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With the understanding that the entity sponsoring the plan is usually the employer, this question arose in connection with a transaction where we just found out the seller, and plan sponsor, is a trust. Forgive me if there is an obvious answer, but wondering if, as a technical matter, a trust can be the plan sponsor of a 401(k) plan? Thanks!

We have a company that is owned by several trusts at 20% ownership each. Each individual is the primary beneficiary of their respective trust, so they are considered 20% owners of the company. However, are the children of the beneficiary of the trust also attributed 20% ownership of the company? This scenario has come up due to key employee determination for Top Heavy. My initial instinct says yes, but I would appreciate any feedback and/or reg citations. Thank you!

Is 20% withholding required on distributions to qualified trusts who are beneficiaries of a qualified plan (e.g., a 401(k) plan) ? IRS Notice 2007-7 Q&A 16 states: A plan may make a direct rollover to an IRA on behalf of a trust where the trust is the named beneficiary of a decedent, provided the beneficiaries of the trust meet the requirements to be designated beneficiaries within the meaning of § 401(a)(9)(E). The IRA must be established in accordance with the rules in Q&A-13 of this notice, with the trust identified as the beneficiary. In such a case, the beneficiaries of the trust are treated as having been designated as beneficiaries of the decedent for purposes of determining the distribution period under § 401(a)(9), if the trust meets the requirements set forth in § 1.401(a)(9)-4, Q&A-5, with respect to the IRA. https://www.irs.gov/pub/irs-drop/n-07-07.pdf I know that qualified trusts can be directly rolled over to IRA - so they are eligible rollover distributions. I also found reference in 402(c)(11)(A), which states, in part: (11)Distributions to inherited individual retirement plan of nonspouse beneficiary (A)In general If, with respect to any portion of a distribution from an eligible retirement plan described in paragraph (8)(B)(iii) of a deceased employee, a direct trustee-to-trustee transfer is made to an individual retirement plan described in clause (i) or (ii) of paragraph (8)(B) established for the purposes of receiving the distribution on behalf of an individual who is a designated beneficiary (as defined by section 401(a)(9)(E)) of the employee and who is not the surviving spouse of the employee...the transfer shall be treated as an eligible rollover distribution. IRC Sec. 3405(c)(1)(B) subjects eligible rollover distributions to 20% federal withholding and ties back to IRC 402(f)(2)(A). 402(f)(2)(A) uses the same meaning as used in 402(c)(11). I am just wondering if the result in Q&A 16 conflicts at all with the language in 402(c)(11) which would change the result. If the qualified trust is subject to 20% withholding, is the answer different if the trust is not considered "qualified" - and, in those cases is the distribution subject to 10% waivable withholding? Any additional guidance or sources you can point me to are appreciated. Thank you.

I have a client who is an employer participating in a "level funding" welfare benefit plan. This is a self-funded plan. The employer provides a monthly payment to the TPA based on projected claims amounts for the year, and if at the end of the year, there are amounts left over from their participants' claims, the employer will receive a portion of the excess amount. The payments are kept in the TPA's own account (not the employer's account). Checks to participants are also written from this account. I understand the TPA (a major insurer) has had this type of plan in existence for 8-10 years. How can this satisfy plan asset requirements? As this is not a fully-insured arrangement, wouldn't a trust be required as soon as the assets were segregated from the general assets of the employer into the TPA's account? What am I missing? Thank you in advance for any guidance!