Just Me

The anti-abuse rule?

Although already mentioned above, I think one of the biggest issues is that the amount credited under the plan is not subject to claims of the employer's creditors...therefore, there may be a significant constructive receipt issue.

So that we don't get off topic too far, first, let's not get all hung up on the actuary's use of the word "spin off". Call it a transfer, assignment, shift, whatever you like, by establishment of a new VEBA of which the employer will not have control. Second, yes, the GM case involved a union, to which the VEBA was transferred/assigned/shifted/etc. My OP was asking whether a similar transaction could be possible where there is no union. I have seen reliable sources saying that it can, and that the sponsor/controller of the VEBA need only be an "association." Having said all that, I was polling the group to see if anyone had been involved in such a transaction (i.e., sans union), and if so what issues arose and any solutions therefor. I belivee that it is possible from a legal perspective, but may not be worth the administrative complexities involved.

Au contraire. What I said in the original post was "Then appoint an independent trustee and "spin off" the VEBA to the participants." "to the participants" means control by the participants. This is what's being referred to as a "new VEBA" concept where the employer is taken out of the picture. GM did this with union retirees, but being subject to a CBA does not seem to be required. The sponsor will be the "Employees Beneficiary Association" that is the VEBA itself. Sure, this is a new concept, but not impossible. The practicalities of operating the trust seem to be more cumbersome than setting up the actual structure.

Company is selling a subsidiary. Actuary has suggested that the company establish a VEBA for retiree medical benefits now, and then amend the plan to provide that the VEBA is the sole source of benefit payments with all future funding by employee contributions. Then appoint an independent trustee and "spin off" the VEBA to the participants. The idea is that after the sale of the company, retiree medical benefits can be "locked in" for a period of time, say three years (i.e., buyer is not a party to this arrangement). Actuary has characterized this as a new practice that is gaining popularity. Anybody seen this idea, and more importantly, see any issues with it?

Joyce Kahn has said that if the IRS were to trigger audits based on VCP filings, it would have a "chilling effect" on EPCRS generally. So no, they don't do this. I have not seen any pattern of audits filing VCPs after having done a number of VCP filings.

Under this plan, QNECs cannot be withdrawn in service, whereas matching contributions can. Match is also subject to a three year vesting schedule, whereas QNEC is not. It makes a difference or we wouldn't be worrying about it.

It seems clear that if you forget to offer participation entirely, under EPCRS the correction is for the employer to contribute deferral and match, both of which are a QNEC. This doesn't seem to apply to our situation. However, EPCRS does not specifically address the situation where the participant made an election and we didn't follow it...so is there any support for treating the corrective deferral as a QNEC (which I think is the right answer), and is there any guidance on whether the corrective match would or would not be a QNEC (I get mixed answers from my colleagues on this point)? What has everyone else done under VCP?

Employee enrolls for 401(k) plan last year. Deferrals start, then due to glitch, they stop for several pay periods. Company making QNEC for missed deferral contributions. Company also making related match. Is the related match a QNEC? EPCRS says it is if the employee was not "provided an opportunity to make elective deferrals". He was. But on the other hand he wasn't.

Thanks masteff. I see the reference to the first day of the seventh month in the regulations with respect to holding installment payments during the 6 month period, as an example of an acceptable time to pay these. I also see the phrase "...payments may not be made before the date that is six months after the date of separation from service..." in the general provisions regarding the requirement for the six month delay. I think this is what the OP was focusing on...what is the date that is six months after the date of separation from service? If the employee terminates June 30th, then it seems that June 30th is his separation from service date -- not July 1 [perhaps we disagree on this point]. So the question is, what is the date that is six months after the date of separation from service? And this date (which I think may be December 30th), is the date upon which payment cannot be made BEFORE according to the regs. It's important to note that the regs don't say it has to be made FOLLOWING the date that is six months after the separation from service, but that it can't be made BEFORE that date. So if the payment is made ON THE DATE that is six months after the separation from service, it doesn't violate the rule. Of course, December 31st would be safer than December 30, but the OP asked that we speculate on what the earliest date for payment would be, not the safest date.

Oops. I didn't mean to change the question. If the payment is in December 2008, it's taxable in 2008, if payment is made in January, it's taxable in 2009 (unless we have a collusion/constructive reciept issue). However, the "six months" is still an undefined quandry. Did rcline mean to imply that this would always be the END of a month? What if he terminated today, June 4th? I would think December 4th would be the "six month" date. Yes, great intellectual exercise, but you KNOW this is going to happen....

OK, I'll bite... I say December 30, 2008. That is the date that is six months after the date of termination, before which the amount cannot be paid. It would be taxable when received by the employee (in December). Constructive receipt would only apply where the employee "turned his back" on the income, in other words, he had the ability to demand payment in December but did not elect to do so, or elected to defer to January. I'm sure reasonable minds will have other reasonable interpretations.

We had the same problem with one of our clients. Went through VCP and made QNECs for all incorrectly excluded employees for all plan years since plan inception. IRS would not accept anything less. EE communications do not override a qualified plan document (unless it goes to court, and then you're at the whim of the judge). Your client is not in a good place. I would not sweep under the rug and hope that no audit/employee complaint ever arises. Prospectively, you should amendment to exclude who you can (NOT "part-timers" as such, and NOT anybody already in the plan under the corrected method, etc.). Good luck.

Buy the client a copy of the ERISA Outline Book with your best wishes as a parting gift. And then part.

This doesn't seem like 409A deferred compensation to me. Although it may appear much like a loan in the general sense of the word, for tax purposes it is not treated like a loan at all because upon the initial payment of the reimbursed expenses, they are taxable and includible on Form W-2. I wouldn't think that the IRS would argue that the expiration of the period of time during which an amount paid (and taxed) is subject to a claw-back would be the same as a promise to deliver a bonus in the future. Especially since the employee has the cash now and is taxed on it. Just my 2 cents.

I agree with QDROphile that an advance election can be made to re-start deferrals effective when the moratorium expires, as long as the election is made before the end of the prior calendar year. Those who disagree would be "safe" in their determination (no inappropriate deferrals), but I don't see this being a requirement. Don't forget that some executives save up amounts in NQDCs with the intention that they be used for educational expenses of their kids, so a HS W/D by someone who presumably is higher paid followed by a re-start of deferrals within six months would not be quirky. Not really a "hardship" as we know it....

We have 401(k) plan that was formed as a spinoff from our prior company. (The company split in two, we each have our own stock now.) How do we determine HCEs for testing purposes? Should we consider HCEs from last year prior to the spinoff when we were all one company? Last year we were employed by the original company, which is not who we are now. (We were all employed by A, it split into A (continuation of A) and B. We are B.) Thanks.

I agree with Steeler fan, except you must be very careful in using the 2008 transition rule...you can elect to pick another date of distribution in the future, but only if the amount was not otherwise supposed to be paid in 2008 under the terms of the existing agreement. And you must amend the current plan to provide for use of this rule. Rolling out now and paying taxes later sounds like just the sort of think 409A was trying to prevent.

A 401(k) Plan's TPA is proposing that dividends allocated to the Company Stock account be used to buy company stock at a discount. Publicly traded company. Has anyone seen this? Issues?

We just discovered that several participant loans were processed from our 401(k) plan using prime rate. The Plan says prime plus 1%. Is this an operational error that could be filed with the IRS under the VCP? How do we fix past loans vs. currently outstanding loans?

I think Steelerfan is applying the execeptions correctly. Part of a payment can be short term deferral, and part can be a involuntary separation pay plan. This is the "stacking" concept that the IRS and Final Regs talk about, i.e., applying multiple exceptions to a single payment or stream of payments and seeing what's left that must be subject to 409A, if anything. I agree with Locust that doubt still exists in this area....

I think what Locust was getting at was whether you could amend a separation agreement to fit within the involuntary separation pay plan exception (involuntary only, 2X comp, 2 year rule). That might be OK, I haven't really looked at that, but I do know the IRS has said you can't amend an agreement that is subject to 409A into the short term deferral exception...i.e., to be able to cash it out quickly in violation of the anti-acceleration prohibition.

I agree with Steelerfan...you can't amend an arrangement after 2005 that is subject to 409A to make it no longer subject to 409A, thus effectively skirting around the anti-accleration rules.

Not only can you NOT amend a plan in 2007 to make amounts payable in 2007 that would otherwise have been payable later under the transition rules, the IRS has repeatedly said you cannot amend a 409A arrangement in such a way that is becomes a short term deferral (to prevent abusive amendments akin to the one you are suggesting).

The original question relates to the transition rule....so the link is permitted through 12/31/08 with no 6-month holdout for specified employees.