Under the new 401(a)(9) regs, plan sponsors may elect to amend their plans to use the 5-year rule for all or certain distributions in cases where a participant dies before distributions begin and there is a designated beneficiary. Does anyone know how this election would interact with QPSA requirements, i.e., if a plan is amended to adopt the 5-year rule, does the 5-year rule supercede QPSA requirements, or vice-versa? Does anyone have a cite?

I have been having a running gun battle with various colleagues over the past few years about whether the Voluntary Fiduciary Correction Program the DOL operates is really worth a hoot. Don't get me wrong--I am all in favor of correcting defects of all sorts when they rear their ugly little heads. What I am trying to figure out is whether a fiduciary really gains anything substantial by using the VFCP program rather than just implementing some sort of reasonable self correction (I am not talking about "aggressive" sorts of corrections that the DOL might quarrel with).

As an ERISA attorney, I have dealt with a number of situations that were arguably fiduciary breaches. In every instance, after looking at VFCP vs. self-correction, I really couldn't make compelling case for jumping through the VFCP hoops, at least not under the prior version of the program. I noted that the DOL has reported a substantial up-tick in the use of the program over the past year, and I know another ERISA attorney who swears by it, but I can't help but think that the increase in usage is attributable mainly to post-Enron jitters rather than to the program's added value.

I suppose the obvious benefit of the program is that you get the DOL's stamp of approval on your corrective action and its promise not to come investigate you or sue for the issue you addressed. Of course, if you identify a potential fiduciary breach and correct it using a reasonable methodology, you take most if not all of the wind out of DOL's sails anyway. (I know that there is room for the DOL to challenge the methodology, but assume for present purposes that the correction you chose would pass muster with a majority of little old lady ERISA lawyers--i.e., its conservative, results in some financial pain for the fiduciary, and 4 out of 5 dentists would say that it makes the plan participants whole.)

If there is no "settlement" with DOL, the 20% penalty is not going to be applicable for a self-corrected issue. I have successfully defended a fiduciary breach charge by DOL by fully (says me) correcting the problems it identified before there were any negotiations or agreements between the fiduciary and DOL. The DOL tried to assess the 20% penalty anyway, but I backed them down on that. Admittedly, the issues were pretty straightforward and the appropriate correction methodology was obvious, but still, the fiduciary wouldn't have gained any protection from participant lawsuits if it had chosen to use VFCP instead of self-correcting (not that there would've been any traction there anyway since all participants were made whole). We just would've run up some more fees and gotten a nice letter to put in the file.

I know that VFCP allows you to dodge excise taxes for late 401(k) contributions, and I am sympathetic to the philosophy behind the program. Nevertheless, in doing a cost/benefit analysis for your plain vanilla sorts of fiduciary boo-boos, VFCP doesn't add up, IMHO.

Does anyone out there have any wonderful tales about VFCP? I don't want to unfairly malign the program, and I do offer it up as an option in appropriate circumstances. If the main benefit of the program is that it generates another piece of paper for the files and therefore helps the fiduciary sleep better at night, maybe it's worthwhile. Otherwise, if the marginal protection a DOL no-action letter provides is often outweighed by the cost and hassle of getting the thing, it is a harder sell to the fiduciary.

Are outstanding loans including the the account balance when calculating the MRD?

Should SS/Medicare taxes be taken from Section 125 deductions?

There is a retired employee receiving a W2 because she is receiving installment payments from a nonqualified deferred comp plan. It has come to the service provider's attention that she is being allowed to defer on this income and put it into the 401(k) plan. I've read that you can include deferred comp income in your definition of compensation but is there a rule anybody could quote me about only allowing "employees" to participate in the 401(k) plan, not terminated, retired former participants?

Thanks

If law school-style exams covered other subjects …

THE COMPREHENSIVE BLUE BOOK TEST

Instructions: Read each question carefully. Answer all questions. Time limit: 3 hours. BEGIN IMMEDIATELY.

1. Biology

Create life. Estimate the differences in subsequent human culture if this form of life had developed 500 million years earlier, with special attention to its probable effect on the English parliamentary system.

2. Economics

Develop a realistic plan for refinancing the national debt. Trace the possible effects of your plan on these areas: Cubism, Donatist controversy, and the wave theory of light.

3. Engineering

The unassembled parts of a high-powered rifle have been placed in a box on your desk. Included is an instruction manual written in Swahili. In ten minutes a hungry Bengal tiger will be admitted into the room. Take whatever action you feel is appropriate. Be prepared to justify your decision.

4. Epistemology

Take a position for or against truth. Prove the validity of your position.

5. General Knowledge

Describe in detail, briefly.

6. History

Describe the history of the Papacy from its origins to the present day, concentrating especially but not exclusively on its social, political, economic, religious, and philosophical impact on Europe, Asia, America, and Africa. Be brief, concise, and specific.

7. Managerial Science

Define management. Define science. How do they relate. Create a generalized algorithm to optimize all managerial decisions. Assuming an 1130 CPU supporting 50 terminals, each terminal to activate your algorithm, design the communications interface and all necessary control problems.

8. Medicine

You have been provided with a razor blade, a piece of gauze, and a bottle of scotch. Remove your appendix. Do not suture until your work has been inspected. You have 15 minutes.

9. Music

Write a piano concerto. Orchestrate and perform it with flute and drum. You will find a piano under your seat.

10. Philosophy

Sketch the development of human thought. Estimate its significance. Compare with the development of any other kind of thought.

11. Physics

Explain the nature of matter. Include in your answer an evaluation of the impact of the development of mathematics on science.

12. Political Science

There is a red telephone on the desk beside you. Start World War III. Report at length on its socio-political effects, if any.

13. Psychology

Based on your knowledge of their works, evaluate the emotional stability, degree of adjustment, and repressed frustrations of each: Alexander of Aphrodisias, Ramses II, Gregory of Nicea, and Hammurabi. Support your evaluation with quotations from each man’s work. It is not necessary to translate.

14. Public Speaking

Two thousand drug-crazed aborigines are storming the classroom. Calm them. You may use any ancient language except Latin or Greek.

15. Sociology

What sociological problems might accompany the end of the world? Construct an experiment to test your theory.

* Extra Credit

Define the universe. Give three examples.

* * For The Highly Motivated

Define law. Define justice. Discuss similarities, if any.

Can 401(a)(9) be incorporated by reference? I found a public law from 1988 indicating that you could--is this still true?

Does anyone know what the Canadian rules are for dividing or assigning a Canadian pension in a divorce? I know that in England, as of about 6 months ago, it could not be done, but that the British Parliament was looking at implementing a system similar to the QDRO rules that would allow for the interest to be assigned in a divorce. But I know nothing about Canada. Does it allow for the division or assignment? If so, are there special rules like our QDRO rules, or will just a divorce decree be sufficient?

I am a COMPLETE dummy when it comes to IRA's, 401(k)'s, etc....that's why I'm here, I guess. Here's my situation and question:

I work part-time for a lady doing her bookkeeping, keeping up with her affairs and business matters, etc. I only work 12-15 hours a week for her, but she pays me a salary each week and pays all relevant taxes on that salary. She has mentioned that she wants to start putting money back for me for retirement. Another household employee of hers currently has a Roth IRA and told me that this would be the way for me to go as well. We are looking to do something that is tax efficient for both of us (employee and employer). I believe that the maximum that could be put into a Roth IRA for myself is $3000, correct? Under that premise, she wants to put the full $3000 per year into whatever account we set up for me.

My question is...first of all, is a Roth IRA definitely the way to go in this situation? Or is there another type of account that we should go with? Is she even allowed to put the $3000 into a Roth IRA for me?

Also, if she did put this amount into a Roth IRA for me, is that amount taxable to her from a payroll tax standpoint (or any other tax standpoint for that matter)?

I hope that these questions make sense. Please let me know if I need to clarify further. Thank you all in advance for any help you can give me on this!

Can a Medical FSA reimburse for a medical service that was provided by relative? The insurance company denied the claim (following their document) but I don't find anything that would disallow this for a Flex Plan - in the Flex document or in the code. But my gut instinct is that it doesn't seem right - is there something in the tax regs I'm missing that disallows this reimbursement?

I understand that a distribution to a nonspouse beneficiary is not an eligible rollover distribution and so a withholding election notice is required by TR Sec. 35.3405-1, Q&A D-18. QUESTION: Does the IRS model 402(f) notice in Notice 2000-11 have to be modified to use for non-eligible rollover distributions? In practice, do we have to have a special notice for non-eligible rollover distributions?

From what I can tell 3405 requires that the notice must provide:

a) notice of the recipient's right to elect not to have withholding apply and how to make that election (the draft transmittal letter does not mention how to make the election);

b) notice of the recipient's right to revoke the election at any time and a statement that the election remains in effect until revoked (the draft transmittal letter does not mention these); and

c) a statement to advise recipients that penalties may be incurred under the estimated tax payment rules if the payments of estimated tax are not adequate and sufficient.

The IRS model 402(f) notice does not mention b) or c).

Does the IRS model 402(f) notice in Notice 2000-11 have to be modified to use for non-eligible rollover distributions. In practice, do we have to have a special notice for non-eligible rollover distributions?

I recently heard of an instance in which fund

counsel for a health and welfare plan signed

a participation agreement and brought his office

into the plan. Many multi-employer plans include

non-bargained employees, but I have never

heard this extend to service providers.

Is this permissable? What issues are raised?

I see many QDROs that have a flawed “savings” clause.

"Nothing contained in this Order shall be construed to require the Plan or Plan Administrator:

a. To provide to the Alternate Payee any type or form of benefit or any option not otherwise available to the Participant under the plan."

The correct wording, per IRC §414(p)(3) would be:

"a. To provide any type or form of benefit, or any option, not otherwise provided under the plan."

Most plan documents I deal with allow immediate distributions to Alternate Payees, yet the flawed version of the savings clause seems to prevent that [since an active Participant under a certain age does not have the option of a distribution].

Should I send an Alternate Payee who wants money now back to court strictly because of this mis-wording?

We have a DB plan that was frozen in 2003 because an older employee would become eligible for the plan and the cost would be too high. The plan is top heavy as the only eligible participants (prior to the employee becoming eligible) were the owners.

The plan had a 2 YOS wait. We are now being told that the employee needs to accrue top heavy minimums for 2001 and 2002 since she worked over 1,000 hours. So, even though the plan was frozen for all periods since her DOP, she is still due a top heavy benefit for the year.

Can someone confirm that this is true and provide some rationale? I would think that top heavy accruals wouldn't start until she actually enters the plan, but I may be wrong. DB plans are not my forte.

Thanks for any and all help!

Can an employer of a multiemployer union DC plan maintain their own DC plan? If so, do 415 annual additions have to be aggregated? Would 415 compensation include union and nonunion wages?

I am 60 and I opened my Roth IRA five years ago. Anyone know if I can continue to make contributions without having to wait five years to withdraw the proceeds on a tax free basis? Another way to ask this question: is each Roth IRA contribution subject to the five year waiting period before distribution on a tax free basis, or is the waiting period waved once the account holder reaches age 60 and the account has been open for at least five years? An example: the current account balance is $4000, was opened five years ago, and the account holder is age 60. If $4000 is contributed for 2003 and 2004 (and the balance has grown to $20,000 by 2005), can $13,000 be withdrawn on a tax free basis in 2005? Thanks for the info.

A parent company is about to shut down operations of a subsidiary company. All of the subsidiary employees will be terminated.

The only health coverage available to the employees of the subsidiary is through a fully insured plan. The parent company's employees that are not part of the subsidiary are only offered coverage through a self-funded health plan.

The parent company has asked if it is permissible for them to allow employees and other QBs of the subsidiary to elect COBRA continuation only in the self-funded plan.

Does anyone know if this is allowed? I'm not able to find any clear answer in the resources I have available.

Thanks in advance

Are employee's pre-tax contributions to cafeteria plan to purchase supplemental group term life insurance considered paid by employee pursuant to IRC 79(a)(2)?

My inclination is that these contributions are considered employer provided, but I cannot find anything to back this up. If anyone can lead me to something that answers my question it would be greatly appreciated.

I have a profit sharing plan (previously a money purchase plan) that is subject to the QJSA requirements. The QPSA is currently based on 100% of the vested account balance. Does anyone see a 411(d)(6) issue changing it to 50%?

I have a client with a 401k plan which has a discretionary match. The company historically has given a match of 100% up to 5% of comp. This match has a last day of employment rule.

I want to give out a Maybe Notice that this match could be "classified" as a Safe Harbor contribution for 2004.

Am I allowed to say this in the Maybe Notice? Or does the Safe Harbor contribution have to be a separate match?

Thanks.