JamesK

Sorry. I see now that you have not provided invoices for expenses submitted to your flexible spending account. Those reimbursements should come from your account with Wageworks, not your employer. From my perspective, I can't understand why your employer would hold up your final wage payment for this. Submit your invoices as soon as possible for reimbursement and follow up with your former employer and/or the state agency that monitors wage payments. Two separate actions.

Would you please clarify what you mean by "outstanding, non-verified receipts from Wageworks"? I have no idea what that means. Other than that, most states have strict rules about paying wages on time. I am sure that Texas is no exception. Below is a link to the Texas statutes. I would look in particular at section 61.014: Sec. 61.014. PAYMENT AFTER TERMINATION OF EMPLOYMENT. (a) An employer shall pay in full an employee who is discharged from employment not later than the sixth day after the date the employee is discharged. (b) An employer shall pay in full an employee who leaves employment other than by discharge not later than the next regularly scheduled payday. http://www.statutes.legis.state.tx.us/SOTWDocs/LA/htm/LA.61.htm You may wish to lodge a complaint with the relevant government agency.

@Larry Starr The weight of opinion and experience is clearly on your side. All I can say is that Treasury could have eliminated the ambiguity by using "or" in place of "and." Unfortunately, this would have contradicted the statute and raised the question of whether Treasury was rewriting Congress' expressed intent. In any case, thanks for offering up your thoughts. I couldn't possibly disagree if the intent of the statute was to eliminate all spousal involvement.

It's an interesting question and I spent zero time looking for any IRS or court interpretations of this requirement other than reading the statute and the relevant regulation (no differences). But on its face, I think your clients are correctly applying the ordinary meaning of the word "and". "Ordinarily, as in everyday English, use of the conjunctive "and" in a list means that all of the listed requirements must be satisfied, while use of the disjunctive "or" means that only one of the listed requirements need be satisfied." Therefore, since all of the requirements are not satisfied (i.e., the one spouse does not participate in the management of the other spouse's corporation), then that individual/spouse satisfies the requirement that they are not a member of the board of directors, not an employee, and do not participate in the management of such corporation. I know that with the double negatives, it gets confusing, but I believe that they are correct. Just an opinion though. There are instances where a court has interpreted "and" as disjunctive but those are relatively few and far between. Context is, of course, everything. The source of the quote above can be found here: https://www.everycrsreport.com/reports/97-589.html

See the special rules in Treas. Reg. 1.401(a)(9)-8, Q&A 2 and 3 for the details confirming Mike Preston's response.

I agree with Bird but would simply add a final step which is to treat the amounts conditionally allocated to the terminated participant as either reallocations or forfeitures. The contribution of amounts to participants who have not yet satisfied the conditions for allocation should probably be revisited to see if there is a better way of handling matching contributions.

My recommendation is that you look at the rules in Treas. Reg. 1.414(c)-4(b)(5), apply them, and see if there are any additional issues that need to be resolved. As the other commentators have intuited, the exception in -4(b)(5)(ii) will likely result in there being no controlled group, but you will not know for sure until you apply all the rules therein (see below). (ii)Exception. An individual shall not be considered to own an interest in an organization owned, directly or indirectly, by or for his or her spouse on any day of a taxable year of such organization, provided that each of the following conditions are satisfied with respect to such taxable year: (A) Such individual does not, at any time during such taxable year, own directly any interest in such organization; (B) Such individual is not a member of the board of directors, a fiduciary, or an employee of such organization and does not participate in the management of such organization at any time during such taxable year; (C) Not more than 50 percent of such organization's gross income for such taxable year was derived from royalties, rents, dividends, interest, and annuities; and (D) Such interest in such organization is not, at any time during such taxable year, subject to conditions which substantially restrict or limit the spouse's right to dispose of such interest and which run in favor of the individual or the individual's children who have not attained the age of 21 years. The principles of § 1.414(c)-3(d)(6)(i) shall apply in determining whether a condition is a condition described in the preceding sentence.

Has the plan been terminated? In other words, what circumstances exist that would require TIAA to show that the annuity contracts have been distributed? Also, is there some ulterior motive for showing these particular annuity contracts as distributed?

Serves me right for skimming too quickly over the facts. Well, save that link for when the notice comes and then you can decide whether or not it is worth the extra effort.

EBSA posts an announcement when someone is barred from serving as an ERISA fiduciary or if there is any negative action taken against a person or company. A Google search should be able to identify any such instances for a particular individual.

I would take some time up front to think about whether the employer has reasonable cause for the late filing. It could be a real money-saving investment. Here is a link to the IRS Penalties Handbook which provides a discussion of "reasonable cause" and other important information on penalties and interest: https://www.irs.gov/irm/part20

Odd fact situation, but I agree with XTitan that you should follow the plan document. Off the top of my head, I am not aware of any reason why an individual could not defer using a nonqualified plan and then upon distribution make an elective deferral into the 401(k) plan. In fact, other than the unusual circumstance, it seems perfectly logical. The individual however may shortchange himself if the 401(k) plan provides for a matching contribution on a payroll-by-payroll basis. Either way, the distributions are both ordinary income and subject to income tax withholding, so the additional deferral may well pay off.

This thread has been a good learning experience. @MoJo raised a good question about the fiduciary's responsibility with respect to the portfolio. If the fiduciary determines that it is required to provide a Sharia-compliant investment, then perhaps it would be required to provide a Sharia-compliant portfolio of investments. Otherwise, it would run the risk of breaching its fiduciary duties. I'm not sure I found the Cornell HR Review article particularly compelling since the author didn't delve into the ERISA issues, but after reading this thread I have to admit that the possibility has to be considered.

@Luke Bailey A very quick look at RFRA tells me that it applies only to government action. The employment relationship IMO would not fit within the scope of the Act. There may however be other employment laws that require accommodation, but still it's hard to see how a purely financial benefit would require accommodation. Truly it is an interesting, quirky question at the intersection of pension and employment law and religious liberty.

I hate to even jump in here, but I would be worried about this participant reneging on the back end and creating even more expensive problems then. IMHO, this is purely spiteful in the hopes of making problems for the employer down the road. I would simply find a Sharia-compliant investment for this person and put any allocations into that investment. Retirement plans are unilateral contracts. In that sense the employee is in the same boat as everyone else employed by the company. If you decide to exclude this individual from plan participation, have the employee set down his or her reasons in writing so that the plan administrator can evaluate his or her claim to be excluded and get legal advice. Document the decision thoroughly and get the employee to sign off as well. Claims of religious discrimination or infringement on religious freedoms seem ... dubious. Especially if there are compliant funds (be they Catholic, Lutheran, Ba'hai, or Sunni) that will address the concerns.

@ERISAAPPLE, good point. The ultimate question is what to do if no one asks for the money. Most of the responses have centered on the question of "who is the beneficiary." To respond to the actual question, the plan should perform all reasonable steps to identify the beneficiaries. There has been recent guidance on this question for RMDs and I suppose much of that guidance would apply to beneficiaries also, except that the guidance does not to my recollection discuss the steps that need to be taken to identify the beneficiaries. To that end, follow the plan document regarding identification of beneficiaries and timing of distributions, contact the register of wills where the participant died to see if an administrator/executor/personal representative was appointed, consult other relevant death records, etc. It may be more costly than the RMD steps but, given the amount of money at stake, it seems reasonable to go further.

The question here is "what terms are included in the 401(k) plan document?" In the example you gave, I would question whether the subsequent document was amended in the manner required under the 401(k) plan document. I would also question whether it was indeed the employer's intention to amend the plan document at all. If that was not the intent, then you would arguably have good reason for ignoring the parol document. However, given that the documents both reference the same plan and are in apparent conflict with each other, an argument could always be made that there is an ambiguity that needs to be resolved. Just goes to show how important it is to consider all the terms of every employment-related contract in light of the ERISA plans. My gut reaction is however in line with the thoughts expressed above.

Not that that would solve your problem either since the participant, now part-owner, could go to court to force a liquidation of their partial interest. If this former owner is looking for a magic bullet, I don't think he's going to find one. The most practical solution so far is to reduce the price to the level where a buyer will pony up. But then s/he will face potential fiduciary liability. It's too bad that the owner didn't consider these issues when the purchase was made. I hope this is an income-producing property but what will they do when required minimum distributions are required to commence?

There was a provision in the House bill allowing the Secretary one year to modify the regulations governing hardship distributions to conform with the legislation. Unfortunately, that provision (section 1503) was not included in the final bill. Your tax dollars hard at work making life more confusing! I agree with Peter above that disqualification would be unlikely but in the meantime we are all left wondering. I would guess that some guidance will be issued clarifying your concern. This oversight is particularly irksome since the old hardship distribution rule will apparently snap back into place on January 1, 2026. Inconsistency is not a virtue with retirement plans.

Just a random thought but are hardship distributions from a 401(k) plan subject to spousal consent? If so, the participant's spouse's decision will answer your concerns about the hardship distribution.

I see the bind you are in more clearly now. I have not dealt with this personally but my gut reaction is that the owner through attribution would be in the same position as the actual owner and would likely be viewed as such for purposes of the VCP application since the Service would be asking the question in the context of the law cited above. But I certainly understand your uncertainty given that the instructions do not reference the attribution rules.

Code section 401(a)(9)(C)(ii)(I) which gives the RBD exception for 5-percent owners says to look to Code section 416 for the definition of "5-percent owner." Section 416(i)(1)(B)(i)(I) references to the attribution rules in Code section 318. Section 318(a)(1)(A)(i) provides for attribution to the spouse.

I feel like I am back in law school discussing the chain of causation in Palsgraf v. Long Island Railroad Co., 248 N.Y. 339, 162 N.E. 99 (1928). I think Luke, Bird, and My 2 cents have all made a reasonable argument that the payment is too far removed from the election to make elective contributions. On the other hand, the facts we were given seem to make it clear that those payments would not be made but for the election. In the end, the client will always prefer to hear their advisor say "yes" if there is a reasonable basis and the argument that a payment two steps removed is not one that is conditioned on the election may well meet that threshold.

Interesting question. Long ago, I amended a few DB plans to add 401(h) accounts. I simply used the regulations as my guide to basically recite the requirements for a 401(h) account, then made the language consistent with the plan document. Other than the fact that I didn't have any sample amendments to work from, I don't think it was all that difficult. I haven't checked recently but the IRS used to publish a checklist that had to be completed when submitting a determination letter request application that included a 401(h) account. Here is an older document that includes the checklist along with a more detailed discussion of the other issues involved: https://www.irs.gov/pub/irs-tege/chap801.pdf

The regulation cited above (Treas. Reg. 1.401(k)-1(e)(6)) provides that "increases in salary, bonuses or other case remuneration" are benefits for purposes of the regulation. This seems pretty clear to me, but I suppose that there remains an issue of proof. In other words, the HCEs receive a small bonus. How will the IRS prove that it was received as a contingent benefit? The answer to that depends on whether the employer maintains a record of how the bonus was calculated. In any case, is it worth risking the qualification of the company's plan just to ease the tax pain of a few HCEs? Honestly, I think the answer is no. On the other hand, if the employer can show that the bonus is paid without regard to the refund of excess deferrals, then there should be no problem. But those weren't the facts we were given.