BenefitJack

Actually, I believe no tax on tips only applies to federal income tax, tips are still reportable and subject to FICA and FICA Med taxes. So, you need to be careful about how you define covered compensation, and, careful about your payroll processing as well.

I would also link a Deemed Traditional IRA to the plan, limiting investments to the Core investments offered in the qualified plan (and requiring the same investment allocation for all assets, regardless of the source bucket) where the only option for Roth would be to "direct transfer" from the Deemed Traditional IRA to the plan, and then convert to Roth. That's another $7,000, plus $1,000 in catch-up if age eligible.

Something wrong with a top hat plan? With respect to Roth company contributions, that is something that makes no sense to me. If a company decides to make Roth employer contributions available, I don't believe IRS guidance allows plan sponsors to mandate that action - employees must have the opportunity for no less than an annual election to Rothify employer contributions. However, could an employer incorporate the in-plan Roth conversion features, while offering an unmatched pre-tax 401k and Roth 401k contribution up to an inside limit less than that allowed under 402(g), say a $1 default to Roth, to get the Roth 5 year clock running, with unmatched catch-up pre-tax and Roth contributions to the 414(v) maximum, while allowing 401(a) after tax contributions up to the IRC 415(c) limit with a stretch match contribution on say the first 8% or 10% of pay? The plan could clearly explain the advantages of in-plan Roth conversion provisions. I am not a small plan expert, so, I am probably missing something. What is that?

My suggestion is to consider amending the plan to allow for repayment via electronic banking. Payroll deduction is so 20th Century. Electronic banking is less costly, less of a hassle for the plan sponsor, payments never need to stop, payments can coincide with the paycheck deposit, and not only can individuals continue loan payments during a leave of absence or layoff, they can also initiate a plan loan - even post-separation. This has considerable value to those whose employment is dislocated prior to age 55. You would want anyone who takes a loan to shoulder 100% of the costs of loan administration.

In favor of Roth IRA: The tax qualified plan need not be amended to provide for indefinite deferral. IRC 401(a)(14) requires a plan to begin payment of benefits no later than the 60 th day after the close of the plan year in which the latest of the following events occurs: (1) The participant reaches the earlier of age 65 or the plan’s normal retirement age, the tenth anniversary of the employee’s participation in the plan, or the participant has a separation of service. Some plans lump sum at this payout date - ignoring the option to defer commencement. The tax qualified plan need not be amended to include the up to 10 year rule for distributions to non-spouse beneficiaries. There are the IRA exceptions regarding the penalty tax for certain distribution reasons that, I believe, do not apply to hardship or post-separation, pre-retirement distributions from Roth 401k. In favor of Roth 401(k), There are the loan provisions, Involuntary distribution of Roth 401(k) assets don't get stranded in a Roth IRA, invested in capital preservation, as opposed to Roth 401(k) assets transferred directly to a subsequent (or predecessor) employer's 401k plan. There may be more, jack .

Here is the health reform employer mandate - per my many years as a Health Reform compliance consultant: To avoid the “penalty tax,” an employer of 50 or more Full Time Equivalents must offer 95+% of its employees and their dependents access to “affordable,” “minimum essential coverage” of “minimum value” or pay a penalty tax. How are those defined in 2023? Access/Coverage: Employee and dependents, an employer need not offer coverage to a spouse. Affordable: An employer can charge an after-tax contribution of 9.12% of a worker’s income (need not make the employee contribution to the health plan eligible for pre-tax contributions via the cafeteria plan), plus, where a spouse or child is covered, the employer can add the full cost to employees who want to cover those individuals. Minimum Essential Coverage: Certain preventive services with a U.S. Preventive Services Task Force (USPSTF) grade of A or B (with no cost sharing). And, where routine care expenses would otherwise qualify for coverage, those same expenses must be provided for individuals enrolled in a clinical trial. Minimum Value: A plan that covers 60% of expenses. For example, in 2023, minimum value includes a plan that has a deductible and out of pocket maximum set at $9,100 (a calculated actuarial value of 59+%, which qualifies because it is within 2% of the 60% standard). See: https://www.cms.gov/cciio/resources/regulations-and-guidance/downloads/av-calculator-final.xlsm So, my experience is that you can simply offer workers and their children up to age 26 a 100% associate-pay-all (contributions) self-insured MEC to avoid (a) penalty taxes, and the above self-insured (or if you can find one, insured) ugly, ugly affordable, minimum essential coverage of minimum value option to avoid (b) penalty taxes. You don't care if they enroll in (a), and no one will enroll in (b) - because your communications will repeat, over and over and over, that there are better coverage and lower cost options in the public marketplace - especially because the "family glitch" has been eliminated (at least for the time being).

Multiple loan rules according to the IRS: https://www.irs.gov/retirement-plans/issue-snapshot-borrowing-limits-for-participants-with-multiple-plan-loans

Is this an insured plan? Is there stop loss or reinsurance? If so, be careful to avoid gaps between plan document provisions and any eligibility requirements in the insurance contract.

Peter, you asked: How much does a summary plan description explain about how coverage under an unrelated employer’s plan affects coverage under the plan the SPD explains? Some, but not all plans, highlight the issue of disqualifying coverage per (b)(7) (Medicare) or (c)(1)(A)(ii) (other disqualifying coverage). Where they offer that information, most deliver it via the enrollment materials, not the SPD. or SBC. When first adding HSA-capable coverage, I've seen plan sponsors highlight that in the SMM. And how much does a summary plan description explain about the potential tax treatments of rights and features under or related to the plan the SPD explains, and how coverage under an unrelated employer’s plan could affect the tax treatments? Typically, nothing is included. The best enrollment systems ask if the individual is enrolled in Medicare or if the worker is enrolled in disqualifying coverage. How much does a summary plan description explain about a participant’s need to coordinate one’s elections with one’s spouse’s elections? Depends. Some have opt out provisions, surcharges, etc. Others encourage the worker to coordinate elections between the two employer-sponsored plans. Where an employer-sponsored plan requires a dramatically higher employee contribution to add a spouse or other dependents to employee-only coverage, there is often a separate description – because the plan sponsor's goal of such a design is to discourage enrollment of a spouse and/or family members. (and sometimes, the employee as well). How much do SPDs explain? My experience is many SPDs attempt to do too much, add too much detail, and end up where "summary" is a misnomer - attempting to serve not only as a required disclosure but also as a marketing and enrollment guide. Wrong answer. My experience is that the SPD should always be bare bones, solely focused on the mandated disclosure compliance requirements. How much should SPDs explain? Same as above. Any other explanation should be delivered as part of the enrollment process, or when initially added, the SMM. What’s practical? What’s impractical? As you know, a SPD must be written in a manner calculated to be understood by the average plan participant and must be sufficiently comprehensive to inform the participant of his or her rights and obligations under the plan. When it comes to today's health plans, many times "summary" and "comprehensive" are mutually exclusive. And, similarly, detailed disclosures can overwhelm the "average" plan participant. So, I have long argued that SPD’s should be returned to their original purpose under ERISA - to notify the individual of the existence of a plan, who is eligible, when and how to enroll, vesting, etc. But should a summary plan description for a plan that is or allows high-deductible health coverage explain that having no health coverage beyond high-deductible coverage is a condition for the desired tax treatment of a Health Savings Account? Actually, there are a number of different coverage options that are not-disqualifying coverage. But, yes, when the individual is defaulted into the cafeteria plan HSA contribution or when they voluntarily elect a HSA contribution, 21st Century enrollment systems should pause the election process and require the worker to confirm that they (or their spouse, or a parent) do not have disqualifying coverage. Most enrollment systems preclude electing both HSA-capable coverage and a general Health FSA. Similarly, where the individual elects HSA-capable family coverage, and the individual is covering an adult child and a spouse, the enrollment system should confirm the HSA contribution limits – sharing the family contribution with the spouse, the potential for an adult child who is not a tax dependent to fully fund up to the family maximum in their own HSA, etc. And what about other interactions? The HDHP-HSA relation is not the only one for which a participant’s spouse’s choices (whether under the same employer’s plans, or under another employer’s plans) affect a participant’s choices or other rights. The real challenge here is that most workers don’t read anything we provide. Similarly, some surveys suggest that a majority of workers spend only 15 minutes or less at annual enrollment - where many allow the existing elections to default into the new year. While recognizing other communications, should information of this kind also be explained in some plan’s summary plan description? No. Personally, I believe the SPD is the wrong vehicle for this purpose. Here's why: (1) The SPD need not be issued in time for a new hire to make their initial benefit elections - my understanding is that new employees must receive a copy of the current Summary Plan Description (with any SMMs) within 90 days after becoming covered by the plan. (2) The SPD must be updated only once every 5 years (sometimes 10 years), (3) The SPD is often 20 - 40 - 80 pages long, and (4) The health and welfare SPDs must be provided according to 20 year old rules, often paper versions, and, as a result, they are often difficult to search or fail to ask/answer the question you have, and/or fail to prompt you to ask a question.

So, I missed this the first time around. Brian, Peter, wondering what you think of the following: First, I have always thought that cafeteria plan elections were focused on the cash vs. tax-free benefit election. So, for example, back when I had brown hair, we used to have modular cafeteria plans. And, way, way back when, we would permit individuals to make a mid-yeaqr change from one module to another - where there was no change in the employee's cafeteria plan election. That is, the election was yes they wanted one of the modules. Second, I also thought that the cafeteria plan election was separate from the choice of coverage options under a health plan. That is the election actually being made under the cafeteria plan - per the cafeteria plan document - was cash or health coverage (not the specific health option). So, for example, if an employer offered two coverage options, and both required the same dollar amount of pre-tax contributions, can the plan sponsor (for a self-insured health plan) incorporate a plan provision that allows the individual to make a mid-year change in coverage - without affecting the cafeteria plan election? I think the answer to that is yes - since the cafeteria plan election is unaffected and we are talking about two coverage options under the same health plan. Third, I always wondered about taking that to the next level. Say the employer offers two health coverage options, a low option "A" and a high option "Z". The low option required an employee contribution of $100 per month, the high option $200 per month. Where the worker elected the low option during annual enrollment, if the self-insured plan so provides, can the individual continue the $100 pre-tax election and elect the higher coverage option and pay the additional $100 on an after tax basis? I think the answer to that is also yes. Fourth, same as the third, except the individual elects the high coverage option "Z", and pays $200 per month in pre-tax contributions. Can this worker continue the $200 per month in pre-tax contributions and, where the self-insured plan so provides, elect the lower coverage option? I think the answer to that is also yes. Fifth, I also wondered about the guy (it is always the guy) who failed to enroll the spouse or children in health coverage and only signed up for single coverage. Say single coverage costs $100 a month, and family coverage costs $300 a month. Say the worker elected single coverage during annual enrollment. So, if the self-insured plan so provides, can they allow the individual to continue the $100 pre-tax election and allow the worker to enroll the spouse and/or children and pay the additional $200 on an after tax basis? Again, I think the answer to that is yes. So that brings me to Mike. Could Mike's wife's employer amend the Health FSA (as necessary) to provide for both a General and a Limited FSA feature? And, could the wife's employer amend the plan to allow her to make a prospective (or a retroactive to 1/1) change in FSA coverage, but not the dollar amount - leaving the cafeteria plan contribution election unchanged? And, could the wife's employer adopt a HSA-capable health option effective 2/1/23 and allow her to make a change in coverage? Lastly, if Mike's wife's employer allowed for the change in FSA coverage to a Limited FSA, (how) would the last month rule apply should Mike maintain qualifyng coverage through 12/31/24? That is, he would become an eligible individual sometime after 1/1 (when the wife changed the Health FSA from General to Limited, or when the wife enrolled in HSA-capable coverage). 223(b)(8)Increase in limit for individuals becoming eligible individuals after the beginning of the year. (A) In generalFor purposes of computing the limitation under paragraph (1) for any taxable year, an individual who is an eligible individual during the last month of such taxable year shall be treated— (i) as having been an eligible individual during each of the months in such taxable year, and (ii) as having been enrolled, during each of the months such individual is treated as an eligible individual solely by reason of clause (i), in the same high deductible health plan in which the individual was enrolled for the last month of such taxable year. (B)Failure to maintain high deductible health plan coverage (i)In generalIf, at any time during the testing period, the individual is not an eligible individual, then— (I) gross income of the individual for the taxable year in which occurs the first month in the testing period for which such individual is not an eligible individual is increased by the aggregate amount of all contributions to the health savings account of the individual which could not have been made but for subparagraph (A), and (II) the tax imposed by this chapter for any taxable year on the individual shall be increased by 10 percent of the amount of such increase. (ii)Exception for disability or death Subclauses (I) and (II) of clause (i) shall not apply if the individual ceased to be an eligible individual by reason of the death of the individual or the individual becoming disabled (within the meaning of section 72(m)(7)). (iii)Testing period The term “testing period” means the period beginning with the last month of the taxable year referred to in subparagraph (A) and ending on the last day of the 12th month following such month.

Surprisingly, according to the Plan Sponsor Council of America’s 65th Annual Survey, over 1/3 of all plans that responded to the survey pay 100% of all recordkeeping/administrative fees. In my last plan sponsor role, all the way back in the mid 1990’s, we eliminated hardship distributions and added an admin fee (basis point charge) that was sufficient to pay all recordkeeping/administrative costs. In 2008, we changed the admin fee to a monthly, per capita fee, plus transaction fees. That change was prompted in part by a change to add automatic features in 2007. Auto features increased the processing requirements and the percentage of employees who were contributing by ~20%. Seemed inappropriate to have individuals with a lifetime of savings shoulder the increased costs from a massive increase in participation. The change reduced the disproportionate impact on participant-paid admin fees for those whose account contained a lifetime of savings (e.g., an account balance of $500,000 had been paying $500/year (10 bps), but prospectively, paid ~$36 per year (~$3/month) after the change). Our per participant monthly fee covered the cost of all regular processing – contributions, investment transfers, etc. We added specific transaction fees to cover processing costs on all loans and distributions (except for Required Minimum Distributions). With respect to in-service distributions, my first recommendation is always to avoid them or curtail them - to minimize leakage. Only a small minority of distributions are repaid/re-contributed. In terms of varying the charge for different distributions, the only ones to favor with a lower or no fee (to ignore the cost to process) are mandatory distributions. Otherwise, the fees should reflect 100% of the processing costs – so as to intentionally favor electronic processing/banking. When it comes to satisfying the participant’s need for liquidity, I favor “liquidity without leakage up to and throughout retirement”. That is, I favor adding/updating plan loan processing to 21st Century functionality (line of credit structure, electronic banking, various behavioral economics prompts, processes, strategies and concepts). For example, when executing the plan loan application, the participant should have to authorize the loan and agree to repayment – effectively signing twice, once as the borrower and second as the lender (future self). Plan loans are not leakage unless they are not repaid. Most plan loans are repaid whenever employment continues throughout the term of the loan. And, because plan loans must be repaid, they dampen utilization. Because of substandard processing, most plan loans default where the individual terminates employment. My recommendation is that before plan sponsors make any changes, and add any of these new leakage opportunities, that they consider the need to update liquidity and fee structures.

I believe the code now allows in-service commencement for DC and DB pension plans as early as age 59 1/2. See IRC 401(a)(36). (36)Distributions during working retirement.— (A)In general.— A trust forming part of a pension plan shall not be treated as failing to constitute a qualified trust under this section solely because the plan provides that a distribution may be made from such trust to an employee who has attained age 59½ and who is not separated from employment at the time of such distribution. (B)Certain employees in the building and construction industry.—Subparagraph (A) shall be applied by substituting “age 55” for “age 59½” in the case of a multiemployer plan described in section 4203(b)(1)(B)(i) of the Employee Retirement Income Security Act of 1974, with respect to individuals who were participants in such plan on or before April 30, 2013, if— (i) the trust to which subparagraph (A) applies was in existence before January 1, 1970, and (ii) before December 31, 2011, at a time when the plan provided that distributions may be made to an employee who has attained age 55 and who is not separated from employment at the time of such distribution, the plan received at least 1 written determination from the Internal Revenue Service that the trust to which subparagraph (A) applies constituted a qualified trust under this section. But, you don't have to change your Normal Retirement Age, nor your Normal Retirement Date to accomplish early payout. In past plan sponsor roles, I never considered early commencement from the DB pension plan. There is no mandatory retirement age (except for certain executives). And, once the individual has two streams of income, and once they get used to that dual income flow, I'm thinking separation no longer sounds so appealing ... especially if there are a lot of other benefits and perquisites to continuing employment and the retirement income was insufficient to maintain pre-retirement standards of living.

My experience is that payday to payday works best if it is part of the automated payroll process. Say you have a match set at 50% of the first 6% of covered compensation. The calculation each payday would be: Step 1: Year to date deferrals / year to date covered compensation = deferral percentage (some also match 401(a) contributions, and "catch-up") Step 2: Deferral percentage from Step 1 * .5 (up to 3%) * year to date covered compensation = employer match year to date Step 3: Employer match year-to-date from Step 2 - actual employer match made year to date = amount of match to contribute this pay period. Otherwise, if it is manual calculation or something done by the service provider/recordkeeper, I would wait until year end and perform a single calculation. If you wait until the end of the plan year to match employee contributions, you should also consider whether or not to add a requirement of active employment on the last day of the plan year as a qualification to obtain the match, and of course vesting requirements. Different rules apply to safe harbor plans. See: https://www.nytimes.com/2014/02/15/your-money/beware-of-the-end-of-year-401-k-match.html for the controversy such a change might trigger. However, if your turnover is substantial ... Payday to payday ensures a separating employee who receives a distribution soon after separation, won't end up with a subsequent payment. Similarly, payday to payday allows you to communicate/market the feature mid-year (maybe even auto-enroll the worker, or auto-escalate where they are not contributing enough to obtain the full match) with a message that it is "not too late to join and receive maximum employer match for the year). See: https://www.psca.org/news/blog/true-catch-whats And 1907_Fall_2019_Ldrship_Ltr_Catch-Up_0.pdf Information was provided by individuals with knowledge and experience in the industry and not as legal or tax advice. The issues presented here may have legal implications, and you should discuss this matter with legal counsel prior to choosing a course of action. This note is intended to be informational only. It is not (and you/others should not use it as) a substitute for legal, accounting, actuarial, or other professional advice. Anything contained in this post was not intended or written to be used and cannot be used by anyone for the purpose of avoiding any Internal Revenue Code penalties that may be imposed on such person [or to promote, market or recommend any transaction or subject addressed herein]. You (others) should seek advice based on your (their) particular circumstances from independent tax and legal advisors.

To M. Weddell: Thanks for explaining. Do you have any idea of the rationale for those limits, or is this simply arbitrary IRS rules (similar to the rule that precludes rollovers of Roth assets to a Roth IRA, and, even where not commingled (aka, the old conduit rules), still cannot be rolled over to a subsequent employer's Roth 401k account? For example, the code itself (402A) does not define the term "Designated Roth Account" - so the IRS has arbitrarily defined it to limit Roth 401k to only those where Roth 401(k) contributions are permitted in lieu of elective deferrals. I also have an issue with the imprecise language of "are permitted" instead of expressly confirming that Roth 401(k) deferrals are required. Do you know anyone who has innovated in the space of Deemed Roth IRAs? Thanks, Jack

In response to Lou S: That would probably be acceptable under EPCRS self correction, but it would require adding ROTH for all purposes and the client may or may not want to do that. Can't a plan add a Roth 401(k) Source Bucket for rollovers from other employer plans without providing for Roth 401(k) deferrals? For example, why can't the plan allow for in-plan Roth conversions without allowing individuals to make Roth 401(k) contributions? If that doesn't work, why not amend the plan to allow for Deemed Roth IRAs - assuming the service provider has experience administering Deemed IRAs.

I am a big believer in coupling perennial automatic enrollment and escalation features with plan provisions that provide for "liquidity without leakage along the way to and throughout retirement." However, I am also a big believer in our voluntary system and in ensuring plan sponsors retain control on how they allocate rewards. Widespread litigation makes plan sponsors/administrators "gun shy" when it comes to innovations. Some service providers avoid automatic features due to the potential for administrative error. Let's first simplify automatic features and facilitate self-correction of administrative errors.

Assuming: The seller is terminating their 401k plan. The 401k plan will authorize participants to take a distribution. The buyer will be hiring some, but probably not all of the individuals who have an account balance, and/or a loan outstanding. I would encourage the plan sponsor to amend their plan so as to permit "effective transfer" of outstanding plan loans. To be truly effective, this would require the plan to be amended as necessary so that: The plan accepts rollovers from all plans and IRAs (except Roth IRAs), The plan offers multiple loans (regardless of number) up to the code dollar limits, and The plan incorporates electronic banking so that not only can plan loan repayments continue post separation, but so that plan loans can be initiated post separation. I would not limit the plan provisions solely to this single transaction, but facilitate such "transfers" for any new hire or current worker who becomes a participant in the plan, or for any current or former worker who is a participant in the plan. See: https://401kspecialistmag.com/how-to-stop-401k-leakage-from-plan-loans/ Essentially, you roll over the remaining account balance, then borrow from the new plan, as necessary, where each loan from the new employer's plan is used to complete the rollover process. Happy to discuss further, on why this is a superior solution in terms of avoiding leakage and maximizing participant perceived and actual value, and engagement.

You originally asked: My understanding is that the advantage of qualifying as a top hat plan is that the plan is exempt from certain ERISA requirements. Correct, see prior responses. Is it possible to have a NQDC that complies with the ERISA requirements requirements but is not a qualified plan? Yes, all NQDC plans are not "qualified plans". Has anyone ever seen one? See for example: https://secure02.principal.com/publicvsupply/GetFile?fm=BB12491&ty=VOP&EXT=.VOP and https://www.plansponsor.com/research/2021-nqdc-survey/ Per your followup: The client is trying to accomplish the following: The client wants to make an annual contribution to a plan for all employees. Possible. The contribution will be allocated amongst employees to in proportion to their compensation. Possible. The employees' contributions will grow in accordance with the company's top line growth. Possible. Employees can ask for payout whenever they want it. Probably need to have the individuals schedule the payouts in advance - perhaps in installments. Investments, Rate for Crediting Earnings While Deferred? To add some texture to those answers. Profit Sharing: Perhaps you are thinking of a cash profit-sharing plan? Look at Delta Airlines for 2019 results, 2020 payment. Some employers stretch out payments over a period of years (no voluntary election by the worker). In one of my prior employers, they had a three year payout for a specific incentive plan. Say an individual earns $45,000 as a bonus for 2021 performance. The bonus amount is determined in January (based on prior year's corporate, business unit, department, etc. and sometimes individual performance) and $15,000 is paid before March 15, 2022, with equal installments of $15,000 paid in 2023 and 2024. Some years, there would not be an award. Again, see Delta Airlines for 2020 results, no payment in 2021. This appears closest to what you are trying to accomplish. Generally, income is taxable for FICA and FICA-Med as earned, taxable for income taxes when paid. NQDC That is Not a Top Hat: Some employers have adopted a NQDC plan that permits associate deferrals of regular wages or other incentive payments, but does not qualify as a pension plan, and therefore is not subject to ERISA. Generally, Section 3(2) of ERISA defines a “pension plan” to be any plan, fund, or program established or maintained by an employer which (1) provides retirement income to employees OR (2) results in a deferral of income for periods extending to the termination of covered employment or beyond. Under this definition, some but not all, deferred compensation plans are subject to ERISA. And, those that are subject to ERISA because they permit deferral until separation or later into retirement generally must meet the "top hat" requirements. Long ago (35+ years), I created a NQDC plan that was not a "pension plan" nor a "top hat" plan - it only allowed for a period of deferral for 1 to 10 years (e.g., money earned in 2022 could be deferred to any year between 2023 and 2032, and the payout could be for 1 to 10 years.) So, the range was, for money deferred from 2022, a full payout of all deferrals and any "earning" in 2023 up to deferral from 2022 to commence in 2032, with payments stretched out over a maximum of 10 years (2032 to 2041)). The deferral election, including the payout election, had to be made by 12/31 of the calendar year prior to the calendar year of earnings. It was kind of a "class year" structure. So, in this example, to defer money earned in 2022, the election would have to have been received by 12/31/21. Later, 409A came along and, generally speaking, this non-qualified deferred compensation plan structure already met many of the 409A requirements. See: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/about-us/erisa-advisory-council/towarnicky-102220.pdf Tax-qualified Plan - Thrift/Savings, 401k, or Traditional Profit Sharing. Not sure why they wouldn't want to use a tax-qualified plan. With respect to employer contributions, all are generally deductible (within limits), there is a significant limit on annual additions (no more than $61,000 in 2022 (all DC plans combined), all avoid FICA taxes (employee and employer), an allocation that is a function of direct compensation is generally permitted, and after a modest period of years (generally 5 years), taxable payouts are possible. Until then, assuming that the employer vests the worker 100% immediately in the employer contribution, a participant could take a plan loan (can generally borrow $1 for $1 up to the first $10,000). These remarks are provided for informational purposes only. This information is provided from a practitioner with knowledge and experience in the industry and not as a legal or tax opinion or advice. The issues presented here may have tax and legal implications, and you should always discuss these matters with your legal and tax counsel prior to choosing a course of action. This presentation is not (and you/others should not use it as a substitute for) legal, accounting, actuarial, or other professional advice.

You asked: My understanding is that the advantage of qualifying as a top hat plan is that the plan is exempt from certain ERISA requirements. Correct, see prior responses. Is it possible to have a NQDC that complies with the ERISA requirements requirements but is not a qualified plan? Yes, all NQDC plans are not "qualified plans". Has anyone ever seen one? See for example: https://secure02.principal.com/publicvsupply/GetFile?fm=BB12491&ty=VOP&EXT=.VOP and https://www.plansponsor.com/research/2021-nqdc-survey/ To add some texture to those answers. Profit Sharing: Perhaps you are thinking of a cash profit-sharing plan? Look at Delta Airlines for 2019 results, 2020 payment. Some employers stretch out payments over a period of years (no voluntary election by the worker). In one of my prior employers, they had a three year payout for a specific incentive plan. Say an individual earns $45,000 as a bonus for 2021 performance. The bonus amount is determined in January (based on prior year's corporate, business unit, department, etc. and sometimes individual performance) and $15,000 is paid before March 15, 2022, with equal installments of $15,000 paid in 2023 and 2024. Some years, there would not be an award. Again, see Delta Airlines for 2020 results, no payment in 2021. NQDC That is Not a Top Hat: Or perhaps you mean a NQDC plan that permits associate deferrals of regular wages or other incentive payments, but does not qualify as a pension plan, and therefore is not subject to ERISA. Generally, Section 3(2) of ERISA defines a “pension plan” to be any plan, fund, or program established or maintained by an employer which (1) provides retirement income to employees OR (2) results in a deferral of income for periods extending to the termination of covered employment or beyond. Under this definition, some but not all, deferred compensation plans are subject to ERISA. And, those that are subject to ERISA because they permit deferral until separation or later into retirement generally must meet the "top hat" requirements. Long ago (35+ years), I created a NQDC plan that was not a "pension plan" nor a "top hat" plan - it only allowed for a period of deferral for 1 to 10 years (e.g., money earned in 2022 could be deferred to any year between 2023 and 2032, and the payout could be for 1 to 10 years.) So, the range was, for money deferred from 2022, a full payout of all deferrals and any "earning" in 2023 up to deferral from 2022 to commence in 2032, with payments stretched out over a maximum of 10 years (2032 to 2041)). The deferral election, including the payout election, had to be made by 12/31 of the calendar year prior to the calendar year of earnings. It was kind of a "class year" structure. So, in this example, to defer money earned in 2022, the election would have to have been received by 12/31/21. Later, 409A came along and, generally speaking, this non-qualified deferred compensation plan structure already met many of the 409A requirements. See: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/about-us/erisa-advisory-council/towarnicky-102220.pdf These remarks are provided for informational purposes only. This information is provided from a practitioner with knowledge and experience in the industry and not as a legal or tax opinion or advice. The issues presented here may have tax and legal implications, and you should always discuss these matters with your legal and tax counsel prior to choosing a course of action. This presentation is not (and you/others should not use it as a substitute for) legal, accounting, actuarial, or other professional advice.

Refinancing sounds really complex. May be time for some to consider updating loan software/processing to 21st Century functionality. I can't remember ever refinancing an existing loan - don't think we even had a process. However, that never stopped a participant from taking a second loan (within the 72(p) limits) so they could use the principal to adjust payments, pay off the existing loan, etc. It is one reason why I was never in favor of "cooling off" periods or limiting loans to one per participant, etc. For example, when onboarding individuals, we used to inquire whether they had a loan outstanding from a predecessor employer's plan. If they did, we welcomed them by encouraging they consider a process where they could avoid leakage, potential income and penalty taxes, and "rollover" the outstanding loan by leveraging our plan's loan procedures.

Compare to rule regarding qualifying expenses in a HSA where the date opening the initial HSA controls, even if you transfer assets. someone should pass this along to proponents of SEcURE 2.

Thanks.

Background: IRC 401(a)(9)(B)(II) provides that the 5 year rule applies where the employee dies before the distribution of the employee's interest has begun (no later than December 31st of the fifth year after the calendar year in which the employee died). IRC 401(a)(9)(H) provides a special rule for "certain defined contribution plans" - "... if an employee dies before the distribution of the employee’s entire interest— (i)In general.—Except in the case of a beneficiary who is not a designated beneficiary, subparagraph (B)(ii)— (I)shall be applied by substituting “10 years” for “5 years”, and (II)shall apply whether or not distributions of the employee’s interests have begun in accordance with subparagraph (A). Treasury Regulation § 1.401(a)(9)-5 - Required minimum distributions from defined contribution plans. Q-5. For required minimum distributions after an employee's death, what is the applicable distribution period? A-5. (a) Death on or after the employee's required beginning date. " ... the applicable distribution period ... (is) the longer of - the remaining life expectancy of the employee's designated beneficiary and the remaining life expectancy of the employee or ... If the employee does not have a designated beneficiary ... the remaining life expectancy of the employee ..." (b) Death before an employee's required beginning date. "... the applicable distribution period ... Nonspouse designated beneficiary. ... the applicable distribution period measured by the beneficiary's remaining life expectancy is determined using the beneficiary's age ... " So, a couple of simple questions which may have simple answers that I am missing: Is the 5 year rule optional for tax-qualified, employer-sponsored, individual account plans, like the 401(k) plan? Does the plan have a choice of applying a 5 year or 10 year period?

Is the loan for the full vested account balance (<$10,000) or 50% of the vested account balance. Obviously, if the former. With respect to the latter, if the plan so provides, the date of the loan can probably precede the date of disbursement, but why take risks? perhaps your loan process could stand some updating where the individual could elect an amount or “the maximum as of date the loan is processed - currently estimated as $xx,xxx.

Note that the PLR was issued to a municipality - and remember the general rules about PLR guidance. HRAs are always notational, unfunded accounts. Where there is actual funding to a VEBA by employers AND employees, IRC 419 and 419A may apply to limit contributions. VEBAs have separate rules where the VEBA is limited only to employee after-tax contributions, or where there are represented employees. You described this as "IRS approval letter for the VEBA where the plan accurately described itself as voluntary post-tax with a death benefit". So, perhaps the VEBA only accepts employee after-tax contributions, and the employer"match" is an unfunded, notational, HRA?