110% Test - Restricted Lump Sum

[emmetttrudy]

An HCE's lump sum is restricted and the partiicpants ends up taking a rollover into an escrow IRA (i.e. an areement that if the plan terminates down the line without sifficient assets, they could dip into the IRA and take some money back). What if a year after the escrow IRA is set up the Plan passes the 110% test. Are all the restrictions lifted on the escrow IRA and it no longer has a potential liability to the plan?

[Andy the Actuary]

An HCE's lump sum is restricted and the partiicpants ends up taking a rollover into an escrow IRA (i.e. an areement that if the plan terminates down the line without sifficient assets, they could dip into the IRA and take some money back). What if a year after the escrow IRA is set up the Plan passes the 110% test. Are all the restrictions lifted on the escrow IRA and it no longer has a potential liability to the plan?

Yes, presumably that's what the plan/escrow agreement would provide. It's designed to be (hopefully) a temporary measure.

[ScottR]

How do you go about setting up an "escrow IRA"? Can you do it anywhere, or is it a specialty item?

Any tax remifications if/when $$$ go back to the plan?

... Scott

[Andy the Actuary]

How do you go about setting up an "escrow IRA"? Can you do it anywhere, or is it a specialty item?

Any tax remifications if/when $$$ go back to the plan?

... Scott

The Plan must be amended to so provide.

See attachment.

IRS_Rev_Rule_92_76_Restricted.PDF

[Benefits to all]

Is there any duty to monitor the Escrow arrangement and who has the duty? Say, at the beginning of year, the escrow arrangement is funded 125% (or any amount over 110%) but due to bad investment performance, the funding level falls to 100% at the six month mark. Is there a duty that it needs to be re-upped then or just as an annual valuation (generally, when the Plan measures the "restricted amount" each year)?

Does anyone know of any practical guidance of the "nuts and bolts" of setting an escrow arrangement up? I.e., who can be an escrow agent? Valuation dates? Who is responsible to make sure the escrow is funded? Who is party to each agreement (repayment agreement between plan and employee, and escrow agreement the employee and escrow agent)?