Luke Bailey

But if for some reason, e.g. a 100%-owned ESOP company and an egalitarian group of participants, you wanted a stock sale to be subject to shareholder vote, you could put it in the company's bylaws, don't you think?

austin3515, the rule you are referring to is in the proposed regs, but only for circumstances where amounts are redeferred. See Prop. Reg. sec. 1.457-12(e)(2)(iii). In the circumstance you describe it does not apply.

The regulatory underpinning for wingCPA's response is 1.409A-3(f), re "Substutions." Would be interested to know how closely held the company is. There is a question as to whether deferred comp works in a situation where the exec owns 100% of the company and there is no effective restraint on access to funds.

Actually, this is quite complicated. First, you have to distinguish between deferred comp that is includable BECAUSE of 409A (i.e., the deferral fails 409A, so is includable currently in income under 409A), vs. nonqualified deferred comp that complies with 409A., but that is includable in income in accordance with the deferred comp rules, typically when it is paid. Further confusion arises from (1) whenever nonqualified deferred comp is paid, its reportable on Form W-2, which leads to an inference that it is going to be comp for 401(k) purposes. And a final source of potential confusion, even if it is good comp for 401(k) purposes under 415 and 414(s), you have to worry about the 1.415(c)-2(e) timing rules. So first, any comp that is good under the 415 rules is theoretically going to be good also for 414(s) and may be incorporated into your plan document by virtue of one of the safe harbors. See 1.414(s)-1(c)(2). Second, 1.415(c)-2(b)(7) says that amounts included because of 409A (i.e., because 409A is not complied with) are includible comp for 415 purposes. Third, in the much more common scenario where nonqualified deferred comp complies with 409A and so is taxable when paid, not at the time of deferral, it is permissible to include it in comp for qualified plan purposes, under the general 1.415(c)-2 comp definition, and you may include the paid deferred comp in the year it is paid and reported on Form W-2, but only if your plan specifically says so. See 1.415(c)-2, last sentence. If your plan uses one of the 1.415(c)-2(d)(2) or (3) safe harbors (withholding wages or W-2 reportable wages), then you are typically including 409A-compliant deferred comp in plan comp, subject to the timing rule. In other words, if the participant's withholding wages or W-2 reportable wages include nonqualified deferred comp that was 409A-compliant but was paid during the year, and therefore subject to tax as wages in that year, it is going to be in Box 1 of the individual's W-2, and subject to withholding, for the year, so you next have to determine when it was paid. If, for example, it was deferred with a fixed payment date, and that fixed date of payment has come around and the amount was paid to the individual during the year, while he or she was still employed, then it is includable (again, assuming your plan uses the safe harbor definition). If, on the other hand, you have the more typical situation where the deferred comp is paid to the individual after he or she has separated from service, it will typically not be includable, subject to one very limited exception. The reasons it will typically not be includable are first, because it will often be paid more than 2-1/2 months after separation. Second, even if paid within 2-1/2 months after separation, it will usually fail the 1.415(c)-2(e)(3)(ii) requirements for being regular pay that would have been paid during the year if the employee had not severed employment. However, under 1.415(c)-2(e)(3)(iii)(B), if the amount is paid within 2-1/2 months of severance and the date on which it is paid after severance and within 2-1/2 months of severance is the date on which it would have been paid if the employee had not separated (e.g., again, a fixed date-triggered payment, as opposed to a separation from service-triggered payment), then it is includable.

draper1, this would not have worked (because time would have been aggregated) under "shared employee" rule in proposed regulations under IRC sec. 414(o). The proposed regulations were never finalized and eventually were withdrawn. You can draw whatever inferences from that you think appropriate.

Assuming a calendar year taxable year, if the partner makes an irrevocable election by 12/31, he/she has made the deferral for the calendar year containing that 12/31. Treas. reg. 1.401(k)-1(b)(4)(iii)(B) and 1.401(k)-2(a)(4)(ii). The cash must then be contributed by the partnership by the tax return filing deadline of the partner, including extensions, in order to be deductible. IRC sec. 404(a)(6). Sometimes the partner has to write a check back to the partnership to make this happen, because he or she was overdistributed during the year in which the deferral election was made. Not a problem because any such overdistribution is a distribution of capital from partner's capital account, and the payback just replenishes the partner's capital account in accordance with partnership agreement. Happens all the time and is consistent with legal requirements. It's not like an employee-employer tax relationship.

oldman63, both nongovernmental tax exempts and governments can have 457(b)'s, so I disagree. If this is a governmental entity, it must be funded and does not need to be "top-hat," since ERISA would not apply.

Emichele0319, agree with leevena, but will add that if the employer is not requiring the employees to pay all or part of the premium, there is no need for a 125 plan, because there is no choice between cash and nontaxable benefits. If the employer requires the employee to pay part of the premium, but does not give them a choice, I would want to know exactly how that operates before commenting further. I have not seen that and it has issues, I think.

Why would the IRS make this harder to get than a hardship distribution, which can be done based on self-certification, as long as the employer does not have contrary knowledge?

In a case involving a large plan that did not want to have to issue the back 1099-R's for PS 58 costs to correct, we negotiated a closing agreement with IRS for payment by employer.

Not sure if I completely understand the post, Ken_BenefitScape, but under proposed IRS regs an ICHRA is MEC. Since an offer of MEC (whether providing minimum value or affordable) gets the employer out of the A penalty, offering an ICHRA gets the employer out of the A penalty. To get the employer out of the B penalty, the employee has to either accept the ICHRA (whether or not it provides MV or is affordable, in which case the employee is covered by MEC and therefore cannot get PTC), or reject it, but it provided MV and was affordable. If the ICHRA was not affordable or did not provide MV, and is rejected by employee, then the employee can get PTC and employer will have B penalty for that employee, assuming employer is ALE, etc. Determining affordability for ICHRA is complicated, which is why it is subject to detailed proposed regs.

Most likely the plan says that it covers employees of Company B and of members of B's controlled group that have adopted plan. Because A is no longer in B's controlled group, B's employees are, under such language, no longer eligible to participate (unless the plan is amended to make it a multiple employer plan, as Griswold suggests), and because they have ceased to be employed by the 414(b)/(c) "employer" that maintains the plan, they have experienced a separation from service. For a 401(k) plan, see Treas. reg. 1.401(k)-1(d)(2) and the definition of "employer" in 1.401(k)-6.

Thanks, JOH.

Treas. Reg. 1.401(l)-2(d)(4).

The regs allow the plan to specify either, and the DC LRMs have language for this. The plan document should address, either hardwire one or the other first (or pro rata) or say that will be determined under uniform policy of plan administrator.

It applies to any defined contribution 414(d) plan, so would include 401(a) (including grandfathered 401(k)), 403(b), and 457(b), as long as DC and governmental under 414(d). See Secure Act Section 404.

If a qualified plan holds an LP or LLC interest and the K-1 has UBTI on it (e.g., active business income, oil & gas working interest, leverage that doesn't meet the 514(c)(9) rules, etc.), and the amount exceeds $1,000, the plan must file a 990-T and pay UBIT. If you're lucky, the plan will have provisions allocating the tax expense to the account invested in the asset (or the participant will be understanding), and the account will have enough liquid assets to pay the tax.

Usually the PT is with the IRA owner, and then yes, that is the result. Ditto if the transaction is with the owner's "beneficiary," whoever that is. See 408(d)(2). But in the small number of instances where the PT is with a third party, you just have the 4975 excise tax. We are typically going to be talking about a retroactive exemption, which has a pretty high bar. Do you have an estimate of the success rate those clients have had, JOH?

401 Chaos, you mean like a separate, fully insured carve-out for a company's managers and executives, while the rest of the workforce are covered by a self-insured MEC plan that may or may not provide minimum value or affordability, depending on the employer's appetite for B penalty risk? That's why the ACA required extension of 105(h)-like rules to fully insured. Note also that the 105(h) regs themselves, as I recall, do not explicitly address discrimination in the amount the employer contributes for coverage, but only discrimination as to eligibility and benefits.

401 Chaos, in the absence of the regs you mention in last paragraph (don't hold your breath for them to drop any time soon), my analysis would agree with yours.

Do you mean the participants are going to be given a choice? That could make it worse from a securities law standpoint in terms of disclosures that would be required so that participants can make informed decision. Note that you will find very few IRA custodians willing to take the rollover, if any, so sponsor will need to come up with the cash soon enough, and will have less of it because of the cost of the valuations as noted by Larry.

austin3515, 401 Chaos makes a good point. A pattern of terminating individual arrangements to accommodate the employees who have them could allow the IRS to infer that the organization's 457(f) arrangements lacked SRF generally.

austin3515, I'm in agreement with EBECatty. This will be driven to some extent by what the document says, but in most situations I think that unless the participant(s) are, for some reason, going to forfeit, then in connection with the termination you will have to accelerate vesting of the accrued-to-date benefit (e.g., if there was an accrual over a number of years, not all of which have transpired), or perhaps all of the benefit (again, depends on what plan says), which in either case will cause inclusion in gross income for FIT and FICA purposes, which in turn under most documents will result in payment. The 457(f)'s that I draft always cover termination in that way.

My guess is that even under a fairly basic partnership agreement and state partnership law, the result is that he has a negative capital account and estate probably has an obligation to repay.

I think it depends on whether there was some sort of legal action, e.g. board minutes, declaring the contribution. If there were, then I think you'd have to make it, allocate for the year it was intended to hit, and deduct in next after making it, since the contribution deadline missed for current deduction. Here, since it's a solo 401(k), likely very informal. If all there was was an informal indication, e.g. a phone call to you, Austin 3515, that he or she was going to contribute the 10 grand, it probably is not irrevocable.