KJohnson

A number of years ago I had a profit sharing plan that provided that a particpant, even a terminated participant, must wait until NRA if he/she wanted to receive a distribution in anything other than a direct rollover. A direct rollover was available to a terminated participant at the end of the plan year following termination of employment. That plan received a determination letter.

The IRS just got back and said they wanted to see Demo 6 for the last year that a contribution was made. Seems contrary to the instructions for Line 143. Line 14e. Plans that use a nondesign-based safe harbor for the year of termination must attach a Demo 6... Belgarath, are you saying that the IRS reviewer actually suggested not submitting the Demo 6 if no profit sharing contribution had been made for a couple of years? Did you get any more feedback on this?

http://www.acebc.com/content/fellows.asp

Calendar year plan with employer's return under extension you still may be ok for some. If not, VCP filing fee for missing interim amendments is very modest. I think $350 or $375 if I recall.

I just submitted on the way you propose. I put this as an addendum to Line 14. Line 14 – Explanation Line 14 was not completed. The Plan provides for a discretionary profit sharing formula. Although the Plan provides for a cross-tested allocation formula for this contribution no such contribution was made in the years 2007, 2008 or the year of termination. The only contributions that were made were deferrals, matching contributions and the top-heavy minimum. I also put this in my cover letter: Wth regard to Line 14, Form 5310, the Plan provides for a discretionary profit sharing formula and a cross-tested allocation formula for this contribution. However, no such contribution was made in the years 2007, 2008 or the year of termination (other than required top heavy contributions). Since the general test and Demo 6 is required only for the year of termination (or the year that §410(b) coverage is based) and since no profit sharing contribution was made for the year of termination or the prior year, Question 14 was not completed. I'll let you know what I hear but I think it only makes sense to do it this way based on the instructions.

See pages 8-9 of this article from Groom that talks about transations with non-disqualified persons (such as brothers or sisters) where the fiduciary may still have a personal interest and the PT implications (in the IRA context). http://www.groom.com/documents/IRAMythArticle5.12.09_000.pdf

TAM 200841042 appears to contemplate what is essentially a "paperless" distribution of employer securities from an ESOP to a participant and exercise of the put back to the company and the employee just receives a check from the company for the stock. The TAM seems to say that the NUA rules apply here (although LMSB initially argued that it should all be ordinary income). Does this mean that the former employee who immediatley exercises the put is taxed at ordinary income tax rates on the ESOP basis and capital gains on the NUA. If so, canthe employee take the proceeds of the put that are subject to ordinary income tax and roll them over to avoid that taxation and just "keep" the amount of the distirbution that is NUA and pay only the capital gains tax on that portion? Here is the TAM http://www.irs.gov/pub/irs-wd/0841042.pdf

"An amount is not currently available to an employee if there is a significant limitation or restriction on the employee's right to receive the amount currently" I would consider quitting in order to get the money "early" a significant limitation...

The regs don't use a constructive receipt test they use a "current availability" test. The deferral election has to be made before "current availablity". If you have to either quit (to receive a prorated bonus) or wait until the end of the year to receive the bonus then I don't think it is "currently available" until it is actually payable. Here is the definition of currently available. Current availability defined. Cash or another taxable benefit is currently available to the employee if it has been paid to the employee or if the employee is able currently to receive the cash or other taxable benefit at the employee's discretion. An amount is not currently available to an employee if there is a significant limitation or restriction on the employee's right to receive the amount currently. Similarly, an amount is not currently available as of a date if the employee may under no circumstances receive the amount before a particular time in the future. The determination of whether an amount is currently available to an employee does not depend on whether it has been constructively received by the employee for purposes of section 451.

For terminating a plan with a safe harbor NEC (unless you qualify for the substantial business hardship) I think e(1)(i) of the regs send you back to the same procedure in (g) with regad to suspending the safe habor match. Which means you need to 1) give 30 days notice of the termination 2) make the contribution up to the date of the termination, 3) affirmatively amend the plan to provide that current year ADP/ACP testing will apply for the year of termination (I think this requires not just the testing but an actual amendment). Also I am surprised you already have PPA amendments for an ongoing plan. I agree that the EGTRRA restatement is not required assuming you are not in the year or your restatement cycle ( and assuming all amendments are in place) But I also agree that if you could generate an EGTRRA document fairly easily it might be advisable.

Yes the regs went farther than the Code in defining acquisitions and dispositions. I think asset sales are definitely covered by the regs. I think Tripodi also notes that the regs expanded on the Code. 2004-11 also says that "For purposes of § 410(b)(6)©, § 1.410(b)-2(f) provides that the terms “acquisition” and “disposition” refer to an asset or stock acquisition, merger, or other similar transaction involving a change in employer of the employees of a trade or business. " Whether this would be subject to challenge--and who would challenge it--I guess could be interesting questions.

Thanks for the responses. My reaction was the same--that can't be the rule. But then, like many things involving 409A what makes sense doesn't always track the language of the regulations. I started questioning whether this was, in fact, different than having multiple installments for shorter or longer periods of time for the same event. Hadn't thought about the lump sum based on a formula taking into account the remaining years of the contract discounted to present value.

I know this basic issue has been covered in another topic, where there seemed to be a consensus that different lengths of installment payments woudl be different times and forms of payment. I think that was based on the following language in the preamble For this purpose, a series of installment payments over a predetermined period and a series of installment payments over a shorter or longer period, or a series of installment payments over the same predetermined period but with a different commencement date, are different times and forms of payment. What if you had a five year employment contract which stated that if an employee was terminated without cause he woudl be paid his/her base salary on a monthly basis for the remaining term of the contract. Do you have different "lengths" for the installments based on when the employee is terminated and therefore different "forms" based on the same event--separation from service?

Jkolsen--The plan language that you quoted would appear to exclude resident aliens who are here legally as well as illegally. If that is indeed indeed what your document says you might have operational issues to the extent that you have legal aliens participate as well as discrimination issues for having the provision in the first place. Maybe your document says something different from what you quoted?

Just to add some clarification. Basic safe harbor match for NHCEs only. Discretionary match for HCE's only with a last day requirement. As I understand it the consensus is that this works for the ACP safe harbor as long as you limit the amount of disretionary match to HCEs so that at any level of deferrals the HCE is not receiving any more than the NHCE is receiving for the basic safe harbor match. (This would also automatically meet the 6%/4% limits as well). Does that limitation on no discretionary match exceeing the basic safe harbor match need to be "hardwired" into the document or do you just need to meet it in operation with your match?

Actually 1563(a)(2) was amended as flosfur says to now only require one test (2) Brother-sister controlled group Two or more corporations if 5 or fewer persons who are individuals, estates, or trusts own (within the meaning of subsection (d)(2)) stock possessing more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation However, this was only for income tax purposes. You now have to track down to 1563(f)(5) and come to the following which then modifies (a)(2) for "provisions other than this part" and gets you back to what Pension Pro and J Simmons note is the test for applying brother/sister for most benefit plan purposes. (5) Brother-sister controlled group definition for provisions other than this part (A) In general Except as specifically provided in an applicable provision, subsection (a)(2) shall be applied to an applicable provision as if it read as follows: (2) dq](2) Brother-sister controlled group “Two or more corporations if 5 or fewer persons who are individuals, estates, or trusts own (within the meaning of subsection (d)(2) stock possessing— “(A) at least 80 percent of the total combined voting power of all classes of stock entitled to vote, or at least 80 percent of the total value of shares of all classes of stock, of each corporation, and “(B) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation.” (B) Applicable provision For purposes of this paragraph, an applicable provision is any provision of law (other than this part) which incorporates the definition of controlled group of corporations under subsection (a).

It's a PT because it could be considered an extension of credit to a party in interest. I think that the logic of the class exemption probably tracks the same logic as a fiduciary analysis--don't through good money after bad. But, how much could it cost to fill out a proof of claim? I would think that paralegals do the bulk of it and it couldn't be more than an hour of attorney time. So are you talking about a delinquency less than a couple of hundred dollars?

Interesting article http://www.calbrokermag.com/Magazine/story/Feb08/Glass.htm

If you have access to the EBIA Cafeteria Plan Manual look at pages 322-330. Their upshot is while it might be fine under the 125 propsed regs (as long as it is addressed in your 125 Plan document), you still shouldn't do it if you are talking about individual premiums for major medical coverage because of HIPAA, ERISA and COBRA concerns.

My recollection was that the thought was that the reasonably equivalent rule generally required that loans also be available to former employees as well as to active employees but in an advisory opinion letter in the late 80's DOL said that availability of loans could be restricted to parties in interest. All employees of the plan sponsor are parties in interest. Former employees who are still plan participants are generally not except if they fall under some other category as a party in interest such as they still have the requisite ownerhsip to make them a party in interest, remain a director of the corporation or are a party in interest through some type of family relationship. So I guess on a hyper technical basis restricting loans to active employees might violate DOL rules if you don't also allow loans for the rare terminated employee who remains a party in interest.

Here is one from a while back that discusses transactions with individuals who are not parties in interest/disqualified persons and the existence of a PT. http://benefitslink.com/boards/index.php?showtopic=32806

I agree it is not a cut-back in any accrued benefit based on the posts above. I am just not aware of any easy answer to the question on whether it impermissibly eliminates an optional form. The regs state that optional forms of benefit may result from differences in terms relating to the payment schedule, timing, commencement, medium of distribution (e.g., in cash or in kind), .... Thus it seems like getting a distribution upon termination of employment is an optional form and now you are eliminating it. There is an exception for deminimis changes in timing but that has to be within two months of the original time for distribution (at least for a distribution upon termination of employment). I just didn't see any other exception. That said, it is a common practice and at least the IRS has said informally that it won't challenge it. If DL's start taking longer than a year, I do wonder if a participant will ever raise a question. My practical response has always been wait to distribute until you get the DL. If you get lots of participant push back or threats before then you can revisit. Other issues can also come up in the interim.. RMD's QDRO's etc.

I asked that specific question at the IRS Q&A session at the Mid-Atlantic meeting this past spring. I was told that they recognized that there might be a technical problem in eliminating an optional form (plan previously said you can get a 100% distribution as soon as you terminate employment and you are now saying they can't--they have to wait for a DL for a distribution). They indicated, however, that they would never raise this in practice as long as you had applied for the DL. Whether a participant could raise this is another question. Whether you can do it in practice without an amendment is another question. Here is a real old Q&A (has some pre EGTRRA references to separation from service ) but I think the "technical" problem might still be there. http://benefitslink.com/modperl/qa.cgi?db=...ions&id=202

Don't know if this goes into your calculation but the IRS is currently working on 5310's submitted in March '07 according to their website. http://www.irs.gov/retirement/article/0,,id=150182,00.html

You might want to look at this advisory opinion on the "employee" issue: http://www.dol.gov/ebsa/regs/aos/ao2006-04a.html