EBECatty

Very helpful, thank you. If anyone has been involved in a similar process, does this cause any problems with the DOL if you mark a 5500 as final showing significant assets at year end?

Is there a standard procedure for exiting PBGC coverage (i.e., a pension plan was covered, but is no longer covered) aside from simply stopping premiums? More specifically, a takeover of a private entity plan sponsor by a governmental entity.

There's also a good discussion of this topic in Who's the Employer reaching a similar conclusion based on Rev. Rul. 89-64 and PLR 200036027.

Just to be clear (i) this individual bought 100% of an operating business with his IRA, (ii) he is not involved at all in managing the business, (iii) the IRA's value is "well" over $100 million, (iv) the relevant facts are unknown, and (v) advice on a PT that could disqualify the entire IRA is being solicited on an anonymous message board? I would strongly suggest a different approach.

For what it's worth, the Relius Cycle 3 adoption agreement provides an option for a fixed profit-sharing contribution in a fixed amount per hour: [ ] Fixed dollar amount/hour. $ _____ per Hour of Service worked while an Eligible Employee.

Assuming you have an operating company, corporate assets are not plan assets, so even if held by the employer whose stock is owned by the plan, the deferrals have not been transferred to the plan.

Luke, appreciate your thoughts. It's an odd situation with a lot of other context (and likely not to work for many other reasons) but this was one of the issues that came up during review. I had never encountered the question. To your second point, 1.83-3(g), defining "amount paid," includes the following: "When section 83 applies to the transfer of property pursuant to the exercise of an option, the term “amount paid” refers to any amount paid for the grant of the option plus any amount paid as the exercise price of the option." So it seems like the full $10 would be considered when calculating the amount of tax upon exercise. I can't find any other option-related Code provisions that include a similar provision (421-424, 409A). They generally just refer to the amount paid to buy the stock upon exercise of the option.

Does anyone know whether the price an employee pays for the grant of an option can count toward the price of the exercise of the option for 409A-exemption purposes? In other words, say employer's stock is worth $10 per share on the date it grants an option to an employee. The employee pays $9 per share for the grant of the option itself, and the price of exercise is $1 per share. A few years later, employer stock is worth $20 per share. The employee pays $1 per share to exercise the option. Under the 409A definition of "exercise price" it seems that only the $1 is considered ("...the consideration in cash or property that, pursuant to the terms of the option, is the price at which the stock subject to the option is purchased..."). Under 83, both the $9 paid for the grant and the $1 paid for the exercise would be part of the "amount paid" for tax-calculation purposes. But would this blow the 409A option exemption?

Not exactly on point, but PLR 201241019 involved a similar situation with an ESOP participant who diversified in prior years, then took a lump sum upon termination, and the IRS treated it as a lump sum for NUA purposes.

Peter, very helpful context. That makes sense. Greatly appreciate you sharing your expertise.

Thanks. I wondered after posting this if it had anything to do with the types of providers servicing these plans perhaps being more accustomed to using 403(b) custodial accounts (as opposed to trusts), but maybe not. Appreciate your input!

I've never had reason to look closely, and the enactment of the 457(b) trust requirement predates my time in practice, but is there a particular reason why many governmental 457(b) plans seem to use custodial accounts (that meet the trust requirements under 457(g)(3) and 401(f)) instead of trusts?

Thanks. I was concerned I was missing something, so that's reassuring.

Not sure this is the right forum, but I'm curious how this situation would be addressed. A privately held employer issues restricted stock to an employee on December 20, 2021. It is subject to a five-year cliff vest. The employee's last 2021 paycheck is December 31, 2021. There is no other procedure imposed during 2021 for income tax withholding or FICA, because nothing has vested and the employee has not made an 83(b) election so nothing is taxable. The employee files an 83(b) election on January 10, 2022. The employee's next paycheck is paid on January 15, 2022. Regardless of whether the employer withholds income tax and FICA from the January 15, 2022, paycheck or the employee writes the company a check for withholding on January 10, 2022, how would the employee's W-2 and the employer's 941s (4Q21 and 1Q22) look? On the W-2, the income can still be reported in box 1, 3, and 5 for 2021, but what would be reported for income tax and FICA withholding? On the 941, would the wages and FICA be reported all in 4Q21 (the quarter in which the income was received), all in 1Q22 (the quarter in which the election was made), or some of both (the income reported in 4Q21 and withholding reported in 1Q22)? Would appreciate any help.

I know the original post didn't specifically mention a painting, but IRAs generally cannot own collectibles or artwork. But for other non-prohibited investments, this is probably their best bet if the investment's value will warrant a trustee who may, depending on the investment, charge pretty steep fees. If the value of the investment is fairly small, as Peter mentions, you can also have the distributing participant write a check for any required withholding.

This is from 35.3405-1T, Q&A F2: f-2. Q. How is withholding accomplished if a payee receives only property other than employer securities? A. A payor or plan administrator must satisfy the obligation to withhold on distributions of property other than employer securities even if this requires selling all or part of the property and distributing the cash remaining after Federal income tax is withheld. However, the payor or plan administrator may instead permit the payee to remit to the payor or plan administrator sufficient cash to satisfy the withholding obligation. Additionally, if a distribution of property other than cash includes property that is not includible in a designated distribution, such as the distribution of U.S. Savings Bonds or an annuity contract, such property need not be sold or redeemed to meet any withholding obligation.

I agree with Peter's suggestion to get their own lawyer's advice and possibly use the default provision, but I will say that I have advised that common-sense corrections are appropriate in similar situations, especially if there is some other evidence suggesting the true intent (e.g., this person had the same amount in scheduled in-service distributions for 2020, 2021, and 2023). I had a similar situation a few years ago involving an error in a decimal place that resulted in a participant's online election to defer $1,000,000 instead of $10,000.00. The person earned well under $1,000,000; they had a history of deferrals more in line with $10,000; and the mistake was immediately noticed on the year's first payroll. Personally, I'm comfortable advising to correct to the intended result in situations like that one.

Not a cite, but if that line of logic were accurate, there would be no such thing as an RMD from a non-converted Roth 401(k) elective deferral balance because the entire account would have been "distributed" (albeit a little bit at a time) immediately upon deferral. Or, for a more extreme example, a participant has a $100,000 pre-tax balance in 2021 and will reach 72 during 2022. If they do an in-plan conversion of all $100,000 during 2021, would this person take the position in 2022 that no RMD is ever required because the entire account had been distributed by 12/31/21? If so, not sure any cite will help.

As long as the ESOP sponsor (i.e., the company) is an operating company, its assets (including corporate cash it spends) generally are not considered "plan assets" that could give rise to a prohibited transaction. Also, the controlled group rules under 414 do not apply to prohibited transactions, but the definition of a "disqualified person" under section 4975(e)(2) includes rules that have a similar effect. With that said, there is still risk if the transaction is not a PT but is otherwise harmful to the ESOP participants, e.g., state-law claims against the directors/officers for corporate waste, fiduciary claims against the ESOP trustees for failing to oversee the directors, etc.

I don't think the excerpt is limited to which categories of employees are eligible, but in my experience 457(b) top hat documents routinely have this language in a section on plan administration. As far as discretion to choose eligible employees, I have seen it both ways - stated categories (e.g., "VPs or above," etc.) and, particularly for smaller organizations, completely discretionary (e.g., "the employees designated as eligible by the plan administrator in its discretion" or "the individuals designated by the plan administrator and listed on Schedule A," provided they are in a management/highly paid group).

I have never actually transferred balances in this manner, so there may be some further nuance, but you may want to look at 1.457-10(b)(6)(i) and (ii), which deal with the distribution timing (of the receiving plan) and any distribution elections already made (in the transferring plan) before the transfer. But in general the account becomes part of the new plan. On a quick pass, there does not appear to be any legal need to segregate the transferred balances vs. the new contributions. I don't think there's any way you can shoehorn an entire 457(b) document into an employment agreement like you might with a simple 457(f) agreement. I think you need to have a separate plan document.

I'm trying to better understand the potential HIPAA discount/surcharge issues where spouses and dependents are involved (setting aside ADA, GINA, etc. for the moment). Is it permissible to require all covered individuals (or perhaps at least spouses and adult dependent children) to be vaccinated to receive the discount (or avoid the surcharge)? I don't see the nondiscrimination regulations drawing a clear distinction, other than allowing the 30% incentive limit to be determined based on the cost of coverage including spouses/dependents where the spouse/dependent is also eligible for the incentive. Or if the employee alone (or spouse alone) gets vaccinated, do you have to extend a partial incentive based on their individual compliance with the requirements? Any input would be greatly appreciated.

Per Section 4.72.9.3.3 of the Internal Revenue Manual: Terminating profit-sharing and stock bonus plans that don’t offer annuities and aren’t subject to the IRC 417 requirements may distribute a participant’s accrued benefit without his/her consent if the employer and its controlled group don’t maintain any other DC plans other than an ESOP. It cites 1.411(a)-11(e)(1). See also 1.411(d)-4, Q&A 2(b)(2)(vi).

I don't profess to be an expert on this topic, but Notice 2008-30 has some guidance on non-spousal death beneficiary direct rollovers from a qualified plan to a Roth IRA. If the accountant is saying that the tax-free nature of the life insurance proceeds does not in itself mean the plan distribution is coming from a designated Roth account, I would tend to agree. In other words, just because the distribution is not subject to tax does not mean it's a Roth-to-Roth rollover. The distribution is still coming from a non-Roth account (albeit with possibly no tax on the distribution). So it's like a direct rollover from a pre-tax qualified plan account to a Roth IRA, just with a $0 taxable amount in the distribution/rollover process. Possible that I'm off base, but a thought.

The ERISApedia Qualified Plan book comes to a less-clear (to me, at least) conclusion: After citing the same section of the regs: "This requirement means that a 1,000 hour or last day requirement may not be imposed on any matching contribution. Such a provision imposed on the non-safe harbor matching contribution would also result in the application of ACP Testing to the plan." It's not clear whether "any" matching contribution in the first sentence means any safe harbor matching contribution or simply any matching contribution. It doesn't specify whether the plan would be required to do ADP testing, but the second sentence confirms ACP testing, which is fine.