Luke Bailey

Larry, usually an employer deliberates about adopting a 401(k), spends time on the design, etc., and you would not have the problem. The reason I raised the elaborate example that I did is that I have sometimes seen situations involving corporate mergers and acquisitions where the parties have assumed that the new company being formed, which is going to take business operations and employees from some other companies immediately, have waited until the last minute to think about the actual vehicle they will use. The question then becomes, what do you do in the limited time you have before the first payroll for the new company? Do you adopt a plan document that no one has had time to design or review, and then replace it with the document you want later (which of course has lots of compliance pitfalls), or do you have the board adopt resolutions that say, "We hereby establish a 401(k) that will include all of the continuing employees of the constituent business units and that will have a discretionary match, and the company's officers are authorized to prepare, review, and adopt such documents as shall carry this out ...." I've done the latter (rarely) and not had it questioned by IRS on initial DL request. I distinctly recall hearing someone at IRS at a fairly high level at a CLE gathering explain that a "plan" for purposes of the definite written plan requirement of 1.401-1 can start out pretty rudimentary, e.g. in corporate resolutions, and then be embellished later. He was saying it in the context of explaining that you had to have some writing in place, or you could not let the employees defer. But yeah, there is no guidance and I would not want to do it unless I really had to.

Larry, I agree we don't have facts for original question, and I almost completely agree with your last post. The one exception that I think is possibly worth discussing is as follows. As you or someone else stated, the IRS's position is that the plan document has to be in place (board adopted and/or executed) before elective deferrals occur for a 401(k) plan. Say you have a bunch of divisions from other companies that had 401(k) plans and they are spun off and formed into a new company on 12/31 of Year 1. At some point in year 2, the plans that the employees participated in will spin off and merge their 401(k) balances into the newly formed 401(k) for the new company. Board of new company adopts resolutions on 12/31 of Year 1 that say that new company is hereby creating a 401(k) plan to be effective 1/1 of Year 2. The board resolutions just state that it will be a K-plan, that all employees in the old plans will be immediately eligible, that there will be a discretionary match, and maybe a few other things, just a bulleted list in the resolutions, and directs the company's officers to have a plan prepared, which it is and then the board adopts it at some time before the end of Year 2. I think that in this circumstance, the IRS would accept that the new company had a 401(k) plan as of 1/1 of year 2, even though a detailed document had not been adopted and/or executed yet. The plan would be in effect and satisfy the definitely determinable written plan requirement because the operative provisions (allowing deferrals, discretionary match) are so simple. The fact that all of the other requirements of 401(a) would not be satisfied by the bulleted list in the board resolutions would be handled under 401(b). Of course, you sort of want to have that plan document adopted ASAP, before anyone terminates and wants a distribution, or you have to figure out vesting or beneficiary rights, etc.

I also agree with your approach pmacduff, and think mctoe's point is a good one, but would rephrase it. It is not only an issue of whether they will report it correctly, but whether they're recordkeeping will allocate the distributed amount, based on the employee's election, all to the Roth portion of the balance. Some recordkeepers do that. Others may not have a place on the distribution forms or on website to indicate which portion of the account the participant wants the distribution from, and may use a pro rata or similar rule.

Do they have year-end balances because they used to participate? If they have balances, they should be included in the test.

What sort of allocations were these? The participant's own 401(k) elective deferrals, employer contributions of some sort, or both?

I agree with jpod in terms of both the legal theory, which is based on state corporate law, and private and IRS practice. For a corporation, the board's adoption is the crucial fact, whether at a meeting or by unanimous consent. The resolutions will then direct officers to execute. If you had a calendar year plan and clear board action adopting a particular document, e.g. referenced as an exhibit in the resolutions, on or before 12/31 and the document did not get signed by an officer until after 12/31, I think you would be good. You would likely have to explain all that and provide dated proof of the board's action, such as a dated secretary's certificate, to IRS to get a DL on initial adoption, but in my experience the IRS will agree with the argument. More complicated as you move from corporations to other entity forms. Also more complicated with closely held corporations, as many states' corporate laws relax corporate formalities for closely held corporations.

Larry, I thought about the sort of argument I think you are making, but decided too complicated to try to elaborate on. If the plan before amendment said you can receive one distribution on 6/30 and one on 12/31, then an amendment to say only one on July 1 would be within 6 months of the two you are eliminating. But if, as seems more likely, the plan said 2 any time during the year, then you have no fixed point to measure the 6 months from. I think the rule just doesn't really contemplate the issue.

Thanks, Larry.

This is a very standard law firm arrangement, and usually plan 2 for associates has a match, often smaller than the match in plan 1. As stated in prior answers the key is not to include keys in plan 2 and that both plans pass 410(b) on a standalone basis, then you can do whatever the heck you want.

Austin 3515, I agree with your basic point. XTitan's point about possibly getting a wholesale rate is valid, but otherwise this is just a way to sell life insurance. There is no tax advantage as there was with split-dollar before the rule changes. None at all.

This is complicated. RLR tells us that we are not dealing with just 1 HCE, but rather there are "a few NHCEs" as well. So first, if the plan passes 401(a)(4) and 410(b) without the amendment, by simply applying the last day requirement, is the amendment "corrective" at all? Arguably not, but 1.401(a)(4)-11(g), as far as I can tell, does not define "corrective," so let's let that one go for sake of argument. (If the amendment only benefits folks and otherwise meets the requirements of 11(g), I would feel pretty comfortable with it even if arguably it is not "correcting" anything that needs to be corrective.) The second question is, which set of "requirements" do we test the "corrective" amendment under? The 1.401(a)(4)-11(g)(3)(v)(A) requirements for "coverage or amounts testing?" The 1.401(a)(4)-11(g)(3)(v)(B) requirements for satisfying a safe harbor? Or the the 1.401(a)(4)-11(g)(3)(vi) requirements for BRF? We have to choose one of those sets of requirements, right? I would assume it would be the "coverage or amounts testing" set of requirements. If so, then the additional allocations resulting from the amendment need to satisfy 401(a)(4) and 410(b) as if they were the only allocations.

Larry, Mike is correct. It is Q&A-2. The rest of the cite is correct. Sorry.

Does not change my answer. This is a classic correction situation. You can't leave some out just because they termed. If the amounts for some are de minimis, you might get IRS to agree to a cutoff amount in VCP. If you are in self-correction, you probably want to be conservative.

Take a look at Treas. reg. 1.411(d)-4, Q&A-1(b)(2)(ix). Clearly, you can certain go from 12 per year, or 10, or whatever, down to two. Two is probably as low as you can go.

It would be helpful to know the other facts. Is there a concentration of allocations among a small group of ESOP participants, or just one, who also own another company? I seem to recall dealing with an issue like that a couple of decades ago and it was not simple.

If the only person who gets to keep his/her allocation based on the 11(g) amendment is a 5% owner, then as Mike is suggesting, I think, the amendment would fail the nondiscrimination requirement of 1.401(a)(4)-11(g)(3)(v).

I'm not sure we have enough facts to know what the answer is. Does "the record keeper received employee deferral contribution through wire" mean that the funds were deposited in the plan's trust? If so, then I would agree that there's no late contribution. Further, if the funds were deposited in the plan's trust after the close of trading for the day and promptly traded at the market open on next day, then would seem like the recordkeeper's practice is also appropriate. Perhaps, however, if the plan were large enough the funds could have been aggregated and invested overnight in some very short duration deposit. If so, then there could be a problem. More importantly, if the recordkeeper received the funds and did not deposit into the plan's trust until the next day because it was too late to trade them on the day of receipt, I don't think that is appropriate.

kmhaab, I think the short answer to your question, is generally, "Yes, they need to get a distribution," but without knowing specifically what error is being corrected it's impossible to say for sure. You've cited (Section 6.02) just a general correction principle in 2016-51. If, for example, a bunch of folks didn't get some money in an allocation they were supposed to get, then correction requires they all get it, whether they are still employed by the plan sponsor or not.

Re the trustee question, assuming this is a DC plan and the loan is treated as a self-directed investment of the borrower's account, the borrower is not a fiduciary with respect to the loan even if he/she is also a plan trustee. Don't recall whether this is specifically addressed in the 408 or 404(c) regs, but I believe it's in one of them. To clarify what I think Tom Poje is saying below... ...While it is clear under the 72(p) regs that a deemed distribution of the loan does not remove the loan from the account for purposes of the $50,000 loan limit, and so will block any further loans, I think it is also clear that the accrued (let's call it, "phantom") interest is not thereafter includable in the participant's income, either as it accrues or when, generally later, the participant ultimately has a distributable event and the loan is offset. See The first two sentences of Q&A-19 of Treas. reg. 1.72(p)-1.

The tax implications would be that the premium cost, if deducted from the employee's wages, would still be taxable to the employee. If it's group term life, then the employee can exclude the cost of premiums for the first $50k in coverage on their own life, but only if the withholding is under a Section 125 cafeteria plan. That benefit does not apply to dependents, spouses, domestic partners, etc.

Question. If the employer has more than 20 employees, say it has 40, but it's only plan is a QSEHRA, then do we really think that the MSP rules will prohibit the employer from reimbursing Medicare Parts B, C, and D premiums? Even if (and I have not run through the analysis), the QSEHRA would satisfy the Medicare definition of a group health plan (GHP), the employer would not be reimbursing the premiums as an inducement for the Medicare-eligible employee to drop the employer's GHP, since the QSEHRA is the employer's "GHP."

Although the original questioner was not crystal clear as to the reason for the overcontribution, the amounts he is thinking of are apparently not excess deferrals or excess allocations, but rather mistaken deposits by the employer that may not have a direct, or at least appropriate, relationship to the employees' elections. I agree with 401king that on those facts the amounts should be suspensed and then "burned off" for any allocation or expense the plan has to make in the next year. I don't think the amounts are deductible until the next year, but this could be debatable.

The above answers are a good start for you, Juicebox. I have been on the other end of inquiries like yours. Your father may still have a benefit under a plan somewhere, and it may belong to you. If the company has gone through many changes, then so have its retirement plans and entropy (aka chaos) may have taken its toll on plan records. No matter how long it's been, however, the plan should have had a successor (maybe through a chain of successors) and the employer has a duty to you to help you determine if you have a benefit. Any records (e.g. name, account #, name of plan, account statement from some time in the past, even if not recent) will help. You need to keep after them and keep a record of everything you have. These days it's much easier because we have email and you can send documents by .pdf, which is a godsend. If all else fails and you believe you may have a benefit but whoever you talk to says not or it's not their business, you can try the Pension Rights Center at http://www.pensionrights.org/. You might also want to try an state unclaimed property search, since if the plan terminated it may have transferred unclaimed accounts to the state unclaimed property facility. Good luck.

The required QJSA is only for surviving spouse. Plan document may include other annuity options that would permit nonspouse beneficiary. These would typically not be subsidized (if they were you would need to include the subsidy in 415(b) testing). Of course, spouse would need to be nonexistent or consent to one of these forms of annuity.

Even before 409A, the issue of the date of inclusion in income of a stock option exercise, and the deadline for payroll tax deposits, was important and contentious. For an option, I believe it is the transfer of the stock that is going to govern the time of taxation, and, at least for a public company, that depends on the settlement date. Most publicly traded companies' shares settle T+2, so in your example of a 12/31 exercise, if that was, say, a Monday, I think you would be looking at Wednesday, Jan 2 as the date when the stock is actually owned by the option exerciser and includable on W-2 fo0r that year. You may want to search for a 2003 IRS Field Directive on the issue of timeliness of payroll deposits for NSO exercises (the directive told agents not to challenge taxpayers as long as withholding was made within 1 day of transfer and transfer was T+3 or sooner). For a private company, I do not know what the rule is. Probably the actual date of transfer on share ledger or delivery of share certificate. For an SAR, again don't know, but probably should be the same as for the underlying stock. Anyway, as long as paid by 3/15 of next year, I think you'd be OK for 409A under the "When a payment is treated as made upon the designated payment date" rule of 1.409A-3(d).