On August 2, 2000, the California Attorney General issued Opinion No. 00-204 to the California Department of Financial Institutions regarding California 457 plans, though it may have implications for 401(a) plans and may serve as a precedent in other states. The conclusion is both puzzling and troubling, and will directly impact any bank or trust company holding custody of California 457 plan assets. Indirectly, it could have a significant (adverse) cost impact on California plans.

The opinion states, in essence, that a bank or trust company holding assets in trust for a 457 plan must pledge collateral against the bank's insolvency, bankruptcy, etc. By way of background, state governments (and, I believe, the Treasury Department) require that state assets placed on deposit with private banking institutions must be protected via a pledge of securities (based on a legal list). In other words, unlike most depositors, a governmental entity becomes a secured creditor of the bank. Banks agree to this b/c of the huge amounts of $$ involved. But, this is usually thought of as applying to commercial accounts, not trust accounts.

In California, it appears that the amount required to be pledged ranges from 105% to 150% of the value of the assets on deposit, depending on the types of assets pledged. Moreover, the pledged assets (1) must be held by a California-based institution and (2) generally are limited to certain low-risk/low return securities. In other words, for every $1 held in trust, the bank may have to have up to $2.50 in assets set aside.

Am I missing something here? Aren't trust assets in effect already fully secured against the bank's general creditors?

Perhaps worse, as the main point of the legislation is to ensure the return of principal, does this in effect turn every California 457 trust into a form of synthetic BIC, with the bank required to guarantee against loss of principal?

Finally, note that logic of the AG's opinion would appear to apply equally to 401(a) and other trusts.

I would like to hear some opinions from users of the Investlink system or the Quantech system in regards to processing daily valuation plans and the ease of use for the end user. Any other system that someone thinks is better, I would also like to hear your comments.

I am really frustrated trying to keep up with years of vesting service using elapsed time in Quantech. Just as one example, I have one particular employee in my plan who had 0 years vesting service as of 12/31/98 and for some reason incremented to 4 years as of 12/31/99 with no change in date of hire. Does anyone have any comments or suggestions or opinion regarding Quantech's capability to correctly calculate vesting under the elapsed time method?

Company A sold off a segment of the company to company B. All employees of the sold off segment were automatically employed by company B. Being pension eligible under company A's pension plan, I requested that payment start. I was now working for company B. I was told the pension plan had been "transferred" to company B and I would have to wait until I retired from company B to start collecting the pension due me for the time I worked for both company A and B. They said that was the terms of the sale. Can they do this?

If a 401(k) plan's end of year testing was completed incorrectly, resulting in erroneous distributions being given back to the HCEs; what recourse does the plan administrator have?

According to the professionals at our 401(k)investment company, our employees have "no choice" and must pay back the monies. Well, this is easier said than done. Especially in the case of terminated employees.

Does anyone have experience with this? Or have a suggestion on how to persuade all the plan participants to pay back the money?

Any help would be greatly appreciated. Thank you.

http://www.benefitslink.com/articles/reform000907.shtml (click)

Provocative. Comments, anybody?

Client declared a profit sharing contribution in December of 1999 for the 1999 plan year. It is now time to make that contribution and they don't have the money. What are their options? It looks to me like if they don't fund, they lose the deduction and are subject to the excise tax. Am I missing anything? Is there anything they can do to put off the contribution?

Thanks,

Jeff

Schedule H, Part I states that you do not enter the value of the portion of an insurance contratc that guarantees during this plan year to pay a specific dollar benefit at a future date. We have always taken the postion that this means we should not include the cash value of life insurance policies held by the plan. I have a one person plan that has always had less than $100,000 in assets and has never had to file. If I include the cash value of insurance assets exceed $100,000 at 12/31/99; if I exclude insurance assets are less than $100,000. Do I include the insurance as an asset file or not?

DOL Regulations provide that the fidelity bond need not exceed $500,000 unless such greater amount is "prescribed by the Secretary". Does anyone know under what circumstances a bond should exceed this limit and actually reflect 10% of plan assets?

Notices to Interested Parties must be posted (one option) before submitting a Form 5300 for favorable determination.

May this posting be via internet?

We have been retained by a client to obtain an approval letter on a pre-GUST nonstandardized 401(k) profit sharing plan. The document was executed 4/96 through another TPA and never filed. The company is being sold and the purchaser wants a letter and cannot wait for our restated Cobel prototype. Will the IRS issue a pre-GUST letter? Can we attach GUST "clip on" amendments that we have been using for terminating plans? Any ideas?

All employees of a "start up" company are on COBRA from their previous employers. All employees are highly compensated. There are no non highly compensated employees. Can a 125 plan be established to cover the COBRA premiums? If so would the plan go into effect on the date adopted or could it be made retroactive? Is there special wording for the plan document?

Does anyone know where I might find a list of all Rev. Procs (or legislation, rulings, etc.) that have affected 401(k) (or at least employee benefit) plans in 1999 and 2000?

Does anyone know where I can find a "Special Tax Notice..." that has been updtaed for recent law changes?

Hi Everyone,

I need some help in properly interpreting the use of the MDIB Tables involving a RMD calculation.

Assume the following: An IRA owner age 70 1/2 (attained age of 70)and a non-spose beneficiary with an attained age of 42.

IRA owner elects the "joint life expectncy" option and the "Term Certain" method on BOTH individuals before the first RMD.

According to MDIB rules, the non-spouse beneficiary is "age adjusted" to appear to be age 60 for RMD calculation purposes. The life expectancy factor used for the first Distribution Calendar Year's RMD is 26.2 as taken from the MDIB Table (after compasrison with the standard J/L/E tables on an unadjusted age basis).

Here's the question. For subsequent RMD's in future years, is the original divisor of 26.2:

1. Reduced by one for each elapsed year (to reflect the "Term Certain" election on both lives made by the owner) resutling in a divisor of 25.2 for the second year, 24.2 for the following year and so on...

OR

2. Newly determined directly from the MDIB Table for each subsequent year resulting in the divisor of 25.3 for the second year, 24.4 for the following year, etc.

Concensus of opinion is that option #2 applies (even though using this method acutally introduces an element of "life expectancy recalculation" on the non-spouse beneficiary which is prohibited by the RMD Regs).

As one person told me, "The MDIB is a "table" and not a "method" so use it and don't think too much about it. Its how the IRS chose to implement MDIB rules."

The differences are subtle but important to understand especially as balances for RMD's skyrocket and people become more sophisticated about their options.

So if any of you have some factual information on this aspect of RMD's and MDIB's, I'd welcome hearing from you by e-mail on posted on the list.

Confused? I am.

Thanks

David H.

Our company is thinking about adding company stock as an investment option in our 401(k) plan. I need help! Does anyone know where I can get some good information on how distributions from that plan that include company stock are handled? Are capital gains/losses something we have to worry about?

My question concerns a disabled worker, presently receiving disability benefits, who has elected to take advantage of the offer of family medical and dental insurance coverage if the worker pays for this benefit. During the period of the disability, is the employer obliged to pay for the family medical and dental insurance coverage, offer the disabled worker the opportunity to pay to continue this coverage for the family, or is the employer obliged to discontinue this service during the period of the disability? Is this a matter determined by state or federal law?

I am tasked with benchmarking and making recommendations to a board of directors with respect to the company's executive pay and benefit programs. I have found plenty of survey data with competitive practices for executive pay, but am having trouble finding good data on benefits practices.

Thus, I am looking for survey data that includes competitive data with respect to the whole array of benefits (i.e., health and welfare, retirement, supplemental benefits, perq's, etc.) for executive level employees. Ideally, I need both prevalence data for specific benefits as well as information about competitive practices.

For supplemental benefits and perquisites I have a survey from Watson Wyatt, but for "basic" benefits I haven't found anything to my liking. Does anyone have any suggestions for other data sources?

Apparently the term "spouse", regarding the QJSA and QPSA rules, would include a common law spouse, if the state of the plan sponsor recognizes such. Or is there a definition of the term "spouse" applicable here, to be found in the IRC or ERISA? If the definition does depend on state law, is there common law marriage in California. Also, does California recognize (common law) marriages from other states?

May earnings on elective deferrals be included in the distributable amount for a hardship distribution? I have an institutional trustee who refuses to distribute the earnings (even though the plan document says it's okay) because he says "federal statute" won't allow it. I assume he is referring to the 401(k) regs (1.401(k)-1(d)(2)(ii), but I think he is misreading. Can anyone confirm?