Artie M

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).

As you say, the cost of group term life (GTL) coverage exceeding $50,000 (less any amounts the employee paid toward the coverage) is included in an employee’s taxable income. Since your plan document uses the W2 definition, then the imputed income from excess GTL coverage is included in compensation. (If §3401(a) definition, excess GTL coverage is excluded.) Though your plan uses W2 compensation, your plan could still exclude taxable fringe benefits, e.g., excess GTL, from eligible plan compensation. Here, though, your plan terms don’t explicitly exclude the excess GTL. Excess GTL is not paid in cash because the value of the benefit is imputed. Thus, an employee cannot defer out of imputed income, however, that does not mean that amounts are not to be deferred from the employee’s compensation due to the imputed income. Arguably, this c/would be treated like FICA. Imputed income is subject to FICA withholding. However, like 401(k) deferrals, the FICA tax cannot be withheld from the imputed income… at least not directly. This is because there is no cash to use as a source of funds from which to withhold. So any FICA due because of the imputed income must be paid using income other than the imputed income. The amount of the imputed income is added to the employee’s other taxable compensation to calculate the total FICA tax due, but the tax payment comes indirectly from the employee’s other compensation and not directly from the imputed GTL income. The net effect is the same as FICA withholding from the imputed income, as long as there is other cash compensation to pay the tax. It would seem that if your plan does not exclude the imputed GTL income from the compensation definition, technically this is what should happen with regard to 401(k) deferrals – they should be based on that imputed GTL income such that the deferrals would not come from the imputed GTL income directly but indirectly from the employee’s other cash compensation, assuming there is sufficient other cash compensation. Failure to include the imputed GTL income (i.e., all forms of eligible compensation) in determining qualified plan contributions could result in a plan operational failure—here, a missed deferral opportunity. The other thing you may be able to do is rely on the employer’s discretionary authority to interpret plan provisions and terms, assuming the plan contains this discretion. If the GTL imputed income is not specifically excluded under the terms of the plan, perhaps the employer could interpret this item to be included or excluded from the definition of a fringe benefit provided the interpretation is applied on a consistent basis. Of course, it would be best to be explicitly included or excluded from the comp definition. Also, even if excluded using the employer’s discretion, it seems advisable to include it in the compensation definition for purposes of matching or nonelective contributions. Sorry no authorities to rely on …. just thoughts

Yes, read the terms of the governing documents and do what they say. That said, I don't know if I have ever seen a document that would cover the death of the trustee in a qualified plan or trust document. I have seen such language in private trusts (e.g., testamentary trust), which would if anything provide that if the trustee is unwilling or unable to serve then someone or the court can appoint the successor. Obviously here you have the right to appoint a successor. I would argue you do not have to remove the old trustee because the old trustee is dead and the morgue or ambulance is responsible for removing the dead, not you (dark humor... sorry). I mean what are you going to do send his estate a removal letter ... that would be in poor taste. That is, because this person was an individual (as opposed to say a corporate trustee) there is no one to remove. That said, I agree with @Below Ground you could do a set of "ratifying/affirming" resos ... just have some language in some document giving the historical references really showing what happened in case someone is every needing to figure it out.

We had a client with the same issue.... failed to file 11 years of 5500s for a 401(k)/PS but only had 8 years of information/data. Filed the plan under DFVCP, paid $4,000 per plan cap. We had discussions with the DOL because of the lack of data for the missing 3 years and were able to simply upload the incomplete 5500s (filing out primarily lines 1-4, marking a few of the boxes below that, with no schedules) with a letter of explanation, including the DFVCP case number and agent in charge, etc. DOL accepted it, never heard anything from the IRS. This was just one client's experience, it may or may not work for another.

Agree with all about the timing of the FICA. As far as correcting this, if FICA has not been paid in accordance with 3121v2, withholding may be corrected only if there is still time to amend withholding returns. In the IRS's view, only the last three years are open for correction, and earlier tax years cannot be opened to apply the special timing rule. To correct for past quarters, Form 941-X for the specific quarter must be used to report the corrected FICA taxes and, for prior years, a Form W-2c must also be completed to correct the employees' previously filed W-2s. Generally, the IRS will not charge penalties or interest for timely corrections of inadvertent FICA errors; however, any additional Medicare tax (the 0.9% on amounts in excess of $200,000) for a prior year must be corrected by the employee. (Usually do not have to worry about FUTA because of the administrative rule of convenience that amounts can be taken in on the last day of the year). If not correctable, per the regulations, FICA will be due when payments are actually (or constructively) received and become taxable for income tax purposes (as said above, this will likely result in more FICA than if withheld earlier). (I personally believe this is an unconstitutional tolling of the statute of limitations but I won't be the one litigating this.) I have seen this on several occasions regarding employer contributions in part I think because, unless the employer will accelerate the payment of some of the otherwise nonvested employer contributions for payment of the FICA (which would be permitted under 409A), the "withholding" must come from other compensation of or by direct payment by the employee and the employers don't think about this.

Many of you that simply state a plan can't put a hold on these accounts prior to a DRO being presented to the plan. However, in practice, many plan administrators do place holds on accounts prior to the receipt of a DRO. I did a quick internet search and pulled these examples (I have no idea if they are current procedures but they illustrate that at least at some time, these administrators put holds on accounts prior to a DRO being presented. This is from VOYA (https://www.voya.com/sites/www/files/2020-11/Sample%20QDRO%20Procedure%20and%20Checklist2.pdf) This one is from Empower (QDRO Processing) This one is from TIAA-CREF (QDRO_approval_guidelines.pdf) v I simply ran a Bing search for "qdro procedures freeze" and these three were the first three plan administrator QDRO procedures that came up in the first page of results. Each refer to a possible freeze/hold/restriction prior to receipt of a QDRO. I know that just because some one is doing something doesn't make it legally correct, but Voya, Empower and TIAA are not mom and pop shops. We advise clients not to put holds but if they still desire to do so, we advise them to clearly spell out in their QDRO procedures the exact circumstances under which holds are placed and removed , and the procedures are sent to the parties (including attorneys if they have that information) whenever a hold is placed on an account (whether upon or prior to the receipt of a DRO or draft DRO).

As Peter states, unless you have some clear and convincing evidence of the intent and that evidence existed at the time the document was drafted, any change in the definition likely will be viewed an impermissible modification of the payment event. Flexibility exists with regard to a CIC definition but only at the drafting stage. Once the Plan is effective, the definition must provide a clear and objective change in control description, and the determination as to whether a CIC event has occurred must not be subjective. Section 409A penalties may apply if the plan's CIC criteria are not followed. If the definition is broadened, a new payment event is being put in place that can only apply to future deferrals. This is what we advised a client back in 2021. The client believed that the definition was too narrow so it adopted a new plan to expand the CIC definition (previously a CIC only occurred if the parent company was sold, etc.; subsidiaries were not part of the relevant corporation so that a CIC would not occur with regard to a subsidiary if only the subsidiary was sold). The old plan was essentially frozen and retained the old narrow CIC definition. Then this July 1, the sale of a subsidiary of the client's was closed, triggering a CIC under the new plan but not under the old plan. The plan participants are upset that the CIC was triggered under the new plan (happy not triggered under old plan). They don't want the money or tax hit now and would rather leave the money with the old parent. Just shows you can't always tell what the participants want.

Ownership = ownership interest. There is attribution but attribution still involves ownership interests. Note a B org only requires HCES owning a 10% interest in the FSO (A org).

Do your QDRO procedures state anything about freezing accounts and, if so, under what circumstances? If they don't say anything or if they do but don't cover this situation, then you don't have any authority to freeze the accounts. If worried, I agree with the sending a letter approach...maybe send a letter to both spouse's stating something like... We have been informed that a divorce is impending and that QDROs may be being prepared in connection with the divorce. Your accounts will be frozen of [14] days unless a QDRO is submitted (or letters from your attorneys stating a QDRO will be submitted) by such date. If we do not receive a QDRO (or letter from you attorneys) on or before the end of this [14-] day period, the accounts will be unfrozen and each participant will be permitted to take loans and/or distributions as permitted under the terms of the plan. I am sure you can be more artful. At least this way you only put a short freeze on the account, which sounds like what you want to do, and most of all it should not put any extreme undue hardship on the participants. Just practical thoughts...

Agree with everyone. Upon the merger, the trust of Plan B effectively becomes a trust of Plan A along with the original trust of Plan A (or a subtrust of the trust of Plan A).

I apologize I never saw an "(f)" anywhere and you are right about the tax-exempt "(b)" ... apologies. If an "f" then I would agree that it is a mere contract and not sure why he would need to ask the question.

I don't know of any authority where a participant can refuse to take a qualified plan benefit (but of course I do not know everything). Another thing, sounds like they don't want to refuse the entire amount but just a portion of it, which seems even more difficult. Maybe roll it into an IRA then at age 73 start doing qualified charitable donations of up to $100K annually (i think that is the right amount but confirm, plus may be subject to reduction). Then at death name the charity as the beneficiary for the remaining amount that they want to donate back. This is stretching it out but if the participant does as proposed your characterization seems appropriate.