Artie M

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.

ummmm.. I thought to be eligible to sponsor a SIMPLE it had to be the exclusive plan of the employer. That means the controlled group employer can only have a SIMPLE and no other qualified plan. Am I missing something? So, they can't contribute to both in the same year... the contributions to the SIMPLE should have stopped when the 401(k) was adopted by the other controlled group member. Covered under EPCRS VCP.

Right or wrong, here, I look to the general rules regarding employee status, i.e., the common law test, and with regard to the termination of that relationship, whether the employee or former employee had a bona fide termination of employment (that term is not stated in 422 but it equates to EBECatty's non-"sham" termination). As with most of these determinations, the IRS will look at all the facts and circumstances. Note also that under 409A dipping below 20% does not automatically cause a separation from service (unless the terms of the 409A agreement actually provides that it does) but it only provides a "presumption" of a separation. This means that under 409A if the facts and circumstances show that a person is still a service provider--though providing less than 20% of their last 36-month average--the IRS could rule that that person did not have a separation from service for 409A purposes.

See... Section 104 of the Bipartisan American Miners Act, part of the Secure Act, lowered the minimum age for in-service distributions in qualified pension and governmental 457(b) plans from age 62 to age 59-1/2. Notice 2020-68 provides FAQs on this topic also (n-20-68.pdf). The changes are optional.

Agree. Look to the service agreement provisions regarding its termination. Usually there will be something like 30 days' written notice. Also, depending on the relationship between the advisor and the recordkeeper, there may be a provision that says that it terminates upon termination of the recordkeeper agreement. So if you terminate the recordkeeper agreement that might be sufficient to terminate the 3(21) advisors agreement. (Implicit here is that you may need to terminate the service agreement with the recordkeeper also).

I agree with the response regarding your first two questions about IRAs (assuming the funds were transferred to the IRA prior to the DRO begin submitted). With regard to you second question, a QDRO can give an AP any part or all of the retirement benefits payable to a participant under a DB (or DC) plan. The QDRO simply cannot require the plan to provide increased benefits (determined on the basis of actuarial value) or provide a type or form of benefit, or any option, not otherwise provided under the plan (except, to receive payment at the participant’s “earliest retirement age”). Plus, the QDRO can't require the payment of benefits to an AP that are to be paid to another AP under another QDRO already recognized by the plan. Thus, though most DB QDROs utilize the marital portion fraction formula to divide benefits, an AP is not limited to (or entitled to) using a formula based on the marital portion when determining the amount of benefits to be assigned. If a QDRO is submitted clearly and unambiguously awarding 100% (or 0%) of the DB benefit to an AP, it can be qualified. The QDRO administrator has no idea of what other negotiations have occurred between the participant and AP. Perhaps in this case, the participant received 100% of the DC plan benefit. (0% -- participant wants to make it clear that the former spouse is not to receive anything and not be treated as surviving spouse). Save the limitations noted above, the QDRO can give the AP the right to elect any form of payment under the plan that the participant could have elected. (This is of course assuming payments haven't begun yet, i.e.,the QDRO is a separate interest award). The actuary would use the same actuarial assumption that would be used under the plan substituting the APs age, etc. for the participant (again, no increase in benefit and all determined on an actuarial basis). There is no need to have the QDRO spell out the actuarial assumptions that will be used, and it would likely be problematic if it did (because it could differ from what the plan uses and be bounced because arguably it might increase the benefit. I think the DOL website has a fairly long booklet ...Dividing Retirement Benefits through QDROs... or something like that.

The Form 5500 is merely an information reporting document. It seems that if the amount is in the trust on 12/31 it would have to be reported as an asset. Work with the auditor to determine the proper characterization (presumably, you are not the auditor). The deduction issue is a Form 1120 issue (if sponsor is a corporation). As noted above, this does appear to be a nondeductible contribution for 2024. I mean how can it be deductible in 2024 when you say it is a 2025 contribution as "all events" would not have occurred by the end of 2024 to "fix" or lock in the obligation for the deduction in 2024. Alternatively, perhaps consider returning the amount to the employer in 2025 so that it is not considered a nondeductible contribution. Most plans contain the standard provision that allows for a return to the employer of amounts due to a mistake of fact or, more importantly in this case, the amount will not be deductible. See ERISA §403(c)(2)(A) (no parallel provision in IRC but often cited in PLRs and RevRuls); also see IRC §4980(c)(2)(B) ("employer reversion" shall not include ...any distribution to the employer allowable under section 401 (a)(2) ... by reason of mistake of fact, or ... failure of the contributions to be deductible.") The amount must be returned within the year (seems it should be done prior to filing this year's tax return) to not be characterized as a nondeductible contribution. Then recontribute the amount for 2025 as intended. If effective, this could address the issue of the 10% excise tax. Someone should look at EPCRS to see if there are corrective procedures that may apply to this set of facts. Not sure how any return of the funds in 2025 affects the 5500 reporting...again talk to the auditor. Again just thoughts

This may not be what you are asking for but plan can also have restrictions due to "day trading" or too many "roundtrips" (buy and sell in the same trading day) within a specified period. Trading funds in and out of a 401(k) every day does not violate the Code. However, plan administrators can place rules that can restrict the frequency of in-plan trades. Some fund sponsors frown on the practice. For example, excessive trading in and out of funds in a commission-free account without paying any sales loads on the funds may cause the sponsor or fund to absorb the cost of the frequent trading. Many have a rule like three roundtrips in the same fund within any rolling 90-day period or 10 roundtrips in the same fund within any 365-day period would be considered frequent trading and will result in the enforcement of the excessive trading policy causing the employee not to be able to trade that fund for a while. Some sponsors simply don't like it because they don't want their employees trading all day and not working. Not a charge but you asked about restrictions.

Not sure what you mean by "co-sponsor". It is more likely that they both participate in the same plan with one of them being the actual sponsor. Two entities, whether "related" or not, can participate in the same 401(k) plan. If they are not related (i.e., not in the same controlled group or affiliated service group), it would simply mean that the plan would be a multiple employer plan, which is really not a big deal. As you are describing, currently the Company that maintains the ESOP would, at least, initially be owned by individual shareholder(s) and the ESOP but at some point be 100% owned by the ESOP. There is no issue with a Company maintaining both a 401k and an ESOP. There should be no issue with the ESOP company participating in a 401(k) with multiple employers. There however may be an issue with multiple companies participating in an ESOP (so you wouldn't want this to be a KSOP). Note the definition of employer securities. The ESOP has to be invested in employer securities which are basically shares of the company that employs the participants. You generally cannot give employer securities to non-employees. However, depending on the structure you might. For instance, if the two entities form a parent company that owns 100% of the two separate companies, then employees of the subsidiaries could participate in the ESOP if the stock of the parent company is used under the ESOP.

Of course this involves a doctor. I have seen doctors do this or similar with profit sharing plan funds (that primarily cover themselves) but using 401(k) deferrals (of others) really shows someone working with clogged stethoscope. (Lawyers do this too but doctors are in a class of their own) The exit on this can likely be structured to work from an IRS perspective, which might end up having to pay out the illiquid assets with participants entering shareholders' agreements (f permitted under company articles, etc.), delaying payments due to the illiquid nature of the assets or even terminating the plan and distributing funds to a liquidating trust in a nonqualified plan. That said, no matter how it is structured, one of these participants is going to end up calling the DOL. I mean if you try to value the stock at $2/share (idiotic) the hit the participants will take when they see their plan statements may cause them to call the DOL immediately. All this scenario bring up is questions with few answers. The DOL likely is going to look first at whether there was a prohibited transaction when the stock was initially purchased. That is, was the stock purchased from a related party/disqualified person/party in interest? What is the relationship of the doctor with the company and/or the prior owners of the company? How much of the company is now owned by the "plan"? etc. etc. Then, they will look at this valuation issue. Depending on the answer to the prior questions, was the $2/share valuation accurate. And as noted above, he can't simply say it is now worth $2/share. He needs a valuation, preferably from an independent third party, to rely on. Where did the $17 valuation come from? Was it an independent appraisal or was it determined by the board, or something like that? What was the purpose of that valuation (if to get a loan... likely high... if for taxes... likely low). So, it could have been too low even. Using $2/share at this time is just an arbitrary decision (let's get a second x-ray, I liked what the first one showed and the MRI costs too much... (oh yeah, I own the x-ray machine but not the MRI so someone else will get the MRI fees). Even upon the sale you have to worry about a PT. They may have to look into the voluntary fiduciary correction program when the sale comes up.. there are some illiquid asset provisions in there depending on if there is a PT or not. Yeah, protect yourself, get paid, and warn the doctor that there are serious fiduciary/DOL issues here and that he may end up having to fund these participants' retirements.

What does the plan say as to when a prior designation become void or ineffective? Just because there was a marriage doesn't necessarily mean the prior designation is void. If the participant died during the marriage, the designation would automatically be void because the participant's spouse at the time of his death didn't consent to the designation. Under the terms of many plans, upon a divorce or, here, an annulment, the old designation might "spring" back in place.

As a governmental plan, it would be subject to state law. You might want to look at the authorizing statute for the specific plan you are working on to see if it provides any help. For example, here in Texas, Texas Government Code Title 8, Chapters 851-855 provide the rules for pension plans adopted by certain Texas municipalities. Under these provisions, “'Beneficiary' means a person designated by a member, annuitant, or by statute to receive a benefit payable under this subtitle as a result of the death of a member or annuitant." There is no specific provision under these Chapters that states that a member may designate multiple beneficiaries but it is implied as Section 844.405, which states that a member may designate multiple trusts as a beneficiary "in the same manner and with the same limitations that apply to the designation of multiple beneficiaries.” In addition, there is no designation of beneficiary provision in the general rules for governmental pension plans. However, there is a specific rule in Chapter 824 that applies to the Texas Teachers Retirement System, providing that “any member [may] designate one or more beneficiaries to receive benefits ….” I have not looked at Texas case law in this area, but it seems like the Texas courts would permit multiple beneficiaries under all the Texas governmental pension plans covered by Title 8. So… you may have to hunt down the statutory language that applies to your plan and even case law interpreting that language. Unless there is a statutory provision against permitting the designation of multiple beneficiaries under the plan at issue (and as you say there does not seem to be restrictive language in the plan) and there has not been a prohibition in place for others in the past (so no past practices), it seems it would be easiest to adopt an interpretive rule allowing it. Just my thoughts as usual…

Presumably, it would be an actuarial equivalent benefit with some kind of contingent annuity option that has some form of age restrictions, though it is technically possible to have a joint and survivor annuity with a non-spousal beneficiary but those are rare except in like union or governmental type plans (including firefighter and police officer plans). Unless it is a governmental or church plan, it would be governed by ERISA. If so, it's what the plan document says and not what state law says regarding the beneficiaries. (I am assuming it is a regular qualified defined benefit plan.... If governmental or church (if non-electing), then look at state...) What exactly does the plan document state? Does it have a plan administrator provision permitting the administrator to interpret the plan's provisions? You might be able to rely on that. What has it done in the past.... I mean, Is this the first time under this plan someone has had an issue of multiple beneficiaries?

You are not going to get any specific authority as the determination of "reasonable compensation" is based on ALL the facts and circumstances surrounding the specific inquiry. You may find a few court cases holding whether the payments in those cases were reasonable but unless your set of facts line up exactly with the facts of those specific cases, they likely would not provide sufficient authority for whatever you are trying to determine. For instances, there are several recent excessive fee cases that have been dismissed because the plaintiffs merely alleged that the service providers in their cases were paid more than other providers providing similar services because the court stated that they didn't show how the services in their cases were the same as the services provided in the cases cited.

Yes, you always have to do earnings on lost earnings, if a correction was made in part but not fully corrected until a later date (full correction meaning the contribution plus all earnings required being contributed) Just to make sure though. you state this was a missed "nonelective" contribution. Are you certain it is late? Most plans do not have a time by which nonelective contributions must be made except maybe for the timing to ensure tax deductibility or to be allocated to qualify as an annual addition.