kmhaab

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?

I don't see any 409A issues there. But I don't like it for other reasons, particularly if there are no time limits. Do they want to have an outstanding obligation to the former director for an unknown period of time? Right now they may feel he or she deserves a piece of the pie if there's a CIC, but will they feel that way in 5 years? Even if they think a CIC is likely in the near term the situation can change . That said, I have seen it done before, despite my feedback.

I'm reviewing an existing document that so obviously does not comply with 409A that I feel like I have to be missing something. 1. "Becoming a party to an agreement" providing for the sale of all or substantially all the company's assets is not a permissible payment trigger, right? Doesn't it have to be the actual transaction? The regs read that way... 2. Also, is amending a retention bonus agreement to extend the retention/payment date by 2 years permissible? No, unless the bonus is increased by at least 125%, correct? Somebody tell me what I'm missing here!

Thank you for the input. Agreement was from 1998, but I believed benefits did accrue post-2007 and would not be grandfathered. In operation, the participant's separation from service and commencement of installment payments complied with 409A. The only issue is that a few definitions in the plan document were not 409A compliant, however those definitions were never relied on in plan operations. For example, CIC definition is not 409A compliant, but there was not a CIC. Any insight into whether there an argument can be made that correction for the plan document failure is not required? Would it be different if the benefits were entirely paid out?

An old agreement was never updated and has some definitions that do not comply with 409A (CIC, separation from service). Executive has separated from service and is receiving installment payments (in year 4 of 5). I assume the arrangement still needs to be corrected under the plan document correction procedures? Is that correct? What about a scenario where the benefits are entirely paid out when the failure is discovered? Thanks in advance!

I'm having trouble determining whether the Affiliated Service Group proposed regulations can still be relied on. Is it correct that Prop. Regs. §1.414(m)-1 through 4 have not been withdrawn and can still be relied on (until final regulations issued)? And that IRS Rev. Rul. 81-105 still applies? Thank you!

I am circling back around to this question. Patricia - The plan sponsor would like to join an existing multiple employer 403(b) plan for churches, but they are a church-related organization and not an actual church. There is a very strong argument that they are "associated with or controlled by" a church, but the plan administrator will not allow them to join without a Private Letter Ruling. The IRS instructions and checklist for requesting a church plan ruling do not really fit this situation, as we're not requesting a ruling on the actual plan. I think we would be requesting a ruling on the eligibility of the employer to sponsor a church plan (i.e. are they "associated with or controlled by" a church?), but I am unclear if the IRS will rule on this narrow issue. Any idea?

ELI D - My client did not hear anything further from the IRS and no penalties have been assessed. This was for 2016.

Does anyone know if the IRS will issue a PLR on the church plan status of a proposed retirement plan? Sponsor would like to adopt a plan but wants to know what they are getting into. I know Rev. Proc. 2020-1 states will not issue a PLR on a "hypothetical situation or alternatives of a proposed transaction," but it's not 100% clear to me the proposed adoption of a plan falls into those categories. Thoughts?

Do individually designed 401(k) plans still need to be restated every 6 years, even though they cannot request a new determination letter? Or are required amendments sufficient?

Can a 401k plan limit pre-59 1/2 in-service distributions to employer matching contributions that are invested in the employer stock fund only? The plan currently does not allow pre-59 1/2 in-service contributions at all so there would no anti-cutback rule issues. The sponsor is considering eliminating the employer stock fund from the plan, but would like to give participants an option to keep the stock if they wish. Thanks in advance for the assistance!

Yes, it is an OTC stock.

Can a 401k plan limit pre-59 1/2 in-service distributions to employer matching contributions that are invested in the employer stock fund only? The plan currently does not allow pre-59 1/2 in-service contributions at all so there would no anti-cutback rule issues. The sponsor is considering eliminating the employer stock fund from the plan, but would like to give participants an option to keep the stock if they wish.

Is there a specific exception to the rule that an ESOP participant must have the right to receive a stock distribution that applies to an ESOP termination related to a merger/acquisition? I feel like I've seen this before, but can find nothing on it. Here's the situation - ESOP plan sponsor was acquired in a stock purchase transaction and merged into the buyer. ESOP was terminated prior to the close of the transaction. Stock of plan sponsor was exchanged for stock of buyer. Question has arisen as to whether the shares owned by ESOP can be liquidated following the plan termination and all plan participants paid distributions in cash? Thanks in advance for any insight.

Thank you. The stock purchase agreement states that Company B will terminate the ESOP prior to the transaction, which technically they did. But there are still wind-up activities. And the termination amendment states that officer of Company B are empowered to take action to wind up the ESOP. But I keep getting hung up on the fact that Company B merged into Company A and no longer exists. Company A bought all of Company's B's stock. My belief has been that in a stock purchase the Buyer "steps into the shoes" of the Seller and has all the Seller's obligations, liabilities, duties, etc. Is this not the case?

Even if a 5310 has been filed? I ask because the client's TPA told them a change in Trustee would delay the 5310....

Thank you both. What about changing Trustees post-termination? Any issues there?

Thank you. I think we're saying the same thing. There is no B stock anymore. The stock of B was exchanged for stock of A (and some cash). It's as if A swallowed B. ? A is now the plan sponsor, as the successor to B. I think A's management believes the vendor will finish the process, but of course doesn't understand the administrative activities required and that someone must manage the vendor...

ESOP was terminated 8/1 due to an acquisition and a request for favorable determination letter was filed. Trustees (execs of plan sponsor) have been operating as the Plan Administrator based on the plan terms stating that if the Company fails to appoint a Committee as Plan Administrator the Trustees shall act as the Plan Administrator. Is there any issue with appointing other individuals to serve on a Committee as the Plan Administrator after the plan has been terminated, in order to oversee the distribution and wind up activities? That's not something that must be "frozen" on the termination date, is it?

I just need a reality check, as I'm getting push back from high-level executives on this... Company A acquired Company B in a stock transaction. Company B's ESOP was terminated by Company B just prior to the transaction, as required by the purchase agreement. Company A is now responsible for winding up the ESOP, right? Because Company B no longer exists... Company A executive keeps telling HR not to worry about the Company B ESOP because it was terminated before A bought B, but in a stock transaction that is irrelevant, correct? Someone please confirm...I want to make sure I'm not missing something... Thank you!

403(b) Plan has been operated as if it allowed involuntary cash outs of small amounts without consent, however plan document does not include this provision. How is this corrected? Under Rev. Proc. 2019-19, it appears it should be corrected according to Section .07 of Appendix A, which addresses failure to obtain participant consent under 411(a)(11). But the correction method described is to offer participant a choice between consenting to the distribution already made and receiving a QJSA. Receiving a QJSA makes no sense in this situation. Any thoughts?

Thank you, that was helpful!