I am working to get the ERISA Advisory Council to consider the topic this year of simplifying the law governing plan mergers in acquisitions.

I would like to hear from the users on 2 matters:

1. Where does the current guidance or absence of guidance provide you or your benefit plan clients with extreme problems in accomplishing the reasonable task of sponsoring cost-effective retirement or other benefit plans in the case of a business combination or separation?

2. Do you know of any plan sponsors who would be good witnesses to this issue?

Thanks in advance.

[This message has been edited by BeckyMiller (edited 03-14-2000).]

Client terminated employment with hospital early in 1974 after 17 years of service. Client rehired mid- 1976 and then terminated mid 1979. HR department says client is not entitled to anything because client was: 1) not 55 years old and 2) did not have 10 years of service at date of termination in 1979.

I've requested copies of SPD's and plan doc's for the requisite years. DB plan was amended effective Jan 1, 1976 (I assume to comply with ERISA/IRC requirements). The plan doc as of Jan 1, 1976 says that credited service prior to Jan 1, 1976 shall be computed under the terms of the plan in effect prior to jan 1, 1976. That plan doc is silent on breaks in service other than to say that an authorized leave of absence is not to be considered termination of employment under the plan.

SPD for plan doc effective Jan 1, 1976 says that employees who terminate with 10 years of service or more will be entitled to 100% of their accrued benefit. That short paragraph comes right after the paragraph which says that if you terminate employment before you are eligible under the plan and before you are vested, you get nothing. Of course, SPD's final paragraph states that it is not a contract and provisions in the plan trump anything in the SPD.

If prior service could be counted, then client definitely has 10 years of service. Client however was 44 years old at date of termination in 1979. So, it may be that client's not entitled to anything. It just doesn't sound right that an employee can work for almost twenty years for one employer and then not be entitled to anything in the DB plan because the e/ee wasn't 55 at the date employee terminated employment. I work mostly with DC plans so maybe that's why it doesn't seem to fit.

After looking at this issue I ran across Reg. §1.411(a)-5(b)(5) which says that pre-1971 service cannot be disregarded for vesting purposes if the participant has at least three years of service post 1971. Pursuant to language in the Reg. this trumps the §411(a)(4)(F) provision regarding pre-ERISA break in service rules. Thus, in the client's situation, it appears client has 10 years of service which would entitle client to 100% vesting.

Anyone dealt with this issue or dealt with Reg. §1.411(a)-5(b)(5) before???

------------------

Company A sells Division 1 to Company B on 1/1/2000. Company A spins off its 401(k) plan for the Division 1 employees to Company B's 401(k) plan. Company A permits its participants to receive a distribution of Company A stock in kind. Company B gives the Division 1 employees until 7/1/2001 to reallocate their balances attributable to Company A stock to other investment options. Reg. Sec. 1.411(d)-4, Q&A-1(B)(1) provides that an optional form of benefit includes all features relating to the distribution form, including medium of distribution (e.g., cash or in-kind). However, Reg. Sec. 1.411(d)-4, Q&A-1(d)(6) and (7) provide that "the right to direct investments" and "the right to a particular form of investment" such as investment in company stock are not protected benefits. How does one reconcile these apparently conflicting positions? My thought is that Company B can prevent Division 1 employees from making new investments in Company A stock either from future contributions or transfers of other investment options into Company A stock. However, Company B must make available to Division 1 employees the right to receive their account balances in the form of Company A stock. Any thoughts on this?

Company A acquires Company B. Each has a 401(k) plan. Company B's 401(k) Plan has 100% vesting of employer contributions. Company A's 401(k) plan has a vesting schedule for employer contributions. Now, Company A wants to merge the Company B 401(k) plan into its 401(k) plan. I know that Company A cannot reduce the vested percentage of employer contributions in Company B's 401(k) plan prior to the merger date (ala Sec. 411(a)(10)(A) and that a participant with at least 3 years of service has to be given an election to remain on the old vesting schedule (ala section 411(a)(10)(B)). My questions are: (1) would the merger be treated as the amendment of Plan B so that participants with at least 3 years of service can elect to remain with the 100% vesting for employer contribuitons under the Company A 401(k) Plan? (2) For those participants with less than 3 years of service, or if the answer to (1) is no,for all participants, could Company A subject the Company B employees to its vesting schedule for all future Company A contributions to its 401(k) plan (while retaining the 100% vesting of the Company B 401(k) Plan account up to the date of the plan merger)?

Do employee salary deferrals to a 401(k) plan count towards the 404(a)(7) (25% of comp) overall deduction limit?

It's my understanding that family members of 5% or more share holder in a sub S corporation may not participate in a cafeteria plan, even if they are employees and do not hold stock in the corporation. On a sole proprietorship, do the same family restrictions apply to a cafeteria plan which includes premiums, FSA, and DCAP? In other words, can a son or daughter who receives a W2 participate in the plan?

------------------

Where can I go (internet, trade journal, etc.) to obtain comprehensive info re the advantages/disadvantges of self-tusteeship vs. corporate trusteeship (such as trusteeship provided by a bank trust department)? Fiduciary liability and legal ramifications for the plan sponsor as result of self-trusteeship?

------------------

I am currently working with a 501©(3) org. that sponsors a MPPP and offers a voluntary 403(B) arrangement for its employees. Due to the fact that the assets of the MPPP are significant (relative to those held by the few participants with TDA's,i.e.,only 10% of all eligible ees are deferring), this org. would like to know if the MPPP can be restated as a profit sharing 401(k) plan going forward? It has no desire to terminate the MPPP.

I have been informed by three consultants that this restatement can be done and has been done in the past. If this is truly the case, how do I prove to/reassure the plan sponsor of the validity of this assertion? For example, where can I obtain info that would support this assertion? Any help on this matter would be greatly appreciated.

I am negotiating to take over the pension client list from my employer and start my own TPA firm. My employer is getting out of the pension admin. business to concentrate on §125 plans. The client list has been built up over the past 10 years.

We have discussed a buyout fee for the client list equal to 1 x annual billings, payable as 20% of annual billings each year for 5 years. Is this a reasonable amount? What do other firms pay when taking over a large book of business at one time?

[This message has been edited by David Dye (edited 03-14-2000).]

After doling out my share of answers, I have a question.

Back in May 99, we had a bonus pay run that was misread by our payroll company as an adjustment run. 401(k) contributions were deducted, but never reported to the investment company so no one had this money invested. This problem surfaced this past month.

First, how much trouble are we in?

Second, would it be in our best interest to figure the earnings since May 99 and credit this to each account? This may mean that some are over the annual max.

Third, what about the terminated people? Some still have money in their accounts.

Greetings,

I have a client who is 76 years old. He doesn't need the forced distributions from his traditional IRA and his AGI will allow him to convert the IRA to a Roth. However, I'm wondering if he will need to wait 5 years after the initial conversion to access the money?

5% owner turned 70 1/2 last year and will roll his account into an IRA. He is still employed by Corporation and will still be receiving profit sharing and money purchase contributions from the Employer. In the future, can he roll the contributions over to the IRA and not have them be subject to the Min Distribution rules in the plans or will he automatically have to take minimum distributions from the Plan?

Are loans permitted in Section 457 Government Deferred Compensation Plans? If so, please provide written information to prove to plan administrator>

Thank you,

E. Brian Cox

I have a Profit Sharing plan administrator who is being audited on his plan. IRS is asking for a copy of form EBS-1 (a DOL form). I have not heard of this form and could not locate any info about it on their website. Has anyone seen this form? What is the purpose of it and who must file it?

Can one individual be considered a "leased employee" of more than one employer? To be a leased employee of an employer, the individual has to be working "on a substantially full-time basis" for the employer. Is it possible to be "substantially full-time" for more than one employer? For example, what if an individual works 35 hours a week for Corp. A and 35 hours a week for Corp. B and meets all other requirements for a leased employee? Any citations and/or thoughts would be appreciated. Thanks.

We currently administer a frozen group annuity contract by allocating the contract's earnings/losses prorata across the participants.

Does anyone see a problem with this considering that the participant is not seeing a true reflection of his account balance?

Does anyone have any information concerning the average annual lapse rate (percentage of cases lost each year due to plan termination, switching of recordkeepers, etc.) for Defined Contribution Recordkeepers?

If an average is not available, I would also be interested in any information for a single company (no need to name the company, just whether insurance, bank, mutual fund family, etc.) Thanks.

------------------

GM

Taxpayer intended to roll traditional IRA from a CD at bank into a Roth IRA with broker in 1998. Reported as Roth conversion on 1998 return and paid tax on 1/4. Broker or taxpayer erred and R/O went into traditional IRA at broker. Is there a fix for this error? (Other than amending 1998)

Thank you.

Client terminated employment with hospital early in 1974 after 17 years of service. Client rehired mid- 1976 and then terminated mid 1979. HR department says client is not entitled to anything because client was: 1) not 55 years old and 2) did not have 10 years of service at date of termination in 1979.

I've requested copies of SPD's and plan doc's for the requisite years. DB plan was amended effective Jan 1, 1976 (I assume to comply with ERISA/IRC requirements). The plan doc as of Jan 1, 1976 says that credited service prior to Jan 1, 1976 shall be computed under the terms of the plan in effect prior to jan 1, 1976. That plan doc is silent on breaks in service other than to say that an authorized leave of absence is not to be considered termination of employment under the plan.

SPD for plan doc effective Jan 1, 1976 says that employees who terminate with 10 years of service or more will be entitled to 100% of their accrued benefit. That short paragraph comes right after the paragraph which says that if you terminate employment before you are eligible under the plan and before you are vested, you get nothing. Of course, SPD's final paragraph states that it is not a contract and provisions in the plan trump anything in the SPD.

If prior service could be counted, then client definitely has 10 years of service. Client however was 44 years old at date of termination in 1979. So, it may be that client's not entitled to anything. It just doesn't sound right that an employee can work for almost twenty years for one employer and then not be entitled to anything in the DB plan because the e/ee wasn't 55 at the date employee terminated employment. I work mostly with DC plans so maybe that's why it doesn't seem to fit.

Anybody have any observations??? Any comments appreciated.

------------------