Larry Starr

You have appropriately combined the concept of "full vesting" with the elimination of a substantial risk of forfeiture (SROF). That really are the same, or as I said previously, the concept of "full vesting" is a layman's term for the elimination of a SROF. IRS only cares about SROF issue; if someone were to say somehow in a plan document that the beneficiary is "fully vested" but STILL subject to a SROF, the "fully vested" term would be meaningless. Once there is no SROF and the participant can take his money if he wants, he is in constructive receipt of those funds (whether he takes them or not) and he will be taxable on them and the employer will get his long awaited deduction for that amount. Folks might find the IRS Audit Techniques for NQDC instructive; they can be found here: https://www.irs.gov/businesses/corporations/nonqualified-deferred-compensation-audit-techniques-guide And I have to disagree with your final statement that being unfunded does not mean it's subject to a SROF, because that's exactly what it means. Once it is NOT subject to a SROF, it moves to FUNDED status (constructively received if not actually received). It may be a nuance, but it's a very important concept in NQDC programs; maybe the key one.

Dear Jpod, Nothing I said in my response was untoward. I really do not understand what the first sentence means; maybe it's me, but I really don't think so. If you find it hard to take critical comments, I am sorry for that. These forums are intended as educational opportunities for the many people who are "lukers" (they read the material but rarely participate, which is just fine). When someone posts something that is not correct. the many folks who read that need to be informed that it is not correct or they will perpetuate the incorrect understanding. That is why many of us help out on these boards. And as to your second sentence that I noted, my comment stands unaltered. REGARDLESS of the mechanism used to provide the NQDC (a rabbi trust is for SOME additional protection of the ultimate recipient of the promise made by the employer; it is an option , not a requirement), it is NOT a "lousy deal" for the business owner if he is negotiating it with a key employee BECAUSE that key employee is critical to the continuation of the business. You just keep showing that you really do not understand the value of a NQDC agreement, even after it is clearly explained. You seem to think all these employers are doing something that they don't understand and is bad for them. I assure you that is not the case. Employers don't offer them (and S Corp has NOTHING to do with the issue) because they are BAD for the employer. I really don't mean to offend you, but you keep saying things that are simply not the case with NQDC agreements that I have been involved with for over 30 years. We'll agree to disagree. BTW, I actually do know what informal funding is all about. You have a problem when you say the NQDC is "fully vested"; it is specifically NOT fully vested if it is subject to a substantial risk of forfeiture. By definition, it is NOT fully vested if it is subject to a substantial risk of forfeiture. Actually, "fully vested" is a term that is not used in NQDC discussions or agreements, because it only muddies the water. It is either funded or not funded, and that is the substantive issue. Fully vested means nothing if you have a substantial risk of forfeiture. I really don't mean to hurt your feelings; just being direct.

I have to say I am completely baffled by what your first sentence means. If YOU were an S Corp owner where a NQDC program for a key employee was the appropriate answer to a determined need, than a NQDC would be the answer. You second sentence simply means that you really don't understand the value of a NQDC plan. Maybe googled "rabbi trusts" and see if that doesn't help your understanding.

Since most often I have written the order for the atty, when it comes back to me signed by the judge, even if its a PDF sent via email, that's good enough for us to get the distribution paperwork going. If it was an order that I did not draft, I would check it and make sure it shows as signed and is submitted to us via a legitimate source (usually, the atty responsible for the drafting). If it looks ok,, we will process it. We have never had an issue with an order being provided that was "bogus".

Derrin Watson's book Who's The Employer deals with all these issues. From the book: Q 10:21 How are the Code §404(a) limitations on deductibility applied to controlled groups? This answer applies only to controlled groups, but not necessarily to other related employers. See Q 12:7 for discussion of deductibility in common control situations. See Q 13:24 for a discussion of deduction limits for affiliated service groups. If two controlled group members jointly maintain a qualified plan, the limitations of Code §404(a) relating to the deductibility of contributions are applied as though all controlled group members maintaining the plan were a single employer. [Code §414(b)] This differs from the other applications of the controlled group rules discussed above. For purposes of Code §415, for example, all employers in the group are aggregated, whether or not they cosponsor a plan. But for two employers in a controlled group to be aggregated for deducting contributions to a plan, they must both sponsor that plan. Example 10.21.1 Nina, Pinta, and Santa Maria are all members of a controlled group. Nina and Pinta jointly sponsor a profit-sharing plan covering their employees. Santa Maria does not participate in the plan. Chris works for all three corporations, and receives $40,000 compensation from each (total $120,000). He is the only participant in the plan. The Code §404(a) limit on deductible contributions is $20,000, which is 25% of $80,000, Chris’ compensation from Nina and Pinta. His compensation from Santa Maria is excluded because Santa Maria did not maintain the plan. Example 10.21.2 Oscar Corp and Meyer Corp are in a controlled group. They jointly sponsor a defined benefit plan and a profit sharing plan. Col. Mustard works for both companies and participates in both plans. Since they jointly sponsor the plans, Code §404(a)(7) limits the deduction to the greater of 25% of compensation or the required defined benefit contribution. Example 10.21.3 Assume the same facts as Example 10.21.2, except Oscar Corp sponsors a defined benefit plan for its employees and Meyer Corp sponsors a defined contribution plan for its employees. Since neither cosponsors the other’s plan, the two companies are separate under Code §404. Accordingly Code §404(a)(7) does not limit the deductions. This would also be true in a common control or an affiliated service group situation. In theory, the Code §404 deduction limit is allocated to the employers according to regulations. However, in the more than 40 years since ERISA, the Treasury has yet to take pen to paper (or pixels to screen) to compose those regulations. Absent those regulations, there is a single Code §404 limit that each employer uses. Q 10:22 Since there are no regulations on the allocation of the Code §404 deduction limit, can one corporation deduct contributions made for employees of another controlled group member? Generally, no, it cannot. While Code §404 does not specify who can deduct the contribution, we must still consider Code §162. Code §404 allows deductions for contributions to qualified plans “only if they would otherwise be deductible” [Code §404(a)] Code §162determines if expenses are ordinarily deductible by a trade or business, and Code §212 performs the same function for other expenses associated with the production of income. They both limit deductions to expenses which are “ordinary and necessary.” The IRS has ruled it is not generally an ordinary and necessary business expense for one corporation to provide retirement benefits for the employees of another corporation, even if the two corporations are in a controlled group. There may be exceptions, but they are rare. [Rev. Rul. 69-525; Rev. Rul. 70-316; Rev. Rul. 70-532; PLR 8032079] One such exception is termination liability payments under Code §404(g). Such payments are deductible without regard to whether the corporation making the payment employed the participants benefiting therefrom. Any member of the controlled group (or group of trades or businesses under common control) can make and safely deduct such payments. [Code §404(g)(2)] The fact that Congress felt it necessary to draft a special exception to allow the deductibility of termination liability payments by controlled group members who did not employ the participants benefiting from those payments is evidence that Code §162 otherwise bars such deductions. A safe rule to follow would be that each controlled group member should contribute its appropriate share of the employer contribution, based on its employees and their compensation. Each member can then deduct its own contribution. Although the IRS rulings on this point discuss only controlled groups, there is no reason to suspect a different logic applies to groups under common control or to affiliated service groups.

Ummm.... an S corp (like any other business entity) could have use for a NQDC for key employees that they wish to offer "golden handcuffs" to. Perfectly normal and common. On what basis do you keep suggesting that an S Corp can't have a NQDC plan? I'm confused by your statements.

Erica, when you post here please give the details of what has happened if you want advice that you can apply. I assume this is not just a theoretical case? Did he make contributions to a flexible spending account under a 125 plan? Is that what happened? if that's what happened, then those contributions are NOT deductible to him and should be reflected in his W-2. Any payments made by the 125 plan on his behalf would be fine because the funds are his own money. Any remaining funds in the 125 plan should be paid back to him. The reality is, however, that NO ONE is checking on 125 plans; it is a self-policing system (or, we are the policemen if you prefer). We have lots of 125 plan and never (NEVER) have had a single question about them from any governmental organization. What should you do? Fix any open W-2; stop withholding; pay him back any money being held for a FSA, and don't do it anymore.

David, I found the signature block (you don't make it easy), but can you fix it show it doesn't double space automatically. It really is much to spread out. Thanks.

David, I know a lot about pensions, but apparently my tech abilities are waning. Why can't I figure out how to set up a "signature"? I tried editing my profile but I don't seem to see it there. I am obviously missing the obvious. Can you (or someone else) point me to where I can edit a signature block? Thanks.

Sure there is, but NOT for a 100% owner of the S Corp.

Once the 2018 form is available (probably October), you can certainly file it. I would NOT file with a 2017 form as that is likely to cause more problems than you want. Follow the instructions (like putting the year on the check) and you should be fine.

Worked like a charm; thanks.

DAVID: How about offering a simple way for folks to add their real name to the info that shows for those who want to make that change. I can't seem to find an easy way to change your "name" once you have one (even if you don't like it anymore).

Besides the lack of clarity, I assume he wants to do this because he thinks the REIT is a terrific investment? So, he's guaranteeing that he will convert capital gains to ordinary income and pay lots more in taxes. That['s always a great idea (said as a taxpayer who appreciates his additional payments to the US deficit). Now, I'm sure that the doctor owner of the IRA signing a rental agreement for his IRA with the partnership (where he is an officer and an employee even if not a partner) is a PT. And the 2% owner is just that much worse.

Does my heart good to see that mention; thanks Bill. And you are very right about lifelong friends. I just wish this board required real names (actually, what is Bill Presson;s real name????? :-) ).

Every so often I post information on our philosophy on Service Agreements. We don't have them, and haven't had them from our first day in business (1983). What is the purpose of Service Agreements: to protect the servicing firm (not the client). We don't need protection. A big part of this is we get paid in advance, so don't have to worry about collecting past due payments (we have a few things we bill after the fact, like distribution forms, but not a big deal and in 35 years we can count on one hand the number of times we got stiffed on these small amounts). We do what we say we will do. We have never been sued and I can't remember ever having a client have a problem with what we delivered after being paid. And I tell clients we don't have a service agreement because it is only meant to PROTECT US from them; we write it and they have to sign it. So, we don't use them. If you want to fire us, that's your right. Anyway, just another way to look at this. So, yes, we would be happy to accept a "purchase order" since we don't need it in the first place: we send the bill and they pay us and then we do the work. If they don't pay us, no work!. Larry.

Us Tareyton smokers would rather fight than switch!

HJ, You are looking for examples with numbers where you have a clear lack of understanding (which is fine) of NQDC. Also, you gave us absolutely no information that is really needed to give you even a hint of an answer. How old is he? Are there employees? What kind of business is this (is the income steady)? How much income does he need to live on (if he needs $250k, then $300k doesn't leave much for a plan)? The comment about a combination plan with a defined benefit might be right, but it is WAY premature to even mention it without the kind of information requested above. Doctors don't suggest operations until they at least examine the patient; that's an operation looking for a reason, and that's not the way this should be done. Bottom line, you really need to be talking to a qualified consultant who can ask the right questions, get the right answers, and THEN talk about what makes the most sense.

Refer them to this: https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2008-04 The applicable Q&As therein: Q12: Do ERISA's bonding requirements apply to all employee benefit plans? No. The bonding requirements under ERISA section 412 do not apply to employee benefit plans that are completely unfunded or that are not subject to Title I of ERISA. ERISA § 412(a)(1); 29 C.F.R. § 2580.412-1, § 2580.412-2. Q13: What plans are considered "unfunded" so as to be exempt from ERISAs bonding requirements? An unfunded plan is one that pays benefits only from the general assets of a union or employer. The assets used to pay the benefits must remain in, and not be segregated in any way from, the employer's or unions general assets until the benefits are distributed. Thus, a plan will not be exempt from ERISAs bonding requirements as "unfunded" if: any benefits under the plan are provided or underwritten by an insurance carrier or service other organization; there is a trust or other separate entity to which contributions are made or out of which benefits are paid; contributions to the plan are made by the employees, either through withholding or otherwise, or from any source other than the employer or union involved; or there is a separately maintained bank account or separately maintained books and records for the plan or other evidence of the existence of a segregated or separately maintained or administered fund out of which plan benefits are to be provided. As a general rule, however, the presence of special ledger accounts or accounting entries for plan funds as an integral part of the general books and records of an employer or union will not, in and of itself, be deemed sufficient evidence of segregation of plan funds to take a plan out of the exempt category, but shall be considered along with the other factors and criteria discussed above in determining whether the exemption applies. 29 § 2580.412-1, § 580.412-2. As noted above, an employee benefit plan that receives employee contributions is generally not considered to be unfunded. Nevertheless, the Department treats an employee welfare benefit plan that is associated with a fringe benefit plan under Internal Revenue Code section 125 as unfunded, for annual reporting purposes, if it meets the requirements of DOL Technical Release 92-01,(2) even though it includes employee contributions. As an enforcement policy, the Department will treat plans that meet such requirements as unfunded for bonding purposes as well. Q14: Are fully-insured plans "unfunded" for purposes of ERISAs bonding requirements? No. As noted above, a plan is considered "unfunded" for bonding purposes only if all benefits are paid directly out of an employer's or union's general assets. 29 C.F.R. § 2580.412-2. Thus, insured plan arrangements are not considered "unfunded" and are not exempt from the bonding requirements in section 412 of ERISA. The insurance company that insures benefits provided under the plan may, however, fall within a separate exemption from ERISAs bonding requirements. See ERISA § 412; 29 C.F.R. § 2580.412-31, § 2580.412-32. In addition, if no one "handles" funds or other property of the insured plan, no bond will be required under section 412. For example, as described in 29 C.F.R. § 2580.412-6(b)(7), in many cases contributions made by employers or employee organizations or by withholding from employees' salaries are not segregated from the general assets of the employer or employee organization until paid out to purchase benefits from an insurance carrier, insurance service or other similar organization. No bonding is required with respect to the payment of premiums, or other payments made to purchase such benefits, directly from general assets, nor with respect to the bare existence of the contract obligation to pay benefits. Such insured arrangements would not normally be subject to bonding except to the extent that monies returned by way of benefit payments, cash surrender, dividends, credits or otherwise, and which by the terms of the plan belong to the plan (rather than to the employer, employee organization, or insurance carrier), were subject to "handling" by a plan official. [See also29 C.F.R. § 2580.412-5(b)(2); Q15, below; and Handling Funds Or Other Property, Q18.] Q15: Are there any other exemptions from ERISA's bonding provisions for persons who handle funds or other property of employee benefit plans? Yes. Both section 412 and the regulations found in 29 C.F.R. Part 2580 contain exemptions from ERISA's bonding requirements. Section 412 specifically excludes any fiduciary (or any director, officer, or employee of such fiduciary) that is a bank or insurance company and which, among other criteria, is organized and doing business under state or federal law, is subject to state or federal supervision or examination, and meets certain capitalization requirements. ERISA § 412(a)(3). Section 412 also excludes from its requirements any entity which is registered as a broker or a dealer under section 15(b) of the Securities Exchange Act of 1934 (SEA), 15 U.S.C. 78o(b), if the broker or dealer is subject to the fidelity bond requirements of a "self regulatory organization" within the meaning of SEA section 3(a)(26), 15 U.S.C. 78c(a)(26). ERISA § 412(a)(2). As with section 412's other statutory and regulatory exemptions, this exemption for brokers and dealers applies to both the broker-dealer entity and its officers, directors and employees. In addition to the exemptions outlined in section 412, the Secretary has issued regulatory exemptions from the bonding requirements. These include an exemption for banking institutions and trust companies that are subject to regulation and examination by the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, or the Federal Deposit Insurance Corporation. 29 C.F.R. § 2580.412-27, § 2580.412-28. Unlike the exemption in section 412 for banks and trust companies, this regulatory exemption applies to banking institutions even if they are not fiduciaries to the plan, but it does not apply if the bank or trust company is subject only to state regulation. The Department's regulations also exempt any insurance carrier (or service or similar organization) that provides or underwrites welfare or pension benefits in accordance with state law. This exemption applies only with respect to employee benefit plans that are maintained for the benefit of persons other than the insurance carrier or organization's own employees. 29 C.F.R. § 2580.412-31, § 2580.412-32. Unlike the exemption in section 412 for insurance companies, this regulatory exemption applies to insurance carriers even if they are not plan fiduciaries, but it does not apply to plans that are for the benefit of the insurance company's own employees. In addition to the exemptions described above, the Secretary has issued specific regulatory exemptions for certain savings and loan associations when they are the administrators of plans for the benefit of their own employees. 29 C.F.R. § 2580.412-29, § 2580.412-30.

No, it doesn't.

Sheesh! The exact same answer applies to YOUR BOSS if it is his/her decision. The answer is the same; your FIRM needs to walk away.

Umm.... they are NOT retirees if they are still working! They have simply gone to a more part time status. You have already been told they have to get the SH. As to making them 1099 employees, that is a very bad recommendation and something that can get your clients in big trouble. If they are employees, they are employees. You cannot MAKE THEM 1099; they either are independent contractors or they are not. In your case, they have been employees and they still will be employees and will have to be treated as such.

We deal in a different world; our clients don't have "HR Directors"; they are lucky if they have a competent bookkeeper. Our clients are the owners of small businesses and our job is to keep them safe. I said "we pretty much make it automatic" but that means that we are highly recommending this particular termination process and we don't make a big deal of NOT going for the DL, except when we think it really doesn't provide any added value.

The FAQs are not regulations or law and are not crafted with precision. The use of account owner there is a generality. In fact, if you look at the instructions for form 5329 for paying the excise tax for failure to take the minimum RMD, here is the instruction (note the last sentence): "Qualified retirement plans (other than IRAs) and eligible section 457 deferred compensation plans. In general, you must begin receiving distributions from your plan no later than April 1 following the later of (a) the year in which you reach age 701 2 or (b) the year in which you retire. Exception. If you owned more than 5% of the employer maintaining the plan, you must begin receiving distributions no later than April 1 of the year following the year in which you reach age 701 2, regardless of when you retire. Your plan administrator should figure the amount that must be distributed each year." That makes it clear that the plan is calculating the amounts. Clearly, the rules are problematic because if the plan screw up the PARTICIPANT is subject to the 50% excise tax. Not a well crafted regulatory scheme, and just one more reason why (I believe) we will eventually see even waiver of RMDs for 5% owners who are still working. Maybe not in our lifetimes..... FWIW.

All of us pension wonks get off on showing how we know how to do the calculations, and we clearly understand these ridiculously complicated rules. HOWEVER, the question posed by the original poster is how much he can take out as a new loan: "I currently have 2 loans and want to pay one of them off and then take out another one, when I check what the estimated amount is I can take as new loan it seems wrong so wanted to check if it’s correct or not". No one has given him the correct answer, because that answer is: whatever the plan administrator tells you you can take". The participant can do all the mathematical gyrations he wants, but if the plan gives him a number, right or "wrong", that's the number. QED.