EBECatty

No, they are employer nonelective contributions. No deferral election is required by the employee. Think of them like profit-sharing contributions to a 401(k) plan - employer can decide how much, when, and to whom with no involvement or election by the employee. Note that these still count toward the annual contribution limit.

I don't know anything about the nuances of professional athletes' contracts, but if you converted the terms into more recognizable employment agreement language couldn't something similar work? For example: Employee signs employment agreement on January 1, 2021. It has a three-year term. His "base salary" for 2021 is $80,000. He will be paid his entire base salary for 2021 in one lump sum on December 31, 2021 (setting aside minimum wage, state wage payment laws, etc.). He also becomes entitled to a "bonus" of $200,000 on the earlier of (1) his remaining employed until December 31, 2021, or (2) his termination of employment (including voluntary resignation) before December 31, 2021. If he becomes entitled to the bonus under (1), the entire $200,000 is paid in a lump sum on December 31, 2021. If he becomes entitled to the bonus under (2), it is paid in one installment of $20,000 on December 31, 2021, and the remaining $180,000 is payable in 10 equal installments of $18,000 each in 2031-2040. In that case, there's an "opt out" (walk away before December 31 and choose not to work the 2022-2023 years) but there is no deferral election. Payment is triggered by the first to occur of a fixed date (December 31, 2021) or separation from service. The time and form of payment may be different for each of the two triggering events. There is no toggle because each separate event entitles the employee to one predetermined time and form of payment.

Rev. Rul. 2014-9 allows receiving plan administrators to check the distributing plan's Form 5500. As long as Code 3C (plan not intended to be qualified) is not listed on the distributing plan's 5500, the plan administrator of the receiving plan can reasonably conclude the rollover is valid and comes from a qualified plan (absent evidence to the contrary). By its terms, the revenue ruling only applies to plan administrators of receiving plans that are qualified under section 401(a), but I think the same logic could apply to an IRA custodian receiving a rollover from a qualified plan.

Thanks. That's where I'm coming down too, unless the final regs say otherwise.

Luke, thanks and I agree all would be exempt as short-term deferrals assuming that a SROF exists until the date of payment. My question/concern is whether a SROF exists at all because in some contexts a two-year period has historically been considered "insubstantial." For example, along the lines of the discussion in section IV.A here: https://www.ipbtax.com/media/publication/33_KPO RBB 409A Vesting.pdf Page 18 here: https://www.irs.gov/pub/irs-tege/eotopicm97.pdf Page 7 here: https://static1.squarespace.com/static/51d2e43de4b0ae74dc6c43a5/t/58078a7c6a49634ccacf1e8b/1476889212983/Transcript+of+457(f)+IRS+hearing+(10+18+16).pdf Discussion here under the heading "Two-year minimum deferral for non-elective supplemental employer dollars": https://splawfirm.net/updates/2016/11/supplemental-memo-to-the-irs-on-the-proposed-457f-regulations And some others, including the Section 409A Handbook. If a two-year minimum deferral period is required even for non-elective payments, I don't think any of my examples above work except the last few years of the five-year hypothetical. If no SROF ever exists, the payments in each example would be outside the short-term deferral period, which would end March 15, 2022 (again, setting aside the five-year example). In that case, all would be taxed under 457(f) in 2021. I generally have not seen this rule cause a problem in good-faith situations - except maybe with elective deferrals - but am curious how much other people plan around it. Applying it literally would cause problems that I simply have never encountered in practice; for example, a new hire as of July 1, with an employer on a July 1 - June 30 fiscal year, has an employment agreement with a guaranteed bonus of $100,000 on June 30 of the end of her first year, provided she remains employed. If a two-year minimum deferral period is required, that would immediately tax the bonus, which again I have never encountered as a problem.

It's a partial termination, which would vest everyone.

I'm hoping to get others' input on the correct standard for the future performance of substantial services under 457(f) for non-elective employer payments. Under section 1.457-12(e)(1)(ii) of the proposed regulations, "the determination of whether an amount of compensation is conditioned on the future performance of substantial services is based on the relevant facts and circumstances, such as whether the hours required to be performed during the relevant period are substantial in relation to the amount of compensation." There is no minimum vesting period in the proposed regulations or preamble. When adding to current compensation or extending a substantial risk of forfeiture, proposed regulation 1.457-12(e)(2)(iii) requires performance of at least two years of future substantial services. Under example 1 in proposed regulation 1.457-12(e)(3), a one-year (January to January) vesting period is implemented, which goes unmentioned as the example is aimed at an insubstantial amount of post-termination consulting services. One would think that if a two-year minimum deferral were required to begin with, the example would not need to resort to measuring the amount of work performed during the one-year period (or would use a longer duration). But the general substantial risk of forfeiture rule only looks at the amount of work performed, not the duration of the future services. I know there has been a general rule of thumb stemming from section 83 that a minimum two-year deferral period is required to validly delay a substantial risk of forfeiture. While it may be a matter of degree, I'm interested to hear others' takes on the following, all non-elective employer payments, all outside the short-term deferral date if the substantial risk of forfeiture is deemed not to take hold because it's less than two years: On July 1, 2021, employer awards employee a bonus payable on June 30, 2022, provided they remain employed full-time until the date of payment. On December 1, 2021, employer awards employee a bonus payable on June 30, 2022, provided they remain employed full-time until the date of payment. On December 1, 2021, employer awards employee a bonus payable on June 30, 2023, provided they remain employed full-time until the date of payment. On December 1, 2021, employer awards employee two separate bonuses, one payable on June 30, 2022, and one payable on June 30, 2023, provided they remain employed until each separate payment date. On December 1, 2021, employer awards employee five separate bonuses, one payable on each succeeding June 30, provided they remain employed until each separate payment date. Would anyone argue that some or all of these would immediately vest and be taxed on July 1, 2021, or December 1, 2021, as the case may be?

You mention it was "very recent." Was the incorrect filing for the 2020 full plan year or 2021 final/short plan year? If the former, amend 2020 and then file a final for 2021. If the latter, which I assume is probably the situation, I personally would wait until you can file the correct amended 2021 once all assets are distributed (assuming all assets will be out by 12/31/21). If it rolls over into 2022, amend 2021 as non-final and file the final for 2022.

At least for ftwilliam, the basic plan document refers to the state designated in the adoption agreement, with no apparent default. The adoption agreement has a blank to fill in a state, which presumably would be required to complete the documents. I don't work with them directly.

Our Relius documents set the default as the state in which the plan sponsor's principal office is located, but allows the sponsor to designate a different state in the adoption agreement. Another (from Ascensus) that happens to be in my inbox has the same provision you reference as the "Prototype Document Sponsor."

Interesting, thanks BG. If I'm reading that section correctly (1) you must disaggregate coverage testing to disaggregate ADP, but (2) once you have disaggregated coverage, you can either (A) also disaggregate ADP like coverage, or (B) include the otherwise excludable HCEs with the non-excludable group for ADP despite remaining disaggregated for coverage.

Much appreciated!

Thank you, C.B. That's exactly what I was trying to understand. Based on that I assume the answer is yes, but if the same person were hired in, say, September 2019; based on 2019 compensation, became an HCE in 2020; reached a year of service in September 2020; then entered the plan on January 1, 2021, they would be in the otherwise-excludable group as an HCE during 2020?

Thanks. I guess that is my question - would they ever be in the otherwise excludable group for 2020? In other words, if the participant is past the maximum age/service requirements at any time during 2020 (July, September, etc.), are they automatically out of the otherwise excludable group for all of 2020 for purposes of ADP testing? Again, I'm not very involved in testing but want to make sure I fully understand the impact on plan design.

I don't get heavily involved in testing, so am hoping to clarify a point on ADP testing of otherwise excludable employees. I hope I'm asking the right question. Say a plan has immediately eligibility for deferrals, but age 21 and one year of service for all other contributions. Entry dates are January 1 and July 1. Plan year is a calendar year. An employee is hired in March 2019, works a year of service by March 2020, and enters the plan July 1, 2020. The person's March-December 2019 compensation makes them an HCE for 2020. For 2020 ADP testing, is that person tested as an HCE with the otherwise excludable group or the "regular" (i.e., fully eligible) group?

Further to this, a reading of the limitations suggests not only that the 402(g) limit potentially be reduced by the amount of QNEC itself, but rather by the full amount of the "missed deferral." In other words, if the participant would have deferred $8,000 in the first half of the year, giving them a $2,000 QNEC, the 402(g) limit would be reduced by $8,000 (the full "missed deferral") and not by $2,000 (the QNEC amount). I also still do not see a compelling statement in ECPRS on the participant's remaining 402(g) limit for the rest of the plan year after the QNEC has been made. I suppose the plan sponsor could wait to deposit the QNEC until after the close of the plan year, but then earnings would accrue the whole time (and the participant would likely stop their deferrals before the 402(g) limit to get the employer's "free" deferral). The 402(g) reduction amount (full missed deferral vs. QNEC amount) has been raised in a few earlier threads, with no satisfactory answer. See here: And here:

Thanks. I agree that in my latter example (participant has already deferred the limit, then a corrective QNEC is made) the QNEC itself would be capped by the 402(g) limit. In the former example (a corrective QNEC is made, then the participant starts deferring) it would be capping the participant's elective deferrals, not the QNEC. Nothing in EPCRS squarely addresses that situation. In that case, would you tell the participant they can only defer up to the 402(g) limit less the QNEC amount, even though those are two different money sources?

I see a few prior threads on this, but wanted to see if there have been any changes in opinion. If a plan sponsor makes a corrective QNEC for missed deferrals before the participant starts deferring for the year, does the QNEC count toward the participant's 402(g) limit? For example, the plan sponsor fails to implement a deferral election from January through June and corrects using the 25% QNEC. Say the deferral would have been $8,000, so the QNEC is $2,000. The participant's correct deferrals start in July. Can the participant still contribute to the full 402(g) limit, or the 402(g) limit minus $2,000? EPCRS seems clear that the opposite fact pattern (participant has deferred, then error is caught and QNEC made) requires limiting the corrective contribution to the 402(g) limit. But no rules or examples in EPCRS apply to the QNEC first then deferrals. Would appreciate any thoughts.

Don't have any precise answer, but this was one area where the statute specifically directed regulations. See Code Section 6432(g)(2) added by Section 9501(b) of the ARP. Relatedly, I have seen some commentary suggesting that in a fully insured plan employers will still continue to pay COBRA premiums to the insurer for all AEIs, and that there is no statutory mechanism for the employer to offset or take credit for those premium payments because the insurer gets the payroll tax credit. My understanding was that the premiums for all AEIs would be treated as being paid (i.e., they pay nothing and the insurance company treats them as being fully paid), then the insurer claims the same amount under the new tax credit. Presumably the employer will provide the insurer a list of AEIs eligible for the subsidy. In that case, why would the employer continue paying the premiums to the insurer for those AEIs? I feel like I must be missing something.

Almost certainly there will be other companies owned by the PE fund or investment company. Whether the operating companies are affiliated can be more complex. Some investments may be less than 80%. Some may be through parallel investments, which has been subject to some scrutiny in Sun Capital. Some may qualify as QSLOBs. Generally the fund will be a pass-through entity, so technically the controlled group of corporations rules in 414(b) don't apply, but rather the trades or businesses under common control rules in 414(c). There is a fairly widely held position, at least in the PE context, that because the fund (common owner) itself is not a "trade or business" that the entities it owns are not related. There's also some skepticism of that position based on the wording of the regulations. In my experience, many PE funds don't have the capacity (or desire) to test across all their platform companies.

Generally plans can be (and often are) terminated in connection with a sale without any prior participant notice. Of course, it's always better to have a clear approach going into it so everyone is on the same page. There may have been one that has not been communicated to you (not sure your role in the process). If the plan was not terminated by a resolution effective before the stock sale closed, there will likely be a successor plan issue as I assume the buyer (or another member of the buyer's controlled group) has or will start a 401(k) plan. The seller's plan may need to be merged into a plan of the buyer.

This is along the same lines as the example on the IRS website: https://www.irs.gov/government-entities/federal-state-local-governments/when-would-i-provide-a-form-w-2-and-a-form-1099-to-the-same-person That said, I have never encountered such a situation in practice, and certainly don't think paying someone the first $X amount on a W-2, then the next $Y amount on a 1099, for the same job would ever work.

As Mike notes above, it's fairly common to have the termination resolution state that the plan will be terminated the day before closing, contingent on the transaction actually closing. I have never run into problems with this approach. In an asset sale, you can also wait to terminate the plan until after closing, assuming the purchase agreement does not require otherwise. (Stock sales have different implications, and generally the plan should be terminated before closing.) There is no requirement in the safe harbor regulations that the plan be terminated before a 410(b)(6)(C) transaction, just "in connection with" one.

For what it's worth, when I log on to my personal 401(k) account online, one of the first items on the homepage is a notice about protecting online accounts. It links to a very thorough write-up about passwords, two-factor authentication, where to report if your account has been compromised, etc. As noted above, this may not be feasible for all plan types, but to me it seems more logical there than in an SPD. I also think it's more likely to be noticed and read on the plan website (which I have accessed many more times than my plan's SPD).

Successor liability exists in theory (and often reality in the multiemployer plan context) but I have never seen it applied to a missing 5500 (or other "routine" violations in which participant assets are unaffected) in an asset transaction. The risk is very low in my opinion. Then again, filing a few late 5500s through DFVCP, either before closing or by a post-closing covenant, usually isn't overly challenging either. If the seller is continuing to employ the affected employees during the transition period, but the buyer is truly the common-law employer after closing (i.e., during the transition period), you may create an "accidental MEWA." That's its own risk analysis, although I have never encountered major problems in short-term transition periods like this. If the buyer is requesting the seller maintain coverage, the seller may want indemnity.