401(k) wraparound arrangements

Article Abstract:

Wraparound arrangements that combine 401(k) plans and nonqualified deferred compensation plans can provide employers with a means to provide highly paid employees with benefit plans, but IRS approval of such arrangements is uncertain. Letter Ruling 9530038 cited IRS approval for a particular wraparound arrangement, but only the ruling requester may rely on the ruling. The IRS has frequently rejected efforts to integrate plans that rely on corrective distributions or standing elections. The arrangement should provide for the 401(k) to be funded first with excess contributions allocated to the nonqualified plan.

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Courts disagree on whether the contribution of non-cash property to a retirement plan is a prohibited transaction

Article Abstract:

The Fourth and Fifth Circuits Courts of Appeals issued contradictory rulings in 1992 on whether IRC Section 4975 forbids employers from satisfying a required contribution obligation by giving unencumbered, non-cash property to a defined benefit retirement plan. In Keystone Consolidated Industries Inc v Commissioner, the Fifth Circuit ruled that such contributions were not prohibited transactions; however, in Wood v Commissioner the Fourth Circuit ruled just the opposite. The prime lesson of these rulings is that employers should not rely on non-cash contributions to meet their obligations.

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"Censure-plus" for sponsors of disqualified retirement plans

Article Abstract:

Defective provisions in employee retirement plans can be addressed in several ways pursuant to the IRS's Employee Plans Compliance Resolution System (EPCRS) which has been available to disqualified IRC section 401(a) and 403(a) plan sponsors since March 1998. Severe tax consequences result from not making qualifying corrections in accordance with the EPCRS which is contained within IRS Revenue Procedure 98-22. Different errors and situations require different individual EPCRS programs which the IRS is apparently more reasonable in administering.

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