Luke Bailey

Yeah. Almost certainly that is wrong, as explained in prior posts, coleboy.

Good point, Lou S., but then not so much a matter of research. I think that word in david rigby's question may have thrown me off.

I was an expert in a case where this issue was involved. Fully agree with above that the plan probably should contain an automatic revocation for divorce, but if it doesn't it gets complicated. Supreme Court cases (e.g., Egelhoff) many years ago seemed to elevate plan language (because of ERISA preemption combined with ERISA statute's inattention to the issue), so if plan language literally said that the person whose name is written on the form gets it, that person would get it. Textualism, sort of. Later cases in lower federal courts seem to limit this to say that, well, the plan administrator may be OK in terms of its duty in following the beneficiary designation (again assuming no plan language or admin procedure otherwise) and paying to the former spouse, but maybe then the person(s) who would otherwise be the beneficiaries if not for the (seemingly unintentionally uncorrected) beneficiary designation can then ask court for a constructive trust and they and the former spouse can fight it out in court. Plan administrator might want to interplead. Also, the terms of the QDRO and marital dissolution must be reviewed carefully, because there may be the equivalent of a quitclaim by the QDRO recipient to any other benefit, which lower courts have enforced. What a lawyer gets paid for putting a sentence into the plan document that says that a beneficiary designation naming the participant's spouse is revoked by death, $10. What a lawyer gets paid representing a party in a contest where the sentence was not included in the plan, $10,000. At least. And each side has a lawyer.

In my experience you have to show that what you did, which was not in the document, was consistent with employee expectations. Here you would not have that, but you would have the fact that you are catching it early and if there is no plan merger the IRS might be sympathetic on the vesting issue, e.g. if they fully vested in the other plan on its termination. The issue always comes up, i.e., when one business acquires another is it more likely hiring the employees or blending the businesses. Can be more one than the other.

Would be interested more in learning about your position, david rigby. I think waivers are certainly problematic from a policy perspective, and can make it impossible to pass coverage as explained above, in the wrong fact setting, but I thought they were otherwise on solid ground under case law and with IRS. I have actually had to fight the issue a couple of times and won on case law.

In my experience, as far as IRS is concerned, and most federal court judges as well, if a tree fell in the forest and there was no one around to hear it...Well, you've already admitted that the tree fell. I agree completely with Lou S and think he's covered the options, but to clarify when he says VCP, he doesn't mean pore over Rev. Proc. 2019-19 for an answer, he means make a submission and ask to conform your plan to your intent. Iffy, but would depend on other facts.

Bird, I was speaking loosely. Catach-up eligible person, say, is paid $60k per month, and defers, say, 11.15384615% of each paycheck. You don't stop them in May, when they have not deferred the full annual (get it, "of or pertaining to a period of a year") amount permitted, but rather let them keep deferring until they hit the 402(g) max for the year, then say that what they contributed, for the year (you get the idea) is 11.15384615% of $290,000, or $26,000.

Generally, fiduciary duty runs to the plan and its participants, and on the facts as presented, the kids seem neither. And ERISA preempts any attempted non-ERISA claims. Treating the description as a hypothetical, of course.

ABC Empl, based on the information you have provided, in theory you could go either way, i.e. conform the plan document to what happened, or remove money from account so conforms to what should have happened per plan doc. Probably will need to make VCP submission to IRS either way. Would need more facts to fully evaluate. Since participant is NHCE, probably easiest to amend plan for higher allocation, but again more facts needed to fully evaluate.

I take it that ABC is not adopting or merging into its own K plan any of the plans that covered the employees in the bankrupt business? If you merge those in, you will probably have to recognize service for vesting. Also, I assume these were asset purchases, not purchases of stock? Finally, Ahuntingus, you do not explicitly state whether the amendment was adopted. Was it? That is the key, I think, to whether it can be undone, not whether the employees have been informed about it yet.

Let me try to put the two above comments, which both seem correct to me, together. I certainly wouldn't make them after-tax unless the plan and deferral election form specifically provide for that, which is extremely unlikely. And also, if the 402(g) limit has not yet been hit, then unless the plan specifically provides otherwise, you should probably continue to treat as pre-tax, even if the person's compensation already "taken into account" under the plan exceeds the 401(a)(17) limit. True up at the end of the year, at least for deferrals, which is essentially what the IRS says on its website, as MWeddell points out. Match is a creature again of plan language. FYI, I have seen one preapproved plan of a very large provider a few years ago that did not explicitly provide for this, but had a very round-about way of dealing with it. Another plan of a similarly large provider that I just reviewed had language specifically along the lines of the IRS website comments that MWeddell points out, addressing and neutralizing the technical problem to the benefit of the participant. The problem has been around for years and is somewhat baffling when first encountered, if the plan document does not address it.

OK. Thanks, Alonzo. Given the concern over retirement savings "leakage," I don't see them making it any easier than it currently is for an employer to pull out of a MEP, allow distributions, and then immediately start a new K plan for the same employees.

Alonzo Church, would you agree that the post-2020 rules still require this? I don't think the SECURE Act made any changes in this area.

OK. Thanks, Alonzo. I think a DOL investigator, or IRS employee plans agent, would be more concerned.

Alonzo Church, you're talking independent CPA auditors, not IRS EP agents or DOL investigators, right? TOTALLY!

JOH, I started a discussion of this a few years ago on this Forum. I don't think the IRS has a rule/established hierarchy, so it is up to the plan. Probably best practice is to say in plan document that it will be done according to a policy, and then have a written policy.

I think then they would be late, RatherBeGolfing.

I think the main thing the DOL was concerned with was the security of the assets (e.g., from creditors of the person holding the funds in the event of bankruptcy). I cannot see the original question for some reason, but it would seem to me that the requirement is for the money to be in the trust by the deadline, whatever it is, and that the employer has not fulfilled duty just by sending the funds to someone other than trustee. A set-up whereby the employer timely sends the funds (thereby losing the float for itself) and yet the money is not deposited in the trust seems...nonoptimal.

I once (like 30 years ago) researched the issue for an ERISA-covered DB plan and concluded the source of the rule in that context was an old, c. 1960's or '70's Revenue Ruling.

The citation is IRC sec. 403(b)(7)(C). Some ETFs are structured as IRC sec. 851(a) RICs, and so would qualify, but others are structured as partnerships or grantor trusts, and so would not. Here is a link to an NTSA article that explains why many sponsors would consider even those ETFs that are RICs, and therefore could be included in a 403(b), as inappropriate: https://www.ntsa-net.org/are-etfs-and-self-directed-brokerage-accounts-available-403b-plans. Basically, the continuous daily pricing and exchange trading would put pressure on the platform and raise costs, I think.

Jpagano, it sounds like the plan to which new money is going for the employee group is a multiemployer defined contribution plan. If that is the case (and I have of course not confirmed that it is), then IRC sec. 413(b)(3) says that the exclusive benefit rule is satisfied, so you probably could. Nevertheless, I would want to look for more specific guidance under 413(b)(3), if there is any, specifically dealing with transfers, and most of all you would need to review the plan documents to see whether they provide for such a transfer. If they do and the plans are covered by favorable determination letters, that would be good. If they need to be amended to accomplish the transfer (and it sounds like at least your client's plan would need to be amended), then of course that is somewhat problematic given that IRS no longer issues DL's for amendments. Also, whenever you are dealing with union employees the employer should coordinate with the bargaining unit.

Good points, Belgarath and Peter. Thanks.

Right. But would require amendment to plan, including amendment in form of board resolutions. Other plan would also have to amend to take the transfer. Protected benefit/option rules would need to be provided.

Belgarath and StephenD, I now have this issue as well. I guess the missing link (i.e., what the guidance does not expressly state) is that if you adopted a 403(b) document, e.g. an individually designed plan, by end of 2009, but the sponsor failed to adopt a preapproved plan by March 31, 2020, and it's a calendar year plan, then you have until December 31, 2022 to adopt a preapproved plan and correct the plan document failure under SCP. Is that the way you are reading it now?

Yes, Lou. Thanks for the clarification.