Under Notice 2002-4, a "severance from employment" is deemed to occur when a target company is acquired, in a stock purchase, from its parent company if the plan stays with the selling group - notwithstanding the fact that the employees involved remain employed by the same legal entity. The rationale is that the target company doesn't "maintain" the plan after the closing.

Does anyone have any thoughts on what happens when a comapny is acquired from its individual shareholders (no corporate parent is involved) in a stock purchase transaction? If corporate action is taken to terminate the target plan prior to the closing date, does the corporation continue to "maintain" the plan after the closing date if it has been terminated and all that remains to be done is to process distributions following the receipt of a favorable determination letter?

Two years ago, prior to my coming to my firm, my client merged a union life insurance policy into the larger salaried policy to save a buck. Now, no one can provide me with the information to file the 5500's for each plan. Did we effectively terminate the union plan? Should we file best guess estimates for this year and segregate the policies again? Any ideas on how to handle this? Oh yes, and did I mention that a 5500 for the union was not filed last year. Their data was commingled with the salaried group.

Does anyone know where I can find a sample complaint for a declaratory judgment seeking the creation of a constructive trust? My office represents a health fund where several members have pending lawsuits for personal injuries. Since the Supreme Court's decision in Great West. v Knudson, it is more difficult to protect subrogation rights pursuant to ERISA.

Any help would be greatly appreciated

Does anyone know where I can find a sample complaint for a declaratory judgment seeking the creation of a constructive trust? My office represents a health fund where several members have pending lawsuits for personal injuries. Since the Supreme Court's decision in Great West. v Knudson, it is more difficult to protect subrogation rights pursuant to ERISA.

Any help would be greatly appreciated.

Hello,

My question revolves around the final loan regulations and the application of the interest accrual on a deemed distribution.

Example: Participant takes a $10,000 loan for 5 years with a 90 day Cure Period. After 6 months, participant terminates employment on September 1st. The outstanding loan balance on Sept. 1st is $8,000. The Loan Policy provides a 90 day Cure Period to pay back loan in full, otherwise the loan will be offset (due to separation of service creating a distributable event and allowing an account offset).

If on November 30th the loan is not repaid, the regulation is clear that the offset (or deemed distribution if not a distributable event) will be $8,000 + accrued interest through November 30th, and a 1099-R for that total amount will be generated for taxation purposes.

My Question: If during the Cure Period (let's say October 20th) the participant decides to pay back to the plan the loan amount, the question the regulations do not clearly answer is whether the participant need only pay the $8,000 outstanding on September 1st, or must he pay $8,000 + accrued interest through October 19th, under the regulation, in order to fully pay the loan back during the Cure Period.

The regulation does not appear to be clear on whether it is required to apply the interest accrual through the date of payment (Sept. 1 - Oct 20) if payment is actually made during the Cure Period. Any insight will be appreciated.

Thank you,

Andmik

What would the correction be where the plan document calls for partcipant direction of investments, but the plan sponsor did not permit this to happen in operation? (not an intentional action, but more of an omission)

The plan fiduciaries can no longer rely on the protections of ERISA 404©, but what about making a correction to the operational error?

Thanks.

If the HCEs are receiving a 20% of comp PS allocation, can the NHCEs receive a 5% allocation that includes the 3% Safe Harbor allocation or does the 5% allocation need to be given in addition to the 3% Safe Harbor allocation?? It has been my understanding that the 5% allocation can include the Safe Harbor allocation, now i'm being told (without reference) that it can't. Thanks.

Anyone want to weigh in on the topic of 401(k) plan loans and the often quoted double taxation of these amounts - in that the loan is paid back with after tax dollars?

There seem to be two schools of thinking:

1. Exactly as summarized above; loans taken out are paid back with after tax dollars which will be again subject to tax upon distribution of these assets at retirement/other.

2. Not sure I understand this school, but I believe it is argued that you were given access to these funds and were able to use them - as opposed to other resources - and somehow it is argued that the "double taxation" does not exist.

Oddly enough, it's almost a 50/50 split around here.

Anyone else?

What are the advantages (if any) of a 412(i) plan over a traditional DB plan??

Scenario is as follows: For 2001 tax year, return has been extended to October 15. Taxpayer is self-employed, and went ahead and made his 2001 SEP contribution a few months ago, say in the amount of $7,000. Return is now finished, and due to earned income limitations the max deductible to his SEP is $5,000. What can be done with the extra $2,000, is it mandatory 10% excise tax?

What about a refund of the excess? I know this is allowable under Sec. 4972, which I believe applies here instead of 4973. Any help would be appreciated.

Can Relius allocate a contribution of a specific dollar amount. We have a Non qualified plan that gives each eligible participant $300.00. Any suggestions on how Relius can do this?

Have a QDRO that calls for a specific amount to be segragated to the AP as of the valuation date of the plan. It also says to include earnings up to the time of segregation, but the segregated amount can't be less than the specific amount.

This plan is pooled and not participant directed. The plan is valued every 6 months. The plan has experienced losses, so the amount the AP would get is less than what was specified. Again, the DRO spells out that the amount being segregated can't be less than the specified amount. Can this be done? Seems like the plan will suffer by not allocating the losses to the AP.

Thanks

A Plan provides a match to all participants who defer during the year. The Plan also has an additional match given to those that defer and are actively employed as of the end of the plan year.

How is the coverage for the 401(m) portion of the plan calculated?

Do you combine the matches and consider 100% coverage, evene though some participants did not recieve the additional match?

Or, would each match shown to pass coverage separately? Which we would result in do 401(m) coverage tests- one at 100% and the other at something less.

Thoughts?

I know this has been addressed on the Boards but I am still confused. Fact pattern:

2000 uses current method. 2001 test uses prior year method. QMAC's were made for both years, and prior year method will be used 2002 and after as well, and QMAC's will continue to be made. The QMAC's are deposited w/ each payroll period.

If the 2000 NCHE ADP is 6% inclusive of the QMAC but 4.5% exclusive of the QMAC, is the 2001 HCE max ADP 6.5% (it's not 8% right?)?

For 2002 - if the 2001 actual NHCE ADP is 4.7% inclusive of the QMAC and 3.2% not including the QMAC, then is the max HCE ADP for 2002 5.2%? Or is it 6.7%?

I know the QMAC's cannot be doublecounted, I'm just getting lost in the mechanical details and would appreciate some verification or correction. Thank you.

The union has informed the administrator that several employers are making contributions to the Annuity Fund for management and supervisory employees . . . I am aware that certain exemptions exist for contributions to be made by employers for participants who are no longer part of the collective bargaining agreement . . . these employees are now management or supervisory employees (so called "bargaining-agreement alumni").

If the union makes the administrator aware of the contributions being made for the management employees, does the administrator still have to send the standard nondiscrimination letter to the employer asking for their unemployment form, etc. or can the union confirm the "alumni' status?

I believe I understand the Highly Compensated testing and how it is calculated. If you fail this test, then the highly compensated employees have to give money back so their total contributed percentage is within the calculated percentage is should be. Is there any other penalty involved or do the highly compensated just get money back? (Highly compensated now being more than $85,000 per year or more than 5% ownership.)

For the Top Heavy test, I have a number of questions.

1. When selected which employees go in which category, do the same rules apply above for highly compensated, or is it different? I thought it was different and only owners of the company are in the highly compensated bracket in this calculation.

2. The HC employees must not own more than 60% of the total assets. Is this just for the plan year or for the all the assets in the plan to date?

3. Are the assets in this test considered just the amount employee has deferred, or that and the vested amount of the employee match, or that and also the non-vested amount of the employee match so everything in that employee's fund?

4. Finally, what is the penalty if you fail the test? I think it has something to do with the company having to match 3% across the aboard to all eligible employees. For simplicity sake, let's say there are two owners who are deferring the max of 11,000 plus their 50% or 3% limit match so that's $33,000. There are 10 employees making 30,000 each and deferring 4% with a 2% match so their total is 18,000. Total assets 51,000. The owners have more than 60% of the assets. Test failed. What would happen from here. How much additional needs to be paid to each employee and is it vested 100% or does it go through the vesting schedule of the plan. Are there any other penalties involved?

Thanks

Under EPCRS how should you take into account negative earnings when reducing 401(k) participant account balances where several participants received employer matches that were greater than provided for under the plan?

we really dont deal much with these plans but we have a client who has one and wants to terminate it and begin a standard 401(k). what is the procedure. I am aware of the tax consequences of this event but it seems that there is no procedure. the fund company is not aware of a procedure either.

Do the new ERISA Bond rules for plans with more than 5% of assets invested in non-qualifying assets apply to owner only plans??

One of the lawyers in our office claims that irrespective of whether 401(k) deposits can be deposited 2 or 3 days following the end of a pay period, so long as the plan sponsor has never deposited the 401(k) contributions sooner than 15 days after the end of a pay period, the plan sponsor may deposit the 401(k) contributions 15 days after the end of a pay period and not run afoul of the plan deposit rules. What do others think of this claim?

It seems to me that if what the plan sponsor actually does is the determinative factor (as opposed to what it could do), then the intention of the plan deposit rules (at least as I understand them) is thwarted--the intention being, as I understand it, to insure that plan sponsors not use the 401(k) contributions as a type of interest free loan or prohibited transaction.

Thank you for your responses.