QDROphile

You can run a 401(k)plan through a cafeteria plan, but the differences in administration between the retirement and welfare benefits are so different that is it easy to see how one could create confusion and not so easy to see advantages. It is easier for employees to see them as two different things. Unless someone can run you through both sides of the proposition and convince you of a net advantage, don't do it. If the main arguments are a single plan and single plan document, you are listening to someone who is blowing smoke.

You missed the point. The individual is using IRA and plan assets to finance a business in which he has a personal interest OUTSIDE OF THE PLAN. Therefore, he is using plan assets to benefit the business which is also a benefit to his personal interest. It does not have to go to this degree, but what if the individual could not start the business with only the money that individual has outside of the IRA? He would be providing for a personal benefit (starting the business, which, among other things, will pay him a salary) with the IRA assets. Enabling his 5% share of ownership (which would not be possible without the 95% ownership of the plan) outside the plan also provides a personal benefit. What would you say about an independent fiduciary (not related to any plan particpant) who used plan assets to do the same thing -- start a business in which the fiduciary would have a personal ownership interest and pay the fiduciary a salary? It is not so much about the 95% as it is about the 5%.

Bird is most likeley correct. It is too difficult to be using adjusted numbers because they move around, as you have demonstrated. Also, the person who makes the election will find it difficult to predict the outcome. The most important factor for design is that the participant can make an election that produces the intended result. It would also be nice if the plan administrator had a clue about what was going on, since the adminstraor has to impelement the instructions. Does your administrator drive at night with headlights off?

IRC section 4975( c)(1) (E) and (F) are likely suspects. Read Flaherty's Arden Bowl, Inc. v. Commissioner, 115 T.C. 269, for good measure. I suspect the owner will also be an employee, which will seal the analysis. Would his source of information like to sell him anythng, perchance?

SHaddon: I don't think you understand. The cafeteria plan election is not changed and the employee's compensation is still reduced by the same amount. The cafeteria plan does not perceive any change, so no violation occurs. The insurance company sees a change. Less coverage, less premium, assuming that the policy allows mid-year disenrollment. The employer benefits to the extent of the reduced premium. You may be used to the cafeteria plan as the vehicle for health plan coverage election, but the health coverage election is not actually part of a section 125 plan. The section 125 aspect is only concerned with the salary reduction election.

Quite the contrary. It is a matter of plan administration and communication, not law. Your election could be in terms of the Gross Domestic Product. The formula simply produces an amount of deferral and can have whatever elements and meanings that the plan or plan administrator assigns. Of course, it would be helpful if the person making the election understood the terms and the effect of the election that uses the terms. Always carefully check the plan document to see what it says. Start with the definition of compensation.

You cannot have a rollover without a distribution event. A rollover is a disposition of a distribution. A move from one entity to another within a controlled group is not a termination of employment.

I am going to duck after adding one more question to the mix because a plan in the situation you describe, or any plan in a similar situation, needs expert advice. Suppose a participant (or a class of participants) has some reason to be unhappy with the participant's deferrals. Let's say the plan had a year of negative investment return. The standard remedy for violation of registration is rescission and penalty interest. What happens if the participant (or the class action lawyer) knows the law and asserts rescission rights?

Read the regulation yourself (not the one about investment education) and see if you want to engage a broker with the level of reading comprehension that your broker has displayed. Or perhaps it is not a reading problem, perhaps is is a professional integrity and resposibility problem. One of the problems with being misled is that fiduciaries must be bonded. If you don't identify fiduciaries, you won't comply with the bonding requirements. Another way to look at it is that the broker is using the disclaimer to define what the broker will do. By saying that the broker is not a fiduciary, the broker may be saying that, despite the apparent description of services in the contract, the broker really won't be providing any services described in the regulation. What services do you think you are getting?

No mid-year change to the medical FSA under those circumstances. See Treas. Reg. section 1.125-4(f)(1).

Tail distribution.

Generally no registration is required, but the arrangement should be evaluated by someone who understands the rules and issues.

Those are good questions that should be asked before deciding whether or how to proceed with an arrangement, and different circumstances and different people may well come out differently about what is important and acceptable. But those questions will never be asked without first understanding that there is a real issue under the law, and it is a subtle issue that is outside the knowledge and imagination of most of the benefits community.

A multiple employer plan is not exempt from registration even if it does not invest in any employer securities. If the plan allows employee deferrals or contributions, it has to deal with lack of the usual exemption.

My difficulty is that you went out of your way to create the appearance of credibility by seeming to go further with applicable authority to contradict the correct position taken in the thread and reiterated by me. The thread itseld is a strong discussion, conducted by someone with superb credentials (credentials mentioned in the thread, so you did not have to go anywhere else to get the idea that Kirk Maldonado knows what he is talking about). Yet you casually advanced the wrong conclusion. I think you have a responsibility to be more rigorous if you take such pains and create such appearances. It would have been different it you responded to an inquiry soley with a particular recollection, and expressed uncertainty. But you did much more than that. You contradicted a solid, supported conclusion in a misleading way. Although I do not think you were deliberately misleading, under the circumstances you should not have ended with a half-assed effort (if you wish to continue the ass motif).

I am having some difficulty with your response, so I will assume that you are trying to be helpful and simply have faulty recollection and not enough time to confirm.

Green92: You had better read the thread in the Securities Law Aspects, too. If you think "We are also a RIA in 9 states already" is responsive to my comment, you missed the point.

From an earlier post in this thread, " You have no exemption from registration and you will probably find registration to be prohibitive." If you would like a starting point or more details, look at the thread that starts April 28, 2005 in the Securities Law Aspects forum. It is both edifying and amusing.

I doubt that you will have a multiemployer plan of the type you describe if you care about securities law compliance. You have no exemption from registration and you will probably find registration to be prohibitive.

If you are contemplating a multiple employer 401(k) plan you need the advice of a lawyer who understands the securities law issues that are unique to those arrangements.

The signing of a purchase agreement does not necessarily change ownership status. The agreement may provide for the sale to close at later time, when ownership will change. The closing may be contingent on any number of conditions. If the plan is terminated before the sale is effective, the IRS believes that plans of the purchaser's controlled group of businesses are not plans in the same controlled group as the terminated plan, even though the newly purchased corporation is in the controlled group. See sections 401(k)(2)(B)(i) and 401(k)(10) of the tax code for one consequence and Treasury Regulation section 411(a)-11(e) for another consequence of terminating after the effective date of the acquisition.

Start with section 414(t) of the Internal Revenue Code.

If Company A has the better benefits and most of the highly compensated employees, highly compensated individuals and key employees, you could have discrimination problems.

You cannot say for certain that the the design differences will not cause discrimination. The demographics and benefits of one group may be disproportionate to the other and cause failure of certain tests that are applicable to the component plans. Chances are that you will be within the tolerances of the tests if both groups are large.

The employer has nothing to do with it. The fiduciary with resposibility for investments is responsible for such matters. If that happens to be the employer, shame on the employer for accepting the fiduciary mantle. Whether or not 107 basis points is too much depends on the totality of the circumstances.