Luke Bailey

The principle involved is the odds of each beneficiary's survival until the date when he or she will start to have an interest in distributions, how long he or she is likely to live after that, and when all this will occur (time value of money/interest). It's just math, but based on your question, unless it's a really simple situation like there are two 50% current beneficiaries who are not octogenarians, you will probably need to hire an actuary to determine all of the interests.

I agree with the last comment. Since the plan can pay, I think the bankruptcy trustee could get the court to approve payment. I have been involved in several DC cases where the costs of administering the plan of the bankrupt employer have been paid by the trust, with Bankruptcy Court approval. If the trustee is unwilling to request permission from the Bankruptcy judge, perhaps you can make a motion in the bankruptcy court. I would ask an experienced bankruptcy lawyer in your area about this.

It does seem possible that if the plan amendment in TAM9735001 had been adopted before the contribution was determined and contributed, the result would have been different. If, for example, as is typically the case, the contribution amount could theoretically have been $0 until it had actually been determined by the employer, e.g. in a board resolution adopted after the end of the year, then what the employees had actually accrued as of the date of the amendment was their fractional hare under the formula times $0, which of course was $0. This is suggested by the following paragraph from the TAM: "The Employer argues that, in the case of a discretionary profit-sharing plan, the employer has no obligation to make a contribution; therefore, participants do not accrue benefits under the plan until a contribution is actually made. We note that, in this case, the contribution had in fact been made at the time of the March 15, 1993 plan amendment. Moreover, as described above, under the terms of the plan, a participant became entitled to his allocable share of any contribution for 1992 as of December 31, 1992. Where a contribution is in fact made for 1992, the participant's protected allocable share of that contribution is determined as of December 31, 1992, under the existing formula." However, aside from the above paragraph, the general thrust of the rest of the IRS's argument in the TAM seems to be that once an employee had fulfilled the conditions for an allocation, that employee's share of whatever was contributed had accrued, and so no change could be made, regardless of whether the overall contribution amount had been determined or contributed. I'm not sure whether a court would go that far.

I admit this is complicated, but the only reference that I see to the bankruptcy code is the statement in paragraph (2) that "section 3014 of chapter 176 of title 28 shall not apply to enforcement under Federal law," which seems to say the bankruptcy exceptions do NOT apply. If it overrides Section 207 of the SSA (which, as required by Section 207, it explicitly does), so they can get your soc sec benefits, don't you think they intended to also get at your private pension benefits? Remember, the purpose of the MVRA is to require a person convicted of a federal crime to make restitution to the victim(s) of that crime. This is not a fine or penalty.

Although it seems that there may be insufficient guidance to know what IRS would say, on further thought I think that under the facts of the question as originally posed you probably don't aggregate. The argument for aggregation is based on the statement in Treas. reg. 1.415(f)-1(f)(1) that the participant, not the employer, is deemed to "maintain" the 403(b) contract. However, Treas. reg. 1.415(f)-1(a)(3) says you aggregate (and therefore, treat as a single contract) "all [403(b)'s] purchased by an employer." Therefore, probably the stronger argument under the reg is that you are "deeming" the 403(b) to be "maintained" by the employee only for purposes of NOT aggregating it with a 401(a) plan of the employer. Without another provision or example in the reg specifically saying this (and I don't think there is one), I don't think that the employee could then also be "deemed" to be an "employer" for purposes of Treas. reg. 1.415(f)-1(a)(3). And you need a reg to do this, because IRC sec. 415(f)(1) simply refers to "employers" and has no special rule for 403(b)'s.

...and VCP submission.

I'm familiar with the principle that per Treas. reg. 1.415(f)-1(f)(2) you do not aggregate a 403(b) with a 401(a) (including 401(k)) for 415 purposes unless the 403(b) owner controls the sponsor of the 401(a) plan, but isn't there an inference from Treas. reg. 1.415(f)-1(f)(1) that you aggregate all 403(b)'s of the 403(b) owner, even if the source of the compensation is from separate employers? I'm not sure. Treas. reg. 1.415(f)-1(a)(3) seems ambiguous. Curious to know whether there is any guidance specifically on point.

The language of the MVRA (18 USC sec. 3613(a)) is pretty explicit: The United States may enforce a judgment imposing a fine [or an order of restitution]1 in accordance with the practices and procedures for the enforcement of a civil judgment under Federal law or State law. Notwithstanding any other Federal law (including section 207 of the Social Security Act), a judgment imposing a fine may be enforced against all property or rights to the property of the person fined, except that - - (1) property exempt from levy for taxes pursuant to sections 6334(a)(1), (2), (3), (4), (5), (6), (7), (8), (10), and (12) of the Internal Revenue Code of 1986 shall be exempt from the enforcement of the judgment under Federal law; (2) section 3014 of chapter 126 of title 28 shall not apply to enforcement under Federal law; and (3) the provisions of section 303 of the Consumer Credit Protection Act (15 U.S.C. 1673) shall apply to enforcement of the judgment under Federal law or State law. Of course, the ability of the IRS to reach a 401(a) plan benefit for unpaid taxes, at one time a subject of controversy, is by now well established. When I researched this several years ago I found the 9th Cir. case (U.S. v. Novak, 2007) convincing. There is at least one other district court case that follows, probably several more. I know of no case that has gone the other way. Again, the language of the federal statute seems very clear.

If the conviction is for a federal crime, most courts (maybe now all circuits; I'd have to check) have held that the Mandatory Victim Restitution Act of 1996 (MVRA) provides a Congressional exception to ERISA’s anti-alienation provision with regard to the enforcement of a restitution order against a criminal defendant. So the turnover orders if coming from a federal prosecutor are likely enforceable and not a violation of ERISA or the Code. Because the money satisfies a debt of the plan participant, the distributions are taxable to the participant and would be subject to withholding. In a case several years ago where the order was initially for the gross amount, we negotiated with the federal prosecutor on behalf of the plan to have the amount paid net of withholding.

It depends on the underlying employment situation, I think. If you think the employer is saying, "Next week is your term date. You will no longer be employed after Friday. You've got a bunch of accumulated paid leave, though, so you have a choice: Voluntarily extend your annuity starting date by three months, and you will continue to get paid through payroll and get your DROP credits, or take the accumulated leave as cash," then that looks like a CODA. But it probably also is not consistent with the plan doc, because the plan doc probably says the pension starts on the first day of month after retirement, not when your accumulated leave runs out, should you elect to apply that. The more likely explanation is that if you have accumulated leave and you are close to retiring, you can choose to delay your retirement date by using up the accumulated paid leave as such, i.e., paid leave, and not cashing it in. Whether what is really going on is the first explanation or the second would depend on a lot of facts and circumstances we don't have, e.g. whether the employee has benefits during the period, etc. In my experience, typically if an employee uses up his/her paid leave at the end of career, their retirement date is pushed off and they are treated as still employed.

Amend the 2015 filing to show it's the same plan and is 001. The name and other facts, e.g. address will be the same. There may be follow-up from DOL and/or IRS regarding what happened to 002, but if you respond timely to inquiries with explanation you can't be hit with penalties. You filed.

Just leave it in the account and let the participant have it. Under Section 6.02(5)(c) of EPCRS (Rev. Proc. 2016-51), overpayments of < $100 ("small overpayments") are essentially self-correcting.

I don't think that's a CODA. Just a deferral of their retirement date.

You now seem to think there was no problem to begin with, but in case that does not work out, here's a suggestion. You have not provided all the facts, so what I suggest may or may not work. However, assuming that (1) the profit sharing percentage is not hard-wired into the plan, but is decided from year to year by employer, (2) was not decided or communicated until after the end of the year, (3) the plan document permits rate groups, and (4) the allocation would pass 401(a)(4), with or without cross-testing, just say that in fact the allocation you've got is what the employer wanted and call it a day.

I think theoretically ERISA and Code would let you self-insure disability. The problems are business issues. The one mentioned above, i.e., lack of market on sell-side, is relevant, but my guess is an even bigger issue, and one that partly accounts for lack of market, is the benefit security. Self-insured health plans are dependent on continued funding by employer and employee contributions. Certainly, if the employer becomes insolvent, or is sold, and its health plan goes away, there may be a hiccup with paying runout claims, but the employees move on and get other coverage. If you are long-term disabled, that could be it--you may never work again. If, e.g., that happens to you at 30, the employee needs to know that he or she will receive LTD payments for 35 years, month-in, month-out. Insurance companies are long-term players, and are regulated by states so that they cannot shed their obligations, and even in bankruptcy there are guarantee funds. So the obligor of the LTD is solid and long-term. And LTD always has a waiver of premiums once employee becomes disabled. So with insured LTD, if the employee becomes disabled, he or she leaves with a paid-up commitment from the insurer to pay benefits until age 65 or 66 (assuming the LTD recipient doesn't get better ), and that promise is not dependent on the longevity, financial health, or willingness of employer to continue plan. It's a paid up obligation of the insurer from first payment to last.