insured then dies. Do you pay the employee? Or are you bound by the beneficiary designation? Or if someone sues on behalf of the children, do you file an interpleader motion and let the courts decide? It seems to me that the legal policy terms override the bene designation, although possible that a legal challenge might survive this presumption. Here's his response, and I stress that this is just an off the cuff response to a friend, not in any way a formal discussion of the issue. (As you can see, I wasn't quite accurate in my question to him, as it is the EMPLOYEE who made the incorrect beneficiary designation. But I don't think it alters the basic premise.) First, for the situation that you describe, I would not think there would even be a beneficiary form available to be filled out. However, my initial reaction is that the contract would dictate and the benefit would be payable to the employee. I don’t think you would be bound by the bene designation, since it sounds like the spouse had no right to make the election. In the event that a legal action was pursued an interpleader is often used to avoid the cost and time to the company and it at least shows a willingness to make payment of the benefit in good faith.

Sometimes a tricky subject. Suppose you have a business that has a large majority of employees who might work anywhere from 500 hours to 1400 hours. The business would like to set up a plan that EXCLUDES ALL the H/C employees, as well as ALL the employees in the 500 to 1400 hour classification, and only covers the rest of the employees, who, (purely coincidentally) are full time. Don't really have any demographics or job classifications/functions yet. The guidance on this is a little strange. Under 401(a)(5) for example, there would be no problem with excluding all these employees IF they here all hourly. If all the rest are salaried, then everything is clean. On the other hand, under 1.410(a)-3(e)(1) you can't have an exclusion category that would "indirectly" impose an impermissible age or service condition. And you have QAB FY-2006-3 which give s some guidance. Suppose you have an exclusion category that says anyone earning W-2 compensation of less than "x" is excluded. And everyone earning less than "x" isn't in the full-time category. This would not appear to pass the "smell" test, even though if everyone earning less than "x" was hourly, it would be perfectly acceptable to exclude them as hourly. It appears that if the exclusion category doesn't relate to service, that it is generally acceptable. So would you say that using a salary level is acceptable? I keep returning to 1.410(a)-3(e) on this, but I think this doesn't ultimately impose an age or service requirement. I've just never seen a plan do this. Thoughts?

My gut reaction is just the opposite - I'd say the policy provisions override a beneficiary designation that is, under the legal terms of the policy, invalid. Now, I'll defer to the lawyers here who will have more informed opinions.