Just Me

You need to refer to Rev. Proc. 2006-27 (EPCRS). However, it is not clear in the Rev. Proc. what to do when the employee has entered into a valid salary deferral agreement but was overlooked. In working with the IRS on this issue, we understand their position to be that the salary deferrel agreement needs to be honored in full if you are correcting under SCP. You MIGHT be able to pursuade the IRS to go with a 50% correction if you file under VCP. I would not self-correct for anything less than the full amount as elected in the employee's agreement. EPCRS also sets forth examples of acceptable lost earnings calculations. I also understand that the IRS doesn't "buy" the DOL rates that you mentioned because they may not reflect what the amount would have actually earned under the plan based on its investment mix.

So the participant received an overpayment?

I have been amending plans to either switch to using and defining "separation from service" or to define termination as meaning "separation from service within the meaning of Code § 409A" just to be safe. If you are amending it anyway, why not?

I have researched this in the past and concluded that a tribal DRO is not a QDRO for this very reason. I understand it can be resubmitted to an appropriate state court for reissuance (I have heard of this being done, for example, where a DRO is presented from a Mexican or Canadian court to "domesticate" it), and then it may qualify as a QDRO. I think there are some threads on this message board to this effect.

My understanding is that you cannot elect whether to grandfather or not. The deferred compensation is either subject to 409A (because it was deferred and/or vested after 2004, or because it was "old" money under an arrangement that was materially modified after October 4, 2004), or it's not. Absent a material modification, you cannot just designated otherwise grandfathered amounts as being subject to 409A.

Just stop. Governmental entities have no 5500 filing requirement for any plan any more. You will probably get a letter from the DOL asking why you stopped and you can answer it honestly.

I vote for C.

I agree with ttott. As long as they don't have the option of receiving the cash for that pay period prior to the date the paychecks are delivered, it seems like a good CODA to me.

Ok...based on EPCRS and the ERISA Outline Book, we're thinking that we can ignore anyone whose overpayment was $100 or less (per EPCRS) and for the rest, make a resonable effort to notify them that they can put the overpayment back into the plan, with earnings (per the EOB, this would be an after tax amount.) For those that don't put their overpayment back in, they will ultimately get less distribution from the plan when they terminate, retire, etc., so no one else (and more importantly, no NHCE) has been harmed (the plan is 100% fully vested in all accounts). Anybody see any issues with this? Think the IRS would buy it? Thanks!!

Has anybody had this issue and come up with a correction method acceptable to the IRS? The ADP test was done using the wrong compensation for the last several plan years (not what the Plan said to use). Refunds were made to HCEs to correct. Using the right compensation would have resulted in lower refunds to the HCEs. Thanks.

Be careful in reaching this conclusion. I have one client (not on a Corbel or PPD document) whose document provider would not change their address in the SPD, EVEN THOUGH THE COMPANY HAD MOVED OFFICES, without first amending the AA to change the information in the employer section. Our argument that you can't hand out an SPD with known incorrect information wouldn't make them budge. Unbelievable, yet true (and more a matter of "that's how our system works" rather than "gee, what does ERISA require" on their part.)

No, the IRS did not "categorically" say that all "good reason" provisions would cause a 409A agreement to fail to have a substantial risk of forfeiture, but in the absence of any reassuring guidance, it may be safer to assume you don't have a susbstantial risk of forfeiture and design the arrangement accordingly. Certainly, if the service provider is a specified employee and the service recipient is publicly traded, then the 6 month hold back rule would apply. As would all other rules applicable to deferred compensation that is subject to Section 409A.

Having a "good reason" provision can mean (and probably does in all relevant cases) that there is no substantial risk of forfeiture from the start. Therefore, the arrangement can't fit within the short term deferral exception since that would require payment within 2 1/2 months after the end of the year in which the services were provided, and this agreement provides for a later timing with longer payment terms. So it's subject to 409A. If payment is made only upon a separation from service, and it's paid in accordance with the company's normal payroll schedule, it seems logical to argue that you have a permissible distribution event and fixed payments. Why would that not qualify satisfy Section 409A, especially considering that you have a good faith standard?

The "no additional deferral feature" applies to "stock rights" under Section 409A. "Stock rights" are defined as stock options and stock appreciation rights only. Restricted stock is not a stock right under Section 409A subject to the "no additional deferral feature" rule. Because restricted stock is taxed under Section 83, the "old" rules regarding the timing of a deferral election would apply. However, once the amount is deferred, it becomes subject to Section 409A.

I have seen this type of chart before, and on its face it looks discriminatory, but let's look at what's REALLY being given: Defer 3%, get a 66.67% match Defer 5 %, get a 60% match Defer 7%, get a 57% match The matching RATE is dropping as the deferral rate goes up. Doesn't look discriminatory to me. Also, is the 3% profit sharing contingent on the employee making a deferral? If so, it's treated as additional matching contribution and needs to be part of the testing as such.

First, I hope that if you really posted this at 1:34 in the morning, that this issue was not keeping you up all night. Second, I don't think you can make any kind of argument that someone entered a plan before it was effective, so I'd vote for Feb 1. Third, the interesting question becomes what is what is the first day of the 7th month of the plan year for mid-year entrants. Does the plan document say July 1 or 7th month? Seems like the 7th month would be August 1. But that's...just me.

It is unlikely the plan will be maxing out Section 404 deduction limits, or that any employee will exceed the Section 415 limitation. Since the broker fees are paid per share, we are concerned that the fees paid would tend to be skewed in favor of the participants with big stock balances, and MAY be discriminatory. But even if they are not, the plan does not permit this type of benefit - the ONLY company contributions permitted are a match and corrective contributions for failure of ADP/ACP. Not even a discretionary profit sharing contribution.

Thanks. I had found 86-142, and it's clear that broker's fees are different from other administrative and overhead fees, because they are considered part of the asset itself, and therefore if the employer pays them, it's a "benefit" subject to 404 deduction limitations. I agree with you that there is no specific guidance saying its a contribution for all purposes, including allocation, nondiscrimination, 415, etc. But the general wisdom out there, including the ERISA Outline Book, says this is so. I'm willing to assume these are "contributions" and advise the client to stop paying these fees directly. The next question is how to fix prior years. Has anybody dealt with this in a VCP filing or otherwise? The possible correction scenarios seem really messy.

I was afraid of that. We have a plan that has been doing this. We can stop, but is there any way to fix prior years?

Is there any problem with an employer paying broker fees outside of the plan for the participants buying and selling company stock?

The MPP was merged into the ESOP before it was frozen, so there was a MPP contribution for a number of years. This portion was frozen and now states that the MPP contribution is $0 after the freeze date. It seems much more prudent to indicate on the 5500 that the plan had a money purchase portion, as it had always been reported as such, and the plan contains MPP language that looks like any other frozen MPP. However, the question I was asking, and the point I wanted to share was that if you have just a frozen MPP (lets forget the ESOP complication), and you indicate on Form 5500 that it is a MPP, the DOL computer will do a data check and look for responses in part II of Schedule R regarding Section 412 minumum funding requirements, even though Schedule R says to skip part II of the plan is not subject to minimum funding. The IRS says answer it anyway with all zeros. This can't be the only 5500 that was rejected for this reason, because the IRS guy had this very question in his "book" of commonly-asked questions. Thanks for your input anyway.

Gee, I get to answer my own question. The IRS just called back to tell me that even though a frozen money purchase plan is not subject to Section 412 minimum funding requirements, lines 6a,b, and c of part II of Schedule R should be completed with all 0's as responses.

We have an ESOP that has a frozen money purchase portion (it was merged into the ESOP years ago). We filed Form 5500 and included the codes for both an ESOP and a MPP (since that portion of the plan is subject to J&S, etc.), and completed Schedule R to report plan distributions. We left part II of Schedule R blank because the form says to skip this section if the plan is not subject to Section 412 minimum funding. We got a reject letter. DOL is not buying our response, and says that if you have a money purchase plan/feature, you MUST be subject to minimum funding, and to call IRS since it's an IRS schedule. IRS has no clue what to do. DOL person suggested that we put 0's in for the amount of funding. From my Googling, this seems to be a common problem for which there is no right answer. (i.e., you can't properly fill out the 5500 for a frozen money purchase plan.) Has anyone had a successful response to the DOL on their reject letter that I could learn from? Thanks in advance!!

Before you say it, I know, I know, a TAM can't be relied on. But here is a TAM that I have always taken to mean that under Code Section 411 you can't change the allocation formula after the end of the year ---> TAM 9735001. This TAM also makes it clear that the contribution is deemed to be made on the last day of the year as long as it is made by the time the sponsor's tax return for that year is filed, so the timing of the contribution will not matter. __________________________ But that's just me and my humble opinion...

I have given the same advice myself...and I know why: The level of compensation that is paid to outside directors is covered by the corporate “entire fairness test,” which is considered a higher standard than the “business judgment rule” applicable to employees. By covering both outside directors and employees in one plan, a company may be exposed to a higher standard in a fairness of compensation dispute involving the Plan.