CMC

My question has to do with how the partial termination rules apply following a plan merger. Buyer is acquiring seller. Some of seller's employees will be let go -- some in 2021 and likely more in 2022. Seller's 401(k) will be maintained for the balance of 2021 and then merged into buyer's effective 1/1/2022. So some of the terminations will happen while seller's plan is free-standing and others will happen after the plans are merged. Question is, assuming there would otherwise be a need to assess whether there has been a partial termination by aggregating terminations across the 2 plan years, does the plan merger help prevent a partial termination in a some way? Is there an argument that the seller's plan goes away when it is merged so you don't have to consider the 2022 terminations at all? Or, if not, does the plan merger at least make the 20% threshold harder to hit because the denominator grows when the plans are merged? Would appreciate your thoughts.

Plan sponsor discovers participant loans were defaulted because of errors by plan sponsor (including failure to start payments) over a number of years. The EPCRS Procedure sets out the steps the participant and employer can take in combination to fix that where there has not been a deemed distribution and 1099-R. But what is the "fix" (1) where there has been a deemed distribution and 1099-R but no actual loan offset or (2) where there has been a deemed distribution and 1099-R followed by a termination or other event resulting in an actual offset? If you were to go into VCP, what corrective measures would you propose? (I understand in scenario (1), the participant can repay the defaulted loan creating basis but don't see that they gain much by doing that.)

When participants in a deferred comp plan elect to receive installments over 5, 10, 15 or 20 years, they have been permitted to choose whether those installments will be calculated using a "Level Payment Method" or "Percentage of Retirement Account Method." Where a participant wants to change from one calculation method to the other without changing either the commencement date of the installments or the number of years over which the installments will be paid, does anyone think 409A's usual rules about changes in time and form of payment -- including the 5-year delay -- would need to be observed?

After reviewing the KETRA safe harbor guidance in IRS Notice 2005-92, it seems that, as a practical matter, the "one year" delay permitted under the CARES Act winds up as a practical matter to be more like 9 months. But for the difference in the period of time for which payments can be suspended (August 25, 2005 to December 31, 2006 in the case of KETRA vs. March 27, 2020 to December 31, 2020 in the case of CARES), the loan repayment relief is formulated in exactly the same way – both call for the due dates of any payments occurring during the specified period to be delayed “for one year.” In the example in 2005-29, the participant ultimately ceases making any payments for more than one year, but that seems to be a function of the fact that the employer in the example acted to take advantage of loan repayment suspension for 13 of the 16-ish months such relief was available under KETRA, rather than the fact the suspension is described in KETRA as being delayed “for one year.” (The implication is that if the employer in the example had waited until sometime in 2006 to act, the participant would have had his or her payments suspended for less than 12 months.) In the text of the 2005-92, the Service indicates that as part of the safe harbor approach “loan repayments must resume upon the end of the suspension period….” Consistent with that, in the example, loan payments resume on January 1, 2007. Consequently, I'm thinking in the case of a CARES Act loan extension, loan repayments would resume in January of 2021. Meaning participants, at most, would have gotten a 9-month break on repayments. Does that seem right or am I missing something?

A large, mid-Atlantic recordkeeper has advised our client that while it can increase its loan limit to $100k, they recommend the client not increase to 100% of the vested balance but instead stand pat at 50% (or perhaps 75% if the client feels strongly about it), citing to ERISA's adequate security requirement (one of the requirements such loans have to satisfy to come within an exemption to the prohibited transaction rules). Has anyone else encountered this concern or otherwise got thoughts?