Luke Bailey

The statutory basis for Bird's conclusion is 101(a)(2)(B).

Wow, this is a weird one. Assuming no 415(c) contribution limit (100% of comp) or 414(s) (discriminatory compensation, e.g. if HCEs took disproportionately more unpaid leave) violations, I think the correction is going to be improve administrative procedures and oversight going forward. The qualification failure would be only failure to operate in accordance with plan document. Since it goes back more than 2 years, then unless you are comfortable on the numbers calling it "insignificant," to be safe you would need to make a VCP submission and have the IRS tell you that improving administrative procedures and oversight is your correction. Were there any employer matching or other contributions made based on the error?

Bird and Tom Poje, I want to make clear what you think the effective date can be. So, e.g., I go from monthly to quarterly entry dates. I amend, say, August 20. Can the amendment apply to folks hired in July who got in on August 1, if they have not yet elected to defer anything, or maybe even if they have, and they have an eligibility hiatus until October 1? If I can't apply it to that person, can it apply to someone hired on August 2, who would have gotten in September 1? Of course it can apply to someone hired after August 20.

I agree with Bird. If prior sponsor was a truly independent business, this is just a rollover to your new plan. If the plan permits, you can roll it out at any time, and no distributable event is required. Guess the government figures you could have just not rolled it in the first place, or rolled to an IRA. Of course, if under 59-1/2 and no exception applies, there is a 10% federal tax penalty for premature distribution.

The statutory basis for PensionPro's and Larry Starr's correct answer is 318(a)(1)(A)(Ii). Compare to the more complicated rule of 1563(e)(6) that applies for controlled groups.

Generally, 409A only prohibits or inhibits you from changing payment dates, but your question is way to general to really know what you have in mind.

I'm not sure and have no time to research, but I believe that many years ago I came across an old pre-ERISA rule against "curtailments" that I thought was still in effect and precluded you from amending eligibility to make someone who was newly eligible, but who had not yet qualified for an allocation, now be ineligible.

I agree with ERISAPPLE and would also recommend never restating, no matter how many amendments you have over how long a period, unless the IRS decides to issue DL's again to continuing plans, e.g. in a window after a major law change. The reason I recommend never restating is that, in any sort of review of your plan documents, whether an IRS audit, review by independent auditor, or due diligence review in an acquisition, you will be better off having, as a separate document, the last executed plan document that had a favorable DL, and then all your executed amendments, even if those become numerous. In that way, review will be limited to the amendments and it will also be very clear which document is the subject of the letter. For administration purposes, you can prepare an unexecuted "working copy" that is effectively a restated document, but I would recommend not adopting that "working copy" or executing it.

BT, was the PSP sponsored by the same business, i.e., your business, or was it sponsored by someone else?

This is governed by IRC sec. 410(a)(5) for eligibility and 411(a)(5) for vesting. Depends on whether DC plan and whether individual was 0% vested when left. Assuming the likely (i.e., DC plan and the individual was more than 0% vested when left), then you cannot ignore prior service for either eligibility or vesting, but of course if had 5 consecutive one-year breaks (which seems likely), new service will not apply to and require reinstatement of any prior forfeited amount. This is statutory. You cannot fix by plan provision, assuming you want plan to be qualified.

This is done all the time and does not violate 409A. The 409A regs state that the acceleration of vesting cannot accelerate the time of payment, and some are confused by that statement in the regs, but it only applies where the arrangement does in fact constitute NQDC, e.g., I have an arrangement that says, "I credit $100x to an account for you every year for 3 years, and you are 0% vested until the close of the third year, and then you are 100% vested, and you get paid $300x at the end of the fifth year." That arrangement is NQDC subject to 409A, because it doesn't pay out within the STD period after the third year. If I then accelerate the vesting to 100% at the end of the first year, the acceleration of vesting does not violate 409A, as stated in the reg, but the service provider can't get paid until the end of the fifth year without violating 409A, as also stated in the reg. If your arrangement says, "You vest on X date or event, and then you get paid 10 days after vesting," and then you want to vest the person today based on exercise of discretion and pay within 10 days of vesting, then that is not in 409A to begin with, and the acceleration of vesting (which indirectly accelerates the payment), is OK, as EBECatty states.

I have been here many times. Unless you use a noncompete that works (see the proposed Section 457(f) regs for the narrow circumstances where this may work), once the retired founder has a legally binding right to the payments (which may be when they are put it in writing, or, depending on the facts and circumstances, may even be now or some time in the past), she will be or was taxable immediately on the present value of the payments. The future payments will also be taxable, but offset to a great extent by her basis resulting from the large up-front tax payment (only the deemed interest resulting from the discount taken to determine present value will be newly taxable). The agreement will also need to comply with 409A (mostly, require fixed payments, which is what is contemplated anyway), or she will owe an additional 20% tax. The most compliant/practical thing to do is probably to design the agreement to pay her in cash the amount of her tax immediately, and reduce the future payments. Most of the future payments, again, will be nontaxable.

He can also roll over the loan balance if he can come up with the cash by his Form 1040 filing deadline next year for this year, of course.

ARPC, as I said in my post, I was skipping over some details on how to do the "transfer." Bird has supplied them.

If the plan was not terminated, the loans either defaulted or not, e.g. based on payment defaults and expiration of the cure period. If they defaulted, then you cannot undefault them. If they did not default, then you can transfer all of the assets from the old to the new plan, including the loans, and I don't think it matters whether the new plan is formally a successor for purposes of the 415 or 411 rules, although it probably is. There are some details I'm skipping over, but I think that's basically your situation if I understand the question.

At least some financial firms ask prospective employees under penalties of perjury on the employment application whether they have a conviction. The insurer should require its insureds to screen new hires in this way. I think it's pretty common.

If the stock is qualifying employer securities, 4975(d)(13) and the purchase is at FMV, the employer should be able to buy, but note that the 4975(d)(13) and the parallel ERISA exemption should avoid this being an automatic PT. Need to also meet fiduciary requirements and not be otherwise an act of self-dealing.

The 10/15 rule is because of Treas. reg. 1.415(c)-1(b)(6), which for a for-profit employer gives you until 30 days after your 404(a)(6) deadline to still count the amount (for which, obviously, you would have missed the deduction deadline) as a prior year annual addition. If you miss the 1.415(c)-1(b)(6) deadline, then the contribution is both deductible in the year it is made and treated as an annual addition for purposes of the 415 limit in the year it's made, not "for" which it was made. I'm not sure there is any clear deadline for 401(a)(4) general test purposes. See Treas. reg. 1.401(a)(4)-2(c)(2)(ii).

If the financial advisor is a service provider to the plan, which it sounds like he or she is, regardless of whether the plan has paid an portion of the appraisal fees, then the financial advisor is a disqualified person. See IRC sec. 4975(e)(2)(B). Therefore, public or private, you can only avoid a PT if the stock is "qualifying employer securities." See IRC sec. 4975(c)(1)(A) and the exemption in IRC sec. 4975(d)(13). Sounds like the stock here may be qualifying employer securities, but you need to make sure of that. There are, of course, other potential issues here with respect to how the Plan was set up.

Kirsten, do you know what federal and state securities law exemptions they would be using for the offer of stock to rank and file? There may be some, but I'm curious about what was your experience, here.

I think that the underlying technical issue is that under long-standing case law, a taxpayer cannot "turn his/her back" on income, from any source, without being in "constructive receipt" of the income (i.e., it's included in his/her gross income). Receiving the check and not cashing it is "turning your back on income" if you understood that what you had received in mail was a check. Although the plan administrator would, almost certainly, have no way of knowing, arguably you would get a different result if the taxpayer had moved and did not get the check, or if he or she had thrown it away without opening the envelope, not realizing a check was inside (which might be impossible to do, depending on the envelope).

The Advisor is telling you it is a termination distribution qualifying for extended rollover. The "deemed distributed" terminology is inconsistent. Keep a copy of the advisor's communication (I'm assuming it was written) and if they put Code L in your 1099-R, then make them correct it next year.

Buy the CPA a computer for Christmas.

Note that what is the "plan asset portion" may be difficult to determine and subject to arguments based on whether you allocate proportionally, FIFO, LIFO, what the plan and policy docs said, etc. And the contributions will have gone in over many years. If there's enough money involved and the employer really wants to do the right thing, maybe seek an Advisory Opinion from DOL?

I assume the policy was not paid for through a VEBA? Otherwise, there could be a 100% tax on the reversion under 4976. Assuming that does not apply, then as jpod points out the portion attributable to employee contributions must be used for employee benefits, otherwise you have issues jpod points out. The portion allocable to employer can be taken by it, I think, but could be taxable income under tax benefit rule. Some gray areas as to what is allocable to whom and application of tax benefit rule. You might want to look at PLRs 201530022 and 201532037, although those are VEBA rulings, but they discuss tax benefit.