Luke Bailey

Brian, all of them. Pages. History of employment, who controls, who has hire and fire, what are the agreements between the practices, and more. The conservative approach is always best, if they are willing to pay the benefits.

Brian, I think you might get some argument on whether they are a good guideline. First, they were proposed under a statute (414(o)), that doesn't say anything in and of itself, but just gives the IRA authority to write regs dealing with abuses. So they would not have interpreted the law, but rather created it. And they were withdrawn. The above is not to say that they did not make sense and were not good policy, but for the moment I think it is RI (at least temporary) P the shared employee rules. The facts in your question are not completely clear to me. But I think under current law you have a difficult threshold question, i.e., are you going to treat the practice that pays the individual and whose name is on the W-2 for all of the employee's compensation as the employer for all of the individual's hours, or are you going to say that for part of the individual's work he or she is really an employee of the entity for which the services are performed and that reimburses the other practice? Very difficult determination and highly dependent on facts and circumstances.

No direct legal reason. Whether it is a good idea or not would depend on a number of factors. It would be unusual, I think. For one thing, if the sale was for an installment note, or if there are issues down the line regarding indemnities, etc. with respect to the acquisition, there could be a conflict that would prevent the trustee from enforcing the ESOP's rights. Could even be a prohibited transaction. Again, depending on facts and circumstances, the plan sponsor's selection of the individual to be trustee, if there were inhibitions on the individual's being able to fully represent the trust, could be a breach of its ERISA fiduciary duty of appointment.

Good points, RatherBeGolfing. I think bottom line, if there are a lot of tipped employees who (a) want to report all their income, and (b) want to save in their company's 401(k), there needs to be some attention and helpful guidance to this from IRS. The existing does not seem adequate and IRS's preapproved plans group and field agents are perhaps not applying the current law in a completely consistent manner, albeit that what they are doing may be practical.

austin3515, personally I think the answer should be the same in both cases. The employer just couldn't fund the contribution by asking the server to pay over one of the $100 bills. Yeah. Sort of surprising there's no guidance. Might even require leglislation.

I've never had to deal with this issue so would like someone to confirm my guesses as to the legal issue, or set me right if I'm missing it. On the one hand, the tips (both deemed and any actual in excess of deemed) are W-2 wages, therefore comp, therefore subject to deferral. On the other hand, I guess the IRS would have a hard time agreeing that the employee can take cash that is initially in his/her possession (because left on the table or handed to him or her by customer), and give it back to the employer for purposes of making a contribution, although I could argue they should allow that. But I believe most tipped employees also receive non-tip amounts, and the credit card tips are not subject to the employee's dominion and control until paid to him/her by the employer. So isn't the right theoretical (i.e., putting aside how you accomplish this in plan administration/payroll) answer that the employee should be able to defer whatever stated percentage he or she elects of Box 1 W-2, subject to reduction if that amount is less than the amount actually paid to him or her physically by the employer?

Actually, to go to prison (in United States) you need to have criminal intent. You also need intent to take the statute of limitations out beyond the 3- or 6-year that is otherwise applicable, depending on the magnitude of the exclusion.

Accurate as stated, but with a restatement it will be a more arduous, and at least to some extent more error-prone task to see what you've changed. Will definitely be harder to explain to an employee plans agent. Right. So I would recommend just doing add-on amendments forever, no restatement, and then the unofficial "working copy" that looks like a restatement, but is not executed, is what you can use to operate the plan.

I'll second that.

Completely agree with QDROphile and Peter Gulia, but why bother? I would recommend separate documents for a host of practical reasons.

I agree with Peter's analysis, but isn't that just a way of saying, yes, the company will need to include all of its U.S. employees in the coverage analysis?

EBECatty, I agree. I think this is identical to the math I suggested, just a different way of expressing it in words.

EBECatty, I have not given this a lot of thought, but I think that your problem lies here, and you are right to be concerned with the shift from non-account balance to account balance. Right now, the person is getting $100k, fixed, per year. Now, if the investments are volatile, they could get, say, $150 year one (arguably an acceleration), $50,000 year two (arguably a deferral), etc. If you say that they will always get the lesser of $100k or the entire account balance in every year, and the entire account balance in the fifth year, then that probably solves the problem because they are simply getting a change in the amount (if > $100k), or experiencing a forfeiture (if < $100k).

chibenefits, I completely agree with XTitan regarding the possibility that upon close inspection you may be able to determine that this was not an nqdc plan, but an std plan. Having said that, if it were an nqdc plan, I don't think that your termination would be covered by the voluntary termination rules, because those rules specifically permit you to pay out early, if all the conditions of the exception are met. You are not paying out, so you do not need that exception. I would be more concerned that, depending on facts and circumstances, if you started a new plan, the "termination" without payout and the new plan would be considered together by the IRS as, in effect, an amendment. E.g., if the "terminated" plan had payout provisions and elections that were undesirable, and then the new plan has a better-thought-out payment scheme, but all the same participants are in the second plan, and they have the same phantom stock amounts, that would seem to me possibly a subterfuge.

The UBTI rules certainly apply to a 401(k) plan. Oil and gas interests can be tricky, but usually "working interests" can generate UBTI, AJC.

Jason Grant, you have supplied insufficient facts to reach a determination, but assuming that the real estate firm makes money from the real estate agent's services, e.g., gets a cut of the commissions that he or she earns, then the real estate agent would be a "leased owner" under some proposed affiliated service group regulations from long ago. Prop. regs. sec. 1.414(o)-1. Those regulations have never been finalized, but unlike most of the other proposed regulations under IRC sec. 414(o), which were withdrawn by the IRS in 1993, they are still proposed with a retroactive effective date.

And then you'd have a 10% excise tax under IRC sec. 4972.

Catch22PGM, your post would indicate that the exec is supposed to put his own salary deferral under vesting and not get a match? That does not work. IRS will not accept that there is a risk of forfeiture.

Section 4.05(2) of Rev. Proc. 2019-19 (aka "EPCRS"): (2) Availability of correction by plan amendment in SCP. SCP is available for corrections made by plan amendment, as provided in section 4.05(2)(a), (b), and (c). In addition, a Plan Sponsor may adopt a plan amendment to reflect corrective action. For example, if the plan failed to satisfy the actual deferral percentage (ADP) test required under § 401(k)(3) and the Plan Sponsor must make qualified nonelective contributions not already provided for under the plan, the plan may be amended to provide for qualified nonelective contributions.

Agree 100%, but it would be very unusual in my experience for a DC plan not to treat loan as segregated investment. But definitely check the plan document, M Norton.

Maybe the employer wants to help the rank and file out, but doesn't want to have ADP dragged down and also wants to avoid complexity of testing the excludable group separately if they are unlikely to contribute anything?

Scuba 401, I'd love to try to provide some insight, but so far, for the info you have provided, I think JOH has nailed it.

Good points, shERPA (and consistent with your tagline's dry humor🙂). I had not reviewed an agreement between the TPA and client that stated that, but will ask them if there is one. Would explain a lot. The issue is then narrowed down to how do you evaluate the appropriateness of a 3(16) fiduciary.

My client is being asked by its TPA to enter into a new trust agreement with a directed institutional trustee (a trust company) that makes the TPA a party to the trust agreement. Under the proposed trust agreement the TPA, called the "Designated Representative," is responsible for ensuring the timelines and amount of contributions, and the TPA is given authority to authorize distributions and payments on its own, with the trustee being indemnified by the plan sponsor for any losses resulting from following the TPA's directions. These provisions are part of a new standard package designed by the TPA to simplify the plan sponsor's tasks with respect to the plan and lower costs, and it is being urged on all of this TPA's clients, as I understand it. I am used to trust agreements that allow the trustee to rely on plan sponsor instructions it believes in good faith to be authentic, and to provisions in which the plan sponsor indemnifies the trustee for everything short of willful malfeasance or some other low standard. We push back on those with mixed success, depending on size of the client. But this is the first time I've seen a trust arrangement in which the TPA is a party to the trust and the plan sponsor delegates extensive authority to the TPA. I guess at a minimum this makes the TPA a fiduciary, which they usually don't want to be. My question is, is this common and I have just not run across it before, or do others think it is unusual and perhaps not well thought out?

kmhaab, I agree with Brian Gilmore, but I see this a lot if the coverage is fully insured. At least in Texas major carriers actually write employer group coverage that includes directors and independent contractors in the definition of "employee," as long as there is at least one W-2 employee covered. I researched this and it is consistent with a specific provision of Texas insurance law. Does not seem to be contemplated by ERISA or any DOL guidance I am aware of, and could raise an interesting preemption question if there were ever a suit over coverage, but it's out there.