mbozek

Austin: Plans can charge admin fees to terminated participants to eliminate cost of maintaining accounts. Dont see any reason for plan sponsor to pay fees to set up automatic rollover provison.

I dont have any more info other than the NQDC contributions were made after the ADP limit was reached.

This discussion was premised on making additional contributons for NHCEs which is not subject to the nondiscrimination rules since 401(a)(4) only prohibits discrimination in benefits in favor of HCEs. The CT rules apply when testing benefits for HCEs.

If the contributon is discretonary then the allocation is based on what the employer decides to contribute to the plan for the participants. Under Rev rule 76-28 an employer can contribute to a plan by claiming a deduction without any formal allocation or employer approval by making multiple contributons. A typical discretionary formula will allow the employer to "make descretionay contributions for eligible participants as determined by the employer" without defining how they are allocated. The er will contribute x% of comp for one group of ee and y% of comp for another group. The allocation for each employee is what is contributed to their account either X or y %, not what is allocated to their account in the proportion that their comp bears to the total comp. I fail to see how the IRS can interpret 411d6 with any authority that making additonal discretionary contributions for some employees is a cutback since the additional contribution does not reduce the account balance in any participant's account which is the conduct prohibited by 411d6. In the original post the employer proposed to give some NHCEs 3% over the 2% contributed to all employees. If some employes get 2% and others get 5% in their acounts but the additional 3% is not coming out of the account balances of those who are getting 2% how is there is a violation of 411d6? Repeating what was said at conferences by IRS officials which cannot be attributed as an authorative position of the IRS doesnt make the allocation formula a violation of 411d6.

At a recent seminar on 409A a speaker stated that the IRS had issued favorable determination letters for 401k plans that transferred excess contribuions to a NQDC plan. The employees elected to contribute the max ADP % to the 401k plan and the excess would be deposited in the NQDC. He said that under this election there would be no tax of the excess as a refund under the 401k plan regs because it was never an asset of the 401k plan. Don't know how the plan got around the requirement that 401k contributions cannot be conditioned on making contributions to another plan or program but I suspect the IRS never saw the election form. This led me to think that the IRS wanted statutory standards for NQDC so that it could flush out all of the aggressive arrangements created by tax counsel which were below the IRS radar screen. Now the NQDC rules will be transparent and create a level playing field for all employers.

I dont see how the TAM would prevent an employer from increasing allocations to particpants after the close of the year on the grounds that it would be a cutback. Under the TAM the allocations to some particpants would have been reduced by the formula change. In the question posted the employer will increases the allocations for nhces from X% to X=2% which is not a cutback to the participants account balance. There are many PS plans where ers increase allocations to participants after the end of the year because of a change in the financial statements which were not known at year end.

GB: Payments by a health care plan or employer to a medical provider who provides medical services to employees are taxable income to the provider which is reported on a 1099 form under IRC 6041 if it exceeds 600. The payment to the providers from a flex plan are not taxable income to the plan participants subject to tax reporting.

I dont know of any IRS authority which contradicts my position. The IRS is required to follow the law the same as taxpayers and I dont know of any IRS inrerpretation in which an additional contribution to nhces is construed as a cutback under the IRC if it does not reduce the participants's account balance. I would be interested in any citations to the contrary. Statements by IRS talking heads at conferences in response to questions are not authoritative since the speakers comments do not represent the views of the IRS.

I dont see a problem with adding an additonal contribution for nhces because additional contribuions are only prohibited if they favor HCEs not NHCEs. The TAM is inapplicable because it pertains to a situation where an amendment reduced the allocations of some participants under the plan formula after the close of the year. Providing an addional contribution to some nhces does not reduce the allocations to other NHCEs. Finally IRC 411d6 prevents a reduction of a participant's account balance not a change in the benefit formula.

Doesnt reg 1.401k-1e(6) prohibit use of other benefits as a condition to making or not making electve deferrals?

There are three cases on ct orders to seize benefits: US v.Jackson 229 F3d 1223 Fed ct cannot order that ERISA retirement benefits be used to make immediate payment of restitution as part of criminal's sentence US v. Smith 47 F3d 681, retirement funds cannot be seized after distribution in order to comply with restitution order because it would violate nonalienation rules. Guidry v. Sheetmetal Workers Pension fund, 493 US 365, ERISA prohibits imposition of a constructive trust on participant's retirement benefits to recover judgment against participant. If a court cannot order a constructive trust placed on a retiree's benefits to recover a judgment I dont see how a court order that the payment be made to a person designated by the court is valid because this is the equivalent action.

What is the basis for appointing a commissoner under rule 70? Is it to represent the participant's interest, e,g is part incapacitated or is it because the part. refuses to do something such as elect to receive a distribution from the plan?

On reason to have separate plans is that the pre 409A deferrals would not be subject to accelerated taxation if they are kept in a separate plan from a plan with 409A deferrals which are taxed because of a failure to meet the 409A rules.

Withholding is not a tax, it is an advance payment by a taxpayer, since taxes withheld from an employee's income can be refunded if a tax return is filed within 3 years. The employer has the obligation to withhold taxes from employees' wages under the tax law and is subject to penalties for the failure to withhold but I dont think withholding is a tax on the employer's income which starts the S/l. Need to check with a tax accountant or 6501 regs.

I do not prepare income tax returns or withholding forms but I thought that the 3 yr s/l under IRC 6501 applies only to returns filed for taxes imposed and withholding is not a tax imposed on a taxpayer. Thus the s/l doesn't begin just by filing a return for tax withholding. Need to get an answer from a tax accountant.

Why not since the indemnificaton payment will be taxable income to the employee which will further the main reason for enacting 885- to raise revenue. Congress expected that employers will gross up ees to eliminate the impact of taxes and penalties imposed under 885 rather than design plans that will conform to the law. An employee in 35% bracket who has 60k in taxes will need 90k extra plus additional amount if 20% penalty tax applies. I am assuming that the 20% penalty tax applies to the gross amount of payment before income tax is taken out which will require that the amount needed to pay taxes be divided by the sum of the marginal tax rate plus 20% so if 60 k is tax due for ee in 35% bracket, gross payment would be 133,333 ($26,666 for 20% penalty + 46,666 income tax@ 35% =73,333 to IRS)

constructive receipt

Taxation of income usually occurs when the payment is made by the payor, subject to collection of the check by the recipient. e.g, if check bounces there is no income to payee because there is no economic benefit. Same thing if payor stops payment before check is cashed. Not including returned checks as income is premised on the theory that the payee received no economic benefit, although under CR rules failure to cash a check that has been received but not returned does not prevent taxable income.

Why would the answer be any different than it would be for mistaken payment made under prior law? E.g, if employer pays ee 200k from NQDC under 409A when ee is only entitled to 20k why cant ee return 180 w/out taxation since ee has no legal right to money if employer sued for a return. Same rule applies to excess payments under Qual plans.

A minimum ee contribution is required because there must be at least 1 contribution to a Qual plan other than a rollover. Some plan docs treat rollovers as being subject to J & S requirements

I dont know what you mean by comfort level? Why are two plan admin necessry for 1 403(b) plan? It seems that you are creating unnecessary work by running two plans side by side for the same group of employees. Structurally the employer could maintain two separate plans for its employees -one for t/c investments and the other with the other co's investments but for IRS compliance purposes, e.g., 410(b), 401(a)(4), 415 the two plans would be aggregated and someone would have to test for compliance.

How yould you defien the eligible group for each plan, e.g theose ee who contribute to T/C and those who contribute to other co? What happens if ee wnat to change from one co to another. Why not have one plan and let ee select investment options?

He can establish a mp plan with a 0% employer contribution and a minimum after tax ee contribution say $20 and borrow from the rollover funds. No employer contributions would be required under the plan. I dont know if the rollover is subject to J & S if its segregated from er contributions.

The Doc need to consult with a tax advisor to determine his compensation. You can check IRS pub 560 available at irs.gov or instructons for IRS form 1120.

No legal reason prevents this investment but you need to check corp bylaws. However, the risks and tax issues involving RE, including obligation to pay property taxes,maintence fees, utilities, liability for personal injury, insurance, etc make ownership of RE in a NQDC complex and unattractive to the employer. Dont know how expenses would be paid by employee under 409A rules for salaray deferral. Also transfer of title would be a taxable event requiring employee to pay income tax at marginal tax rates on the FMV of a capital investment instead of cap gains.