Luke Bailey

cathyw I assume the employer was and after the transaction still will be under the 50 FTE Obamacare thrershhold? Note that while there are no IRS nondiscrimination requirements for fully insured plans, sp that, putting aside ACA penalties for "applicable large employers," you can offer fully insured group coverage to just a hand-picked subset of employees, most states have special group health underwriting rules in their insurance laws pursuant to which a group policy sold in the state will require that it be offered to all of the employer's employees. For example, in Texas an employer in the 50 and under market that chooses to offer health insurance to any of its employees must make the offer to all full-time (30 or more hours per week) employees. I believe California has a similar rule. You may want to check on the requirements for your state using the state insurance commissioner website. Alternatively, the broker may know.

Scuba 401, if it's a "merger" the deal document will actually use the term "merge." See if they'll send you an electronic copy and search for that term. But totally agree with EBECatty that even if not a formal "merger," it could be a "similar" transaction. Would need to review individual facts and circumstances and deal document. For example, often in a sale of assets the document will state that the buyer is going to make offers of employment to all current employees of target. That would be a factor pointing to a "similar transaction," although perhaps not conclusive depending on other facts and circumstances.

OK, thanks Below Ground. And of course as I think your response implied, if each group separately meets 410(b), you can just test as separate plans, so could simply have different percentages for each company even without new comparability.

Below Ground, my answer assumed separate testing of each group, of course.

If this is a safe harbor plan comp has to comply with 414(s).

Of course, Mike is correct that the plan language must at least allow for that, but in these situations we always write the plan that way. In other words, if, as is common, a controlled group has a single plan, the plan document should contain language that the contribution obligations for each company's employees are the financial obligation of their separate employer. Compensation is determined employer-by-employer, the tax deduction belongs to the employer, and based on different goals and financial performance, each employer may want to have different contribution rates.

Your problem is with DOL, not IRS. Google "Voluntary Fiduciary Correction Program (VFCP)," and within the guidance, "Delinquent Remittance of Participant Funds."

CaliBen, per your original post, they purchase the "insurance" through the "organization." But the vision, dental, and disability insurance that the purchase is actually provide by state-regulated insurance companies?

Is "the organization" an insurance company? If not, is this not a MEWA?

The controlled group analysis crosses international boundaries. The stuff in 1563 about foreign affiliates not being "component members" being disregarded is irrelevant to the Section 414(b) and (c) issues. Of course, nonresident aliens with no U.S. source income can be disregarded for 410(b).

ERISAgeek111, Bob the Swimmer preempted my next question. There probably is a "mistake of fact" exception to the new grant rule, similar to how there is a mistake of fact exception for Section 125 plan elections, but you will have to figure out whether the facts of the error are enough here to convince IRS (and your CPA auditing firm) that there was a mistake of fact.

I think this is correct, RatherBeGolfing. To the extent one participant's investment, even if it meets the requirements of 404(c), could possibly subject other participants' accounts to risk, it would seem to be a violation of 404(a)(1)(B). Usually the limited liability structure of the investment, e.g. for real estate, will protect the rest of the plan from tort or contract losses, but there could still be issues, e.g. UBIT. Obviously, the tax and commercial law generally treats the investment as being made by the plan, not the account. All 404(c) really fixes is the fiduciary liability problem.

Assuming the plan meets all the ISO requirements (limits, term, nontransferability, shareholder approval), etc., and that the price of the stock has not gone up, cancel the NQSO and issue an ISO.

John, your experience is different from PensionPete's. I suspect that in PensionPete's case the HCE owned all or a very significant percentage of the company.

Of course the other problem is that if the money stays in the plan long enough, the account eventually goes over $5,000 and can't be forced out.

Peter, I am tempted to be a contrarian on this one. My guess is that in an audit, or at Appeals, you could successfully argue with the agent that since this is a self-directed plan, the Trustee did not actually "engage" in the PT, even if the Trustee's signature was required on the investment documents. I doubt there's anything precisely on point, e.g. a case or a PLR, but you could cite in support ERISA sec. 404(c)(1)(A)(ii) and 29 C.F.R. sec. 2550.404c-1(d)(2), and the "(other than a fiduciary acting only as such)" parenthetical in the second sentence of IRC sec. 4975(a). Not dispositive, but I think probably carry the day. Of course, why guess, so I completely agree with you that the plan provision is an unnecessary risk. Does not have provisions whereby the participant making the investment indemnifies the Trustee and the plan's participants against any losses (including taxes from UBTI or disqualification) caused by the investment? These sorts of issues are often overlooked in "invest in the world" self-directed plans, but the need for them is obvious once you've seen them in action.

Check out the IRS website here: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues I believe that this has been the subject of previous discussion on Benefitslink. The amount paid by the company for the 2% or greater shareholder's medical is Box 1 W-2 wages, and so is comp for 401(k) and other qualified plan purposes.

I will second Mike's comment. I do not recall there being anything in the loan regs or any other IRS guidance regarding the handling of prepayments, so this would be governed by the terms of the note or, if the note does not address, probably state law. Very often a note will state that prepayments go directly to principal and cancel out the number of payments totaling that much principal at the back end. The parties could agree to change the note terms.

BenefitsRUs21, I agree with CuseFan, but would add that it, e.g., this is a corporation and you have a board resolution adopted (e.g., by unanimous consent or at a meeting of directors) before end of 2018, that may be enough for adoption. Depending on the entity's type and governance, adoption may occur before signature by officer on amendment. often, however, signature is all you have, so the foregoing may not be relevant to your situation.

kmhaab, responding to your question would really require knowing more detail, but if the withdrawal is not simultaneous with the transfer of assets, you would presumably need a plan document and trust to constitute the written documents of the plan during the interim period, which would be some of the mechanics of a spinoff into a single employer plan of seller.

Good to know, PensionPete. Thanks.

QDROphile, I agree with you. I had not paid sufficient attention to the part of the question regarding the fact that B was participating in a multiple employer plan, so the notion that it was spinning off assets before terminating had me confused I think. Regarding the initial question, kmhaab, and just expanding a little on QDROphile's other point, the IRS has special rules in EPCRS that make it easier for acquirers who decide to merge target company qualified plans, typically 401(k), into their own plans, and who later find qualification errors, to correct those errors. Additionally, the acquisition agreement may of course contain reps and warranties from the seller to the acquiror regarding the plan's compliance, backed by indemnification provisions, which would allow the buyer to seek reimbursement from the seller of the costs of correction if problems surface post-deal. Having said that, it's always easier and typically safer (for the acquirer) to have the seller terminate its plan pre-close, as QDROphile points out is often done, so for the acquirer to want to take the seller's plan and merge it into its plan requires some motivation other than simplicity and risk avoidance. Those motivations may include adding the target's plan to the combined plan's asset base to get lower fees from vendors, avoiding disruption to the target employees, including issues with loans, and avoiding acceleration of vesting for the target employees.

I doubt you could get the IRS to agree to that even in VCP, though you could try. If self-correction, then violates too many rules (e.g., the CODA rules for a one-time irrevocable election) to be worth considering.

I believe that there are PLRs that would support the notion that if the estate has only one beneficiary for the IRA (which you might be able to get to through qualified disclaimers by the others), you could do the inherited IRA. Complicated and not worth researching if a small amount, but if large enough worth checking out.

You said this is a stock acquisition, so it's like Company B is terminating its 401(k). Review the 401(k) distribution on termination rules. The company B employees likely won't be able to participate in a K plan for a year if you do that.