plan audits

[Kirk Maldonado]

The letter that Becky referred to is ERISA Opinion 79-87A, which was issued Jim Carey of Kindel & Anderson (which was a law firm based in Los Angeles that no longer exists).

However, I didn't see any reference to the plans being aggregated for tax-qualfication purposes in the DOL's discussion of the issue. Rather, the DOL focused upon whether the plan's provisions contemplated that all of the component plans be treated as a single entity.

But, inasmuch as that letter was issued more than 25 years ago, I think that it is completely understandable that Becky Miller's memory was a little bit off. Hell, I'm impressed that she even remembered it!

In any event, here is that letter:

ERISA Opinion Letter 79-87A , 12/13/1979

Mr. James F. Carey

Kindel & Anderson

Twenty-Sixty Floor

555 South Flower Street

Los Angeles, California 90071

Dear Mr. Carey:

This is in response to your request for an advisory opinion regarding the interpretation of 29 CFR 2520.104-46 , under which the requirement set forth in section 103(a)(3)(A) of the Employee Retirement Income Security Act of 1974 (ERISA) that an accountant's opinion be included in the annual report is waived for plans with less than 100 participants. We regret the delay in responding to your request.

The following is a summary of the representations contained in your letter and material provisions of the documents submitted therewith. A document encaptioned “1976 Amendment and Restatement of Metal Surfaces, Inc. Employee Profit Sharing Plan” (the Plan) was adopted by Metal Surfaces, Inc. (the Company) and one of four of its subsidiary corporations. The Plan provides that any corporation which is or may become an 80% or more owned subsidiary of the Company may become a “Participating Employer”. The other three subsidiaries of the Company thereafter adopted the Plan and became Participating Employers.

Contributions by Participating Employers and by employees are held in a trust maintained in connection with these profit sharing programs (the Trust). Under the Plan document, the board of directors of each Participating Employer determines the amount, if any, to be contributed by that Participating Employer on behalf of its employees. A separate account is maintained for each employee who is a participant in one of the profit sharing programs maintained pursuant to the Plan document, and the participant's share of Participating Employer contributions, forfeitures, and gains and losses on assets held in the Trust are credited to the participant's account. Contributions to the Trust by each Participating Employer are generally allocated only to the accounts of that Employer's employees. Under §5.01 of the Plan document, however, it appears that if the profits of one of the Participating Employers are not sufficient to enable that Employer to make contributions, other Participating Employers may make contributions on behalf of that Employer's employees. Forfeitures from the account of a former participant are allocated only among eligible participants employed by the Participating Employer who employed the former participant. For investment purposes, it appears that all the assets in the Trust are pooled. Gains and losses on the pooled assets are allocated among participants' accounts on the basis of the ratio of each participant's account balance to the sum of the account balances of all participants. Only the Company may terminate the Plan. A Participating Employer may withdraw from participation in the Plan only with the approval of the Company's board of directors. The Company may amend the Plan without approval of the Participating Employers.

Upon termination of the Plan, each participant becomes fully vested in his or her account. Thus, in the event of termination, the assets contributed by a Participating Employer for its employees will generally not be used to provide benefits for participants employed by another Participating Employer, except to the extent of contributions by a Participating Employer on behalf of the employees of a Participating Employer with insufficient profits, as described above.

On the basis of these facts, your letter raises the question whether, in determining the number of participants for purposes of 29 CFR §2520.104-46 , the profit sharing program maintained by each Participating Employer should be treated as a plan separate from the programs maintained by the other Participating Employers, or whether all the programs should be treated as a single plan.

In our view, under the circumstances described in your letter, and in the materials that accompanied it, the profit sharing programs maintained by the five Participating Employers under the Plan should be treated as a single plan in applying 29 CFR §2520.104-46 . The provisions of the Plan, taken as a whole, contemplate that the profit sharing programs of the Participating Employers would form part of a single plan for the purposes of the Company. The Company reserved to itself the sole right to amend and terminate the Plan, and to approve withdrawals of Participating Employers from the Plan. Further, the Plan provides that if the profits of a Participating Employer should be insufficient to make a contribution which such Employer is required to make to the Plan, other Participating Employers may make such contribution. Because the Plan provides for the pooling of all the assets in the Trust, and for allocation to each participant's account of a proportionate share of the gains and losses on such pooled assets, the financial information with respect to which an accountant's opinion would be required under section 103(a)(3)(A) of ERISA is relevant to all the participants. Given the provisions of the Plan, which contemplate that the profit sharing programs of the Participating Employers and the Company were meant to be treated as a single entity for corporate purposes, it is our opinion that the participants of each of the profit sharing programs should be aggregated for purposes of §2520.104-46.

This letter constitutes an advisory opinion under ERISA Procedure 76-1 . Accordingly, this letter is issued subject to the provisions of the procedure, including section 10 thereunder relating to the effect of advisory opinions. We have considered your request for a conference under section 8 of the procedure and have decided that a conference is not necessary in providing this advisory opinion.

Sincerely,

Ian D. Lanoff

Administrator of Pension and Welfare Benefit Programs