Artie M

Quoted from Fall 2009 Employee Plan News https://www.irs.gov/pub/irs-tege/fall09.pdf Compensation limits vs. elective deferrals/§415 limits Confusion may arise on how to reconcile the limits under §401(a)(17), §415(c) and §402(g) when an employee’s annual compensation exceeds the current §401(a)(17) limit. For example, can a 40-year-old employee earning $30,000 per month (annual compensation of $360,000) who elects to defer a flat dollar amount of $1,375 per month ($16,500 for the year) in 2009 to his or her 401(k) plan continue to make elective deferrals after September, at which time his or her yearto-date compensation exceeds $245,000? The answer is yes, because the plan is not required to determine a participant’s §401(a)(17) compensation based on the earliest payments of compensation during a year. Unless the plan’s terms provide otherwise, the $16,500 §402(g) elective deferral limit is applied uniformly to the $245,000 §401(a)(17) compensation that the employee receives throughout the year, regardless of whether deferrals are expressed as a dollar amount or a percentage of compensation in the employee’s salary reduction agreement.

Agree with Former Esq. Also, with the asset sale, the employees who leave the seller and are hired by the purchaser would, absent other facts, have a severance from employment with the seller and, as such, would have a distribution right. They could elect a distribution and roll the distribution into the purchaser's plan without risk of the purchaser's plan being tainted by the sins of the seller, if any. The seller and purchaser could agree to permit loans to be rolled over also, if plans permit (could amend plans to permit if desired/necessary).

I do not keep statistics on this but some of my clients use this method, against my advice. I am not sure what you are asking in your final question as I don't think the client's methods can vary from the recordkeeper (TPA). I know that many TPAs want to use the method outlined in the IRM as administratively it is much more convenient (and some try to force its use). We let the clients know that even if a plan sponsor decides to use the IRM method, the IRS reserves the right to ask for the hardship source docs. The information letter on which the IRM is based notes that the auditor should only ask for the source documents in 2 circumstances, but those circumstances are not included in the IRM and even if they were they are only guidance to an auditor. If audited and the participant doesn't have the source documents or cannot find them, seems like the employer may have to go into Audit CAP (luckily none of my clients have had this issue under audit). Convenience = increased audit risk.

Hate to beat a dead horse but I don't see it as easily as you guys do. Treas. Reg. s 1.415(c)-2(e)(3)(iv): "if they are paid after severance from employment with the employer maintaining the plan," The IRM conveniently omits that phrase. That highlighted language means (to me at least) that severance paid any time after severance from employment is not included in 415 comp even if it’s paid within the time period in (e)(3)(i) [2½ months/end of LY]. Otherwise, why is the underlined language in the Regulations?

Thanks for the link but I guess I am just dense. I don't see the authority for your statement. s 31.3401(a)-1(b)(4) states severance is in wages. (this reg also updated in 2007). Looking for the statement that says don't ever include severance in the 415 W-2 safe harbor definition.

The use of a January date in your example does give one pause.... I agree that if your plan provides that comp is based on the default rule in 415, severance should not be included whether it was paid pre- or post-termination of employment as that comp definition includes only amounts received for services actually rendered. (I didn't use quote marks as I have not busted out the books but I think that is right). This rule would not apply to NQDC, so timing seems relevant. However, I am not certain about your blanket statement that severance is never included when using the W-2 6041 definitions. I believe severance and NQDC are includible in W-2 compensation and are reportable, including for purposes of the 415 safe-harbor definitions. Can you provide authority for your blanket statement?