I have a client who has a 401(k) plan with a 25% match on the 1st 6% for all employees. We were discussing the advantages of a Cross-Tested P/S. He asked if this formula could be used for the match. For example have two groups, HCEs and NHCEs, where the NHCEs continued to receive the 25% match but the HCEs received 50% (or 100%) on the 1st 6%. Is something like this possible and could it get approval?

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We self-fund our general health and retiree health plans. The regs. under Sec. 9801 define "group health plan" to include plans that cover former employees. Is the small employer exemption (has "fewer than 2 participants who are current employees")under the temp. regs. for Sec. 9831 which defines "group health plans" applicable to retiree plans that have no participants who are current employees or am I reading this too literally? Would the 2 plans have to be considered as one plan thereby making the exemption inapplicable?

Where can I find a listing of the average amount/coverage (health, dental, life, vision, 401K, education, vacation, sick time, personal time, etc.) that an employer typically offers to its employees as a benefit?

This question relates to a cash balance plan but is asked also in relation to DB plans in general. Following default on a plan loan without a distributable event (hence a deemed distribution), must the plan continue to charge the same interest rate on the outstanding balance as applied prior to the default? It would be administratively preferable to reduce the interest rate, following the default, to a level equal to the amount that the plan is paying on the loan balance (e.g., from 8% down to 5%), otherwise the higher interest rate gradually erodes the account balance. It would seem that the interest rate reduction would not be tantamount to an actual distribution because the participant retains the right to repay the loan at any time.

Any comments or conjecture on the Service's likely take on the issue would be appreciated.

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In a 401(k) plan, how often do you need to send the eligible employees a copy of the prospectus. (Background) Currently we send them when the EE first beomes eligible and every time the employee makes a trade on the account. Also they are available through a automated phone request system. Any help would be appreciated.

On termination or resignation of the IRA Custodian, "Article VIII" of an IRA Prototype document provides, "...(if) Depositor or Sponsor, as the case may be, has not appointed a successor which has accepted such appointment, Termination of the Custodial Account shall be effected by distributing all assets thereof in a single sum in cash or kind to Depositor, ...."

QUESTION: Is this legal? It appears to be a very harsh provision and perhaps a breach of fiduciary duties. Does anyone have documentation defending or challenging the document language?

Thanks,

Stan Jacobson

The Arizona Supreme Court ruled Tuesday (May 25) that companies may not unilaterally change provisions of their employee handbooks without the approval of covered employees and without compensating them for any entitlements they may lose.

The decision could require Arizona companies to honor provisions of old handbooks, though they have been replaced by more current policies. It could prompt businesses to retroactively get employee sign-offs on past changes and somehow compensate them for the changes.

"It creates a profound distincentive for employers to communicate openly and in writing with their employees," noted John Alari Doran, a Phoenix attorney who represented ITT Corp., the defendant in the case.

According to Doran, the decision affests employee handbooks issued prior to 1996 when the Arizona Employment Security Act specifically stated that, unless otherwise designated, employment policy manuals do not constitute employment contracts. But, Doran noted the state's top court is now weighing the constitutionality of the act, and if it is thrown out, all handbooks could be subject to the ruling.

Especially affected by this week's ruling are provisions in the handbooks that could be argued to grant an employee some kind of entitlement, such as vacation and holiday pay, medical benefits, sick time o other perks. "Employers will have to revisit how handbooks are written, what is contained in them and how they communicate with their employees," Doran said. Many may simply elect to do away with them.

The case, known as Demasse vs. ITT Corp., involves six employees, including Roger Demasse, who worked for ITT in the Phoenix area from the 1960's until they were laid off about 1993, Doran said. The employees claimed they were illegally fired because provisions in th ecompany handbooks, dating from the time of their initial employment, outlined a seniourity system under which layoffs would occur.

"These people believed the longer they stayed with the company, the more secure their jobs were," said Jack Levine, a Phoenix attorney representing the workers. "As a result, the didn't look for other work or take advantage of employment offers or other openiings elsewhere in the company."

By the time the employees wee furloughed, the company had done away with the seniority protection in the event of a layoff and the policy had been eliminated from subsequent editions of the company's employee handbook. The employees argued that the handbooks at the time they were hired relfected contractual terms of their empoyment which they never agreed to change and therefore were still in place at the time they were fired.

In 1994, the U.S. District Court for Arizona ruled that employers could change the conditions of employment outlined in their handbooks at any time without the approval of the employees and dismissed the case. Levine appealed to the 9th U.S. Circuit Court of Appeals in 1996 and the case was remanded to the Arizona Supreme Court for a determination. The case was argued in October.

The top court disagreed with the decision of the district court and concluded in the 3 to 2 ruling that the employment provisions in handbooks can represent binding contracts and cannot be unilaterally altered without the employees' consent and an offer of compensation to make up for any lost entitlement.

"It holds an employer to a handbook that was published 30 years ago when there were different methods of production, different rules of competition and different wasy of doing busines," Doran said. "And the only way to change it is to engage in one-on-one with each employee in the company."

Justice Frederick Martone, a dissenter, added the ruling "will create havoc with employer-employee relations" by subjecting employers to different obligations to different employees and by setting up potential conflicts between employees covered by different versions of a handbook. Not all handbook provisions can be considered binding as contract terms, Levine added.

"It's got to be something that would make the reasonable person rely on it," he said.

Justices Stanley Feldman, Thomas Zlaket and James Moeler (now retired) supported the decision with Charles Jones and Martone dissenting.

(Reported in The Arizona Republic, May 27, 1999 by Max Jarman, with contributions by The Associated Press)

Aug 6 and 7 (Fri / Sat) in Orlando

includes Dinner at Bergamos (Italian Resteraunt, singing waiters and waitresses)

Fri Aug 6

1:00 Welcome, misc

1:45 - 2:30 ERISA 404© Education Techniques

3:00 - 4:30 Quantech Tips from Tom Poje

6:00 - Dinner at Bergamos

Sat Aug 7 (Corbel Instructor)

8:30 - 10:00 Quantech Defaults

10:15 - 11:45 Transaction Processing

11:45 - 12:15 (Fidelity Resource Select)

12:15 - 1:15 Lunch

1:15 - 2:45 Distribution processing and data entry

3:00 - 4:30 Loan Processing

For more information, contact Maggie Heffernan (770) 641-1429

This meeting is open to all Quantech Users - not just members of the Southern Users Groups!

I'm bringing copies of the Quantech Dirge song, along with my version of the ADP reports for Crystal.

Since ADP and ACP for eligible highly compensated employees for the current plan year may be determined by reference to the ADP and ACP for eligible nonhighly compensated employees for the preceeding year, is there a valid reason to do mid-year testing?

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My client funds a 401(h) through their Pension plan. They have determined that they will no long contribute to the 401(h) and let it die a natural death. They plan to continue the 401(h) until the plan assets are depleted. Their actuary has told them that they do not need a valuation. Is this correct? Are their any special requirements for disclosure of this situation?

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In general, what is the definition of "self-directed" investment?

Specific question: A 401(k) plan permits participants to invest in any of 50 different mutual funds.

Can the plan consider these investments "self-directed" and eliminate the 3.28(k) disclosure?

Would the answer change if the plan allowed investments in 100 different funds? 150? 200?

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[This message has been edited by reesbe (edited 06-29-99).]

What provisions of a Plan Document need to be amended to convert a Profit Sharing Document with a Comp to Comp allocation (Regional Proto-type) to a Cross Tested with an allocation formula based on rate groups? I do understand that by doing so you have created an individually designed document subject to higher user fees for submission.

I'm new to health insurance adminstration and need information on COBRA and HIPPA. Where can I get information outlining all the specifics?

I. Company B is a wholly owned subsidiary of Company A. 401(k) plan (Plan 2) covers only employees of Company B. However, less than 2% of Company B employees are eligible in Company A's 401(k) (Plan 1), but all other Company B employees are covered by Plan 2. Ten percent of Company B's employees (all of whom are eligible only for Plan 2) will be terminated from B and will be immediately employed by an unrelated Company Y. (No corporate transaction takes place between Company A or B and Company Y).

Assume the transferred employees from Company B to Y are doing the exact same job, in the same location and under the same supervision. Company Y assumes responsibility for administering and maintaining the same level of benefits for Plan 2's tranferred 401(k) assets. When a transferred employee terminates service from Company Y, Company Y will be responsible for offering the distribution options.

II. Three months after this transaction takes place, Company A will sell all of the assets of Company B (including the other 90% of Company B employees) to an unrelated Company Z. Plan 2 will terminate shortly afterwards. Company A, nor any other member in its controlled group, will have any association with Company Z after the asset sale.

1. Is Company Y administering Company B's plan because of the "same desk rule?" What if Company Y assumed sponsorship of the transferred assets under a new plan with the same level of benefits from Plan 2?

2. If we assume that the "same desk rule" applies in I., what is the effect of the later termination of Plan 2? Does Company A or B have responsibility to the previously transferred employees now in Company Y? Does Company Y have to give the transferred employees a choice between distribution or leaving the assets in a newly created plan?

3. What is Company A or B's responsibility to the other employees upon sale to Company Z and termination of Plan 2? Are the assets distributable to these employees because Plan 2 is terminating -- 401(k)(10)(A)(i)? What about the disposition of assets or subsidiary distribution options under 401(k)(10)(A)(ii)(iii)? How does the Plan 2 termination affect the viability of using these subsections (ii) and (iii) as authority to distribute?

4. What are Company A's options for the less than 2% of employees who will be transferred to Company Z and who were eligible under Plan 1, which is not terminating?

I. Company B is a wholly owned subsidiary of Company A. 401(k) plan (Plan 2) covers only employees of Company B. However, less than 2% of Company B employees are eligible in Company A's 401(k) (Plan 1), but all other Company B employees are covered by Plan 2. Ten percent of Company B's employees (all of whom are eligible only for Plan 2) will be terminated from B and will be immediately employed by an unrelated Company Y. (No corporate transaction takes place between Company A or B and Company Y).

Assume the transferred employees from Company B to Y are doing the exact same job, in the same location and under the same supervision. Company Y assumes responsibility for administering and maintaining the same level of benefits for Plan 2's tranferred 401(k) assets. When a transferred employee terminates service from Company Y, Company Y will be responsible for offering the distribution options.

II. Three months after this transaction takes place, Company A will sell all of the assets of Company B (including the other 90% of Company B employees) to an unrelated Company Z. Plan 2 will terminate shortly afterwards. Company A, nor any other member in its controlled group, will have any association with Company Z after the asset sale.

1. Is Company Y administering Company B's plan because of the "same desk rule?" What if Company Y assumed sponsorship of the transferred assets under a new plan with the same level of benefits from Plan 2?

2. If we assume that the "same desk rule" applies in I., what is the effect of the later termination of Plan 2? Does Company A or B have responsibility to the previously transferred employees now in Company Y? Does Company Y have to give the transferred employees a choice between distribution or leaving the assets in a newly created plan?

3. What is Company A or B's responsibility to the other employees upon sale to Company Z and termination of Plan 2? Are the assets distributable to these employees because Plan 2 is terminating -- 401(k)(10)(A)(i)? What about the disposition of assets or subsidiary distribution options under 401(k)(10)(A)(ii)(iii)? How does the Plan 2 termination affect the viability of using these subsections (ii) and (iii) as authority to distribute?

4. What are Company A's options for the less than 2% of employees who will be transferred to Company Z and who were eligible under Plan 1, which is not terminating?

Does anyone know where I might be able to get a list of Stock Thrift Banks with ESOPs? I need only a couple of east coast states and I assume this information must be available somewhere. Also, do you have a web address for the ESOP Association?

Many of our employees our covered by an STD plan that lasts 52 weeks. When these STD benefits end, we are unsure of how we should handle these employees. Can we legally terminate them, or must we continue to keep them as employees?

Facts: Company X sponsors a 401(k) plan. Company X is a bro-sis group with Company Y and Company Z. Company Y is Candadian and all employees are Canadian citizens. Company Z is U.S. based as is Company X. Neither Company Y nor Company Z have any HCE's. All HCE's are employed by Company X.

Discussion: I believe Company Y can be ignored so long as the plan document excludes non-resident aliens as a statutory exemption from participation.

Questions:

1) The plan is in the process of being restated since it is switching investment carriers (standardized prototype of the investment carrier is being used). The former plan document did not exclude non-resident aliens. Is it OK to exclude them in the new document, or is that considered an illegal cut-back of benefits?

2) The standardized prototypes I have seen allow for eligibility exclusions of non-resident aliens and employees subject to collective bargaining. If it is the intent of the employer to exclude Company Z employees from participation, can this be done in a prototype environment? Assume the plan passes 410(B) by excluding Company Z employees.

3) The former plan document did not state an exclusion of employees in Company's Y or Z. Since we have a controlled group, employees of Y and Z were eligible to participate assuming they met age and service. However, the employer did not make the plan known or available to employees of Company's Y and Z. Does this mean that a QNEC to those employees is required, = to ADP of NCHE's for the years in question?

4) If I'm right about 3), which of the IRS correction programs does this issue fall under, or is self-correction an option?

Thank you for any help, I greatly appreciate it!

Can an individually drafted 401(a) plan be updated for GUST by plan amendment rather than a complete plan restatement?

We are a small industrial distributorship in Hazelwood, MO (St. Louis, MO) approximately 65 ees. We plan to initiate a new "Paid Time Off" program giving ees "x" number of days (based on tenure) to be used however they wish (i.e, sick, personal, vacation, holidays,etc.).

Has anyone recently started this type of programs in this type environment? How has it worked -- how did you start?