katiejoseph

Seconding Belgarath's suggestion of a pre-submission conference for this one. For what it is worth, I dealt with a similar situation a few years ago and the correction required adopting the "in between" restatements.

I am curious to hear the group’s thoughts on what to do about UBIT shares (that is, shares in an S-corp that were long ago transferred from an ESOP to a non-ESOP portion of the plan in order to avoid a failing 409(p)). Here are the ideas we've come up with so far: 1. Have the trustee sell the UBIT shares to the employer. 2. Provide NHCEs with a one-time, voluntary election to use cash allocated to their accounts in the ESOP portion of the plan to purchase UBIT shares, with purchased shares returning to the ESOP portion of the plan, and tracked so that they are not re-allocated to disqualified persons. 3. Add an in-service distribution option to the non-ESOP portion of the plan. I am curious to hear thoughts on the following: • Do you read CCA 201747007 as precluding option 2? We had a client do something similar years ago and get a determination letter on it, but that occurred before the CCA came out. • If all of the participants in the non-ESOP portion of the plan are HCEs, we think there’s a 401(a)(4) problem with option 3, since the ESOP portion of the plan will not offer the same in-service distributions. We do not think Treas. Reg. § 1.409(p)-1(b)(2)(v)(B) addresses the problem. Other than adding the same in-service distribution to the ESOP portion of the plan, do you see a way out of the 401(a)(4) problem? • Any other ideas? If so, have you gotten a determination letter on them?

I think you're looking for guidance on plan-to-plan transfers. See Treas. Reg. 1.457-10. Non-governmental 457(b) plans can't make rollover distributions. Code Section 402(c)(4), (8).

I've looked at related issues and would be very surprised if a VEBA would qualify without some significant restructuring of its activities and beneficiaries. As Patricia Neal Jensen and loserson point out, a VEBA exists primarily for the private benefit of its members (through, e.g., the provision of welfare benefits). Courts and the IRS generally view this type of private benefit, if substantial in nature, as inconsistent with 501(c)(3) status. Here is a link to a case that is not directly on point but sets out the relevant analysis: https://casetext.com/case/police-benev-assn-of-richmond-v-us

FYI, The BNA portfolio on church and governmental plans has a nice summary of the pre-ERISA vesting and nondiscrimination requirements that apply to church plans. Even that type of vesting rule is permissible, I agree with David that it seems to increase the risk of administrative or other errors. I also question whether you will find a recordkeeper who can accommodate it. In my anecdotal experience, church plans sometimes end up following rules that are the same as or similar to those that apply to ERISA plans, simply because that is what vendors can accommodate.

Be careful about what you send out to participants if you use a preapproved ERISA document (assuming you can find one that accommodates all of the plan's features); the participant communications generated may reference ERISA in ways that confuse participants and create unnecessary risk for the plan sponsor. At the risk of stating the obvious, you could also obtain a determination letter on it, assuming that it has not been submitted for one before.

Thanks for the responses!

On a call with an IRS representative today, after I faxed over Form 2848, the representative asked me for my personal SSN in addition to my CAF number and my client's EIN. When I expressed surprise, she indicated that it was a very new IRS procedure. I'm curious - has this happened to anybody else?

I'm updating this thread for whoever happens to come across it in the future. -- Notice 2011-19 clarifies when stock is readily tradable on an established market for ESOP purposes. The reference above now appears in 4.72.4.2.8 of the IRM.

Also curious to know if anybody has seen guidance on this issue -- my search of Checkpoint did not turn up anything.

I am interested in hearing how members would apply Treas. Reg. § 1.411(a)-5(b) to the following situation. The plan sponsor terminates qualified Plan A on December 31, 2011. The sponsor then establishes another qualified plan, Plan B, on January 1, 2015. Plan B is a successor plan under Treas. Reg. § 1.411(a)-5(b)(3)(v)(B). Participant began employment in 2010, has 2 Years of Service under Plan A, and is a participant in Plan B. Participant remained employed and performed at least 500 hours of service (determined under Code § 411(a)(6)) in each of 2012, 2013, and 2014. Does Participant have zero Years of Service under Plan B, or 2? The relevant portion of the Treasury Regulations provides: (A) General rule. In the case of an employee who was covered by a predecessor plan, the time the successor of such plan is maintained for such employee includes the time the predecessor plan was maintained if, as of the later of the time the predecessor plan is terminated or the successor plan is established, the employee's years of service under the predecessor plan are not equalled or exceeded by the aggregate number of consecutive 1-year breaks in service occurring after such years of service. Years of service and breaks in service, without regard to whether the employee has nonforfeitable rights under the predecessor plan, are determined under section 411(a)(5) and (6) except that years between the termination date of the predecessor plan and the date of establishment of the successor plan do not count as years of service. …. © Example. The rules provided by this subparagraph are illustrated by the following example: Example. (1) Employer X's qualified plan A terminated on January 1, 1977. Employer X established qualified plan B on January 1, 1981. Under paragraph (b)(3)(v)(B) of this section, plan A is a predecessor plan with respect to plan B because plan B is established within the 5-year period immediately following the date plan A terminated. … (3) Employee D was covered by the A plan. On December 31, 1976, D had 4 years of service. D had 4 consecutive 1-year breaks in service because during the years between the termination of plan A and the establishment of plan B, he did not have more than 500 hours of service in any applicable computation period. Because D's consecutive 1-year breaks (4) equal his years of service prior to his breaks (4), plan B is not maintained until January 1, 1981, with respect to employee D. (4) Employee E was covered by the A plan. On December 31, 1975, E had 6 years of service. E had a 1-year break in service in 1976. E also had 4 consecutive 1-year breaks in service for the period between plan A's termination and plan B's establishment. Because E's years of service (6) are not less than his consecutive 1-year breaks (5), plan B is maintained for E as of the establishment date of plan A. (4) Break in service. A year of service which is not required to be taken into account by reason of a break in service (within the meaning of section 411(a)(6) and §1.411(a)-6)). Treas. Reg. § 1.411(a)-5(b)(3)(v). One could interpret Examples (3)-(4) as deeming 2012-2014 to constitute 1-year Breaks in Service. If that's the case, Participant in the example has three 1-year Breaks in Service, exceeding service credited under Plan A. Therefore, she will receive no credit for prior service for vesting purposes under Plan B. On the other hand, one could read the last sentence in (A) to mean that one determines whether a Break in Service has occurred according to the rules of the Code, since no plan exists. So long as a participant performs at least 500 hours of service, no break occurs. However, the participant's years of service for vesting purposes do not increase in the years where no plan exists. Under this interpretation, Participant has two Years of Service for vesting purposes under Plan B.