Luke Bailey

I agree with Peter that you could establish a more conservative interpretation, but it seems to me that the way IRS wrote the reg it would make distribution of the entire purchase price (plus gross-up for taxes) an "immediate and heavy financial need."

Totally agree, RBG. I meant you have to treat everyone the same who gets cashed out at around the same time. Sure. If the stock market tanks but the plan is in short-term treasuries, you would probably not need to do a valuation, BG5150. If the plan has nontraded assets, you must value at least once per year. In that case, you should cash people out only after end of year, when you have the valuation. I have had investment company clients with lots of untraded assets in partially pooled part of plan (for employer contributions), but they usually have quarterly valuations, usually finished months after the end of the quarter.

It is an issue. My recollection is that there was litigation about this very issue after the 1987 market meltdown, and at least one case in 9th circuit said it was not a cutback, but I would need to research. May have been cases both way, and may depend to some extent on plan language. As Bird indicated, language permitting special valuations should always be included in a pooled plan, and yes, everyone has to be treated the same. My suggested provision paying out only after, and on basis, of next valuation was a suggestion for going foward. But you really need both a forward-looking valuation and a provision for special valuations, in case there is extreme market volatility between the date of the valuation and the time you can pay out the participant, which can happen even with forward-looking valuations.

The employer really needs to change the provision to say that the participant gets paid out as soon as administratively feasible following the first valuation after the date of their termination of employment. Otherwise they're setting themselves up for potentially serious hurt at some point in the future when there will be an unfortunate market swing right around the date of an individual's termination.

I guess so, Mike. But there's less data involved with the collectively bargained exception.

Kansas401k, if it were me I would follow up and identify the lawyer who is working on establishing the new conservatorship and talk to him/her and then determine what to do. Per your post, the widow hasn't come back to you with the death certificate yet. Until you reach the point where the widow is demanding payment and has fulfilled her requirements, you've got time to see what the "concerned" parties come up with. You don't want to get on the wrong side of a probate court judge and have to explain ERISA preemption to him/her.

RatherBeGolfing, under Treas. reg. 1.410(b)-2(a)(7) a plan that covers only collectively bargained employees automatically satisfies coverage, so you're fine.

bito'money, I have not worked through the PBGC's forms/instructions/guidance on this line-by-line, but I think that in order to do that you would have to list the participant as the missing participant/beneficiary, even though he or she is dead. I think if the participant is already dead you are supposed to identify the beneficiaries. But the PBGC obviously does take amounts for living missing participants who eventually die before they are located, so in theory as long as there is no direct question on the form on which you have to represent that your "missing participant" is still alive (and I did not find any), it might work. Note the PBGC does what you to attach documentation regarding default beneficiary provisions of plan and any participant designation, foreseeing the possibility that the participant may be dead before they find him or her. But technically, I think that they anticipate that the participant is alive when you identify him or her. Could be wrong. Maybe others have reviewed this more closely.

HCE, gc@chimentowebb.com is correct. Although a grantor trust is generally not required to have an EIN, if for purposes of keeping investment income separate for internal accounting purposes the trustee gets an EIN for the trust and has the issuers of the trust's investments report using the trust EIN instead of the grantor's, a minimal 1041, as gc@chimentowebb.com describes, is required. Here's a link to an article that explains that and alternatives. https://www.thetaxadviser.com/issues/2013/sep/clinic-story-03.html

I agree with CuseFan. I actually had this situation years ago. The arguable "fringe benefit" was even less likely to be what most folks would consider a "fringe benefit" than stock option exercise income (I assume what you had, WCC, was an exercise of nonqualified stock options), but we wrote the employer an opinion letter that the auditor (CPA for 5500, not IRS) accepted. (The auditor had caught the apparent discrepancy between W-2 income and comp for plan purposes as calculated by employer.) There is no official federal income tax definition of "fringe benefit," which helps. There is a really strong 7th Cir. case, Judge Posner opinion, if I remember correctly, maybe from 1990's involving an oil company DB plan's definition of compensation, that basically said if (a) the employer's interpretation is not hopelessly in conflict with the plan document, (b) it is not an irrational interpretation of the term, and (c) the employer consistently applied its interpretation, at all times, then the employer/plan administrator had the right to interpret the document as it thought appropriate. For the opinion I pretty easily found language in the plan document saying that the plan administrator's interpretations were final, binding, etc. You might want to look for the case.

An answer would require a review of your trust and related documents, but rabbi trusts are grantor trusts and so not taxpayers/not required to have an EIN. If the rabbi trust participants are entitled to gain on assets (i.e., gain goes into the measurement of their benefit), I suppose that having an EIN for the trust might be beneficial from a housekeeping standpoint by keeping investment return reports (1099-INTs, -DIVs, etc.) separate, but it would not be necessary and the employer grantor of the trust would need to understand that everything reported as income of the trust under its EIN is from a tax perspective the income of the employer, so needs to go on its 1120-whatever. Again, I have not reviewed your documents or arrangement, but if you really have what the IRS letter rulings and folks in the biz refer to as a "rabbi trust," it will not be filing a 1041.

I agree with QDROphile, but perhaps the rule can be stated more explicitly and in greater detail: When you roll from a Roth 401(k) account to a Roth IRA, contrary to what you might have expected, at least for the portion of the Roth IRA consisting of the rollover, there is no carry over or "tacking" of the portion of the 5-year holding period already satisfied in the Roth 401(k) to the Roth IRA. Rather, any new Roth IRA, even one that receives a rollover from a Roth 401(k), starts at zero years on its own 5-year holding period, and the money coming from the Roth 401(k) generally loses its own holding period history and takes on the holding period history of the Roth IRA you're rolling to. Depending on when the Roth IRA was established relative to the first dollars into the Roth 401(k), could help you or hurt you. So if you roll from a Roth 401(k) account to a Roth IRA that was already up and running for a while (even if much smaller than the 401(k) account you are rolling in, or even minimal), then the Roth 401(k) money will take on the holding period of the Roth IRA, even if more of the 5-year period was satisfied in the Roth IRA than in the Roth 401(k) account. Conversely, if you roll funds from a Roth 401(k) that had satisfied the holding period to a brand new Roth IRA, you have to complete a brand new 5-year holding period under the Roth IRA in order for distributions from the IRA to have the Roth benefit of being not includible in gross income. (Of course the portion of any distribution from the Roth IRA that consisted of the nondeductible contributions to the Roth 401(k) would not be includible in your gross income, since would be a recovery of after-tax basis.) But note that there is a "twist" if, as you say is your case, you already satisfied the 5-year holding period in the Roth 401(k) account. In that case, because the distribution from the Roth 401(k) account was 100% nontaxable when you rolled it over, it's all after-tax "basis" in the Roth IRA, and only the post-rollover earnings on that amount would be subject to tax if you withdrew from the Roth IRA before the Roth IRA had itself satisfied the 5-year holding period. See Treas. Reg. 1.408A-10, Q&A-4, Examples 1, 2, and 3.

ESOP Guy is right, there is always an estate for purposes of the deceased's property passing to someone. Every state has provisions for that in its probate code. And ESOP Guy's suggests for sleuthing out who the heirs might be are excellent. I would not suggest reallocating, however. If you can identify the beneficiaries, you can use the missing beneficiary component of the PBGC's missing participant program if you are unable to find them. BTW, you say that the plan was notified of the death in 2015. Who notified of the death? Is there a letter in the file? That might of course provide a clue if there is.

The owner might be able to get that in VCP. If the owner is unwilling to try VCP, then advise him that the plan is disqualified, but the participants are still owed their money under ERISA, i.e. both the money currently allocated to their accounts and the missed contributions. I have worked on a case where DOL investigated a disqualified plan after the owner paid out all amounts owed to other participants from his own account. DOL closed the investigation and included in their report that the participants had received what was owed them (even though they could not roll it over) and plan qualification was not their issue, but IRS's. IRS never audited. Key is that if owner accepts plan disqualification, then the payments cannot be reported on 1099-R as coming from plan and eligible for rollover, and you cannot be involved in preparing 1099-R's that would indicate otherwise. But I would at least run the numbers on a possible VCP, and as Mike said above, maybe run past IRS on a no-names call once that program opens up next year, or if there is urgency to submit, submit as anonymous submission now.

I think it's a legitimate plan expense, if the advice relates solely to the investments of the account, and allocable to the participant's account, but I agree with the rest of your points, BG5150.

That has been my conclusion, EBECatty. Brian, I think if you had the classic entrepreneur putting together a self-insured MEWA with hundreds of employees that started to slow-pay claims, they'd be right in there with the DOL. At least I hope they would! The Texas Insurance Code has the usual complement of prohibitive requirements (solvency, audits, etc.) for self-insured MEWAs.

I'm not following what exemption from the Form M-1 filing requirement you're relying on here. Brian, EBECatty is referring to the 2020 M-1 instructions, page 2, lower right-hand column: Re the basic question, I have not discussed the < 80% ownership question with a state insurance department, but I have sought informal advice from the Texas Dept. of Insurance regarding the Affiliate Service Group MEWA (e.g., with incorporated partners in a law firm) as well as the "transition services agreement" issue following an M&A transaction (which is another M-1 filing exception for the 410(b)(6)(C) period) and was told that TDI was aware that in these situations a MEWA existed, but it was not an enforcement priority for them.

FormsRstillmylife, my guess is you are more likely to get an inquiry regarding 2019 if you file the 2020. Right now the 2019 seems eligible for DFVCP, and you don't want to blow that. There is no perfect answer, here, but given the very large penalties that apply outside of DFVCP, I would make sure that the employer is aware of the risks and that its legal counsel quickly but thoroughly investigates the problem with the accounting firm, before deciding what to do.

Peter, I also vote for default. And in Belgarath's actual case, since there is no actual policy in place now, I would send the participant and alternate payee a letter saying that the plan would apply a pro rata allocation unless they wanted to resubmit a modified QDRO that might provide otherwise.

I would ask the participant and spouse. Why not?

Brian and Chaz, I agree with both your points, and I guess what it may come down to is practicality and fairness. You've got a health plan with an HMO and a PPO, with different carriers for some reason. The insurer behind the PPO does worse on its medical loss ratio, so the MLR rebates are higher for that benefit. Since the participants that chose the PPO suffered the most, it makes sense to allocate the larger MLR rebate only to them. Does the same thing apply for an FSA? Participant A left w credit balance, so it's fairer to allocate that to participant B who is still employed and still in the FSA? Hmmh.

Ray, I don't think they would include it in a pub unless they had at least done a Revenue Ruling, and that's a lot of work for the IRS. Ray, Peter beat me to it. The IRA custodian is the bigger issue. If you can convince it (and the standards among custodians vary), then the paper trail to IRS is just going to show a perfectly good spousal rollover, so the custodian is really the hurdle. If there's a lot of money involved and the custodian that the client wants insists they can't do it without a ruling, then the client would need its own PLR. Probably would want a law firm with lawyers in the state where the estate is being administered, since the property rights will be determined under state law.

Peter, sure. DOL is not in any way bound by what IRS says. But at least we know the IRS would not have a problem with it, and hey, where are DOL's 125 plan regs, even proposed? BTW, from a conceptual standpoint, a 125 plan is not, and I don't think this is controversial, an ERISA plan at all. It is a tax gimmick that houses parts of the employer's ERISA welfare benefit plan (if there's a wrap plan). In the old days, you would see 125 plans that would call its different segments "plans," e.g. an "uninsured medical expense reimbursement plan" would be listed as one of the benefits housed in the 125 "plan."

BG5150, thinking further about this, I think my real reason for thinking that the amendment would not be a cutback is that a plan's CRD amendment, which there is still plenty of time to adopt (end of 2022), is supposed to document what the plan actually did, e.g. if it limited the amount to $50k, that's what the amendment would say. But you would agree, I think, that had the employer intended at the outset to limit CRD's to, say, the first 6 months of 2020, and had communicated that policy to its employees, it could have done that, and when it got around to amending the plan, its amendment would contain the June 30, 2020 cutoff of availability. That's all they would be doing here. The lingering issue has to do with the fact that the policy was not formally communicated to employees, but hopefully the recordkeeper's implementation was consistent and nondiscriminatory.

Brian and Peter, I had reviewed the same reg in connection with my argument that the exclusive benefit rule would apply to the plan as a whole, not to benefits within the plan, and when I did I was struck by the portion that I have excerpted above, but decided not to muddy the waters. Doesn't it say that the employer can just keep the excess? If that's the case, then how the heck does that satisfy exclusive benefit?