calexbraska

We failed coverage testing for our match. We decided to correct by giving QNECs to non-highly compensated employees ("non-HCEs"). Do we need to give QNECs to all the non-HCEs? Can we pick one group to contribute to and leave out another group? What about people who are no longer employees -- do we have to include them? Can we include some but not all of them? We have a group of people that are arguably benefits-ineligible that we'd like to exclude, but there is also an argument that they are eligible, so if we are required to include all the non-HCEs, we may have to give them QNECs as well.

We have a 401(k) Plan that defines Compensation as Section 3401 comp, excluding: 414(s) Safe Harbor Exclusions Differential Wage Payments Stock-related compensation Nonqualified deferred compensation payments We currently have an "award" system, where employees can receive "points" from others for recognition of job well done. They use the points to purchase items from a catalog. My questions are: 1) Is this included in Compensation for the 401(k), or can it be excluded as a "fringe benefit"? 2) If it is included in Compensation, can we amend the plan to exclude it? 3) If we amend the plan, can that be done mid-year? Do we need to send out notices? Any nondiscrimination testing issues?

We have a nonaccount balance plan (i.e. a defined benefit plan) that is a top-hat plan. Under the Plan, a participant is to receive a set amount per month for life, with a 50% survivor benefit to his spouse for her life. It appears we can take FICA into account from the offset, since the amount is readily ascertainable under Code Section 3121(v)(2). I get how that works for the set amount to the employee for life -- we just base FICA on the present value of is benefit. But how do we deal with the survivor benefit? Is the present value of that amount also taken into account for FICA purposes on the employee's tax filings? If so, how does the wife report the payments in the years they are paid? Thank you!

We have a group of eligible employees -- basically workers who work for 6 months or less, but aren't expressly excluded by the plan -- who have not been given the opportunity to defer (match not an issue). We are doing a VCP and considering a retroactive amendment to exclude these people (rather than making QNECs). This group has always understood they are excluded, and the employee handbook excludes them, but the plan document does not. Unfortunately, as you might guess, they are all non-HCE's. Any chance the IRS goes for this? Should I even try? If we don't do a retroactive amendment, we will have to do QNECs. This problem potentially dates back to 2005 -- would we have to correct that far back? Or can we just correct back to 2015, based on the 3-year audit / statute of limitations period?

Yes, you are correct. I meant that company was part of a controlled group, so their plan was historically tested on a controlled group basis. The Company was spun-off, so they are no longer a part of a controlled group. When in the controlled group, no other members of the controlled group participated in the company's plan -- they had their own plans. So.... Company A and Company B are a controlled group. Each company has it's own plan and they are tested on a controlled group basis. As of 6/28, 100% of the ownership of Company B is sold to Mr. X, an individual who is unrelated to the owners of Company B. As of that date, A and B are no longer a controlled group. Each company retains its own plan. Since they were part of the same controlled group for half the year, does Company B have to take that into account when testing, or does Company B just test its plan individually, assuming it is still a stand-alone plan as of 12/31/2018?

We have a plan that was part of a controlled group. As of 6/28 it was spun off and is now a stand-alone plan. How do we do testing for 2018? Do we have to do half the year as controlled group, half as a stand-alone? Or can we just test based on how everything sits as of 12/31/18? Does anyone know a section of the code or regs that deal with this issue? Thank you in advance.

We have applied for QSLOB status. Unfortunately, we were unable to pass the gateway test with respect to matching contributions. Our service provider told us that we can make corrective contributions to Non-HCEs to make us pass the test. We have been told the corrective contributions need to be made by October 15. I know October 15 is the date the QSLOB filing is due, but I can't find any support that corrective contributions to pass the QSLOB gateway test have to be made by October 15. Does anyone know where that date comes from?

We processed a QDRO that asked that the Alternate Payee receive 50% of the account, as of 1/1/2018, including earnings from 1/1/2018 through the date of division. The QDRO was processed and the Alternate Payee too her portion as a lump sum distribution. Now the parties are saying Alternate Payee's portion should not have included earnings. The QDRO clearly said to include earnings, and all parties and their attorneys signed it, so there was no error on our part. But now the parties want to reverse part of the distribution to the Alternate Payee (i.e. they want the AP to return the earnings amount to the Participant's plan account). If the AP had left her portion in a qualified retirement plan, I'd just have the parties execute a new QDRO to transfer the earnings portion from the AP back to the Participant. But, since the AP took the money as cash, this is not an option. Is there any way to reverse the QDRO to get the money back into the Participant's account? Thank you!

You're entirely correct there. Here, the plan is largely funded by employee elective deferrals, so the new management group is unlikely to be OK with the old management group passing on the plan (and the payment obligations thereunder) without also passing on the amounts the old management group withheld from paychecks.

My concern is that the assets have to be subject to the creditors of the company. If the old management company transfers to the new management company, and then the old management company later goes insolvent, there could be an issue if the old management company passed on any assets to the new one.

We have a management company that runs a NQDC plan. The management company is wholly owned by A, and A also wholly owns B. B also participates in the NQDC plan. The management company is going to be removed and replace with a different management company. Under the NQDC plan this does not trigger a change of control payment. But we have employees at B that are participants in the NQDC Plan. We have two options. First is to just start a new plan for the B employees. They will still have their account under the old plan, but now they will have another account at a new plan. Second, and what we'd like to do, is move the accounts for B employees to a new plan, sponsored by either B or A. Is that possible? It would be sort or like a rollover to a new plan. According to the plan, amounts deferred for B employees are already paid out of the general assets of B, and subject to B's creditors, so I don't see the issue with having the money follow B, instead of staying in a plan run by the old management company. Is this something we can do?

My company reached out to me letting me know they failed discrimination testing and, as a result, had to give me additional profit sharing contributions. That makes sense, but they also said I am required to fund it out of pocket. Normally, it would be up to the company to fund this, but I'm a partner at my company. They've already funded it, but they are requesting a reimbursement. Is this correct? Am I required to fund this?

Someone in my office claims to have filed a top hat filing for our top hat plan, but she has no record of it. Is there someplace online I can go to look up the filing? I tried FreeERISA, but the top hat filings seem to be only available if you have a "deluxe" paid subscription.

I think you're right about the DOL statements, which I why I normally file for subsequent plans even though I don't think the regulations require it. However, in this case, I think doing a late filing will cause more problems than taking the position we don't need to file for this new plan.

We did a top hat filing when we established our first top hat plan. The regulations state, "Only one statement need be filed for each employer maintaining one or more of the plans described in paragraph (d) of this section." Based on that language, it appears we do not have to do any additional top hat filings when we establish new top hat plans. Normally we do anyway as best practice, but in this case we didn't and we've already missed the 120 day window to file. Does it make sense to do a late top hat filing? Would that just raise a red flag? Or is it better to just rely on the language from the regulations and take the position that no top hat filings are required for the later-adopted plans?

OK, it appears I need to add some information. We have two companies that are not 20% related, but work together all the time. They both have adopted the nonqualified plan and the plan says a separation from service means a separation from all participating employers. I"m fairly certain this violates 409A. Even though both companies have adopted the plan, they are not considered the same service recipient under the regs. So long as Separation from Service is a payment trigger, it must be defined consistent with 409A; and here it is not. I think the only solution is to correct the plan language. Unfortunately, I believe several people have transferred between the companies without it triggering payment, so in addition to the plan language issue, we've also had several operational failures. It's going to be a mess.

I think I agree with you. It's clear you can limit Change of Control. But the IRS specifically has a threshold (20%) of work that you have to keep doing for the employer (which has a specific definition), otherwise there is a separation. This is a tricky situation, and, in this case, the two entities aren't even both participating in the plan. After much consideration, I think it is a separation. And I'm willing to bet there are a lot of plans out there that are doing this wrong.

I just posted a new question, but it's related to this. If you have two employers that are unrelated (or loosely related) participating in the same plan, I assume transfers between the two employers would still be separations from service, correct? Otherwise I think it would violate 409A's definition (for more detail, please see my latest new topic in this board).

The regulations say a separation from service occurs when a participant's level of service drops to 20% of less of what it had been (I know that's simplified). It also says you can choose a different percentage so long as it is greater than 20% but no larger than 50%. This makes sense, because an employer could set it at 1% and then the parties could agree the employee will hardly do anything but still not have a separation as a method to control the payment date. This also implies that you can have a broader definition of separation from service, but not a narrower definition of separation from service. So here is my problem: I have two related companies -- they are related, but they are not related enough to be considered the same employer under the regulations. The Plan says separation from service is determined according to 409A, but a transfer between the companies is not a separation from service. This appears to be a narrower definition of separation from service -- is this allowed under the regulations??? NOTE: I understand that under the separation regulations, companies only have to be 50% related (not 80% like under the normal rule). I also understand the plan can provide that the companies can be as little as 20% related. We can't do that here, as the companies are not even 20% related -- and, even if they were, our plan doesn't state this, and any amendment to reduce relations to 20% is only applicable for future elections to defer.

Thanks Luke. Duly noted.

We are amending all nonqual plans for the new rule, whether disability triggers payments or results in vesting.

No RMDs in a nonqualified plan.

Yes, they have a 401(k). I think I've figured this out. The client was worried that terminating the plan would have negative tax consequences. However, termination doesn't trigger distributions in the case of a SIMPLE IRA, so I think we're just going to terminate the SIMPLE IRA and let participant's have the choice of taking a distribution, doing a rollover, or just leaving their money in their accounts for now.

We are a small employer with a SIMPLE IRA. We are being acquired through a stock transaction by a larger company with a 401(k). Can we continue to maintain the SIMPLE IRA as a frozen plan (no future funding) or are we required to terminate it by the end of the 2 year transition period? If we terminate the SIMPLE IRA, what are the tax consequences?