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Thank you for your answers. Does anyone think a 7/15/2026 DB could be tested with a 12/31/2026 PSP?

If a plan is ERISA-governed, part 4 of subtitle B of title I of ERISA would require an exclusive-purpose trust unless the plan is “a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees[.]” ERISA § 401(a)(1), 29 U.S.C. § 1101(a)(1) https://www.govinfo.gov/content/pkg/USCODE-2024-title29/html/USCODE-2024-title29-chap18-subchapI-subtitleB-part4-sec1101.htm. But if an ERISA-governed plan does not that ERISA § 401(a)(1) select-group exception and so is funded with an exclusive-purpose trust, the plan would not meet Internal Revenue Code § 457(b)(6)’s tax-treatment condition that a nongovernmental organization’s plan must be unfunded. I.R.C. (26 U.S.C.) § 457(b)(6) https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapE-partII-subpartB-sec457.htm. If a tax-exempt organization’s plan is neither a governmental plan nor a church plan, a plan get a § 457(b) tax treatment only if the plan is unfunded and fits ERISA § 401(a)(1)’s select-group exception.

Depending on the termination process, the excess assets can fluctuate during the wind-up period. So, before accelerating the termination date solely because of overfunding concerns, I'd want the actuary to quantify how much additional funding surplus is actually expected to arise between July and December 2026.

This would not be a brother-sister controlled group. The lowest identical ownership of H/W between the two companies is 45%.

Can they? Sure, it always possible. Will they (in particular the IRS)? My opinion (and my opinion only) is no: Given that the Treasury Regulations do not directly address the PE issue and that PE firms have historically taken the reasonable stance that they are not a "trade or business" for Section 414 purposes without any pushback from the IRS (that I am aware of), I think the IRS would currently be reluctant to take on this issue. The IRS is quite aware of which law firms represent PE and also understands that taking such a stance could create major headaches for the PE sector. Given the stakes, PE would fight very hard on this issue. So, from the IRS' point of view (in my opinion) it would not be a winning strategy without clear Treasury Regulations.

Peter's point is correct. The 100% of workforce is not really the issue that the IRS would focus on. Rather, the issue is whether this individual truly qualifies as "management or highly compensated employee." Keep in mind, however, that a 457(b) plan sponsored by a tax-exempt entity is not required to be a top-hat plan, whereas the 457(f) plan does.

As a related comment. the ERISA Advisory Council conducted fact findings a few years ago to determine whether Brokerage Window Only (BWO) plans introduced fiduciary issues, or could be seen as an attempt by plan sponsor to circumvent the 404(a)(5) disclosure rules. Most witnesses indicated that BWO plans weren't established to avoid disclosures, they were simply a low cost way to offer plan services, typically to smaller, professional services organizations such as law firms and medical practices. But there are some indications that DOL dislikes and discourages BWO plans. See pages 44 - 45 at https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/2021-understanding-brokerage-windows-in-self-directed-retirement-plans.pdf for more details. Bottom line is that moving away from a BWO structure is a good idea from a fiduciary perspective and that starting 404(a)(5) disclosures ASAP is recommended. I'm assuming that the new platform is asking about the last prior disclosure due to the annual notice rule, and wants to make the next disclosure as late as possible. If there was no prior disclosure, the sooner the first disclosures go out, the better.

Among many ambiguities: Is the worker is a management employee. Is the worker “highly compensated”? Might an ostensible income deferral be unreal because the organization and its employee did not truly agree that the deferred compensation is unfunded? Which person bears which risks? This is not advice to anyone.

Thank you Effen. He reported the RMDs on his annual personal returns and paid the taxes. It is just that he took it from the wrong plan. If he pays the plan back (since he was not suposed to take his RMD from this plan) can that be a remedy?

You might also want to review this DOL Field Assistance Bulletin begjnning at question 13 regarding what disclosures are required to be in the 404a-5 notice in regards to the brokerage accounts: https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2012-02r

The more careful private-equity shops consider what you mention, and more. Some use lawyering to evaluate risk exposures. Most use lawyering to design investment structures that lessen risks of a finding that investing is a trade or business. Beyond the cases about withdrawal liability to a multiemployer pension plan, maybe not much has seen full litigation. Among other reasons, the Internal Revenue Service might not detect, and might not pursue, potentially taxable situations as vigorously as some multiemployer pension plans pursue withdrawal liability. Or, maybe the facts often show that investing is not a trade or business. This is not advice to anyone.

Beyond other aspects, this might be an occasion for RTFDs—all of them. Consider (at least) each plan’s plan documents; each plan’s trust documents; the employer’s participation agreement for each employee-benefit plan; each relevant collective-bargaining agreement, and each project-labor agreement; and anything else that touches either employee benefits or labor relations. ERISA § 3(6)’s definition for an employee is “any individual employed by an employer.” That definition does not by itself exclude a worker because the employer’s employment of the worker is (or was) unlawful. Before beginning your work, consider carefully exactly who is and who isn’t your client. That can affect how you approach the situation. This is not advice to anyone.

Traditionally, private equity firms have taken the position that they do not operate a "trade or business" and as such, Code Section 414's controlled group rules do not apply to their portfolio companies. There have been, however, a few recent court decisions, most notably the Sun Capital case, that have held that a private equity firm that has the requisite ownership and control over its portfolio companies, can be held responsible for withdrawal liability if a portfolio company leaves a multiemployer plan because the PE firm is in the same controlled group as the portfolio company. My question is whether a court (or regulator) can use this rationale in other contexts, specifically whether the portfolio companies need to be aggregated for purposes of determining whether the entity is an applicable large employer under the employer shared responsibility provisions of the ACA. For instance, a PE firm establishes a fund that has two portfolio companies, one with 30 employees and one with 45. If the PE exercise the requisite ownership and control, do the entities need to aggregated because they are within the same control group under Code Section 414.? I have not seen any discussion of this anywhere and I welcome any thoughts. This also has application to other retirement and welfare plan scenarios. Thanks!

@bp parv raises several points to consider. Here some related points to keep in mind: The determination of whether a partial plan termination occurred is based on facts and circumstances. This determination is relatively easy when the relationship with the employees is severed completely. Otherwise, the determination can be challenging. Consider visiting IRS Notice 84-11 and Revenue Ruling 2007-43 for starters. Most agreements with leasing companies repeatedly emphasize that the leased employees are not common law employees of the client company, and many even position the leased employees as independent contractors of the leasing company. Unfortunately, these representations often fall apart in operation. Part of the determination of the status of a leased employee considers who decides which leased employees are assigned to work at the client company. Commonly, this is the leasing company with the client company reserving the privilege to reject some of the assignments but without complete authority to determine all assignments. This gets dicey when a group of employees gets spun off to a leasing company when individuals who have been working together for years get split up. If the employees who are spun off to the leasing company work essentially 75% of a full time equivalent employee at the client company, then the client company's retirement plans will need to include the leased employees in the plans' compliance tests. This is by regulation which supersedes any plan provision that excludes leased employees. There are more details about how these rules operate in 414(n) regulations. There is much more to think through beyond whether there was a partial plan termination.

Can a tax-exempt organization whose executive director is the only employee establish a 457(b) or a 457(f) plan for this individual? I'm not sure it satisfies the "top-hat" requirements since effectively 100% of the organization's workforce will be participating.

You have a good argument for how to address any funds that have been contributed to the funds. With respect to an amendment containing pro-active language, you likely do not want to put the fund in the position of policing the information submitted by the employer. You note that the contributing employer, and not the fund, is responsible for complying with the I-9 requirement. If anything, the employer who is enrolling the individuals and submitting contributions should address this issue. The issue goes beyond the two funds and extends to all compensation paid by the employer to the individual. The employer may or may not know than an individual does not have to have a Social Security Number to receive compensation or to participate in a plan. The individual or the employer definitely should not just make up a number. They should apply to the IRS for an Individual Taxpayer Identification Number (ITIN) https://www.irs.gov/tin/itin/individual-taxpayer-identification-number-itin Many plans' provisions would allow anyone who gets US compensation to become eligible to participate. The fund could consider including a requirement (either operationally or in the plan document) that the employer must represent in writing ( and subject to responsibility for any consequence for failing to do so) that they have validated the SSN or ITIN for everyone for whom the employer submits funding. From the IRS website: Who's eligible for an ITIN If you're a resident alien, nonresident alien or their spouse or dependent, you can apply for an ITIN regardless of immigration status. Resident alien or nonresident alien If you're not a U.S. citizen, your tax status can be either: Resident alien – If you were present in the U.S. for more than 183 days* (substantial presence test) or you’re a lawful permanent resident of the U.S. (green card test) Nonresident alien – If you don’t meet either the green card or substantial presence test for resident alien status. These are just some thoughts that may stimulate some further ideas about how to frame and address the issues. I definitely recommend that you get legal counsel involved before implementing any changes to the plan document or to administrative procedures.

Have any plan administrators started to distribute model amendments? Curious to see how they are structured.

I second and third what has been stated above. At least to me, this seems like a prohibited mid-year amendment under IRS Notice 2016-16. Notice is not your issue. Your issue is that you cannot make this amendment mid-year.

Coleboy1: There is much to unpack from your fact pattern. I am assuming that the 300 service providers were common law employees of the client and also participating in the retirement plan. I further assume that the new leasing arrangement is a PEO type arrangement where the leasing agency becoming the employer of record (handling payroll, etc...) while the client still retains discretion over how and when these 300 individuals perform their services. I also assume the 300 individuals will not be covered under its current retirement plan. To answer your question: The "moving" of the 300 participants deserves a very hard look to determine if a partial plan termination has been triggered. As you know, the determination of a partial plan termination is based on facts and circumstances. Case law, of course, is one very important factor and so is the prevailing view of the IRS. I assume this issue matters because the plan has a vesting schedule. But your partial plan termination issue is just the tip of the iceberg. If these 300 individuals are not covered under the client's plan, will they be covered under the PEO's plan? Are the terms of the PEO plan similar to the client's plan? Remember that no matter what you may label these 300 service providers, they would likely still be "common law employees" of the client and still may lay claim to be covered under the client's plan (as opposed to the PEO plan). The plan's exclusion is for "leased employees", which is a very specific definition under 414(n). Look at that definition. Would these 300 be excluded under that definition right now? And assuming they can be excluded for 410(a) purposes, they would still be included for 410(b) coverage purposes unless there was an exclusion there (e.g., age 21/year of service, union, etc...)

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If the provisions and investments are the same, just transfer them from one plan to another. Make a note in the file and move on. The W2 will be correct. Just remember to decrease his contribs in Plan A and increase them in Plan B when you are doing your testing.

I tend to agree with bp parv. It if is truly a no harm, no foul type of situation, then transfer assets and document the correction via SCP. I don't think DOL or IRS would give this too much attention especially if it is all properly documented and plan auditors (if subject to audit) are okay with it.

These are separate and distinct plans. How he solves these problems is up to him, his attorney, his accountant. The 5500 should reflect what actually happened in each plan. Did he get a 1099? Which plan reported the distribution? If Plan A reported the distribution, then he m/b ok on the personal side, but not on the plan side. He should retain an ERISA attorney to help him sort all this out.

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If it’s overfunded, why is the money still invested?