Luke Bailey

No, because you're not conditioning the other benefit on making or not making a deferral, just on taking a distribution after the employee has terminated. I think the DOL could say you are violating duty of loyalty, because even if you point the participant to equivalent, and in fact likely better and cheaper, IRA rollover options, you are encouraging them to leave the walled garden of your plan. But I don't see a prohibited transaction.

Ananda, the participant is just taking and receiving his/her full benefit. There is no loss. They are not being induced to do anything untoward. The concern is that the IRA owner may be accepting a lower rate of return, e.g. a lower rate CD, to get the toaster. In this case, the participant is getting his or her entire benefit, without any loss. A participant's receipt of his or her benefit is not a prohibited transaction. See IRC sec. 4975(d)(9). The participant is not a fiduciary, so 406(b)(3) could not apply.

Vlad401k, yes, it would be a direct trustee-to-trustee transfer (if handled correctly), so Code G.

Call the number on the notice. Based on what you describe, once the IRS realizes they've made an error, they will relent. May take a while.

Worked on a case once, not ERISA. Municipality. Involved what overtime pay was required. Affected hundreds of employees over several years. Not chump change.

I am sure they are, BG5150. If you want to try it I'll give you 8 to 1. I would go 100 to 1, but there is always the potential for clerical error.

Belgarath, completely agree with EBECatty and Peter. If allocations were made in excess of what plan provided for, the standard remedy under EPCRS is to demand repayment. The alternative is to amend the plan to provide for the allocations, but both corrections are generally available in theory.

I agree with Peter.

I had not thought about this, but it seems to me that if they had to publish guidance, e.g. a Revenue Ruling, the IRS would say that the contribution needs to be distributed to the participant as taxable income, since exceeded 415(c) limit. I don't think the 401(k) safe harbor would trump the 415 limit.

Belgarath, I think the "once in, you're never out" rule only applies to employees who work 1,000 hours in their first 12-month period. It does not seem to me that you could not add the 20-hour per week rule and apply it going forward to folks who don't hit the 1,000 hour mark.

WCC, that is both my understanding and experience. But you had better get the audit in within the 45-day period, because you will not have DFVCP once they write back and tell you that you need to complete with the audit. I have wondered about the same thing in the past. There is at least a superficial disconnect between the statement above the signature line and the policy of giving you a 45-day grace period for the audit, but the 45-day grace period is in a regulation (29 CFR 2560.502c-2(b)(3)) and is very explicit. I think what the penalties of perjury statement is probably designed to get at is that you have not left anything out in the way you have completed the form that would make what you included in the form potentially deceitful. That's obviously not what's going on with a late audit report.

Great to hear, Redcloud. Good luck with the article.

Ananda, I don't think so, because the assets being used are the employer's, not the plan's. The participant gets the full benefit. All the employer gets is a collateral benefit of reduced admin costs, which is what Spink (it's Spink, not Spinks as I incorrectly spelled it in prior post) addresses. No, for same reason. Issue with IRAs and bank freebies is owner/fiduciary using plan assets to get a material personal benefit. Here, the employer is using its own assets to get the employee to take exactly the same benefit he or she would have either way, just at a different time.

Jakyasar, you are going to submit this to IRS under VCP, right?

Redcloud, I think RatherBeGolfing was pointing down the right path. The key is whether the plan (and it likely does) says that you have to include the backpay as wagers/compensation for a prior period. That will typically increase the offended employee's plan benefit, which will be a collateral benefit of the backpay.

IRC 411(a)(2)(B)(ii) permits 3-year cliff vesting. Long ago, if memory serves me correctly, if you did 3-year cliff you could have a 3-year wait for eligibility, and that was popular. Then Congress changed that to you could hold someone out for only 2 years, and you had to 100% vest at 2 years. See IRC 410(a). That made 3-year cliff less popular, since it was no longer a way to hold employees out for a long time.

I've never opined on this and would be interested to see what others think, but as long as the cash is not coming from the plan, how is this self-dealing with plan assets? In Lockheed v. Spinks the Supremes said that an employer could condition an early retirement benefit on signing a release. Seems to me that offering cash to take your money would be the carrot side of the Spinks stick. Arguably it could be a breach of fiduciary duty, but that argument does not seem strong to me. Again, interested to see what others think on this.

Prof, if you review the plan document and SPD, you will most likely conclude that she is your default beneficiary and you don't need to name her at all.

Insurance company and large employer lobbies (pretty much what Peter said). Why are insurance policies at the heart of the ACA? Insurance companies. Why are health benefits historically provided by employers? Relatively good risk pools of healthy folks with families (employees) lying around to insure, plus in WWII providing health coverage was a way around wage and price controls, so became a fixture in industry. Here's a pretty good podcast on that: https://www.npr.org/transcripts/917747287

Agree with Lou and C.B. Zeller. The authority is Q&A-3 of Part B of Section III of Notice 2013-74: Q-3. Is an amount rolled over to an employee’s designated Roth account pursuant to § 402A(c)(4)(E) subject to any distribution restrictions after the in-plan Roth rollover? A-3. Yes. If an amount is rolled over to a designated Roth account pursuant to § 402A(c)(4)(E), then, notwithstanding Revenue Ruling 2004-12, the amount rolled over and applicable earnings remain subject to the distribution restrictions that were applicable to the amount before the in-plan Roth rollover. Thus, for example, if a § 401(k) plan participant who has not had a severance from employment makes an in-plan Roth rollover of an amount from the participant’s pre-tax elective deferral account prior to age 59½, that amount and applicable earnings may not be distributed from the plan prior to attainment of age 59½ or the occurrence of another event described in § 401(k)(2)(B). IRS Notices are not really authority, as would be regulations, but Q&A-3 does make sense.

kmhaab, first, I completely agree with EBECatty's analysis. What you describe seems to me also to be a short-term deferral (STD) with two different substantial risks of forfeiture (SRFs). As to the language (which of course I am not seeing in the context of the entire agreement or surrounding facts, and so treating as a hypothetical), if this is all there is I would read it literally. The second payment is the easier of the two, because you can interpret it as saying simply that a lump sum equal to 40% of the total amount will be paid 18 months after the CIC, provided the executive is still employed on that date. (I said, "you can interpret it," because of course there is an argument that "within" applies to the 18-month period as well as the 12.) This implies that it is to be paid immediately after the expiration of the 18-month period, so as long as it is paid within the STD period following the end of the 18th months, it would be an STD, whether it states the STD period formulaically or not (here of course, it does not). The first, 60%, payment is harder because "within" seems to give the payor leeway to vest and pay at any time within the first 365 days after the C in C (although it seems unlikely that this is what the draftsperson had in mind). This gets you into the slightly murky area of acceleration of vesting vs. acceleration of time of payment. The reg clearly says you can accelerate vesting, but not payment, and opinions may vary on what that means in this or any other context. I think it probably means that if you had an agreement with a fixed payment date ("We'll pay you $X on the fifth anniversary of today") and a vesting event (", but only if you're still working for us then"), you could accelerate the vesting date, but not the payment date, i.e. you could vest the amount after a year, or a month, but could not pay until the end of year 5, whereas if you have an agreement that is an STD and you accelerate vesting, you can pay within the STD period calculated based on the accelerated vesting date.

So Redcloud, you have an interest in ERISA, which is interesting, but I don't know if you have yet taken Estates and Trusts. ERISA is built on trust law, which has turned out to be an unruly intrusion of an area of law developed in England to preserve family wealth into what would otherwise be the contractual relationship between employer and employee or, as better known back in merry old England, between "master and servant." But I digress. Anyway, say I am some wealthy British landowner centuries ago and I want to put money in a trust to protect it from my sons' prospective wastrel children. No one is forcing me to do that, or telling me how much it has to be, etc. I am the "settlor" of the trust and free to do what I want. But once the money has gone into the trust, it belongs to the trust (really, to the beneficiaries, including those as-yet unborn), and the trustee must (a) guard the trust from incursions, even by me if I have second thoughts and think I put too much in the trust, and even though I appointed the trustee. But it is the trust's and beneficiaries', not the trustee's, money, so the trustee must be a fiduciary (i.e., show faith, "fides" if you like Latin, or "Fi" if you have any marines in your family), and that is essentially a standard where you must put others' (here, the trust's and beneficiaries') interests ahead of your own and protect them above all. Google "Maldonado letter" and all will be revealed, Redcloud.

401king, whether fully intentionally or not, or well- or ill- advisedly or not, the new hardship regime does not require the participant to take any loan. See Treas. reg. 1.401(k)-1(d)(3)(iii)(B)(2), and contrast with Treas. reg. 1.401(k)-1(d)(3)(iii)(C), which makes plan loans optional and does not reference other types of loans. Moreover, the deemed hardship for home purchase (Treas. reg. 1.401(k)-1(d)(3)(ii)(B)(2) only requires that the distribution be directly related to the purchase of a home, not funding the down-payment. These provisions are intended as "safe harbors." They would not be safe if we have to read into them what the IRS might have wanted (but probably did not want) to say.

Yes unless the software designer at some point said to him/herself, "You know, I just don't think that hardship distributions should ever be more than, say, $100k, so as a common sense check I will include a line of code in says that if the request is for > $100k, kick it out for manual processing." And then we are back to where we started, Peter.

Redcloud, the conventional (and probably correct) answer to your question is that contributions are a "settlor" function and do not entail fiduciary duties. So the plan administrator (which will likely be the employer or someone aligned with the employer) should simply desire to see that any contributions due the plan are made. The dispute regarding backpay would be separate, and the plan would just follow whatever the decision would be in the discrimination case. If there was a recovery that led to a higher contribution obligation, so be it.