kmhaab

Company A is buying Company B in a stock transaction. Company B participates in a multiple employer 401(k) plan. In drafting the merger agreement, Company A wants to take on as little liability as possible associated with B's participation in the multiple employer 401(k) pre-merger. Company B will be withdrawing from the multiple employer plan and either 1) spinning off the plan assets into a new plan and immediately terminating the new plan prior to the close of the merger, or 2) transferring Company B employees' assets into Company A's 401(k) plan. Does a transfer of assets into Company A's plan create any more liability for Company A (related to the plan pre-merger) than if Company B's assets were spun off and that plan terminated?

EBECatty - Yes! Your second illustration is what is so confusing to me - "But the proposed regs seem circular. If you have a vested right in 2019 to a payment that will not be made before March 15, 2020, it's taxed under 457(f) in 2019. But if you include the vested amount in the employee's income in 2019, it's taxed under 457(f) before March 15, 2020. If the amount is taxed under 457(f) within the 409A short-term deferral period (i.e., before March 15, 2020), it's also a short-term deferral under 457(f). If it's a short-term deferral it's not subject to 457(f)." How could deferring payment of a vested 457(f) benefit payment into the following year cause the payment not to be subject to 457(f) at all? In addition to being circular, it doesn't make any sense to me. In a scenario where the plan doc says payment vesting in June 2019 will be made prior to March 15, 2010, if the payment is taxed in 2020 when paid out in 2020 or taxed in 2019 when paid out in 2019, the employer has the discretion to determine the year of taxation which is generally contrary to 409A and 457(f) principles. I have a client that really wants a payment vesting in 2019 to be paid and taxed in 2020, but I just can't get comfortable giving that advice. Am I being too conservative?

Thank you. But what if the employer timely responds to the 5699 and files the forms within 90 days. The forms are filed now, but were 2 years late. The failure to file was an oversight due to poor vendor management. Are late penalties actually being assessed in that situation?

Does anyone know if the IRS is actually assessing late filing or failure to file penalties on an ALE if the ALE 1) timely responds to the Letter 5699 indicating they will file within 90 days, and 2) files 1095-Cs and 1094-C within the 90 days? I know they may assess penalties in this situation, but am trying to find out if they are actually doing so if the employer comes into compliance. Has anyone seen this?

The payment is a deferred comp amount "promised" 4 or 5 years ago via a written agreement. How can application of the short-term deferral rule result in no deferral of income under 457(f)? There's no further deferral of income, but that would make the payment taxable in the year it vests (2019), right? Don't hesitate to tell me I'm wrong here! I just want to make sure we're all on the same page with the facts of the situation.

Thank you all for your input! What I'm hung up on is that if the payment is taxable in 2020, and not 2019 when it vests, the short-term deferral rule seems to be sort of exempting the entire deferred compensation amount from 457(f). Isn't it? My interpretation has been that the act of paying the amount in 2020, instead of 2019, is exempt under the short-term deferral rule from being considered another deferral, i.e. a subsequent deferral. I'm having a hard time wrapping my around the idea that by paying the payment within the first 2.5 mos of the 2020 the 457(f) requirement of taxation upon vesting would not apply. And a provision in a plan allowing discretion to pay deferred comp in one year or another is not permissible. But interpreting this as allowing the payment to be taxed in 2020 if paid in 2020 is doing exactly that. Isn't it?

Payout provisions of 457(f) plan state that deferred amounts will vest on July 30, 2019, provided Exec is employed on that date, and the vested amount will be paid by March 15, 2020. Plan goes on to state that this payment is intended to be a short-term deferral under 457(f) and 409(A). The payment is taxable to the recipient in 2019, even if paid out in 2020, right? The law seems very straightforward on this to me, but I am confused about what relevance the short-term deferral language has (if any)? Any input would be appreciated!

401(k) plan was terminated in 2018. Due to a recordkeeping error, assets were incorrectly distributed to Employee A instead of Employee B. Plan sponsor needs to correct the overpayment to Employee A and the incorrect distribution (i.e. underpayment) to Employee B. How is this done if the 401(k) plan and trust have been terminated? They can recover the overpayment from Employee A, but how is it formally returned to the plan and distributed to Employee B if the plan has been terminated? Do they need to rescind the termination?

I spoke too fast - It is a prototype document, but I am not able to confirm whether it was pre-approved yet. Perhaps not. Austin - Good idea! But based on the way the provisions are written it doesn't work. The document excludes EEs working less than 1600 hours before BG5150 & Peter - the adoption agreement includes parameters like BG5150 described above in the sections on eligibility for certain contribution types, i.e. Eligibility for Elective Deferrals, Eligibility for Matching Contributions (completion of ___ hours of service (not to exceed 1,000)...) and the plan is technically compliant here. "Eligible Employees" may begin making contributions after 500 hours in 6 months. BUT there is a general Exclusions section which states "The term "Eligible Employee" shall not include:" followed by check boxes for union employees, leased employees, non-resident aliens and other employees. After Other Employees is a blank that was filled in with "exclude employees that work less than 1600 hours per plan year." There is no language with instructions or parameters for the "other employees" fill-in line.

Peter - It is a pre-approved document, but added in the exclusions section under "Other employees." Again, I'm flabbergasted that a TPA included this in the plan document when it was restated last year. I assume there's no recourse against the TPA? I haven't see the service agreement yet, but they usually disclaim all responsibility for compliance.

Thank you all. I agree it doesn't comply and appreciate the confirmation. I will look at the prior document as well.

Is there any permissible situation where a 401(k) can exclude employees that work less than 1,600 hours in a year? I am well aware of the IRS guidance on excluding part-time employees that work less than 1,000 hours, but I am so flabbergasted to see a 1,600 hour participation requirement in a plan restated in 2018 that I feel I must be missing something...?

jpod - thank you for your input. Here's another question - Instead of amending and merging the plans as I described above, can the employer terminate the SERP and adopt a Phantom Stock Plan if payments under the SERP are not accelerated due to the termination? The SERP provides that upon termination a participant is entitled to an accrued benefit amount (equal to accruals for accounting purposes) and that accrued amount will be paid according to the original provisions governing the form and timing of distributions. My interpretation of the rules prohibiting the adoption of a new NQDC plan within 36 months of the termination of a prior NQDC plan is that such rules apply when there is an acceleration of payment due to the plan termination. As such, I don't believe an employer is prohibited from adopting a new NQDC plan if there is no acceleration of payment. I'm curious if you agree?

Lou, I meant you were NOT confused above! Thank you for your input.

I know bizarre question.... A company is in the final stages of restating and merging a traditional NQDC plan and a SERP into a Phantom Stock Plan and is intending to roll the benefits accrued under the NQDC and SERP into the Phantom Stock Plan. I'm coming in at the end to review documents... The SERP promises to pay a certain benefit amount to participants upon certain future events (i.e. normal retirement, disability). Company wants to effectively "rollover" benefits accrued to date under the SERP into the Phantom Stock Plan, keeping the same distribution terms for 409A compliance. Going forward, no new benefits would be accrued under the terms of the SERP. Participants would be eligible to receive phantom stock going forward. The "rollover" balance from the SERP could grow based on the phantom stock value (but not be reduced). There is no acceleration of the timing of payments of benefits accrued to date. My questions are: 1. Is this really a termination of the SERP, and if so does that preclude the adoption of the Phantom Stock Plan (even though there is no acceleration of payment under the SERP)? 2. If not, are the new benefits yet to be accrued under the Phantom Stock Plan bound by the prior SERP distribution provisions? I initially thought not, but am now wondering if the Phantom Stock granted in the future would be considered a replacement for the full normal retirement benefits previously promised under the SERP? Any and all thoughts would be appreciated. Thanks!

You're confused, I think I was overanalyzing the issue. But after further research, I agree with you on the late SMM. Thanks!

Is it a plan failure requiring correction if the wrong Trustee was named in the plan document? Adoption Agreement lists the Board of Directors of the plan sponsor as the Trustee, but they actually hired a corporate Trustee several years ago. There is a trust agreement in place naming the corporate trustee. The Adoption Agreement explicitly states that a plan amendment is not necessary to change the information in Trustee section of the agreement.

Carol, would your answer be any different if the matching contributions have not yet been contributed to the plan or allocated to participant accounts? Under the plan, matching contributions are determined on a calendar monthly basis, but may be contributed and allocated to Participants at any time within the period permitted under Treas. Reg. 1.415-6.

Thank you. This was my interpretation too. I am confused as to why a fairly well known TPA has prepared an amendment for the sponsor changing vesting eff. 7/1/18....

403(b) plan sponsor identified errors in adoption agreement dating back to 2014 resulting in differences between the operation of the plan and the document. We plan to submit a VCP proposing a retroactive amendment to the plan. Question is this - should plan sponsor adopt an amendment NOW (by 12/31) to make these changes for the 2018 plan year and file the VCP for 2014 - 2017, or wait and include 2018 in the proposed amendment submitted in the VCP?

403(b) plan sponsor wants to adopt an amendment on 12/31/18 to change vesting of employer matching contributions from immediate vesting to 3 year cliff (100% vested after 3 years) , effective 7/1/18, for all employees hired on or after 7/1/18. Is this a violation of the anti-cutback rules?

Participant submitted request for a hardship withdrawal in order to pay the retainer necessary to hire a criminal defense lawyer for a family member (not spouse or dependent). Clearly, this doesn't fall under the safe harbor. BUT the 401k plan states that a hardship withdrawal may be allowed for "any other situations that, based on the facts and circumstances, the Committee determines to constitute an immediate and heavy financial need." Thoughts on whether this could be allowed under IRS regs? I think main issue is whether this is a need of the Employee's, as required (or spouse/dependent/primary beneficiary). If payment of funeral expenses for a "family member" can be considered a need of the Employee (as stated in regs), can that logic be extended here? Cost to hire lawyer to keep "family member" out of jail could be considered a need of the Employee? (i.e. Father "needs" to keep adult child out of jail? has no expectation to repayment, etc.) Interested in what you all think...

Thank you both. To make sure I understand correctly, if the employer stock fund is an ESOP, there would be a way to force terminated employees out of the fund, correct?

Can a 401(k) plan sponsor restrict investment in the employer stock fund to current employees only? i.e. require terminated employees to exit the employer stock fund when they terminate employment?

Plan sponsor wants to reduce number of active investment vendors under the 457(b) plan from 5 to 3. They will close the 2 discontinued investment vehicles to new contributions, but will allow participants to keep their current balances in those investment vehicles (for now). Going forward, new contributions may only be made to the 3 remaining vendors. I can't find anything under federal, state or relevant local law that governs these changes or addresses any participant notice or timing requirements). Other than any potential collective bargaining agreements, am I missing anything? Is there a required notice period?