A client maintains an employee stock option plan which reads in relevant part: Regular Termination. If an Optionee ceases to be employed by the Corporation, or by a corporation (or a parent or subsidiary of any such corporation) issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies, for any reason other than death, disability or termination of his employment by the Corporation other than for Cause, his option shall immediately terminate; provided, however, that the Committee may, in its discretion, allow such option to be exercised (to the extent otherwise exercisable on the date of termination of employment) at any time within three months after the date of termination of employment, unless the option terminates by its original terms (or the Plan otherwise provides for earlier termination) prior to such exercise.

Note the error above. It should read "other than death, disability or termination for Cause" (not "other than for Cause). Essentially the language excepts regular termination, but is meant to address regular termination so it doesn't say what happens on regular termination. Company wants to amend the plan to correct this typo but is afraid employee will take the position that his option doesn't terminate and that he doesn't have to exercise within 3 months. Agreement with employee says option is a non-statutory stock option, not an ISO, so presumably even if Company allows him to exercise, he may not want to because he would have to pay tax on the spread. Can the company allow this employee to hold on to his options post-termination? Per terms of the Plan, option terminates upon the earlier of 10 years from grant date or the last date for exercising the option following termination of employment (presumably not addressed by the paragraph above due to the typo)?

If an employer fails to deposit a top heavy minimum contribution for a prior year, should Form 5330 be filed and an excise tax paid? If so, it appears it would be shown as a prohibited transaction similar to late deposit of employee deferrals rather than a late required employer contribution under minimum funding standards.

An intended future client of a one-time compliance project has asked if we can accept a Purchase Order from them in lieu of our signed service agreement. Not sure how to react...

In preparing a health and welfare Form 5500, I only include a Stop Loss Schedule A if the plan is under a trust because the stop loss benefit supports the Plan. For a Plan not under a trust, I don't include a Schedule A because stop loss is an employer benefit, not an employee benefit. However, would a Stop Loss Schedule A be included in a 5500 that is not under a trust, with the funding from employee contributions? The stop loss benefit is included in the Plan Sponsor's Wrap Plan Document and SPD. I have never heard of this scenario.

Potential client wants to start a 401k plan. He is open to giving the employees the Safe Harbor 3% (discretionary) but is not sure he will be able to/want do it each year. He plans to only give SH 3% when he decides to participate since the plan will be Top-Heavy. The company is a partnership so I suggested he not contribute anything (including 401k) until after year-end, when he knows the income of the partnership. The obvious issue: he needs to decide if he will participate, thereby electing safe harbor for the year on Dec. 1, but really won't know his final income until March or so. He was adamant that he really won't be able to decide until after year-end. Is it possible to have a plan year from 5/1/18 through 4/30/19 (giving him until 4/1/19 to elect safe harbor), with a limitation year of 1/1/18 though 12/31/18? That way, the employees would still be based on W-2 and not some 2018 wages and some 2019 wages. I'm also not sure how deductions would work. Would he have to split his deduction 5/12 and 7/12? Any other solutions that I'm not thinking of?

I am brooding over the interaction between the exemption from top heavy for safe harbor plans and a mid-year suspension of safe harbor contributions. I am thinking about three issues. Assume the plan would be top heavy but for the safe harbor exemption. Issue 1 . The first is an old issue, but in re-reading Revenue Ruling 2004-13, I am having doubts now about Situation 4 in that ruling. Under Situation 4, the sponsor has a safe harbor match, but employees who at hire are eligible to make elective contributions have a 1 year of service requirement for the safe harbor match. The IRS responds as follows:

"In Situation 4, under the plan, newly hired nonhighly compensated employees who make elective contributions will not be eligible to receive any matching contributions until they have completed 1 year of service. Since this will result in a greater rate of matching contributions for highly compensated employees than for nonhighly compensated employees, the matching contributions do not satisfy the requirements of Section 401(k)(12) (or Section 401(m)(11)). Further, since all eligible nonhighly compensated employees under the plan do not receive safe harbor nonelective contributions or safe harbor matching contributions, the matching contributions made under the plan do not satisfy the requirements of Section 401(k)(12). However, certain plans that provide for early participation may satisfy the requirements of Section 401(k)(12) with respect to the portion of the plan that covers employees who have completed the minimum age and service requirements of Section 410(a)(1), while satisfying the ADP test of Section 401(k)(3)(A)(ii) for the eligible employees who have not completed the minimum age and service requirements. Unless a plan (within the meaning of Section 414(l)) meets the requirements of Section 416(g)(4)(H), no portion of the plan will satisfy Section 416(g)(4)(H). (See Notice 2000-3, 2000-1 C.B. 413, Q&A-10.)"

(I added the bold.) Is this saying everyone in the plan has to receive the top heavy contribution (minus any match), or just the otherwise excludible employees? I thought for both 414(l) and top heavy purposes, the otherwise excludible employees were treated as one plan with the other participants. But I also thought you only had to give the top heavy in this situation to otherwise excludible employees. This is what has created my doubt.

Issue 2. What happens if the employer only makes safe harbor contributions during a year, but in the middle of that year suspends the SH contribution? Up until the date of the suspension, the only contributions that were made were safe harbor contributions. After the suspension, the plan is required to fall back on the ADP/ACP test. Is it reasonable to take the position that the plan only received SH contributions for the year, and thus under 2004-13 the plan is still exempt from top heavy?

I think the answer is no. I think once the plan is amended mid-year to suspend the SH contribution, the contributions that were previously made are no longer considered SH contributions for purposes of the safe harbor exemption from top heavy status. I could see, however, that one could argue that during the year the plan only received safe harbor contributions, and nothing else, and thus under 2004-13 the safe harbor exemption still applies. I could also see an argument that the top heavy contribution is only required for compensation paid for the portion of the year the plan is no longer safe harbor. Nonetheless, I think the best answer is that once the plan is amended mid-year to suspend the safe harbor, the plan is top heavy for the entire year.

Issue 3. We know that a plan that does not give the SH contribution to HCEs nonetheless qualifies as a SH plan (provided all other requirements are met). In an ASPPA Q&A, the IRS said the HCEs who do not receive the safe harbor and who are not key employees are not eligible for the top heavy contribution.

What if the plan is amended mid-year to suspend the safe harbor contributions only for HCEs? Would the analysis here be different from the analysis in Issue 2? I think the answer here is yes, meaning the plan remains a safe harbor plan for purposes of the top heavy exemption even if the plan is amended mid-year to suspend the safe harbor contributions only for HCEs. If the plan can give the HCEs nothing for the entire year and still be safe harbor, it should be able to give the HCEs a safe harbor contribution for part of the year and still be safe harbor.

For a standalone vision plan... are COBRA notices required? Let's assume no other benefits are being offered. Just vision insurance, that's it.