Centerstage

This Benefitslink post was very helpful to me the first time I helped a client with plan to plan transfer

I agree with directing the client to approach qualified ERISA counsel to prepare the VCP filing. I'm thinking the VCP filing might focus on putting the participants/former participants in the place they would have been if B's 401(k) had merged into A's 401(k). Most difficulty likely to be with 3 participants who took distributions based on the impermissible termination of B's 401(k). Just some off the cuff thinking here. Hope you find good help.

Likely won't help, but I think former employees who are still "parties in interest" can't be excluded from eligibility for loans https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/advisory-opinions/1989-30a.pdf Doubtful former exec director and spouse were "parties in interest" in 2021 and 2022 when loans were made, but you might want to look at the categories in ERISA Section 3(14) -- maybe in addition to taking plan loans, they were also providing services to the plan?

Thanks - just sent myself a reminder to draft the Notices by Jan 2024!

Hello Luke Bailey -- Just wanted to mention that we got some guidance on SCP for terminated plans in Q&A 2 of IRS Notice 2023-43: Q-2. Before Rev. Proc. 2021-30 is updated pursuant to section 305(g) of the SECURE 2.0 Act, are there any Eligible Inadvertent Failures that a plan sponsor may not self-correct? A-2. Yes. Before Rev. Proc. 2021-30 is updated pursuant to section 305(g) of the SECURE 2.0 Act, a plan sponsor may not self-correct the following Eligible Inadvertent Failures: . . . (3) A significant failure (that is, a failure that is not an insignificant failure, as determined in accordance with the factors set forth in section 8.02 of Rev. Proc. 2021-30) in a terminated plan. . . .

Bank executives have employment agreements that allow 2 times pay as severance for voluntary separation from service within one year after a Change in Control defined by reference to 409A definition of Change in Control Event. Bank wants to incorporate a Holding Company and do a statutory share exchange where all of the Bank shareholders exchange their Bank common stock shares for Holding Company shares, leaving Holding Company as owner of all shares of Bank common stock, and Holding Company will then have same shareholders that Bank had before the transaction. No Bank shareholder is related by attribution rules of 318(a) to any other Bank shareholder. No Bank shareholder owns more than 30% of the outstanding shares of Bank. Bank has asked if this is a Change in Control Event under 409A, for purposes of the employment agreements of the Bank executives. After this transaction, if one of the Bank Executives leaves voluntarily, would he or she be entitled to the severance pay under his or her employment agreement? I know this shouldn't be a 409A Change in Control Event, as nothing has "really" changed, but I'm having trouble pinning down why in the regs under 1.409A-3(i)(5)(v), (vi) and (vii). Even if the shareholders of Bank are treated as acting as a group, (because they are involved in an acquisition of shares involving the corporation they all own) the Holding Company is a separate "person" and as an entity it does acquire more than 50% of the voting stock of the Bank in the transaction. After the transaction, the 318(a) attribution rules don't help with respect to the original shareholders, with respect to Bank stock or Holding Company stock, as none of them own more than 50% of the Bank stock or the Holding Company Stock before or after the transaction, and the attribution rules of 318(a) measure stock ownership of each shareholder even if they are "persons acting as a group" for other purposes. Also, since the Bank stock will remain outstanding after the transaction, the exclusion from the definition of Change in Control of 'transfers to a related party' of 1.409A-3(i)(5)(vii) respecting Change in Ownership of a Substantial Portion of Assets does not apply the way it might in a merger where the stock of the target does not remain outstanding after the transaction. Can anyone point to the regulation under 1.409A-3(i)5(v), (vi) and/or (viii) that excludes this transaction from the definition of Change in Control Event under 409A?

Prior to acquisition, target company is correcting the Release timing language in Executives' Change in Control ("CIC") Agreements that pay a lump sum within a set time period after involuntary termination within 6 months after a CIC, (subject to delivery of a Release, with no time limit for delivery of the Release, and no language that the payment for such termination won't be made if the Release is not delivered within a set time) by having the Executives sign, before Closing, an Amendment stating that the Release has to be delivered, and irrevocable, within a set number of days after involuntary termination within six months after CIC, and if it is, lump sum will be paid on last day of the time period, and if it is not, lump sum is forfeited. For an Amendment like that, which seems to fit Section VI of IRS Notice 2010-06, for 409A corrections, is everyone (or anyone) still sending the Notice to the taxpayer/service provider/Executive the following January, and still attaching the Notice to the service recipient's tax return, as Section XII of Notice 2010-06 requires for Section VI corrections? So difficult to explain to client (employer) and taxpayer (Executive) that putting this Release language in an Amendment means we need to send these lengthy, nearly incomprehensible Notices next year. Just wondering if anyone else is actually doing this?

I hear you, but I was too concerned about the negative inference of Section 4.07 of Rev. Proc. 2021-30 to risk it. Issue was that short staffing due to Covid caused lengthy delay in testing for terminated plan, and then it was too late to correct failed testing other than through EPCRS. We used VCP. Still waiting to hear from IRS.

Served Plan and Trust c/o Estate c/o Executor. Yes asserted plan is employee benefit plan within meaning of 3(3) of ERISA so subject to coverage of ERISA under ERISA 4(a).

Dear Albert F, Fact pattern was corporation with one shareholder started db plan with 414(k) account, then corporation dissolved, then sole shareholder died. Plan document said spouse could be plan admin, but spouse also deceased. No further provision in plan document to appoint successor plan admin. Once Court Order obtained, custodian of plan assets willing to accept Executor as plan administrator and trustee. Also did VCP to correct some unsigned plan documents so included request for approval of termination and liquidation of frozen plan. And of course 5500 filings.

Filed Complaint in District Court with Executor as Plaintiff and Plan as Defendant. Filed under ERISA 29 USC 1001 to obtain relief under Section 502, 29 USC 1132 seeking equitable relief. Subject matter jurisdiction 29 USC 1132 (e)(1) and venue 29 USC 1132(e)(2). Defendant did not answer. Got default judgment appointing the Executor as Plan Administrator and Trustee. Then adopted resolutions terminating the Plan and distributing to Estate, the beneficiary.

Question 12 on Form 5310 reads as follows: __ Yes __ No Has this plan been involved in a merger, consolidation, spinoff, termination re-establishment, or a transfer of plan, assets or liabilities that was not considered under a previous DL? If “Yes,” submit the required attachment. What does "considered" mean in context of plan that uses pre-approved provider? Does the pre-approved provider's DL submission "count" as "considering" these mergers? Or would only an individual filing "count" as "considering" these mergers? Here's why I'm asking: Terminating plan is adopter of pre-approved plan. Prior to provider's pre-approved plan filing for Cycle 2 Determination Letter, the now terminating plan had 3 plans merge into it, with the now terminating plan as the surviving plan. All are DC plans (and used plans from pre-approved providers), so no 5310-A filed, and no 5310 was filed at the time of the mergers by the surviving plan -- only DL filings so far have been usual filings on cycle by pre-approved plan provider. The terminating plan timely adopted its Adoption Agreement Restatement after the plan mergers, when its pre-approved plan provider sent the Adoption Agreement Restatement, for the Cycle 2 Determination Letter. Pre-approved provider timely filed for Cycle 3, and presumably has received DL, although no Adoption Agreement Restatements sent out to employers yet. For the surviving plan, that is now terminating, when I file its 5310, can I check "no" on Line 12 of the 5310 as the previous mergers took place before the pre-approved provider's latest DL and before the plan adopted its latest Adoption Agreement Restatement?

Here’s a quote from IRS Treas. Reg. Section 1.401(a)(4)-11(d)(3)(B)(1) and (2) that may apply here: “(B) Legitimate business reason - (1) General rule. There must be a legitimate business reason, based on all of the relevant facts and circumstances, for a plan to credit imputed service or for a plan to credit pre-participation service for a period of service with another employer. (2) Relevant facts and circumstances when crediting service with another employer. The following are examples of relevant facts and circumstances for determining whether a legitimate business reason exists for a plan to credit pre-participation or imputed service for a period of service with another employer as service with the employer: whether one employer has a significant ownership, control, or similar interest in, or relationship with, the other employer (though not enough to cause the two employers to be treated as a single employer under section 414); whether the two employers share interrelated business operations; whether the employers maintain the same multiple-employer plan; whether the employers share similar attributes, such as operation in the same industry or the same geographic area; and whether the employees are an acquired group of employees or the employees became employed by the other employer in a transaction between the two employers that was a stock or asset acquisition, merger, or other similar transaction involving a change in the employer of the employees of a trade or business. Other factors may also be relevant for this purpose, such as the plan's treatment of service with other employers with which the employer has a similar relationship and the type of service being credited (e.g., vesting service as compared to benefit service or accrual service). A legitimate business reason is deemed to exist for a plan to credit military service as service with the employer.”

I'm assuming your client isn't interested in a SEP IRA due to contribution limits or inability to allow plan loans. A SEP IRA would avoid need for new FEIN and 5500s, if SEP IRA is enough for your client's contributions, and he or she is ok with lack of plan loans.

Client's attorney is proactively (no problems or lawsuits anticipated, just want to have an objective look) hiring actuarial firm to do actuarial equivalence study respecting client's frozen defined benefit pension plan. Client has hired a particular actuarial firm for consulting on lump sum window, and other matters through the years. The actuarial firm does not consider itself to be a fiduciary respecting the plan, but in terms of best practices, does anyone have thoughts on whether or not another actuarial firm that has never worked before with the client's plan should be selected to do the study or if it doesn't matter?