I’d like to know what BenefitsLink mavens think about the following hypothetical snafu:

For decades, an employer’s collective-bargaining agreements provided for contributions to a multiemployer health plan tied to the union local. (Although in formal terms the plan has two slates of trustees – elected from employers and from the union, in practical operation the union local’s staff runs the plan; and the union local’s chief makes the plan’s coverage-buying and management decisions.) For decades, the employer has regularly paid contributions to the local health plan.

In the most recent collective bargaining two years ago, the parties bargained to impasse. The employees have continued to work. The employer has continued to meet all obligations that it agreed to in the incomplete collective bargaining along with all obligations of the expired collective-bargaining agreement that were not displaced. Among these obligations, the employer has continued to pay its contributions to the local health plan.

Several months AFTER the collective bargaining ended, without the employer’s consent or involvement, the local health plan arranged to get coverage from a national multiemployer health plan. The employer signed nothing. All enrollment forms were signed only by the employee, with nothing written by the employer. Although some employees pay contributions (if the “premium” for his or her coverage is more than the amount that the employer is obligated to pay), the employer has no involvement concerning those payments. The employer has never agreed to a dues check-off or wage deduction for any purpose.

After the local health plan switched coverage, the union local’s agent requested a few times that the employer sign the national health plan’s participation agreement. The employer declined to do this. The employer believes that it never agreed to become a participating employer under the national health plan, and that it never agreed to do anything other than pay an amount of money to the local health plan.

This absence of a participation agreement now seems to be at a boiling point. The national health plan has informed the local health plan that, if the desired participation agreement is not received by a due date that the letter specifies, the national health plan will end coverage for the employer’s employees (and their spouses and dependents).

If it matters to our thinking, the documents of the national multiemployer health plan make clear that the plan is not insurance. (Although to participants the plan looks like mainstream PPO health insurance with big insurers, those insurance companies provide only administrative services.) The local multiemployer health plan’s most recent Form 5500 reported the plan’s arrangement with the national plan as though the arrangement were insurance. Its preceding year’s Form 5500 reported that the plan bought coverage from a health maintenance organization.

If the national health plan ends its coverage, am I right in guessing that the national health plan does not provide COBRA continuation coverage because the loss of coverage would not have resulted from a termination of employment or reduction in hours? Assume that the employees continue to work at least full time and work all regularly scheduled shifts.

If the local health plan ends its coverage, is it likewise so that the local health plan does not provide COBRA continuation coverage?

The employer’s obligation to pay contributions to the local health plan was grounded on a natural understanding that the local health plan would provide coverage to the employer’s employees. If the employer knows that coverage is not provided, must the employer nonetheless continue to pay its contributions?

Assuming that the national plan’s fiduciaries lacked express knowledge that a group of employees had been enrolled despite the absence of the employer’s participation agreement, do the fiduciaries have any responsibility for suddenly ending coverage after having allowed the situation to continue for a year and a half?

If, because of these circumstances, an employee lacks any health coverage and has an expensive hospitalization, could the employer or the union local be liable for those uncovered expenses?

Does the employer have any legal responsibility to help its employees get health coverage?

The employer might feel a moral responsibility to help its employees get other health coverage if the employer can do so without violating any law. If the employer wants to help its employees get coverage through means other than multiemployer health plans, is there anything that the employer can do? Or does labor-relations law preclude the employer from communicating with the employees other than through their bargaining representative?

Participant has terminated and has two outstanding loans – the first one defaulted in 2005 and was a deemed distribution with 1099 issued; second one is active loan until termination. Participant is taking cashout, so I’m trying to calculate both withholding amount and distributable amount after loan offset of second.

This is my calculation, any helpful thoughts?

General Account Balance (excluding loans) $50,000

Loan 1 - Defaulted with 1099 in 2005 $20,000

Loan 2 - Active Loan Current Principal $15,000

Interest on loan 1 accrued through default date (never paid or reported) $500

Interest on loan 2 accrued from last pmt to distribution date (never actually pd) $100

Subtract Loan 1 with phantom interest - already deemed $(20,500)

Total - Taxable Amount $65,100

Less 20% $(13,020)

Offset - Subtract Loan 2 with interest $(15,100)

Net Cashout Amount $36,980

I'm stumped on a simple question in response to an unsual client request.

Is it permissible to design a 409A-subject agreement under which, if the benefit recipient dies, payment of (remaining) benefits is forfeited?

I'm hung up on the concept that the benefit are otherwise "vested" (which I thought meant nonforfeitable).

If both parties consent that death will result in the cancellation of all employer obligations, then it should be fine. (....right?)

Thoughts welcome. Thanks.

Has anyone heard any rumblings about disaster relief pertaining to plan loans and distributions in the aftermath of the April tornadoes that devastated parts of Alabama and other southern states? They passed something to help plan participants after Hurricane Katrina - just wondering if they might do something similar now.

Thanks.

Can an ILIT (irrevocable life insurance trust) buy a individual participant’s policy directly from a qualified plan. If yes, do they then avoid “the three year contemplation of death rule”?

Any particular cite to which someone can direct me?

Not sure why my topic on this question got closed, but...

Does anyone have an opinion on the idea that an ESOP that owns 100% of the stock can not have any 5% owners because the trust owns all the stock?

So even a person with a balance >5% of the stock allocated to them would not be a key unless they are an officer with high enough compensation.

Thanks

Once a defined contribution plan adopts an amendment to terminate, must the plan administrator wait to have all election forms before distributing assets to any participant? Another way to ask this question: If the plan (per Rev Rul 89-87) must distribute all assets within one year of termination date, what happens if some accounts are not distributed within that time period? If distributions had been made to participants within the one year time period, would they now be deemed to have been impermissible (assuing the participnat was not otherwise eligible for a distribution)?

Most people don't know that back in 1912, Hellmann's mayonnaise was manufactured in England. In fact, the Titanic was carrying 12,000 jars ofthe condiment scheduled for delivery in Vera Cruz, Mexico, which was to be the next port of call for the great ship after its stop in New York.This would have been the largest single shipment of mayonnaise ever delivered to Mexico. But as we know, the great ship did not make it to New York. The ship hit an iceberg and sank, and the cargo was forever lost.The people of Mexico, who were crazy about mayonnaise, and were eagerly awaiting its delivery, were disconsolate at the loss. Their anguish was so great, that they declared a National Day of Mourning, which they still observe to this day. The National Day of Mourning occurs each year on May 5th and is known, of course, as Sinko de Mayo.

When is a SAS 70 required?

Is there any regulating body? Any cites?

e.g. A recordkeeper who is the TPA and the Broker (does not have a 6 or 7, sells thru a life license). Plan assets eventually end up with a major insurance provider. Plan Sponsor says they write the bi-weekly contribution checks to the TPA company name (Did not confirm this as of yet).

I just want to double check because it could make a difference this year with a client.

It is my understanding that if an ESOP owns 100% of the stock there can not be any Key employee because of 5% ownership. The trust owns all the shares. So if a long term non-officer employee has an allocation balance that would be > 5% of the stock that person is still NOT a Key.

With a 100% ESOP that means only officers with high enough compensation can be Keys.

Thanks.

I have an employer who elected and gave notice for a safe harbor match for 2011. They want to increase the match to 100% match up to 6% of pay for 2011 and not lose either their ADP or ACP safe harbor. It is too late to amend the safe harbor for 2011 as that would kick them out of safe harbor. However a discretionary match that does not exceed 4% of pay is generally allowed. Am I correct that since the discretionary is not > 4% and we are not matching above 6% of pay deferrals they are OK for 2011? I've been reading the regulations and I keep getting caught up in the distinctions between fixed formula enhanced match and discretionary enhanced match rules. My concern is that if I look at the match as if it actually comprised of two matches - the safe harbor and the discretionary than I have an increasing match on the discretionary side ... it doesn't kick in until you defer in excess of 3% of pay. Or I may have just over-thunk the scenario.

Followup questions are:

If I am still safe in ADP and ACP safe harbor land - I presume that the discretionary match would have to be treated as a safe harbor match ? (i.e. 100% vest and limits on distributions).

If I am kicked out of ACP safe harbor I still retain my ADP safe harbor and just have to test the total match under ACP? I could then subject the discretionary match to vesting. Any other concerns?

In a perfect world they would like to apply the additional match only to contributions made after a certain date. I don't think I could do that with ACP safe harbor retained, but what if I am ACP testing?

No matter how 2011 works out they want to amend to a formula fixed match for 2012 which removes the uncertainties of 2011.

Any thoughts would be greatly appreciated.

Say a plan is frozen as of 1/1/2009.

At that time the participant has 3 yr avg comp of 100,000.

The dollar limit is 156,000 as of 1/1/2009.

NRA is 62 and employee is age 62 at 1/1/2009.

Plan provides for actuarial increase for late commenement.

Say as of 1/1/2011 employee has avg comp of 120,000 (counting comp for 2009 and 2010 after plan freeze).

Question is: Should late ret act increases be limited to 100k or 120K? that is, can hi 3 comp limit increase after plan freeze from 100k to 120k?

Hello everyone,

I am aware that an actuarial adjustment is done for retirement after normal retirement age. However, is an actuarial adjustment required/allowed if participant has not reached normal retirement age but is entitled to receive his service pension (e.g., before age 65 but after 25 years of service)? I have not been able to locate anything in the code discussing this issue.

Thanks

If a participant's compensation for a pay period is not enough to cover their deferral election what is the correct way to handle? Do you defer all pay to try and meet the election form?

Thanks,

I have a PS/401k plan where there is an elderly lady, age 78, still actively employed. She is not an owner of the business.

Their plan allows anyone over the age of 70 1/2 and still employed to waive the Age 70 1/2 required distribution until they terminate their employment.

Last month the broker who handles the investments told this lady that she should have been taking minimum distributions every year. He had her sign paperwork to take out a taxable distribution of around $10,000. Then he rolled over her remaining balance, around $200,000, to an IRA. None of this went through me as the TPA.

This lady has no immediate plans for retirement, is still receiving PS contributions, and does not want to cash in her PS/401k account.

Now that her PS/401k balance has been rolled over to an IRA, she no longer can waive taking her minimum distributions each year. Would the best suggestion be to rollover this balance from her IRA back into her PS/401k plan?

Any other suggestions?

If the 12-c is a cult calculator I guess I'm a member of a cult, I've got 3 of them:

http://online.wsj.com/article/SB1000142405...0326458056.html

We handle the TPA work on a DB non-electing church plan. Plan is terminating. The termination provisions permit the plan administrator to distribute assets in the normal or optional forms under the plan. The administrator has elected to pay out benefits in a lump sum to all. Is this ok - without sign-off by participant and spouse? Also, plan is paying out disability benefits in a monthly annuity - the document states that once the plan has terminated that the disability benefits stop. Is this ok?

I know this is a non-electing church plan so the ERISA rules do not apply, but there is QJSA language in the plan document.

I have a profit sharing plan with 4 participants that was sold to the client by an insurance guy. Each participant's account is invested his or her own variable annuity.

The annuity will only cut a check to the trustee, and they do not process withholdings on distributions. So the plan is needing to set up a trust checking account to deposit the distribution into so that the trustee can cut a check to the participant and process the withholdings on the distribution.

They are trying to set up the checking account, and the legal department at the bank is saying that they can't do it because the signatures on the plan were not notarized, and trusts have to be notarized when executed.

All of the plans I've ever worked with have the trust provisions contained within the plan, and I've never, EVER, seen a plan document notarized when exectuted.

Has anyone out there had this problem with a bank before?

Thanks in advance for any help and info board members can provide.

A SARSEP from 1994 (95305A-SEP and I doubt ever updated) changed to a 401k SH this year September 1. Due dilligence was done (or at least attempted!) to make certain this could be done mid year.

Major wire house using Pennserve said no problem. TPA sited a Q+A from another service that was, in hindsight, ambiguous and TPA simply sent the Q+A to financial advisor who interpreted "no problem".

Major insurance company, the wirehouse FA and TPA took over the 401k;SARSEP money from emplyees was put in the new plan (all ee's chose to transfer and knew they had choices) in early September. All notices were given.

NOW, TPA informs this could not be done and says client needs to hire an ERISA attorney and offers no other advice. During discussion between FA and TPA, the TPA says "not our problem, it's all on the employer; we had nothing to do with the SARSEP." TPA unwilling to meet with client as " we would simply say hire a lawyer". TPA says their representative asked employer if money had been put in SARSEP during 2010--"did you fund the SARSEP" or words to that effect--note "you". Client said no, because he/corp had not funded the 3%. He was not asked about ee contributions, which had been made each pay period.

There is plenty of blame to go around here and I am not looking for a fall guy although I can't understand the TPA's attitude. I believe they think they are culpable and are stonewalling. I just need a way to help er solve this and if "hire a lawyer" is the answer have some leverage to share the cost among parties.

I've read every post on the SARSEP topic (77 pages!) and still don't see a course of action--everything has a caveat. Any suggestions or opinions greatly appreciated as to how to fix without damage to ee's or er.

Can 5305A be retroactivly changed to a prototype allowing this?

What happens if er calls IRS for help (as ins. co or TPA or wirehouse is helping the advisor help the client)?

Sure, he should hire a lawyer but he is left in the lurch by the parties that were hired to help and protect him.

What are the responsibilities of the TPA in assuring a proper plan change?

I am the wirehouse advisor trying to help my client.He is the most generous employer I've ever run accross (phantom stock, extra 5,000 pay each year ee has child in college, great medical and other)--he does not deserve this. Note that all monies hit the accounts in timely basis, he put the 3% into the 401k, everything above board--just given lousy advise.

Thanks for any ideas, comments opinions.

Best Regards,

T.

a participant in a DB plan is actively employed and currently receiving minimum distribution payments as a lump sum. At the time their initial payment was made (3/08) and also when the 1/09 and 1/10 top-offs were paid this plan was at least 80% funded. Now we are about to pay the 1/11 top-off and this plan is currently funded between 60% and 80%. Can the 1/11 top-off be paid since at the time of their BCD (3/08) the plan was not restricted, or do the funding restriction now apply to the portion of the benefit payable attributable to the 2010 accruals? Any help would be appreciated. Thanks.