kmhaab

Purchaser wants seller's 401(k) Plan to be included as party to an asset purchase agreement. The 401(k) holds a significant amount of seller's stock and purchaser wants the 401(k) plan (or trust I presume) to be party the the agreement as a shareholder. This would include the Plan making reps and warranties related to seller's business. Is this allowed? I have significant concerns with this - first from a fiduciary duty standpoint, but also because the plan cannot make reps and warranties related to the business as the Plan has no knowledge. But purchaser's counsel is pushing back. Has anyone seen this before? Am I off base?

Is it permissible to have a DC plan in which employer contributions are a flat amount per hour worked? i.e., $2.50 per hour? I can't find anything that specifically prohibits this approach, but I am not comfortable that it is allowed. Employer is trying to move away from a union pension with an hourly accrual rate. Thanks in advance!

How do other plans typically handle the requirement that distributions begin no later than the 60th day after the end of the plan year in which the participant attains 65, has 10 years in the plan or terminates service if the 12/31 valuation is not completed by the 60th day? Do you pay a portion of the benefit and then true it up when the valuation is complete? Thanks!

EBECatty and Luke Bailey - Thank you both, your responses were extremely helpful. Am I interpreting correctly that you do not believe correction of the payment timing language in my original post is necessary because there is a substantial risk of forfeiture until the date payment is made?

What is the Payment Event under 409A when a Transaction Bonus (calculated as a % of net proceeds) is payable 12 months following a CIC, but the bonus will be forfeited if the employee voluntarily terminates employment prior to the payment date. Is the Payment Event the CIC or a fixed date (the date 12 months after the CIC)? I believe it's a fixed date. But what if the plan language says the bonus is payable "within 12 months" after the CIC, and is still subject to forfeiture if employee voluntarily terminates employment prior to the payment date? I believe it is a drafting error as the actual language is "60% shall be paid within 12 months after the CIC and 40% 18 months after the CIC" and it appears to be intended to retain the employee past the transaction. I initially looked into correction methods for a payment period longer than 90 days following a Payment Event, interpreting the CIC as the Payment Event, but with the possible forfeiture I'm now leaning toward the Payment Event really being the date of payment. And possibly correcting under IRS Notice 2010-6 Section VII(E), "Service Recipient Impermissible Discretion to Accelerate Payment Events." The argument would be that the Payment Event is a fixed date which is 12 months after the CIC and the "within 12 months" language is giving the Service Recipient the (impermissible) discretion to accelerate that payment event. Any thoughts?

I've seen variations of this question on here, but nothing exactly on point. What does a plan do with the benefit of a deceased former participant when there is no beneficiary, no estate, and the plan is terminating? 401(k) Plan participant died in 2013 and plan was notified in in 2015. There was no beneficiary on file. According to the plan document, if there is no designated beneficiary, the beneficiary shall be the surviving spouse and if there is no spouse the beneficiary shall be the executor or administrator of the participant's estate. It appears there was no estate established and employer cannot find any heirs. The plan will soon be terminating due to a merger. What should be done with this participant's benefit?

DB plan was closed to new entrants and partially frozen several years ago. Employees meeting service requirements continued to accrue benefits and accruals were frozen for all other employees. Plan sponsor wants to pay out benefits to vested termed participants and active frozen participants. Can they do a spin off termination and include active employees with frozen benefits in the spun off terminating plan? I can't find anything either way. Thanks!

Thank you both for your input. Much appreciated!

I'm hoping QDRO experts here might have some ideas on how to address this situation. FACTS: QDRO was accepted by the DB plan in 1998. In addition to dividing the interest under the plan between husband and ex-wife the QDRO required the husband to select a form of benefit providing a survivor benefit equal to at least 25% of husband's benefit under the plan and name ex-wife as the sole beneficiary of the survivor benefits. QDRO also stated ex-wife was to be treated as the "spouse" for all purposes under the plan. Plan accepted the QDRO as written. Husband retired in mid-2000s, selected a joint and survivor annuity and named ex-wife as beneficiary. In 2019, pension plan is terminated and benefits transferred to an annuity provider. Participants were given the option of taking a lump sum upon plan termination. Husband was not allowed to take a lump sum due to the QDRO requiring he select a form of benefit with a survivor benefit. He was upset and wanted to "take his ex-wife off the pension". Plan sponsor tells them they can't do anything due to the court order (aka QDRO) and husband would have to go back to court to change it. So...in December 2020 husband gets a court order modifying the QDRO in which both husband and ex-wife agree to remove ex-wife from the pension entirely (what?), designate a new beneficiary for any survivor benefits, and agree the remaining balance of the pension should be released in full to the husband. Plan sponsor explains the plan is terminated and these changes cannot be made, even if ordered by a court (except beneficiary maybe). Husband and new wife are extremely upset. ISSUES: 1. Was the law was different in 1998? Could a QDRO put restrictions on a participant's future benefits earned after the date of the QDRO (i.e. requiring form of payment with survivor benefits following divorce)? If not, I don't believe the QDRO should have been qualified and accepted by the plan as it was written. 2. What liability does the plan sponsor have for accepting the DRO originally? What about for not allowing husband to select a lump sum when the plan was being terminated? 3. What do we do now that the plan has been terminated and benefits are in pay status with an annuity provider? Any ideas on what the plan sponsor can and/or should do in this situation? I appreciate any thoughts you may have.

Elective deferral plan states that upon attainment of age 65 deferred amounts will be distributed in 120 monthly installments beginning the first of the following month. A new Director joined in May 2019, elected to defer his fees and turned 65 six months later (Nov. 2019). He has been allowed to continue deferring his fees and no distributions have been made to him yet. I’m trying to identify exactly what the failure(s) are here and am looking for input/opinions related to the amounts deferred after he turned 65. Should he have been allowed to defer at all after age 65? If not, the entire amount deferred after age 65 must be paid out this year and the entire amount deferred in prior years is likely subject to penalties. Or was he allowed to defer after age 65, but the distribution installments should have begun immediately following the deferral? For example, could he defer fees in May 2020, but distribution should have begun immediately since he was over age 65? Still on a 120 installment schedule? If this is the case, only the installment amounts that should have been distributed so far must be paid out this year and subject to penalties. Thanks in advance for your input!

Brian, thank you. It is helpful to know I wasn't missing something. I'm curious what your thoughts are on the following - Employer recently discovered that an employee contribution from 11/2019 had not been deposited into the employee's HSA. It's too late to fund the HSA for 2019. Should the employer deposit the contribution in the HSA now for the 2021 tax year?

What are the consequences of an employer failing to timely deposit employee contributions into employees' HSAs? According to DOL FAB 2006-02, "employers who fail to transmit promptly participants’ HSA contributions may violate the prohibited transaction provisions of section 4975 of the Code," but can find nothing more definitive. If it is a PT or other fiduciary breach, is the employer able to correct under the DOL VFCP? The regs clearly list delinquent remittance of participant contributions to pension plans, insured welfare plans and welfare plan trusts as eligible transactions under the VFC program, but there is no mention of HSA contributions. So a plain reading of the VFCP regs would suggest no, the employer would not be able to correct under the DOL VFCP. Is there are other guidance I have missed? Thanks in advance.

I need a sanity check - Is an individually designed 401(K) plan still required to be restated every 6 years? If it has been timely amended as required? I understand the requirement to request a new determination letter has been eliminated and my interpretation was the restatement requirement was eliminated as well, but a client's record keeper is advising them they must restate.

What is a "reasonable period" of time for a plan sponsor to implement salary deferral election changes? Plan states that an election to modify a salary reduction agreement "will take effect within a reasonable period following such election." Typically, election changes would take effect on the next semi-monthly payroll date (i.e. 1-2 weeks). But due to an administrative error election changes made earlier this year did not take effect for up to 12 weeks (i.e., an election change made 1/1 to increase deferrals was implemented 3/31). I'm analyzing whether the election changes were not implemented within a reasonable period, resulting in an Election Deferral Failure under IRS rules. Any thoughts would be appreciated.

Does covering non-employee directors under an employer-sponsored health plan make the plan a MEWA? Does it make a difference if the plan is fully-insured or self-insured?

Thank you all, very thoughtful discussion.

Code Section 401(a)(28)(B) requires an ESOP allow qualified participants to make a diversification election within 90 days after the close of each plan year and distribute or invest the amount to be diversified within the following 90 days. In my experience, privately held plan sponsors who may not have a valuation or allocation completed within the first 90 days have met this requirement by issuing a preliminary diversification notice in the first 90 days and following up with a final notice when allocations are complete. The IRS sample pre-approved ESOP language issued in 2015 allows for the 90 day election period after the close of the plan year to be extended, eliminating the need for a preliminary notice followed by a final notice. Does this extend to individually drafted ESOPs? I am somewhat uncomfortable with the assumption that it does, as the statute is very clear and I would appreciate hearing others' thoughts.

What liability does a plan sponsor have for accepting an invalid beneficiary designation form? 401(k) participant submitted a beneficiary form in 2018 naming wife and 3 children as equal beneficiaries (25% each). Participant signed his own name on the line for the spouse's signature for the spousal waiver. It is possible he had POA for the wife at that time, but that is not noted on the form and the plan administrator has no record of a POA. There was no witness signature. Form was accepted by plan sponsor. Participant died in January. My opinion is this was not a valid spousal waiver and therefore the spouse is his beneficiary. One of the children is threatening a breach of fiduciary duty claim against plan sponsor for "recognizing the propriety" of the beneficiary designation form and leading participant to believe it had been properly submitted and was accepted. Does plan sponsor have any liability here?

The bank is a fairly small regional bank and has not been very helpful. The contact at the bank told the plan sponsor that either the employee is lying or there is an issue with the IRS. Which suggests to me that he/she is not very familiar with this issue as the IRS has nothing to do with this... I guess I'm trying to figure out how much leverage the bank has here. The employee has presented a Social Security card that appears valid on its face. Can the bank require additional documents from the employee and/or refuse to process the distribution based on information they got from the SSNVS?

Employee requested a COVID-related distribution from 401(k) plan. Custodian has come back and told the employer that the SSN provided for the employee "does not exist according to the IRS database" and they cannot issue a distribution without a valid SSN. I presume this was actually determined using the Social Security Number Verification System (SSNVS), but am not positive. There's no suggestion that this is a duplicate SSN or actually belongs to another person, etc. Employer has had no issues with wage reporting for the SSN. Employee insists the SSN is correct. Question - Can the custodian (a bank) refuse to make the distribution from the plan based on the info from the SSNVS? I know they need an SSN for the 1099, but they have a number to use that is not linked to anyone else. Does a bank have an obligation to verify an SSN before making payment?

Nonqualified Deferred Comp Plan provides for payment on the later of attainment of age 70 or separation from service following age 70 (installments). Also provides for payment in the event of a "CIC followed within 12 months by a separation from service, irrespective of age (lump sum)." Based on that language, what happens with an individual who is under age 70 and has already separated from service at the time of a CIC? There is not a separation from service in the 12 months following the CIC, because the individual has already separated. I believe the intent was to pay out the benefits upon a CIC in this situation, but am uncertain whether the plan language supports that interpretation. Thoughts?

This is a wacky situation - Subsidiary had a 401(k) and filed Form 5500-EZ correctly for many years through 2013. In 2014, Parent Company adopted a new ESOP with 401(k) features (KSOP) and merged Subsidiary 401(k) into KSOP. For 2014 - 2019 they continued to file Form 5500-EZ using the name of the prior 401(k) plan (instead of KSOP), listed Subsidiary as plan sponsor (instead of Parent Company), but correctly used Parent Company EIN. Participant information and financial information on the filings was KSOP information. Clearly several issues here, including that the wrong form was used for the KSOP filings as ESOPs can't file a 5500-EZ and there was never a final filing for the 401(k). So correct EIN, plan number, participant information and financial information. But wrong form filed and wrong plan name and sponsor name. Specific to the KSOP, would this be considered a failure to file 5500s for the affected years, or would the filings described above be considered incorrect (but filed) 5500s? I would lean toward incorrect filings, but am unclear of the impact of filing a 5500-EZ instead of a 5500. Thank you.

It should really read "supposed to be paid out." It did vest on December 31, 2019. Thank you for your suggestion on 1.409A-3(d), I'll check it out.

If deferred compensation was supposed to vest on December 31, 2019 and be paid out within the next 10 days (per plan document), and it wasn't paid, is the "year of failure" 2019 or 2020?

Thank you EBECatty. If a retention bonus agreement originally provided that if employee remained employed until Dec 31 2019 he would receive a bonus paid within the next 10 days, and it was amended in 2019 to change that date to Dec 31 2021 with no increase in the bonus, is there any way to fix that now?