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Message Boards Digest

June 9, 2021

Here are the most recently added topics on the BenefitsLink Message Boards:

EBECatty created a topic in Nonqualified Deferred Compensation

The Correct Standard for the Future Performance of Substantial Services Under 457(f) for Non-Elective Employer Payments

"I'm hoping to get others' input on the correct standard for the future performance of substantial services under 457(f) for non-elective employer payments. Under section 1.457-12(e)(1)(ii) of the proposed regulations, 'the determination of whether an amount of compensation is conditioned on the future performance of substantial services is based on the relevant facts and circumstances, such as whether the hours required to be performed during the relevant period are substantial in relation to the amount of compensation." There is no minimum vesting period in the proposed regulations or preamble.

When adding to current compensation or extending a substantial risk of forfeiture, proposed regulation 1.457-12(e)(2)(iii) requires performance of at least two years of future substantial services.

Under example 1 in proposed regulation 1.457-12(e)(3), a one-year (January to January) vesting period is implemented, which goes unmentioned as the example is aimed at an insubstantial amount of post-termination consulting services. One would think that if a two-year minimum deferral were required to begin with, the example would not need to resort to measuring the amount of work performed during the one-year period (or would use a longer duration). But the general substantial risk of forfeiture rule only looks at the amount of work performed, not the duration of the future services.

I know there has been a general rule of thumb stemming from section 83 that a minimum two-year deferral period is required to validly delay a substantial risk of forfeiture.

While it may be a matter of degree, I'm interested to hear others' takes on the following, all non-elective employer payments, all outside the short-term deferral date if the substantial risk of forfeiture is deemed not to take hold because it's less than two years:

  • On July 1, 2021, employer awards employee a bonus payable on June 30, 2022, provided they remain employed full-time until the date of payment.
  • On December 1, 2021, employer awards employee a bonus payable on June 30, 2022, provided they remain employed full-time until the date of payment.
  • On December 1, 2021, employer awards employee a bonus payable on June 30, 2023, provided they remain employed full-time until the date of payment.
  • On December 1, 2021, employer awards employee two separate bonuses, one payable on June 30, 2022, and one payable on June 30, 2023, provided they remain employed until each separate payment date.
  • On December 1, 2021, employer awards employee five separate bonuses, one payable on each succeeding June 30, provided they remain employed until each separate payment date.

Would anyone argue that some or all of these would immediately vest and be taxed on July 1, 2021, or December 1, 2021, as the case may be?'

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chibenefits created a topic in Correction of Plan Defects

Waiver of 401(a)(9) Penalties for Employee-Owner Under VCP

"Schedule H to the Form 14568 requires an explanation as to why the IRS should waive penalties under 4974 in the case of an employee-owner who failed to take RMDs on schedule. What are the circumstances that would qualify here? I am not sure why you need an explanation specifically for an employee owner and not anyone who doesn't take an RMD."

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DSimandl created a topic in Cafeteria Plans

FSA on an Accrual Basis -- Different Deductibility Rules?

"I have a client with a Standard Health FSA. It operates on a calendar year basis. However, the employer's payroll processes two weeks in arrears. Tax question as to whether the employer can deduct the final payroll from 2020 when the final payroll for 2020 is actually not paid out until the first payroll period in 2021. In other words, the work performed between December 15 and December 31 is paid on the January 15 payroll. That first payroll for 2021 is included as income for the 2021 W-2s -- not 2020. Has anyone dealt with this? The plan language is vague as to 'compensation'. Trying to determine whether there are different deductibility rules for cash basis versus accrual basis accounting."

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Stash026 created a topic in Defined Benefit Plans, Including Cash Balance

Full Vesting Required Due to Termination of All Participant-Employees Upon Sale of Company?

"Client's owner sold the company. All employees have been hired by the new company. The plan itself is staying open for a few years, because the owner now works as a consultant for the buyer and is getting paid through the old company. I know that, were the plan to formally terminate, everyone becomes automatically 100% vested, but this isn't a plan termination. Full vesting required here?"

2 replies so far   |    Click Here to Add a Reply

Catch22PGM created a topic in Defined Benefit Plans, Including Cash Balance

Need DB Plan Documents for Two Plans to Be Sponsored by a Municipality

"We have an opportunity to establish two DB plans for a municipality but our actuary does not have a plan document that can be used. Does anyone know a good actuary or attorney who can draft these documents? Illustrations have been done following the provisions of another municipality (we have their plan documents) and the decision-makers were happy with the results so the provisions can be copied from that municipality's plans. We are in the finalist stage and need to get a quote together so please reach out to me if you can do them or if you have a good recommendation."

1 reply so far   |    Click Here to Add a Reply

Dave Baker created a topic in Defined Benefit Plans, Including Cash Balance

PBGC Mediation Program -- Anybody Have Experience They Could Share?

"Ahoy, could someone do me a big favor and take a call from an attorney friend of mine who might be taking a plan sponsor into the PBGC mediation program that was started in 2019? He'd like to find out a little more ahead of time. It's a single-employer plan."

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BG5150 created a topic in Retirement Plans in General

How to Find Out If Trust's Taxpayer Identification Number (TIN) Has Been Deactivated?

"I have a plan that hasn't had a distribution is a few years (since 2016). How can I find out if the Trust ID has been deactivated?"

No replies yet   |    Click Here to Add a Reply

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