ERISAAPPLE

Austin, Participants know what their paycheck is. They don't necessarily know what Plan compensation means. If the plan defines compensation to mean the amount received in a pay check (such as "weekly base salary" or something like that), I see no problem with describing the type of compensation deferred as "your weekly paycheck." It doesn't matter whether that description is in the SPD or the safe harbor notice. The fact that it can be in the SPD is a red herring. Both the regulations and the notice clearly say that the required contents of the safe harbor notice (whether in the notice or the SPD) must remain in effect for the entire plan year. I honestly don't understand how excluding compensation would increase benefits. I thought you were talking about amending the definition of compensation to exclude certain items. I think I see where you are going with this under the Notice, but I think it is risky. If the amendment will in fact reduce the safe harbor contribution, I think there is a good risk that the IRS could say it violates Section B(iii) of Notice 2016-6. I don't think that provision is violated only by amending the formula, e.g., from a 4% QNEC to a 3% QNEC. Finally, if you are amending 01/01/19, if this is a calendar year plan, I'm not sure why this is an issue.

Austin, My point was that the definition of comp. is in fact required safe harbor notice content (whether in the notice itself or by reference to the SPD). You can't make a mid-year change to the definition of compensation for a safe harbor plan.

I've always felt at least some explanation of comp. is required safe harbor notice content. See Treas. Reg. 1.401(k)-3(d)(2)(ii)(D). I read that to mean you have to describe the definition of compensation. That doesn't mean you have to quote the regulations, which nobody would read, but you have to explain the types of compensation that can be deferred. Something like, "the plan allows you to defer out of your weekly paycheck."

Under the laws of many states, including New York, the participant might be able to argue the employer has to file a lawsuit against the participant to collect the previously-paid commission. I know that is the law in many states for normal wages, and I am guessing those laws pick up the commission. This also raises issues about the claim of right tax doctrine. That doctrine is codified in the Internal Revenue Code somewhere, but I forget. It gets messy.

There are two things going on with a disclaimer. One is a disclaimer for tax purposes. That is pretty easily done. The second is a disclaimer with respect to the plan, which I like to think of more as a waiver. With respect to the waiver, I like to have both claimants file a claim for benefits. I have the plan deny one and accept the other. That makes it clear the statute of limitations has started. I also like to get both parties to sign a settlement agreement in which the party waiving the benefit signs a clear release of all claims and the party receiving the benefit agrees to indemnify my client if the waiving party (or, e.g., his estate or power of attorney if he becomes incapacitated) later decides to change his mind. At the end of the day (I don't like using that phrase, but I think it works here), I am not sure any of this technically works except for the statute of limitations. But the alternative is for the client to follow the plan, and they usually don't want to do that in these situations. If they wanted to follow the plan, they would not be coming to me.

That makes sense. I suppose if this were not a safe harbor but were a 3% non-elective with a discretionary on top, you would test the two together. Thank you.

Do they really know the wife's wishes? If she completed the beneficiary form before she remarried, she might have changed her mind. That, however, is a different matter. I would think if the current spouse waives his right to the benefits and everyone agrees, you could distribute to the children. It may not be legally, technically binding (though it might - the issue is whether a spouse can consent to a deceased participant's previously-named beneficiary). Technically, this beneficiary form is not valid. If it cannot be made valid with the current spouse's consent (and I don't know either way if it can), the plan document controls and this goes to the spouse (assuming the 1-year rule does not apply, as Rigby pointed out). If the current spouse disclaims (which works with the IRS), then the default beneficiary in the plan is the beneficiary. Hopefully that will name the children.

Thank you. To be clear, are you saying the eligibility for the 3% safe harbor means the two employees who are not eligible for the discretionary PS are still included in the rate group testing for the discretionary PS? That is actually a good answer because we may not pass without these two.

The answer to your question Albany Consultant is in the DuPont case the Supreme Court made it clear you are required to follow the plan document. Cite that case and give the attorney the plan document which says the spouse is required to be the beneficiary absent the proper waiver.

I guess then if the prior spouse wants to make sure the kids get the death benefits, the prior spouse should get a QDRO (or two) and name the kids as alternate payees.

Why not leave the money in the plan and just have him re-pay the full commission? Did he not have other comp. to support the deferral?

This is a little complicated, so I will spoon out the facts one by one. I have a DC plan with a 401(k), 3% safe harbor QNEC, and new comparability PS - one participant per group. The plan year is the calendar year. The plan is top-heavy. The 3% safe harbor excludes pre-participation comp. Eligibility for 401(k) is one year (1000 hours) with semi-annual entry dates (Jan. and Jul.) Eligibility for profit sharing is 2 years (1000 hour each year). Also semi-annual entry dates. I am testing for 2017. One NHCE (let's call her Employee A) entered the 401(k) on 01/01/2017. Employee A did not have 2 years in 2017 and thus is not eligible for the PS. Another NHCE (Employee B) entered the 401(k) on 07/01/17. Employee B also did not have 2 years in 2017 and thus is not eligible for the PS. My understanding is Employee A is required to get the gateway, with the 3% SH QNEC counting towards that. Employee B only gets a safe harbor of 3% of comp. from 7/1 to 12/31, so he also has to get a top heavy for the whole year (his safe harbor on his half-year of comp. counts towards the top-heavy). The 3% safe harbor plus the top-heavy satisfy B's gateway requirement. The question is whether I include either or both of Employee A and B in the numerator or denominator, or both, when doing the rate group testing. In other words, when I test the rate groups, how do I treat Employee A and B? Are they totally excluded because they are not eligible for the PS?

Does a prior spouse's waiver to permit the kids to be named as beneficiaries bind a subsequent spouse? I have never looked at that issue.

S-Corp shareholders (more than 2%) are taxed on health insurance and auto reimbursement, even if the auto is used solely for business purposes. Check to make sure the plan document does not exclude fringe benefits. For c-corp shareholders, I don't think the health insurance would be reported on the W-2. For the auto, it depends on why they use the auto. I'm not sure if the recent Tax Act changed any of this. I know it had a lot of changes to fringe benefits.

Employers can use a safe harbor for the employer mandate that is not necessarily the same as the employee's actual household income. I would think that in most cases the employee's household income should be higher unless the employer is somehow (and wrongly) gaming the system with the rate of pay safe harbor. I can't see how it would be lower. A higher income would result in the cost being a lower percentage of income. So I don't know what to tell you man. Maybe the employee fudged the numbers with the Exchange.

Ask the attorney for a citation and indemnification. As long as the trust has assets, a 5500 must be filed. I'm not aware of any exception for ESOPs. Now, if the stock is being distributed, the employees are exercising their put, and the employer is paying with a note, that would be a different issue. In that case there would be no assets in the trust because the stock would have been distributed. (It has been a while since I worked on ESOPs. I am assuming participants still have a right to put the stock to the employer and employer's can still pay with a 5-year note. That could be old law however.)

There is no question that when you go out and buy an annuity from a commercial provider, the cost of the annuity is generally going to exceed the lump sum hypothetical account value calculated by the actuary. There is also no question that the determination of the annual benefit is measured by the amount paid under the annuity contract, without regard to the expense of the contract itself. Are you asking if the plan can buy an annuity instead of paying the lump sum and pay for the expense of that annuity with the excess assets? The answer is yes. I think what is confusing me (and maybe others who responded to this question) is why anyone would intentionally pay the extra cost for the annuity solely because they want to eat up the excess assets. If they want to pay the extra expense to transfer the mortality risk (as Mike Preston suggested), that is one thing. But to pay the extra expense for the sole reason of finding some way to spend the surplus does not seem to be rational economic behavior. There are plenty of other things you could do with that money instead of handing it over to an insurance agent just to get rid of it. That dovetails back to what David Rigby suggested. If the plan is trying to game the system with something like a springing cash value or wear away of the surrender charge, I think everyone agrees that is not going to work; such an arrangement does not, however, seem to be the intent here.

And I take it you did not file a Form 945?

I thought the proposal was to buy an annuity at an intentionally-inflated value in order to eat up the excess. In other words, I thought they were trying to buy an annuity that is intentionally more expensive than necessary in order to use the excess above the 415 limits - giving the money to the insurance company instead of taking a reversion.

I have a similar issue to the one Carol had, except we have not yet made the distribution to the tax exempt entity. This is a lump sum distribution to a tax-exempt entity. Do we withhold at 10% under 3405 and not allow the entity to make an election (because under the statute only individuals can opt out of withholding)? I could read 3405(e)(1)(B)(ii) very broadly to mean no withholding is required if it is reasonable to believe the distribution will not be subject to tax, but I don't think that is the better interpretation of that provision. It just seems odd to withhold on a distribution to a tax-exempt entity. Also, do I report the distribution on a 1099-R? I feel comfortable saying a 1099-R is required, so the entity can report the income on its Form 990.

I have an issue similar to the one Carol had, except we have not yet made the distribution to the tax-exempt entity. Do we withhold at 10% under 3405 and not allow the entity to make an election (because under the statute only individuals can opt out of withholding). I could read 3405(e)(1)(B)(ii) very broadly to mean no withholding is required if it is reasonable to believe the distribution will not be subject to tax, but I don't think that is the better interpretation of that provision. It just seems odd to withhold on a distribution to a tax-exempt entity. Also, do I report the distribution on a 1099-R? I feel comfortable saying a 1099-R is required, so the entity can report the income on its Form 990.

A nationally-known IRA provider told me you can't open an IRA for a beneficiary of a deceased participant. I agreed with their analysis. Back then the PBGC missing participant program was not available. The only option was to escheat it to the state. I think escheat is permissible if all other options have been exhausted, except now I would use the PBGC's expanded program if it is available in lieu of escheat.

Why not just buy an annuity at a regular price and take the excess as a reversion? Maybe I don't understand what is happening here.

It seems to me you are just giving away 100% of the money to an insurance company instead of 90% to the government.

What about the new PBGC missing participants program? Does that apply here? I can't remember off the top of my head if unresponsive DC participants count as missing participants. I know unresponsive DB participants are considered missing.