Luke Bailey

Section 125 plans are only for "employees." See Section 125(d)(1) of Code ("means a written plan...under which all participants are employees.") Section 1372(a) says that 2% s corp shareholders are treated as partners for "fringe benefit purposes." Proposed regs confirmed that 125 plans are "fringe benefit" for purposes ot this rule. So clearly, no 2% S corp shareholders are allowed in your 125 plan. If a 2% shareholder has participated, then what is the result? In theory, the IRS could say your 125 plan is bad for everyone for all years, I think, because the plan didn't meet the requirement that it only cover employees, as quoted above from 125(d)(1). That's certainly the doctrine based on similar language in 401(a) for qualified plans. Would they really do that to you in an audit, given that there is little precedent (or none), no EPCRS, etc. for 125 plans? Probably not. But you should certainly stop the individual's participation and consider impact on current and prior year w-2's.

It could depend to some extent on what the loan policy says. Ours would typically (unless plan wanted something else) suspend payments until end of period of active service, regardless of what the employer considers the service member's employment status to be. If after the end of the period of active service the employee takes a different job or allows his/her reemployment rights to lapse, you would then look to your loan policy to see whether the loan was accelerated or the former employee could continue to make payments. The period of suspension during active service would not be considered to have used up any of the 5-year repayment period.

It's not a MEP if they form a controlled group, which I'm not sure was ever determined either way. However, even if in a controlled group, she would need to adopt, which is just a line in the adoption agreement and a signature.

I think that since they were in, they're in and can't be excluded based on having gone to part-time, even if have less than 1,000 hours. As ESOP Guy points out, whether they get an allocation or not of contributions other than elective deferrals is a separate issue.

You should not need an independent audit on those facts. 29 CFR 2520.104-44(c)(2). As for which parts of 5500 to complete, the instructions are pretty clear as I recall, but I would need to go through them.

Good question. ERISA says that the plan itself is a person, whether it has an associated federal income tax person, such as a trust. So I doubt this is the case, but the SL could name the plan as insured, and then it would be a plan asset, at least arguably, even without a trust.

Scuba 401, I agree with you that neither the medical practice nor the REIT seems to be a disqualified person with respect to the IRA. However, if the REIT holds plan assets (because it both (a) has 25% or more plan investors and (b) is not a REOC under 29 CFR 2510.3-101), then a more detailed inquiry would be required. If the REIT never holds plan assets, then it seems to me that there will be a "facts and circumstances" argument that there is a PT (as well as a counterargument) in a variety of circumstances. I'm not sure whether the issue of when the doctors become shareholders matters.

How is the insured identified in the policy?

Mike, if there is enough money involved to make it worthwhile, I'll take that one on a contingency.

The "other...other" makes it confusing, but I think what it says, and what they intended to say, and which is pretty typical, is that if you die, terminate on account of disability, or we terminate you other than for cause, you have a limited period (set out in portion of the plan doc or option agreement you have not provided, TaxLaywer 1978) to exercise. If you quit or we terminate you with cause, the option terminates immediately with your termination of employment.

This may be key: Did company B merge into A (i.e., the transaction documents say they are merged), or were only B's assets transferred to A, and A was terminated? In a merger the surviving corporation takes on the obligations of the target, in an asset acquisition, it doesn't. So I'm thinking if a merger, your 1) would apply, if an asset sale, 3) would apply.

Larry, are you saying those are PTs under 4975(c)(1)(E) or some other provision? I don't see them except under 4975(c)(1)(E).

I have practiced a fair amount in this area, unfortunately. I think you have put your finger on the issue, i.e., 4975(c)(1)(E), and I think the answer to your question is that no one knows. The IRS is the only regulatory agency interested (mildly), but it has only enforcement authority, not regulatory (DOL has regulatory authority under the ERISA Reorganization Plan of 1978). So we get cases every now and then (Peek, Ellis) in egregious circumstances, and that's about it. Since IRAs are really just special tax pockets of their owners, conceptually there is a lot of difficulty applying 4975(c)(1)(E) because you have to create a mental construct in which the owner has a conflict of interest with him/herself. It can be done, but still untrodden ground in terms of clear precedent. See the footnote in Ellis.

If this is truly (under the plan documents, board resolutions, etc.) not an obligation, then it would be a problem because all the 415 facts would be this year. If there was an obligation in the prior year, so that this is an EPCRS correction, then 415 would relate back to prior year for comp and deferrals.

Typically this sort of situation arises in a partnership with respect to partners, so ADEA would not apply. If you are dealing with employees, or former partners who are now employees, then I think (but I doubt there's a whole lot on it, and if there is I could be wrong) that as long as your classification of the folks (senior counsel, part-time employees, etc.) is bona fide, the classification would not be viewed as a subterfuge to avoid ADEA. Obviously, if you said "Everyone 66 or over does not get matching," you could have a problem for over-65 employees.

All of the above answers seem to have useful information. We deal with this situation all the time. You can easily create a category and assign these folks to it and give them whatever type of contributions (e.g., elective deferral only) you think appropriate, as long as you pass coverage, nondiscrimination, and top-heavy. If they are owners and it's a small firm, then top-heavy would be your biggest issue until they stop being owners, but you could (again., assuming you pass coverage) put these folks in a separate plan. An inflection point occurs when someone who used to be a partner goes to nonpartner status, because as a partner you could specially allocate their contribution expense to them, whereas once they become an employee or IC the firm has to pay for the contributions. Note that whether a senior non-full-time attorney is "part-time," "retired," "of counsel," etc. could have repercussions on malpractice and other insurance coverages. The ABA has a manual on "of counsel" status, and such folks can be employees (W-2), independent contractors (1099), or owners (K-1).

Belgarath, the provision you cite, 1.401(m)-2(a)(5)(iv) (second sentence), seems clearly to give you that choice if you (a) satisfy ADP safe harbor, but (b) don't satisfy the ACP safe harbor, e.g. as in your example because you match above 6%. But two questions: First, wouldn't testing just the top part of the match make it harder to pass ACP, since that part of the match would be more likely to be captured by HCEs? Second, in the situation you posit, are you sure you satisfy the ADP safe harbor, given the second sentence of 1.401(k)-3(c)(3)? Say I defer 8%. On my top two 1% tranches in the first 5 percentage points of my deferral, my match rate is 50%. On the final 6th, 7th, and 8th percentage point tranches, it's 100%. Is that OK under 1.401(k)-3(c)(3)'s second sentence? I'm not sure. Maybe, if you are only looking, for purposes of 1.401(k)-3(c)(3) at the part of the match you are using to show you satisfy the ADP safe harbor. But that interpretation is not the more literal interpretation of the sentence, I think. Maybe more research (or sounder reasoning than mine) can resolve. Just posing some questions.

It wouldn't make sense to exempt. The PBGC insurance is insuring against inadequacy of minimum funding and plan investment experience to have sufficient assets to pay benefits when plan terminates. The ERISA bond (which covers only a small amount and is cheap to purchase) insures against embezzlement of plan funds. The PBGC wants that protection as well as participants and plan sponsor. Embezzlement (at least up to the minimum bond amount) is not a risk PBGC expects to take on for its premiums.

This seems complicated. Because the assignment should have no effect whatsoever on the taxation of the amounts to him (see Oliver Wendell Holmes' opinion for majority in 1930 Lucas v. Earl Supreme Court case establishing "fruit of tree doctrine"), it should not cause constructive receipt. Just be ignored for tax purposes, then after taxed to him might or might not have tax consequences post-inclusion when contributed to trust. This would seem clearly to be the case if the trust is a grantor trust. But it may be debatable. Would need to review trust and plan documents, etc. If, for example, a creditor were a trust beneficiary and the executive received a current benefit from the anticipatory transfer, there might be an issue of inclusion based on economic benefit. As you point out for this plan, plans usually prohibit any consensual or nonconsensual transfers or assignments to avoid these issues, so I doubt there is much guidance or case law on the issue.

See Q&A-3 of Notice 2015-7. It seems that as long as the Medicare folks were offered the employer's health insurance plan and declined it, and the Medicare reimbursement is limited to Parts B and D, and Medigap, as described in Q&A-3, you should not have a penalized "employer payment plan" under what you describe. Otherwise you would. The Q&A also points out there may be issues under Medicare Secondary Payer. However, if you have fewer than 20 employees (check the way CMS counts this), you should be OK. Anyway, I think all that MSP would knock out would be the Medigap premiums, not the Parts B and D premiums.

Obviously, this is administratively complex, but I have looked at similar situations before and I don't think there is a legal barrier to doing this.

There is no truth to that, coleboy.

Not disagreeing with you at all, Sherpa (sorry, it keeps autocorrecting the capitalization). It seems to me your analysis is correct. The Notice you refer to should refer back to the ANPRM (Advanced Notice of Proposed Rulemaking) that the IRS put out prior to that notice sketching out its initial thoughts on what was a governmental entity for purposes of sponsoring a 414(d) plan. A couple of features that stood out in the ANPRM were (1) charters did not know where they would land, and (2) the IRS had no tolerance for governmental plans covering nongovernmental workers, at least not on a going forward basis. What I was obliquely suggesting in my prior comment was that when the final rules come out there may be "transition relief" under which employers who mistakenly applied common-sense rules that had no apparent basis in law (e.g., excluding employees covered by a governmental plan, or aggregating the benefits under the governmental plan with benefits under the private plan for testing) were essentially forgiven. I get it that it would be difficult to rely on such speculative relief, though. One thought (not a helpful one, but I'll raise it anyway) that occurs to me is that 415 testing gets interesting in this situation, right? If the government is not the employer, how can it base contributions or benefits on the comp for another entity? And exclusive benefit is also a problem. Clearly, there will be transition relief for governmental plans that cover nongovernmental employees on these and related issues. Of course, under whatever revised standards the IRS puts out when they are finally able to do it, some charters that now think they are private may end up as being "governmental" enough to sponsor a 414(d) plan.

I have been through this several times and agree with Madison71.

ShERPA, the private sector employer has not adopted the public sector plan, right? How does it fund the benefits for the employees covered by the government plan. Does it make contributions directly to the plan, or does it pay a contracted for amount to the governmental entity? My guess, btw, is that your analysis is correct. When we (someday) get 414(d) regs, there may be transition rules that would be more favorable than your straight up legal analysis assumes, but we're probably years away from that.