Mike Preston

What am I missing? It is certainly doable, but the QDRO has to be read to call for what the parties want and the plan can accomplish. What the parties want is for the plan to create an account structure for the AP that matches the account structure of the participant. Let's assume that is two sub-accounts, one with the employer (partially vested monies) monies and one with the employee (fully vested monies). If the plan would typically have two sub-accounts for the participant then it can have two additional sub-accounts for the AP. The employee monies take care of themselves. The QDRO should specify that the AP can only receive a distribution from the employer monies sub-account no earlier than the earlier to occur of (1) full vesting; or (2) the participant terminates employment. Doesn't everything become easy peasy?

Link does not work.

Yes. Through the same process that created the original QDRO. An attorney drafts up a change, everybody signs it, the court approves it and Plan Administrator accepts it. As long as the change doesn't violate any rules.

How could it possibly be any different?

Yes, it is. The history includes discussions with the IRS that revolve around a slightly different scenario. One of the DC safe-harbor designs involves permitted disparity using a threshold other than 100% of the Wage Base. The IRS was quick to say that a document provision where everyone is in their own group and a plan year allocation that satisfies the safe-harbor implementation at, say, 80% of the Wage Base (and therefore the threshold was not 5.7% but a smaller percentage) is not a safe harbor and instead has to be general tested. The literature has many examples (outlines at many conferences, for example) where this point is driven home.

Other than the language of the regulation itself, what would you accept? "2) Safe harbor for plans with uniform allocation formula—(i) General rule. A defined contribution plan satisfies the safe harbor in this paragraph (b)(2) for a plan year if the plan allocates all amounts taken into account under paragraph (c)(2)(ii) of this section for the plan year under an allocation formula that allocates to each employee the same percentage of plan year compensation, the same dollar amount, or the same dollar amount for each uniform unit of service (not to exceed one week) performed by the employee during the plan year."

I believe the plan's terms must specify that the allocation in that year is being made under the "same dollar amount" rubric. IOW, if the only way they get to the allocation amount is because the plan provides the plan sponsor with the flexibility to determine each participant's allocation, that does not satisfy the definition of a safe-harbor allocation, even if the actual allocation if specified in the plan would.

Let's be a little more direct. Your allocation is a safe harbor and it therefore *IS* ok. Who gives a flying fit whether there are options/parameters in your software? There is no test required. I think what you meant to say is the a uniform percetage of compensation can fail a general test that is based on benefits. A uniform percentage of compensation can NOT fail a general test that is based on allocations/contributions. Agreed.

What a sloppy original question. Company 1, Company 2, Company B, Employer 1. Sheesh.

IRC Section 410(b)(6)(C)

Brenda, while I don't disagree that fair market value is the appropriate measure, in the case you described I think there MUST have been something else involved other than the fair market value issue. Otherwise, it should have been a simple matter to request a manager's review where I would expect the IRS Auditor in question would have been convinced to back away somewhat more than indicated.

I'm on Larry's side on this one, jpod. It sounds like the perfect time for a little client education. With that said, with the investment ($15k) being so little of the total value, I'd be tempted to see whether there isn't an administrative tack we can take to insulate the client from "bad things". Calculate a recommended contribution range which establishes the minimum consistent with the investment worth $0 and the maximum consistent with the investment worth what the investor thinks it might be worth (i.e, its highest potential value). Then do the Schedule SB calculations using the Trustee's best estimate. Wash, rinse, repeat until the investment is sold. A slightly lower contribution (if the client wants to contribute the maximum) or a slightly higher contribution (if the client want to contribute the minimum) seems like just the right amount of consequences for investments like this.

There are no special rules vis-a-vis TH for PW. As far as the Internal Revenue Code is concerned, a PW contribution is just another non-elective employer contribution.

It should not be structured as a termination. To do so would subject it to the successor plan rules and preclude establishing the plan under the MEP for 12 months.

Don't take this the wrong way, but those of us who have had to deal with the strange way that the Internal Revenue Code goes about its business are chuckling right about now. While it is not illogical for you to have reached the conclusion above, it works the other way around. That is, self-employed individuals (such as sole props and partners in a partnership) are considered to be "employees" even though they don't receive a W-2. Once they are an "employee" then, if they satisfy additional criteria, they can be considered "key". While a lowly partner in a 200-partner law firm might not be considered a "key" employee (because his ownership percentage wouldn't be large enough), you can rest assured that you and your wife are both considered "key". You have tunnel vision. 420 isn't the normal route for funding 401(h) accounts. Instead, the more normal route is in conjunction with annual contributions through a qualified plan. 420 just piggy backs into 401(h) through qualified transfers. Unfortunately for what you are attempting to do, the limitations of 420 make it clear that the largest qualified transfer is ZERO in your case. But the Internal Revenue Code and ongoing advice from the IRS is beyond complicated, so while I'm not willing, at this point in time, to say anything that implies what you want to do is doable, I'm also mindful that it is possible you might find somebody who can point to some sort of exception. If you do, and you can find an ERISA lawyer to bless the concept, more power to you. I don't think your wife's salary matters because I don't think you can do it. So you don't want advice from me, one way or the other as to what your wife's salary should be. I am aware of at least one firm that purports to understand and advocate for 401(h) accounts. [Surely you can find them with a little google searching.] I am not aware of whether their advocacy extends to seeding 401(h) accounts with qualified transfers under 420. What I am aware of is that the practitioner I'm thinking of "advertises" that it is not necessary to establish separate accounts under 401(h) for key employees [as required by 401(h)(6)]. They make similarly outlandish claims regarding the disposition of 401(h) funds after the death of the principals. [Ask them what happens to the moneys if you are successful at establishing a 401(h) account with $1MM in it and both you and your wife get in a fatal car accident the next day.] But some clients gravitate to those advisors who claim to have a singularly successful formula, without consideration of the horrific tax results that await them if and when the IRS gets involved. So a few words of caution: (1) make sure whatever is presented to you satisfies the scrutiny of an independent ERISA lawyer; and (2) please be aware that the Internal Revenue Code provides the ultimate in what might be described as a level playing field - hence, very few of us can claim to do things that others in the field just can't do - so make sure there are at least TWO providers who can offer you whatever shiny object looks good to you!

401(h) is downstream of the 420 transfer you are talking about. If the 420 transfer amount is zero then there is nothing to go into a 401(h) account, whether separate or not. You need to find the definition of key employee because I think you'll find that both of you are defined as key. I'll back away at this point because you know, by now, that I don't think you can take advantage of 420 in any way, shape or form and maybe if I've backed away somebody with something more hopeful to say will come forward. I repeat, though, my suggestion that if you do find somebody willing to go down this path with you that you confirm with an ERISA lawyer that the path is genuine.

So, are you ignoring 420(e)(1)(E)?

The above code section doesn't appear to exist. No matter who says what, make sure you get an opinion from an ERISA lawyer because I don't see how you can get by 420(e)(1)(E). If you want to have a discussion with somebody about your options, send me a private message.

Agreed with everything until you said the above. If, from the plan's perspective this participant was overpaid, I believe the EPCRS correction involves what was described by BG5150. He might be unjustly enriched to the tune of 8k, but that amount is taxable (as opposed to rollable) and doesn't enjoy further tax deferral. And, in fact, if it is not removed from the IRA generates ongoing excise taxes until removed.

Some things are just that easy.

Why not just amend and restate the plan effective with the most logical date (probably 1/1/2018) establishing the 1/1/2018 accrued benefit in accordance with the existing plan and then go forward from there?

You hadn't thought about that because you can't use an -11g amendment to cure faiures involving deferrals. Don't have time today to investigate what should be done,, but an -11(g) isn't it.

You might like it to be different, but like it or not the first dollars out constitute the RMD. The *PLAN* is fine from a 401(a)(9) perspective the moment the funds left the plan. It is the participant that is exposed by rolling over those dollars. The amount disgorged from the IRA doesn't constitute an RMD. It is a return of monies ineligible for rollover (and therefore treated as an IRA contribution, 100% of which is an excess IRA contribution subject to an ongoing 6% excise tax until corrected). Isn't there a writeup on the IRS website somewhere that details how this correction thingy works when a participant rolls over monies ineligible for rollover?

Larry says "The problem is that he rolled over his RMD and THAT is not allowed." Agreed. Where we disagree is what the fix is. Larry says that a subsequent distribution from the plan is a cure. I disagree. The only way to fix the problem is to recognize the actual problem (which Larry does: he rolled over his RMD) and cure that problem (disgorge from the IRA in time). Making a subsequent distribution from the plan and pretending it cures the problem ..... doesn't.

There is nothing to forego. Upon plan termination the plan will have a provision that only provides benefits to the extent funded. It just "happens".