When a participant defaults on a plan loan, the balance due on the loan is "deemed distributed" such that the balance due constitutes a taxable distribution. Ordinarily, taxable distributions from a plan are subject to 20% backup withholding. However, since the deemed distribution is not an actual distribution of cash, no backup withholding is ordinarily possible with respect to same.

In cases where the deemed distribution is made concurrently with a taxable distribution directly to the participant, we believe the 20% withholding obligation relative to the total of the deemed distribution and cash distribution must be satisfied, to the extent possible, from the cash portion of the distribution. However, what is a plan sponsor's obligation where the deemed distribution occurs at the same time as a (normally) non-taxable rollover to another qualified plan? May/must the employer withhold up to 20% of the deemed distribution from the rollover amount?

Thanks for the help in advance!

I worked in California for a number of years, and moved back to Australia 10 years ago. I am now 51 and want to move my TSA and Plan B into my retirement plan here in Australia. What is the quickest, most effective way to do this? The employee is huge so should be well-versed with this, but I have constantly been surprised with international transactions, and sometimes feel that I have to re-invent the wheel everytime! I have tax advice here, and still choose to move it now. Thanks.

If I aggregate a DB and DC Plan for 401(a)(4) testing, must distribution options be the same for both plans. For example, the DB Plan provides for QJSA and lump sum. Must the DC Plan also provide QJSA form of distribution?

I need help understanding Reg. 1.401(a)(4)-4(d)(4) Permissive aggregation of certain benefits, rights or features. I think this reg says that if a BRF is "inherently equal" in value to another BRF, then the two BRFs may be treated as a single BRF. In the DB/DC Combo plans we work with, I think that the QJSA and the lump sum form of benefit are equal in value, e.g., there are no subsidies for the QJSA and there are no discounts for the lump sum; the plan benefit payable as an annuity is equal to the actuarial value of the lump sum.

I think I am missing something here because I think the general consensus is that the DC Plan has to have the QJSA option. But why? Thanks.

In California, are there any State or Federal laws which cover the use of company resources?

If a company has no stated policy regarding the use of company computers:

If an employee were to use company resources to sell items on an online bidding service, assuming it's during their breaks, lunch, or after work, could the company make a claim against that employee?

If an employee were to use company computers to design a product--again, assuming it is on their own time--and then later use those designs to produce and sell that product, could the company litigate a claim against that employee?

Could someone point me to the appropriate part of California or Federal law that covers these questions?

Thanks!

Edit: It occurs to me that I am asking non-benefit related employment questions. I'm sorry about that. If there is a more appropriate place for me to be asking these questions, could someone please direct me there? Thanks!

Can an employer pay a larger portion of health insurance premiums for some employees and a smaller percentage for other employees. For example, say the employer wishes to pay 100% of management's health insurnace premiums but only 50% of rank and file workers. The premiums are paid directly to the insurance provider. Would the management employees be subject to tax on the premiums paid to insurance company?

A government agency wants to amend its VEBA to provide for reversion of assets to the employer. It will then terminate the plan and credit the assets to an "integral part" (or grantor) trust that's not taxable under section 115 of the Code.

I think this will work, because the assets will be used to provide the same benefits provided under the VEBA. There's no excise tax on the reversion, because the governmental employer didn't deduct its VEBA contributions.

As Walter Sobcek says, "Am I wrong?"

(If you don't know who Walter Sobcek is, you haven't seen "The Big Lebowski," and shame on you!)

A buddy of mine is insisting that the combined employee and employer contribution cannot exceed $15,500 for 2007. I have told him he is ignoring the section 415 limits and when these limits are included the combined contribution limit is $45,000. Please tell us that my buddy is wrong.

Thanks,

Joel L. Frank

In what situation would it be advantageous to start a SEP instead of a 401K?

I am wondering what others think about the potential 409A implications of the following situation.

Company has a number of in-the-money stock options in various stages of vesting that for share preservation and other purposes it desires to convert / exchange / swap for restricted stock which will be subject to further vesting.

I have seen companies do this in cases where the options are underwater but not with restricted shares. In addition to a concern that the swap of the options might essentially be considered an exercise or cancellation of the option and thus taxable to the optionees at the time of the swap based on the value of the (albeit unvested) restricted stock, I am concerned that the exchange might create an extension or modification of a stock right under 409A. Although restricted shares are generally exempt from regulation under 409A, it seems to me the exchange might nonetheless be considered an additional deferral feature or otherwise deemed to constitute an extension of the existing stock option thus raising 409A concerns. Anybody have any thoughts on these issues?

We are looking to switch from a SIMPLE IRA to a 401K plan for the upcoming year. We have several highly paid employees (upwards of 200K or more). I am hoping to benefit the lower paid employees while limiting the employer's match to the highly paid employees so they aren't anymore than they are now which is a dollar for dollar match up to 3% of salary. So an employee who currently earns 75K a year who maxes out their SIMPLE contributions only gets an employer match of $2250 while the employee earning 200K who does the same gets a match of $6000.

Could we design the plan to offer a 5% match up to $5000 and then a 2% match thereafter? So an employee who now earns 75K would get a match of $3750 (5% of 75K) and the employee earning 200K would get: $5000 plus $2000 for a total of $7000 in matching funds. This benefits both employees as the one earning less than 100K gets a 5% match instead of the former 3% under the Simple plan and the 200K employee is actually now getting a 3.5% match.

Is this doable or what is a better suggestion to acheive this goal?

Lisa

The issue is whether the different vesting schedules present a discrimination problem with the Plan's "benefits, rights and features" (BRFs). The Cash Balance Plan is aggregated with the Profit Sharing Plan to pass (a)(4) nondiscrimination. The HCEs primarily benefit under the Cash Balance Plan and the NHCEs benefit primarily under the Profit Sharing Plan. The Cash Balance Plan has 3-year cliff vesting; the Profit Sharing Plan has 6-year graded. Therefore, the concern is that the manner in which employees vest discriminates in favor of HCEs.

I think this is the position the IRS is taking. I have seen nothing "formal'; just informal commentary from IRS officials.

However, under Treas. Reg. Section 1.401(a)(4)-11©(2), 3-year cliff and 6-year graded vesting are deemed to be equivalent vesting schedules to one another. Therefore, I think one could argue that the manner in which employees vest under the Cash Balance Plan and the Profit Sharing Plan does not discriminate in favor of HCEs because the 3-year cliff and 6-year graded schedules are treated as equivalent to one another.

Any thoughts? Thanks.

Here's the situation:

Retirement Plan owns investments in tangible property. A trustee of the Plan is a director of a 501c3 that operates a museum. Clearly, the trustee / director is a fiduciary of the plan and is a disqualified person. But, is the 501c3 a disqualified person with respect to the Retirement Plan for purposes of 4975 so that a prohibited transaction would occur if the museum displayed the Retirement Plan's tangible property?

Looking at the definition of a disqualified person in 4975(e)(2), the only way I could see the 501c3 being a disqualified person is if it's considered to be providing services to the plan under (e)(2)(B) (which I think is a stretch), or a corporation / partnership / trust / estate with the trustee / director fiduciary "controlling" 50% or more of the entity (paraphrased roughly) under (e)(2)(G) (again, something that seems like a stretch to me since a foundation is not a corporation / partnership / trust / estate).

Any thoughts would be greatly appreciated......

Health plan wishes to tell third party (for other than TPO purposes) that individuals X, Y, and Z are not and never were enrolled in the plan. Health plan has no connection whatsoever with the individuals. I know that information that an individual is enrolled in a plan is PHI, but is information that a person was never enrolled also PHI, subject to HIPAA? For example, if the health plan discloses to a third party that Donald Trump is not and never was a participant in the Plan, has the plan violated HIPAA?

Question: I'm working with an employer that is part of a multiemployer fund. The fund is composed of multiple separate plans - I'll call them Plan A and Plan B. The employer contributes to the fund through both plans. If the employer closes the only location for which it contributes under Plan A, will the employer incur withdrawal liability even though it continues to contribute to the fund through Plan B? Basically, the question is whether a withdrawal occurs as to the specific plan under which contributions are made, or whether it occurs as to the fund as a whole.

Relevant ERISA provisions are cast in terms of "plan" rather than "fund":

A complete withdrawal occurs when an employer either (1) permanently ceases to have an obligation to contribute under the plan; or (2) permanently ceases all covered operations under the plan. 29 USC 1383(a).

Any insight is much appreciated!

A Mass. ER who is required pursuant to state law to cover its temporary EEs under a 125 cafeteria plan is considering offering these EEs group health coverage. The question is whether there are any exceptions under COBRA for temporary EEs.

Thanks.

I have a question pertaining to the pay used to calculate Retirement Plan benefits if an employee moved from a management classification to a bargaining unit classification within the same company. This company states that the provisions of the Internal Revenue Code and regulations dealing with pension plans require pension plan's to preserve an employee's earned pension benefit(Treas Reg. 1.411(d)). As such, this company's Retirement Plan ("Plan") provisions require that an employee's accrued pension benefit be preserved at the time he/she leaves a classification and be based on Plan provisions in effect at the time. They state this includes pension formula, service, and pay.

Essentially, the aforementioned regulation requires the Plan to provide at least a pension benefit that is equal to the pension amount produced under a blended formula (the sum of a two part calculation based on service time spent as a management employee and service time spent as a bargaining unit employee).

I could understand the theory of using the formula from the time of each segment, but it does not seem right that you would use a salary from that time also. I could understand using the current salary in the various formulas, but not the previous salary.

This blended pension results in a pension that is less than either the bargaining unit or management pension. The employee does however have an option to take the pension benefit under their current classification, be it management or union.

Any experience with this that anyone can share?

I am a CPA and have a client that needs a loan doc to borrow money from his solo 401(k) plan. The third party adminstrator does not have a loan doc to provide my client, so in order to document the loan in writing, we need a loan doc. Any attorneys out there ready and willing to provide a plain vinilla loan doc that complies with Sec. 72(p)(2)? The terms of the $35,000 loan include a 60 month payback at 6% per year with payments made monthly. We need to do this ASAP.

An employee who is eligible for Medicare wants to opt out of an employer's health plan. This really was the employee and an insurance broker's idea. Of course, the individual will sign up for some other insurance product offered by the broker. Is there ever a situation when the employer can reimburse the employee for the cost of this alternative coverage? Does it matter if the group health plan in insured or self-funded?

What if the employee was given a raise equal to the first year's cost of the alternative coverage and that increase was not increases in future years top track the increase in the cost of the alternative coverage? I recall that I read once that an employer could not offer any type of financial inducement, but is this really a financial inducement if the opt out agreement indicats that the employer is not obligated to provide remuneration?

I suspect that employers do this all the time, but there are certainly riskes associated with this. I'm a ERISA atty who, like most, does more qualified plan/non-qualified plan work. Thanks in advance for your comments.

Ed

I understand that under section 4204 multiemployer plan has rules specific to treating a sale of substantially all assets. However, how is a sale of assets treated under a multiple-employer plan? Does that constitute withdrawal of the employer and trigger withdrawal liability?

Second, multi-employer plans have provisions so that a withdrawing employer will not be subject to withdrawal liability if he is indemnified by a purchaser employer. Is there any such allowance in multiple employer plans or does that require the authorization of PBGC?

If a plan Trustee paid a terminated participant too much, can they recover that oveage from the participant? Is the participant legally obligated to return the overage amount? Is there a code section that can be cited?

Thank you for your help.