Luke Bailey

It does, but that's only for a non-binding pre-submission discussion in which IRS would likely be able to tell you whether your desired solution (here a retro plan amendment and undo) was likely to fly or not. Note that 18 to 24 months may be a little pessimistic.

I was just sayin'... Yeah, it's a very helpful article, no doubt about it. Maybe dark gray and light gray.

Brian, I think it's a useful explanation for employers. However, you seemed to acknowledge in the above interchange that reasonable minds might differ on the issue of using forfeitures in connection with other benefits within the one "plan," but on your website you're saying it's black and white. I just wanted to point that out, not get back into the discussion, because I think without guidance we're just going to keep repeating the same arguments.

C.B. Zeller, I think intellectually, i.e., in terms of logic, it could go either way, but assuming it's a modest sum, I can't get as worked up about it as I might some other issues. I'm pretty sure I would beat this if it came up in an audit. Might have to give ground to the agent on a better issue as a "gimme," however.

Ananda, it would take me a while to run down the citations, but I'm pretty sure that the death benefit in excess of cash value is treated as if it were a direct payment from the life insurance company to the beneficiary, not as a qualified plan investment. So in your case that's 100% of the death proceeds, since term. Therefore, except for any post-death interest or earnings on the proceeds while in the plan, the distribution is not really a distribution from the plan that can be rolled over to any IRA. Again, I'm just throwin' this out there because I think that is what you will find if you research it. Maybe others can confirm or deny, or you can research further and tell us what you find.

Definitely tell him he needs to hire a lawyer. The fact that he is already involved may make it more difficult to get around PT rules.

C.B., I almost included this in my earlier post, foreseeing the argument, but then I thought, "No, no one will go there. It's too crazy." Sure, I guess as an exercise in pure logic, disconnected from the real world, if the plan sponsor, at some point while the participant was still eligible to defer, told the plan's participants, e.g. in the SPD, "Hey, I just want you to know that if you defer into the plan, then someday, after you've separated from service and can take a distribution, I will offer you an extra benefit, like a $100 cash payment, to take a distribution of your benefit. So please, please, defer!" I guess you could also posit a situation where the employer would have a larger payment for larger accounts, which would make the argument for application of the no conditioning rule. On those facts, one can make a case that the side benefit was indirectly conditioned on deferrals. But if you go back to the OP, those are not Ananda's facts. And even if they were, I would argue that the side benefit is conditioned on taking a distribution, not making deferrals. Moreover, (a) the rule (1.401(k)-1(e)(6), applies to "employee's" elections, and a participant eligible for distribution is generally a former employee, and (b) 1.401(k)-1(e)(6)(v) specifically says that loans and distributions are not treated as a benefit contingent on deferral just because the participant has to have deferred to be eligible for a distribution or loan. "Kosher" covers potentially a lot of ground, BG5150, but if you are talking about violation of the contingent benefit rule it is disqualification of the CODA.

The IRS will view it as the company's obligation. In similar situations, employers will sometimes view the TPA as having been at fault and seek a contribution from the TPA, with mixed success. Not the PBGC.

The first step is to collect and fully analyze the facts, including the recordkeeping agreement with existing recordkeeper. I would tell them they need an attorney to do that.

Thanks, bito'money. That's probably the best thing to do, then.

Right. And where the rubber hits the road, Basically Green, is that (a) the participant can't roll over the portion of the total amount distributed to them in 2021 that is the RMD, and (b) they will have two separate 1099-R's to report the different amounts, so IRS will know which was RMD not eligible for rollover and which could be rolled over.

401(k)Cottage, generally a controlled group can have more than one 401(k), with different contribution levels. They will just need to be considered as plans of a single employer for various nondiscrimination and top-heavy requirements. There's really not much more to say at this level of generality.

But participants would be eligible for top-heavy after one year?

BG5150, I would add that of course the disclaimer is the responsibility of the person who is doing the disclaimer and his/her counsel. A lot of widows and widowers don't, of course, usually have counsel, but a business owner who is dealing with the estate of his or her spouse likely does, so if it were me I would make sure that that counsel drafts the appropriate document(s) and takes responsibility for requirements' being met and advising on what the outcome of the disclaimer will be.

Thanks, Effen. Appreciate the incite.

Agree with all the comments above that a disclaimer will likely solve the perceived problem. The rules for qualified disclaimers are pretty clear under Section 2518 of the Code and its regulations. Note that one of the requirements is that the disclaimer must generally be made within 9 months of the date of death, or later if the person disclaiming is under age 21. While Section 2518 is an estate and gift tax section, the IRS follows it for income tax as well, and there is guidance to that effect. The plan could always be amended, post-death, to provide for a disclaimer if it does not already contain the provision.

Plan sponsor has frozen DB plan that is well funded in economic sense, but does not satisfy the "well-funded plan safe harbor" of PBGC reg. sec. 4043.10, because pays variable rate premium. May or may not satisfy the "low-default risk" safe harbor. Have not determined that yet. Pursuant to SECURE Act, sponsor amends pan to permit in-service lump sums at age 59-1/2. Enough active employees cash out so that at some point during 2020 the number of active participants in plan drops from 55 to 30, so more than a 20% reduction. Plan has several hundred terminated vesteds and retirees, and paid flat-rate premium for more than 100 participants for 2019, so does not satisfy the requirement for small plan waiver. It does not seem clear to me under reg. sec. 4043.23 whether a greater than 20% active participant reduction reportable event occurred. The plan's amendment could be viewed as a "single cause" under 4043.23(a)(1)(ii), sort of like an early retirement incentive program, except that the participants didn't retire, they just cashed out their benefit, but 4043.23(a)(1)(i) defining a "single cause" greater than 20% active participant reduction refers only to a greater than 20% reduction in the number of "active participants," without saying whether this is referring to a reduction in the number of "active participants" employed by the plan sponsor or covered by the plan, and the definition of "active participant" in 4043.23(b)(2) says it's someone working for, or on leave, etc., from the sponsor, again without referring to plan coverage. Thus, since all or most of the folks who took the in-service distribution are still working for the company, there was not, strictly speaking, a 20% reduction in the number of "active participants" as so defined. It's harder (maybe impossible) to wriggle out of the greater than 20% active participant reduction due to an "attrition event" [oxymoron?] definition in 4043.23(a)(2), because that definition does refer to the number of "active participants" covered by the plan at the end of the plan year as compared with at the beginning, but at least if I have an attrition event, the requirement for the reportable event notice is delayed. Follow-on question: Assuming plan sponsor did, at least arguably, have a reportable event, does anyone have experience with reporting late to PBGC, voluntarily, with a "good cause" explanation? It does not appear that the PBGC has any guidance for obtaining a penalty waiver, but it seems likely that in a case such as the one described above they would likely waive or apply only a small penalty if the sponsor made a voluntary delinquent filing.

Aside from the legal requirements explained by others, Ananda, how is someone who does not elect to contribute going to learn about the opportunity to contribute and what that might mean for his/her future retirement if they don't get an SPD?"

Not sure I understand all the facts, Benguru25, but it sounds like your only problem is that what was actually done, while it was within limits, was inconsistent with the plan document. Failure to follow your plan document is a disqualifying operational error. To fix under EPCRS, you could either scrape back the erroneous contributions or amend your plan retroactively to conform to its operations, if the group receiving the additional amounts is nondiscriminatory. Whether you can fix through self-correction or must make a VCP submission to IRS depends on exactly what "a couple of years" means.

Thanks, Peter. Along the lines of what I was thinking. I thought perhaps this was one of the many bits of arcanaI had yet to come across, but apparently no.

I have a governmental client that is switching vendors from one mutual fund company to another. It previously had a discretionary contribution DC plan (identified as profit sharing plan in the old adoption agreement) and is adding a 457(b) plan with the new vendor and will match employees' 457(b) elective deferrals in the revised 401(a) plan. The new vendor seems to think that in order to match 457(b) deferrals in the 401(a) plan, at least at a fixed rate, it is either required or advisable to change the 401(a) plan from a profit sharing plan to a money purchase. Has anyone seen this before and if so do you know the basis for it?

Good to know, Ananda. Thank you.

Lando, I think the risk is not that they will penalize you for filing without the audit, if you get it in within the 45-day period. I think the risk is that you don't get it in within the 45-day period and then they contact you asking for it and at that point you don't qualify for DFVCP.

HCE, I think absolutely, that presents additional complexities and potential roadblocks.

I have structured transfers of NQDC obligations in corporate transactions in situations that are generally similar to what you describe, HCE. It has been my prior conclusion, where I had all the facts, including documents (which of course, I do not have for your case, HCE, so I am speaking only generally and hypothetically in addressing the general question you have asked, not your specific situation) that the mere transfer of the obligation to pay the NQDC from one service recipient to another did not facially violate some federal income tax rule, e.g. constructive receipt of economic benefit. The complexities from a tax point of view are in connection with the transfer of any assets used to informally fund the obligations, such as a rabbi trust or life insurance policies, and those issues need to be reviewed carefully before pulling the trigger on any transfer. There is also an issue regarding the employees' rights regarding the change in the identity of their obligor, which may to some extent depend on the plan document.