Luke Bailey

I agree with C.B. Zeller that it is facts and circumstances. Usually if the buyer is taking the employees and doesn't want to do a spin-off merger of the employees' balances, it will negotiate for full vesting for the group of employees it's getting. Look at it from the employees' perspective (and it's even worse if they will not be hired by the buyer).

The provision is IRC sec. 408(m) and it applies to "individually directed accounts." There are no regulations under it. I personally think that in the absence of regulations it would be hard for the IRS to take the position that a DB plan that happens to have only one participant now is an individually directed account, unless the plan had one of those really ancient/weird provisions for a separate account feature that some professional firms used to have before 401(a)(26) seemed to prohibit them, which it would have no reason to contain unless there was another participant, or they were worried about what would happen if someone else joined the plan.

Carol, the error would be failing to follow your plan document if it said that you would contribute whatever the employee elected, right? So I guess if you put a provision in the plan document that subordinated the elective deferral to other required or elected withholdings, along the lines of what Peter describes, there would be no issue, right? And I guess even without such a specific provision, if your plan document has general language regarding the authority of the plan administrator to interpret and administer the plan that could be stretched to cover this, i.e., to allow you to do what is practical, you would also be OK, even if a particular IRS agent decided to go "unseemly" on you. Put a plan administrator memo on the action taken in the fiduciary file and date and sign it. Show that to the agent in a couple of years, if there is an exam, and I think you'd be OK.

TDApril, as Mike implies, read the plan document provision. Some say the account goes to estate if no surviving spouse, but a lot of plans will say that in the absence of a surviving spouse the account will go to children.

Scott, tell them to take whatever they were going to pay for the "group MEC" or "group gap" coverage and just add that to what they are going to contribute to the employees' ICHRAs.

The key is that you have to have the offset within 12 months of termination of employment. There's a safe harbor that if the offset occurs within 12 months of severance from employment it qualifies, without having to get into the details of exactly why it did not default sooner. See Treas. reg. 1.402(c)-3(a)(2)(iv)(B). Most folks will meet these conditions. The only way not to is to keep making payments on the loan (in the minority of plans that allow that) for 12 months or more, and then stop. Don't do that!

The contributions will be based on W-2's, not K-1's. Where you get the cash is irrelevant.

1. Do they have a 401(k)? 2. Under its terms, is the person you are asking for eligible for it? If they promised, but they have none, or they have one but would need to amend it to include this person, then I believe that there is at least one case in one circuit that says the promise is unenforceable because preempted by ERISA, which does not address. I don't know if that is the right answer. Keep pushing on both facts and law. Do you have a letter or other writing that would show the promise?

There are no regs. Obviously, someone very literal (Justice Scalia, RIP?) could say that the money was spent not for qualified first-time homebuyer expenses, but to repay the loan. On the other hand, given the transaction as a whole, a normal person might say he used the cash for the home purchase, and they would not necessarily be inconsistent with the Code sec or Pub 590-b. It's up to the individual and his or her tax prepare to figure out what's right when he files his 1040, right?

Miss your intelligent, honest mind, Tom, but see you have it focused on the more important stuff.

My recollection is that the law does not actually impose an obligation on the plan sponsor in this circumstance to prevent the employee from making a withdrawal. Plans sometimes do that for a limited period. I suppose the divorce court could also have enjoined the participant from taking the funds out. Finally, I do think the divorce court could put a constructive trust on the funds in the hands of the participant, if he or she still has that amount.

As long as a copy gets to the IRS, the missing participant will likely find out about it.

If the plan does not have a lump sum option, and says the only form of distribution is annuity, they will need to buy annuities, but that is really unusual.

I assume IRS is also asserting penalties for failure to file 1095's and 1094-c's?

Please clarify. If it's fully insured, you have to pay all the premiums to the insurer. Usually the employer pays part of the premiums, the employees another part, but not always. Unless "charg[ing] administration expense to [the plan]" raises employee premiums, what's the difference?

The monthly increases to age 70 are based on when you start your benefit, not when you stop working. Prompt distribution of the 401(k) plan account could help the individual wait to start receiving soc sec benefits. As Mike said, there are a lot of variables. Certainly, if an individual has less than 35 years of earnings, they should think hard about whether they should continue to work. Basically, anyone in his/her 60's should establish their soc sec account online and look at their earnings history and think through some "what-ifs."

Chippy, the key issue is whether anyone involved in the decision to make the investment at the "physician practice" has any ownership, business (e.g., referrals of patients), or personal (e.g., spouse) interest in the surgery center. If anyone does have such an interest, then you (or an attorney hired by the physician practice) need(s) to diligently review Section 406 of ERISA and Section 4975 of the Code for prohibited transaction issue.

Pammie57, completely agree with EBECatty, but if for some reason they really don't want to cover these employees with a 401(k) for a year, even just deferrals, they can terminate it.

Not completely following, perhaps, but regardless of its name, is the bank account owned by the ESOP's trust?

The authority for what C.B. Zeller describes starts with 1.401(k)-3(h)(3), and then follow the cross-references.

Agree with EBECatty and CuseFan that whether forfeitability on for cause termination is SRF is questionable and depends on facts and circumstances. The most important fact/circumstances would be whether has happened at this organization at this level, or does in future. It could get messy. And if termination for cause is a real possibility, it encourages executives to leave as soon as vested. Regarding your point 3, and putting aside the SRF issue discussed in prior paragraph, right. One way to deal with this is to include a provision permitting distribution of the amount includable in income and for FICA, so executive has the cash to pay tax. The remainder then becomes, in effect, conventional NQDC. Income tax on earnings is deferred until payment, and there should be no more FICA. The principal (what was left after distribution to pay income and FICA) is recovered as payments are made under Section 72.

In order to be a CODA, each individual partner would have to have discretion over the amount contributed for him or her. If you don't have that, you should not have a CODA.

I don't think so. Just needed to change your communications. The revised IRS rollover notice includes explanation.

I don't know of any rule that would prohibit, but what justified the "in-service" distribution in the first place?

Bob the Swimmer, Mike's point here is a good one. Make sure to check. As to whether or not you qualify for SCP for 2020, I'd be interested to hear Mike flesh out his thinking on that. What does it mean for the "increase in the benefit" to "apply to all employees eligible to participate in the plan." Arguably, only the B employees are getting the increase, since the A already had it. On the other hand, both the A and B employees are getting the 3.5% benefit, which is what was increased for the B group. I think you could make the argument either way at a purely intellectual level based on the wording, but sometimes it's good to be practical. It seems like every EPCRS Rev. Proc. has these sorts of issues. Hard to make everything 100% clear in this complex area.