loserson

There is also the new 500-hour rule from the SECURE Act. Long-term part-timers have to be allowed partway into the plan. If the sole eligibility rule is "1,000 hours within 6 months or within 12 months" then you would miss those people.

I have never looked at this before, but my first instinct is that it probably would not work. VEBAs serve the members' health care costs and the assets need to be used for that. Probably still worth looking into, since maybe my first instinct is wrong. But you do not want this treated as a reversion to the employer, because then you could be facing confiscatory excise taxes. But I have to ask, what is their goal? Are they just trying to spend down an over-funded VEBA? Because there are other options that are more common and easier to achieve. I have had to help clients decide how to spend locked-away money and there are easier ways that pose less risk of violating tax law. Do they actually want to start a charity and this seems like a convenient pile of free money? Because that seems like a bad way to start off a charity. Here is a recent PLR for a VEBA that added a new benefit (to spend itself down, presumably) and the IRS blessed the arrangement. (PLR 201833014)

First, check the plan document. If it addresses this situation, it likely says this is a deemed distribution. The plan can have a cure period for missed loan payments, but the cure period must not be longer than the last day of the calendar quarter following the quarter in which the last timely payment was made. After the cure period ends, loans not being repaid are deemed distributed. So if the participant took out a loan in AUG 2018 and no payments were ever made, the first payment was due in Q3 2018 and the maximum cure period ended on 31 DEC 2018, the last day of Q4 2018. After Q4 2018 ended with no repayment, the loan is deemed distributed as of the first missed payment. If the plan has no cure period, then the loan is still deemed distributed as of the first missed payment. The plan needed to issue a 1099 this past JAN/FEB 2019 for the deemed distribution. The participant's 2018 taxes will probably have to be amended to account for the income from the deemed distribution. The employer could choose to make the employee whole or give some kind of special bonus for tax relief. The employer could possibly pursue some kind of service credit with whichever vendors accept blame. Frankly, most of the parties involved bear some blame here, including the employee - who apparently never noticed the loan repayments were not coming out? It's unfortunate that the employer, the payroll vendor, and the plan vendors all failed to catch this earlier, and it's a failure of process overall. But the employee also failed and as the only person personally at stake, is arguably the one most responsible for watching that paychecks and the 401(k) plan balance are correct. There is an exception for leave of absence, where you can miss payments up to a year, so long as the loan is still fully repaid in the 5-year term (with a more aggressive payment schedule). See Treas Reg § 1.72(p)-1, Q/A-10 See also CCA 201736022 on a Section 72(p) loan cure period. Or see IRS 401(k) Plan Fix-It Guide on plan loans. The payroll vendor usually is not in a position to check who has 401(k) loans. The sponsor and the 401(k) plan vendor(s) will have access to the list of loan-holding participants and are in a better position to check regularly whether those loans are being repaid. The payroll vendor probably messed up the initial deduction instruction, or maybe the employer messed up by not correctly issuing the instruction to the vendor. And then nobody at the employer double-checked that the instruction was followed by the payroll vendor. The plan sponsor and the plan vendors appear to have messed up for a year by not monitoring whether 401(k) loans were all being actively repaid. The employee messed up by not checking paychecks and not checking the 401(k) to see that everything was being done correctly, or messed up by not understanding that the plan loan should have been repaid. Plenty of blame to go around.

Ah! Got it. Sorry, I am used to the outside lawyer perspective and I do not always think about admin details with regard to cost containment and vendors. I am used to focusing on the actual comp, which is only part of the picture. The exception for me is DBs, where I have trouble not thinking about all the time and money "wasted" on actuaries and PBGC premiums The DOL will sometimes let you get away with filing a single top hat registration statement, which is plausible to argue with the broker that this is "one plan." You might use some creative drafting to make a "single" plan document and get a one-plan fee, maybe? For your convenience: DOL Advisory Opinion 2008-08A Melbinger on group top hats and 2008-08A

So is your goal to get two tax-exempt entities into a non-governmental 457(b) plan, meaning an unfunded top hat plan? If there is no trustee and this is just NQDC held separately by each employer, couldn't you just design two plans to use identical documents, but then modify the employer name? You could use the same name for each, like "Entity A 457(b) Deferred Compensation Plan" and "Entity B 457(b) Deferred Compensation Plan." You could probably even send the same SPD/booklet to every covered executive and just say it applies to both plans and both employers. Maybe I am missing some administrative issues and that's why you are asking.

I believe that reg is referring to controlled groups, not to affiliated service groups, isn't it? I might be misunderstanding.

I have less experience advising fully insured employers on their health plans, because they are usually too small to use us regularly and many fully insured plans are trying to avoid administrative costs, but I trust that this is accurate. Though I imagine you could probably muddle your way through by having somebody come in most days of the week but being flexible about their job search. Like, instead of knowing a lot of your full-time white-collar employees are mostly checking facebook or amazon, you know this employee is checking linkedin and job boards. So you couldn't let them blow off their work like if you were self-funded. But so long as they are still doing a reasonable amount of work and they are mostly showing up every day, I suspect you would be on the kosher side of this requirement, right?

"Terminated" in the sense that you have selected them for termination, but have decided to keep them on the books as employees for several months to ease their transition into other employment. Obviously if you're paying wages or salary, they are not yet terminated. It's not meant for people "in danger" of losing their jobs and on probation. It's for people who are told "you 100% will lose your job in a few months, go ahead and use work time to find a new job." It works better in situations where you have many people doing the same thing and can cover their job. So like professional service firms, where lots of highly paid people do similar work. It's less well-suited where you need a manager to actively work and keeping deadweight in a single position for 3+ months is a drag. But you could make it work as long as the condemned executive is willing to keep putting in some time as manager. Or I have also seen situations where a doomed executive has all their reporting employees taken away but they keep lingering.

I think you are looking for a 401(a) equivalent of Treas Reg §1.403(b)-3(b)(3): I am not sure that there is an equivalent Treas Reg provision for 401(a) plans. It's sprinkled in various places already identified in this thread. I guess you could cite the EPCRS rev rul. It goes into plan document failures. It at least goes to the IRS' interpretation and enforcement standard. Agreed that fiduciary failure under ERISA does not translate into tax disqualification, unless there is some provision I am not thinking of. Almost no qualified plan get disqualified because IRS and employers both want to avoid it and all advisors try desperately to avoid it. But if the IRS said "you have some plan doc failures, go fix them" and you refused to cooperate with the IRS at all, I think your intransigence might eventually get to disqualification. Similar to how the DOL has the power to get a court order to force plans to comply, but they basically never use it because the plans all know to do as they are told before it gets to that point.

Yeesh, melodramatic? It's hardly fraud. You have an employee. You tell the employee "find another job within 3 months because we are going to let you go." You continue paying salary and self-insuring their subsidized group health plan coverage. You stop expecting the employee to do regular job duties and excuse their absences so there is time for job interviews.

Would it be simpler to just offer severance to your execs? Then they can go to the marketplace for coverage. You can give better benefits to execs without any discrimination issues and without imposing uncertain coverage costs on the group health plan. You might also have a practice of keeping terminated execs on the payroll for a period of time after they are locked out of the system and no longer coming in to work. You still need to pay them a minimum wage, but you can keep them employees for GHP eligibility. There are certain industries where this is commonly extended as a courtesy to terminated employees, who remain "employees" while they search for a new job. But you need to be vigilant about periodically clearing them off this status, or you could accumulate lots of zombie employees.

I wanted to chime in to agree with david rigby. If it makes sense in this case, might it make sense to change the rule overall? It's often easier administratively if changes in practice are universal rather than particular. They could put in vesting if they are concerned about their match.

I would be concerned about Medicare secondary payer. CMS does not want employers to free ride off of Medicare. A special benefit only to Medicare-eligible employees could be a problem. I am less concerned about age discrimination, since age discrimination in the US almost never punishes pro-senior discrimination, only anti-senior. So if the 65+ HCE gets benefits at least as good as the under-65s, then it is probably okay. But a policy to exclude 65s from ER GHP coverage, rather than just paying 65s to choose Medicare-only coverage, would raise age discrimination issues. It would help to know their goals here. Why are they doing all this weirdness?

If we are talking about 12 out of 1800 employees in the company/group (0.67%), and they are the top 12 in terms of pay, and all HCEs, and they are all managers, and they are all company officers, then I would not really worry if this is a good top hat group. If those things are mostly true, like maybe they are not all officers, then it's probably still fine. It helps if it's a clearly defined group and clearly designed to stay select and small. If it's tied to job title or the employer has a narrow pay-grade class for top managers and executives, then that helps. The feds have pay grades like GS-15 and FS1 and so forth, and they have a Senior Executive Service above the regular pay grades. If this company has a similar (though certainly less formal!) pay grade system, and the NQDC plan is only for the executive pay grade, that really helps show it's a small, select group. I might feel less sanguine if they exclusively define it as HCEs, with no other requirements for job title or job duties, officer or manager duties, pay grade, etc. The main concern, both as drafted and as enforced, is to not let the top hat exception apply to too many people in a company or group and thereby let the exception swallow ERISA. If the group is very small and the employees are highly paid (sotto voce: and sophisticated), then DOL is unlikely to blink. Though the absence of 401(k) coverage is an unusual twist and I have not thought through how it might alter the DOL view here.

Thanks, I had forgotten that they just updated EPCRS again in 2019. My spiral-bound EPCRS copy is now like 4 rev procs out of date (counting the partial amendments in 2015 or 2016). We have definitely seen lots of DOL enforcement of missing participants, but what is to be done if you tried hard, paid a formal search firm or two, and add those people to your re-try list every year? I have told clients to change their procedures to capture addresses before people go missing, but other than increasing search frequency and search firm spend (which I agree is probably what DOL wants), at some point you just have to shrug, don't you? There are enough noises that I think within the next decade they will have some system or authority that either lists all the orphaned account balances or that actually holds them for wayward participants (like PBGC). So my personal opinion, which I do not give as advice, is that you just need to tread water and show you are really, really, trying until the law changes. Because the way it is now is just untenable and the product of nobody realizing how big a deal this is and how avoidable it ought to be. I know that practitioners have been telling PBGC they want a program to take missing participant balances for DC plans. So maybe that will be the result. Or maybe IRS/SSA will go back to telling us where these people are. The vast majority of missing participants are eventually going to either file tax returns, receive tax statements, collect Social Security, or receive Medicare, so the feds already know where almost all our missing participants are, especially the ones that are age 62 or 65.