Artie M

I don't believe there is a specific correction set forth anywhere to cover this situation (especially since the super catch-up rule is so new). However, it seems you could analogize to the situation where a plan did not offer the regular catch up to all of its employees. In such a case, the plan would be treated as a discriminatory plan and, unless corrected, the qualified status of the plan could be adversely affected. To correct this type of failure, it would seem that Plan A employer could self-correct under EPCRS generally by: providing the affected employees with the right to make the catch-up (it would be required as long as Plan B doesn't stop making the catch-up under its plan) and making QNECs to the affected employees to compensate them for their missed deferral opportunity (so likely 50% of the additional catch-up plus earnings). Otherwise, if Plan B agrees, they could utilize VCP and submit the retroactive amendment to the IRS for its approval. Note the IRS doesn't usually agree to retroactive amendments unless it increases benefits for plan participants--here, the request would include distributing the benefits of one group from the plan so their benefits will be being reduced. The client could go to VCP and propose any other correction it can think of... e.g., propose to simply amend Plan B to stop the catch-ups with no distributions. Here, it is likely the IRS would say no, unless Plan A gives the QNEC.

@RatherBeGolfing Just to be clear... optional aggregation is permitted in 3 circumstances stated generally as: (i) employers using a common paymaster (not that many employers actually meet the common paymaster rules because it should only cover "concurrent" employees), (ii) an employer and one or more other employers in a 414(b), (c), (m), or (o) control group, and (iii) for successor employers in asset purchase. See § 1.414(v)-2(b)(4)(ii), (iii), (iv) Federal Register :: Catch-Up Contributions Administratively it could be an issue where several controlled group members participate in the same plan and employees work across multiple entities in the controlled group or are transferred between the entities. Without aggregation, mid-year transfers could cause the employee's catch-ups to be characterized differently, so there will need to be more communications with the employees to minimize confusion. Certainly more reasons not to do this but it depends on the employer and their structure.

In my view, there isn't a stock answer to your question. Since your client is engaging a 3(16) fiduciary, they have a fiduciary duty to assess the potential risk of loss/costs to the plan that could result from the proposed 3(16) fiduciary's acts (or omissions). Without seeing the scope of the limitation of liability/indemnification provision or the scope of services they will provide under the agreement, not sure how one would quantify the limitation. I mean the agreement must be reviewed to determine what is the possibility of, and the maximum amount of, any potential loss for the plan based on the services provided and, perhaps, if these potential losses were to arise, what could be the additional administrative or other costs for any actions your client may have to take to mitigate/minimize the potential losses? (Editorializing here but honestly, many agreements that purport to be 3(16) agreements don't even provide the third-party being retained enough discretion to, and/or require any services that would, cause them to be fiduciaries). That said, the bulk of our clients are plan sponsors. We frankly invariably strike all this limitation language and advise our client to tell the proposed providers that they should ensure they have good enough E&O insurance to cover their negligence (and indemnity to us) and that they must provide the client with documentation indicating that they have an ERISA 412 bond that covers them separately with regard to their fiduciary acts involving the client's specific plan or one that covers theirs and the client's actions under the plan both but separately (i.e., with separate $ limits). Our clients generally stick with this and don't sign providers who will not "step up" if they are at fault. On the other hand, when we advise clients that are TPAs regarding limitations/indemnities, the form contract generally includes 1-year fee limits. These TPAs, though, generally charge much higher service fees (basis points type fees) than what your proposed provider is charging. Also, as with most indemnity provisions, this amount is almost always the subject of heavy negotiations and does not remain static... the agreed upon limits range from elimination of the limit to a multi-year limit to sticking with the original 1-year fee limit (here, the ultimate limitation depends on the scope of the work and the fees generated under the contract... how much do they want the business).

Note that for the 402(g) excess deferrals, earnings are only taxable in the year of distribution. The 1099-R for the year of deferral only includes the actual excess deferral amount, but the 1099-R for the year of distribution would include the amount of the excess deferrals and the earnings (calculated from the date of failure through the date of correction... hopefully there wasn't a loss as losses treated differently). The distribution of the excess amount contributed due to exceeding the plan limit does not have the same double taxation consequence for the participant but it would include earnings calculated for the period of the failure and the excess amount plus earnings would be taxable in the year of distribution. Since these distributions are taxable, the 1099-R should indicate they are not eligible for rollover etc. Also, these distributions may be subject to 72t penalties unless an exception applies, 20% withholding, and spousal consent, if required under plan. Any forfeiture of matches would include a forfeiture of related earnings calculated for the period of failure. Of course, any forfeiture of a match is not taxable to the participant and there is no 1099-R reporting requirement.

My response to the OP is the same as @Lou S.

I think like you, I am always hesistant to give anyone, employer or employee, any discretion under 409A. There isn't an issue regarding implicating the change in election rules because, from your facts, this involves an acceleration of the payment and not a delay. Under the structure of the change, the employer believes or has been advised that the at least 12 month delay in payment after an election coupled with the forfeiture if resign within that period constitutes a substantial risk of forfeiture for the short term deferral rules. This appears reasonable but it is not without risk. This goes back to the question under section 83 of how long must a service period be for purpose of this rule. Most think a year is reasonable but for many, many years conservative practitioners point to a two-year period as alluded to in the section 83 regs. This two-year period has been cited in several PLRs issued under 457 (e.g., 9211037). IRS personnel speaking at a conference I attended several years ago stated that (in his opinion, of course) the two-year rule was a safe-harbor and not necessarily a minimum. The PLR I parenthetically cite ruled benefits in a 457f plan vested immediately because the service period was less than two years. So there is a possibility the IRS might not agree on the 12 month period (also, the courts might not either... there is a tax court case out there involving a 12-month resale restriction on some type of property (not a service requirement) where the court held the 12-month period was relatively short and not substantial... people point to that case as support for this two-year rule... not sure if it really applies but its there). Also, the 12-month period must be for actual work and perhaps not some consultancy period (not a sure loser but a facts and circumstances issue) or where they use vacation for a significant period. My recollection was that the actual work requirement was problematic under some rulings.

Not sure how you would deal with this but I question a payroll system that has shortages and overages that can't be reconciled. Of course, I don't deal with this all the time so maybe it is not unusual but the accountant in me bristles at the notion... Note there are no de minimis exceptions for this type of error.

Neither the Code nor the Treas Regs under 72(p) require that loan repayments be accelerated at termination of employment. In addition, neither require that loan repayments must be permitted to after termination of employment. Hence, the need for the election you have noted. If the plan documents permit, loan repayments may continue to be made by the participants. But, previously loan repayments would have been made via payroll reduction and they would no longer be able to done this way. This would be require arrangements to be made with the recordkeeper for direct repayment via check or electronic payments such as ACH deduction from a participant’s bank account. That said, in the past, most plans and/or their recordkeepers wouldn’t, couldn’t, or just didn’t want to, go through the administrative expense of working with individual terminated participants on repayment arrangements (just as @Lou S. is saying), so they would require immediate payment upon termination of employment. Nowadays, recordkeepers are less reluctant (and plans seem to be neutral if the recordkeepers are okay with it). This is simply a contractual restriction of the plan and/or recordkeeper—again, it is not a legal restriction. However, the terms of the plan, loan policy documents or promissory notes must conform with the contractual loan restrictions. If they don't, the plan sponsor could be violating the Truth in Lending Act. Plan loans are loans (i.e., ERISA does not pre-empt the Truth in Lending Act rules that may be applicable). Also, if this box is checked or unchecked, the choice will affect how this loan is treated and whether a loan offset can be used. If this alternative is checked in the adoption agreement, the plan and the recordkeeper would not and could not permit terminated employees to continue to pay off outstanding loans, and the loan would be immediately due and payable upon termination of employment. Here, unless the outstanding loan balance is pre-paid (most plans or plan loan policies permit pre-payment) or paid within 90 days of termination, the outstanding loan balance would be reported as taxable income to the participant on a 1099-R. This is your loan offset. Unless an exemption applies, the outstanding balance would be subject to the 10% early withdrawal penalty. If the loan was in good standing on the termination of employment date, the participant could rollover the outstanding loan balance to another qualified plan or IRA (they would have to fund the rollover with their own funds) to avoid taxes and penalties, but the rollover would have to occur prior to the due date (including any extensions) for their tax return for the year of the loan offset. If the due and payable alternative is not checked in the adoption agreement (and the plan loan policies and any applicable promissory notes do not provide for acceleration of repayment), the employer would be violating the terms of the plan and likely the Truth in Lending Act, if it does not permit them to continue repaying the loan after their termination of employment. That is, the plan would not have a right to accelerate payments, to do a loan offset or to cause the loan to be defaulted (if they are willing and able to otherwise repay).

This would be viewed as failing to withhold deferrals from eligible plan compensation, which is considered an operational error and more specifically a missed deferral opportunity (i.e., plan participants missed an opportunity to defer amounts under the plan). The first method available to correct this error would be to provide the affected participants (1) a corrective contribution in the form of a qualified non-elective contribution (QNEC) that’s equal to 25%-50% of the missed deferral amount, plus (2) if the affected participant is eligible for matching contributions, 100% of any missed matching contribution determined using 100% of any missed deferral amounts (not the reduced 25-50% amount) plus (3) any investment earnings what would have been earned on the contributions made under (1) and (2), if any. It is likely the percentage used for the corrective QNEC will be 50% as it appears that the error may have started a while back, but it could be less if it has only been occurring for a short period. If corrected in this manner, the employer should be able to self-correct even if it has occurred for a long period of time, but that would only be if it meets the rules for self-correcting inadvertent failures. Otherwise, it would only be able to be self-corrected if the error has only been occurring for less than about two years. The other method to correct the error would entail adopting a retroactive plan amendment to conform the plan document terms to the plan’s operation using an amended comp definition excluding the items you enumerated from the plan’s new comp definition for the period at issue. If the employer chooses to correct through retroactive amendment, the correction would need to be to submitted to the IRS under VCP. To get the IRS to agree to the retroactive amendment under VCP the employer would need to explain the expectations of the affected plan participants with regard to these excluded items (here, that they did not expect these items to be included for salary deferrals and matching contributions, if any). This would have to be shown by submitting SPDs, election forms, data statements or summaries of benefits, statements, notices, employee communications, new hire enrollment materials, or any other documents that indicated that these comp items would be excluded for plan contribution purposes. If the employer does not have any documents to submit showing that the participants were informed that these comp items would be excluded, it is unlikely that the IRS would agree to the retroactive amendment and it would likely require contributions be made as described above. Note that retroactive amendments can be used to self-correct but only in instances where the retroactive amendment would increase the benefits for the affected participants. That would not be the case here. There could be another correction the employer could propose if a VCP is submitted... under VCP the employer can propose anything it is just whether the IRS would accept what is proposed (not sure what they would propose but maybe they can come up with something). Also, note that since 2022 VCPs cannot be submitted on an anonymous basis (though you could ask for a pre-submission conference to discuss a potential VCP submission without disclosing the employer’s name, etc. but those conferences are advisory only and non-binding). as usual, this is not advice....

For delinquent payments to a Plan trust, we only look to actual earnings if the delinquent payments constitute an operational failure as well as a prohibited transaction. Delinquent payments do not always constitute both. For example, if a plan is an individually designed plan that we prepare, the delinquent payments will not constitute an operational failure as we do not include the DOL timing requirements in our documents (i.e., it would not in operation violate a term of the plan). Also, many prototype plan basic plan documents do not include the DOL timing requirements so there would be no operational failure in those. If, however, there is an operational failure because there is a violation of the plan's terms, we advise providing participants with lost earnings in the amount of the greater of (i) the actual lost earnings computed as @Peter Gulia is suggesting and (ii) the lost earnings as computed on the DOL online calculator. The greater of amount is used to ensure that the correction meets both EPCRS and VFCP. However, this is extremely burdensome because when doing this the calculations have to be done on a per participant basis (while some affected participants may have had investment gains during the correction period others may have had losses so using lost earnings based on the DOL calculator for those with losses ensures that they receive some payment for the employer's use of the funds). Where the actual earnings are used for a participant's lost earnings, the VFCP submission would include a statement that the third-party recordkeeper has calculated actual lost earnings based on the participant's actual investments under the Plan from the loss date to the recovery date (or full payment date, if later, for earnings on earnings). This type of statement has never been rejected by the EBSA in a VFCP submission we have made involving corrections where there were both operational failures and prohibited transactions (this is not saying the EBSA wouldn't reject this type of statement on the next such filing we might submit). Note though that if the delinquent payments only constitute a prohibited transaction and not an operational failure, the VFCP guidance does not provide for the use of the participant's actual investment earnings as a methodology for calculating lost earnings (actual earnings would be required if restored profits is required but that would be based on the amount the employer earned by using those funds in a specific investment, etc.). The VFCP guidance requires lost earnings to be based on the Code's underpayment rates. A colleague noted to me that I put the link for the 2006 notice when I should have linked the 2025 notice. Sorry for that but note the substance is the same. Different subsection though §5(b)(6) instead of (5). See Federal Register :: Voluntary Fiduciary Correction Program As alluded to above, what one agent will agree to may not be the same as what another agent will require.... depends on if they spilled their coffee going into work that morning or some other arbitrary happenstance....

You do not have to provide the "actual" calculations but you must provide the methodology used to do the calculations, and the tools used. Question though, why aren't you using the Online Calculator? it is so much easier and often times yields a lower aggregate earnings amount. Plus you just have to check the box that states you used the Online calculator and provide the printable results page as noted by @Paul I above. This response assumes as stated in your question that this correction involves "lost earnings" (as opposed to restored profits). If you still want to use your own calc, the recordkeeper should confirm that its methodology conformed to the methodology required under the VFCP DOL notice and then provide the DOL basically a recitation of the methodology required under VFCP DOL Notice §5(b)(5) as the methodology used (again as confirmed by the recordkeeper). Federal Register :: Voluntary Fiduciary Correction Program Under the Employee Retirement Income Security Act of 1974 , along with some kind of statement like "The calculations of Lost Earnings as submitted herein were conducted using the proprietary software of our third party recordkeeper _________________, which ostensibly was designed utilizing the methodology described in the DOL Notice for use by its clients to comply with the VFCP." We did this before when one of the large actuaries did the calculation for one of our largest clients as part of a correction that included thousands of affected employees and many, many different corrective periods. If the recordkeeper won't confirm that it used this type of methodology, don't use their calculation.

I don't have any authority for this statement but, if I am understanding you correctly, my thought would be that you could immediately put in a new plan. If the plan has a "built in expiration date" that means to me that all amounts deferred under the plan must be distributed (or commence to be paid with installments, hopefully, being treated as a single payment) at the latest on the plan expiration date -- otherwise, how can it expire? If this is the case, then all amounts deferred under the plan are being paid on the later of ____ and a specified date (i.e, the termination date). Accordingly, the plan termination rules of 409A would not be implicated because there is no acceleration of payments. Note that these termination rules fall under the regulations for "Permissible Accelerations of Deferred Amounts.". Since all the payments will be made under their terms without any acceleration, there should be no timing restriction with putting in a new plan.

FWIW... I heard on an NPR news report the other night that about 8% of employees in the US make more than $145K/year.

Yes. See Treasury Regulations §1.83-6(d) and §1.1032-3: For U.S. federal income tax purposes: Parent is treated as contributing its own stock to Sub and the amount of the capital contribution will be equal to the FMV of the stock on the date the RSUs vest. There will be no gain or loss recognized by the Parent on the deemed contribution (but there is an increase in the Parent’s basis in Sub’s stock by the FMV of Parent stock deemed contributed when the RSUs vest). Also, there is no compensation deduction for Parent since it is not the employer receiving the services. Sub is deemed to have purchased the Parent's stock for its FMV at the time the RSUs are vested. Then, Sub is treated as immediately transferring the Parent stock to employees to settle the RSUs with the FMV of the stock at the time the RSUs are vested being the amount of the compensation paid to the employees. As the entity receiving the services from the employee, Sub is generally entitled to the compensation deduction under 83(h) (deductions equals the amount recognized as income by the employee i.e., FMV at vesting). Check with accountants on accounting treatment at it may be different depending on agreements, etc. and also if foreign entities involved.

check Q&A 13 under 280G.

I don't know the answer to your questions but if my participants are highly educated knowledge workers, why are they leaving their moneys in a QDIA and not investing the moneys where highly educated knowledge participants would otherwise invest the funds? My experience with clients with these types of workers is that those workers are usually screaming for self-directed brokerage accounts and alternative investments and playing at being day traders. I guess I would be more worried if my participants are less educated unsophisticated workers, in which case the longer employment horizon may be more applicable. Sorry I didn't read all the comments etc. but just spewing my thoughts as I am going out the door....Have a nice weekend!

Right. This is a simple failure to follow the terms of the plan. self-correct as @CuseFan suggests. You are seriously considering going to VCP to amend the plan for per diem employees that the client likely doesn't want to include anyways? Can't SCP because this person was let in early and is not "otherwise eligible".

Agree on RMD. Also, he might want to talk to his actuaries, etc. to determine if terminating the DB and transferring all (or a sufficient part) of the potential reversion to a qualified replacement plan may be able to be structured to provide more favorable outcomes. May or may not but won't know without asking.

I don't think so. While it is true that a qualified disclaimer means that the person who would have otherwise received the payment would not have any tax consequences because they did not receive any of the benefit under the qualified disclaimer, the disclaimer may cause an unintended consequence. Quick note...not only must the disclaimer meet 2518 of the Internal Revenue Code but it also must meet state law. I am only looking at federal law... many states use a rule that treats the disclaimer as predeceasing the dead participant, which might actually make it easier to see the issue I am bring up but--state law--I am not going there. If a qualified disclaimer is provided to the Plan (and assuming the Plan accepts a qualified disclaimer (some plans don't)), it will affect to whom the Plan pays the survivor benefit, and it might actually cause no survivor benefit to be paid. Under a qualified disclaimer, the disclaiming surviving spouse will not be paid any of the funds by the Plan and under IRC 2518 he or she cannot have any say on to whom the benefit, if any, will be paid. Under the joint and survivor annuity (JSA) form of benefit that was elected in your case the survivor benefit can only be paid to the surviving spouse. If the surviving spouse that is to be paid files a disqualified disclaimer, then under 2518 the Plan will not pay the survivor annuity to the surviving spouse.... and there cannot be another surviving spouse (as noted previously, the surviving spouse is the spouse on the day the JSA benefits commenced... no one else). Under the qualified disclaimer, the surviving spouse will have set things up where under they can't be paid and no one else is eligible to receive the benefit. So, it appears to me that under the terms of the Plan and the JSA election, the Plan w/could not pay anyone else the survivor benefit and the Plan might be able to just keep these funds. Don't rely on my thoughts here...but be very careful If considering a qualified disclaimer and go to your own attorney or other qualified advisor before doing so.

I agree with the need for documentation regarding the termination of Employer B's participation in the Plan. However, I am not certain about the reporting... though I may be misunderstanding the comments regarding reporting. It seems to me that Employer A would file the following: For the year of the distribution, the Plan's Form 5500 indicating under Part IA that the Plan was a MEP, including a Schedule MEP that provides information for both Employer A and Employer B in Part II 2a. Note the 5500 is an annual disclosure form covering the PERIOD beginning ___ and ending ___. It is not based solely on the last day of the year. It seems to me no matter what day the distribution was made during that year, for at least one day in that year the Plan was a MEP. Also, the Schedule MEP Part II specifically asks for the % of contributions made "for the year" by the participating employers. So, it seems there would be information required to be disclosed for Employer B (though this may or may not be $0 depending on the facts). The other column in the Schedule MEP Part II requests account balance info relevant to each participating employer but it seems that would be filled in with $0 since this information would be the Employer B balance determined "at the end of the year". Then, for the year after the distribution, the Plan's Form 5500 indicating under Part IA that the Plan is a single employer plan (and no Schedule MEP would be submitted). The omission of the Schedule MEP in that following year would indicate to the IRS that the employer not listed in the Form 5500 single employer filing that was listed in the prior year Schedule MEP is no longer a participating employer. (This seems to correlate to how the filing would be done if the Plan were still a MEP, i.e., the 5500 would be marked as being a MEP but no information concerning Employer B would be included on the Schedule MEP)). I have not had to file a 5500 covering this type of situation before so I have not researched this and am just going off of what we have done when individual employers have withdrawn from MEPs we handle.

Right, ERISA would require payment to the surviving spouse under the prior election of the JSA. Once the surviving spouse is paid, ERISA has been satisfied. State law would then kick in because under the order the constructive trust is to kick in by order of the court. Once the benefit is paid to the surviving spouse, if that surviving spouse does not fulfill its obligation as a constructive trustee, the children of the deceased spouse will have a State law claim against the surviving spouse for the amount of the benefit received (plus interest). This is not a claim against the plan for a benefit but a claim against the surviving spouse based on the divorce settlement and also due to a breach of fiduciary duty. Other than the breach of fiduciary duty, this would be similar to a creditor (other than perhaps the IRS) having a claim against a qualified plan participant. The creditor cannot be assigned any portion of the participant's qualified plan benefit. However, once the benefit payment hits the participant's hands or bank account, it is fair game to the creditor.

Right. We always strike any language like that and always explicitly provide that the governing law is a specified State usually the State in which the Plan Administrator, in our documents invariably a committee of the sponsoring employer, is physically located. This State usually is the State where the Plan, from the Sponsor's perspective, is administered and all documents related to its administration are kept, and usually where most (or at least a not insignificant portion) of the participants are also physically employed. The governing law could of course be set as any State, however, we find that since we also advise specifically providing in the plan where jurisdiction and venue will lie (e.g., the United States District Court for the Southern District of Texas in Houston, Texas), which again will coincide with where the plan administration, from the sponsor's perspective, actually occurs, we believe that the sponsor would want the State law in which that court is located to apply because it is the law most familiar to the plan sponsor (and the specified court) and the plan sponsor usually has attorneys with boots on the ground in that State. (FWIW we also advise that the plan specifically provide that all parties will waive any jurisdictional issues or forum of non convieniens arguments regarding the specified venue.) Note that it is likely that the recordkeeper's service agreement is governed by the law of the State in which the recordkeeper is located, which I would not necessarily disagree with because their services are being provided in that State. The recordkeeper will often utilize this in the prototype language to ensure that they are "covered" on all bases. However, this is a contractual issue between the Plan sponsor and a vendor. The choice under the service agreement should have nothing to do with the State law that will apply to the Plan's governance and interpretation. There of course are some issues that will apply State law other than the State law as provided under the plan, for instance if there is QDRO at issue and the divorce took place in another State so that the law of the State in which the divorce occurred would apply to the QDRO, but those issues, if any, would be on an individual by individual basis. The State law that applies to the plan's governance and interpretation could affect a lawsuit on a class action basis.... which is something that a plan sponsor likely will be extremely unhappy with.

It seems to me that your settlement already states what is to occur—"And if the plan did not permit a change to beneficiary then a constructive trust would be setup to ensure the children would receive the pension benefits.” Since the plan is not permitting a change to the beneficiary, a constructive trust is to be put in place. Constructive trust rules will be set forth below but initially note that a constructive trust arrangement under your facts is inherently unfair to one set of the kids because of the joint and survivor annuities (JSAs). Since the JSAs cannot be changed and each spouse is a beneficiary of the survivor benefit of the other’s JSA, when the first spouse dies, the surviving spouse will start receiving survivor benefits and that surviving spouse should then pay the deceased spouse’s kids the survivor benefit. However, when the surviving spouse dies, there will be no benefits for the kids of the spouse that died first because that spouse will already be dead and will not be eligible for a survivor’s benefit (i.e., there is no surviving spouse of the second to die spouse to pay). Whether a constructive trust is used or not, there is no benefit for the beneficiary of the spouse who dies last (again, since there is no surviving spouse). In case you still care…. The constructive trust merely means that a spouse who receives the survivor benefit is obligated to pay the other spouse’s kids that benefit. A constructive trust is not a true trust but merely a legal fiction that is set up by court order to prevent unjust enrichment or, here, to prevent one party from receiving benefits that have been ordered to be provided to other parties. The constructive trust requires the party who has “wrongfully” obtained the survivor benefits to return or forward the benefits to the rightful parties. Constructive trusts will not be created by you or your ex-spouse but are merely implied by the order of the court. They lack any legal framework and they also do not have a true trustee. In a constructive trust, when the first spouse dies, the surviving spouse who receives the survivor benefits of the deceased spouse will be treated as if they were a trustee (having fiduciary duties and) acting on behalf of the deceased spouse’s kids from the date upon which they start receiving the survivor benefits. The surviving spouse must therefore hand over any benefits (plus interest or earnings) they obtain to the rightful recipients (i.e., the deceased spouse’s kids). As noted above, this does not work for the second to die’s kids. If you do this, you will need to consult your accountant or a tax attorney to determine the taxation of these amounts. It seems that if this is construed as a constructive trust as ordered by the court, as the “trustee” of any amounts of survivor benefits, the “trustee” would not be taxed on the amounts received, assuming they transfer the amounts to the kids, and that the kids would be taxed as the beneficiaries of these amounts. However, there will be an issue because the distributing plan will issue 1099Rs to the surviving spouse and not to the kids. Your tax advisors will have to determine how to handle this. Like others noted above, at worse, the surviving spouse should be able to net the amounts out if taxes are imposed on them.

Based on the language of the prototype plan, our view is that it is the recordkeeper's physical location... where it does its business. This is probably also the state in which jurisdiction and venue will lie. A corporate entity's location for general jurisdiction is the state where it is incorporated or the state where it has its principal place of business and specific jurisdiction is any state in which the corporation has a continuous and systematic activity that gives rise to the action in the lawsuit.

This is one of those the-more-you-ask type of situations... but my thoughts... and they are just thoughts: Regardless of how they were paid and how/if their compensation was reported properly (all due warnings/caution delved into above), was this person employed as an employee by the company or an ERISA affiliate (which would also include foreign entities for this purpose)? Note an "hour of service" is usually one for which the Employer directly "or indirectly" pays the employee. If so, they would have service for purposes of eligibility. Assuming that they did not participate in the plan under a proper exclusion and now they are no longer excludable, then that service should permit them to participate in the plan immediately (i.e., they should have otherwise satisfied the plan's eligibility conditions and would have been a participant had they not been excluded during their period of "service"). Also, under most plans, if the Employer's records indicate this person was an employee and indicates the amount of service (assuming no fraud), normally those records are conclusive for purposes of plan administration. Plus, most plans have the Plan administrator/Employer interpretive "discretion" provisions that may assist. If that person was not employed as an employee, as stated above, service should be able to be granted under an amendment tailored for this specific person, especially if they are an NHCE.... For example, a client of ours recently granted service to "All persons retained or employed by a Participating Employer as a consultant/independent contractor providing artificial intelligence and other technological consulting or development services for the benefit of the Employer or a Participating Employer in Australia during the period commencing on January 1, 2020 and ending on December 31, 2024." This provision applied to 6 people (all NHCEs), but only one of which actually became eligible under the client's plan (due to their being hired by the client in a role in the States).