QDROphile

A loan should not be made if the fiduciary does not have a reasonable expectation that the loan will be repaid. First, it should be unusual for a loan to go into default if the particpant is still employed by the sponsor, so I would be looking for an explanation about what went wrong (like a bad loan program design, including no concept that a fiduciary is responsible for determining if the loan should be made or not haveing adequate security - and I am not referring to adequate account balance). Second, given the first default that has not yet been covered, what is the expectation of repayment of a secon loan?

RPG: Consider if that is a prohibited transaction because you are using the assets of Plan A for the benefit of Plan B (achieving the break point). There is no exception for practicality or logic under the PT rules and there is not a "no harm no foul" exception.

Plan structure is not a fiduciary function. Assuming that the "minimize expenses" theory is legitimate (I think there are some matters to discuss), the best the fidiciaries can do is to recommend an amendment to the plan sponsor. One of the matters to discuss is how it looks for a fiduciary to be scheming to avoid an audit -- which one might presume is a legal requirement designed for the protection of participants. Perhpas it is better to let the plan sponsor make decisions aobut the plan structure without the advice of the fiduciaries for avoidance of the audit.

The participation by a plan participant (doc) in the LLC with personal money needs a really hard look for prohibited transaction issues, including those in the Flaherty's Arden Bowl v. Commissioner cases, even if the particpant is not a named fiduciary. The ability of the doc to effect the investment as a practical matter would probably make the doc a functional ERISA fiduciary anyway. PTs possiblle even without the personal money and it is a terrible idea in any event. This is the sort of circumstance that make physicians the butt of more than half of the viable jokes among ERISA practitioners. There are not that many viable jokes.

Generally a partner in a partnership cannot be an employee of the partnership. If the LLC is taxed as a partnership, then a member cannot have W-2 pay. The exceptions would involve unusual membership interests that are probably not in this picture.

The commonly understood meaning of "FSAs" for medical expenseses involves a "cafeteria plan" under section 125 of the Internal Revenue Code. Plans under section 125 are established and maintained by an employer and involve salary reduction by the employer. They are not arrangements established or maintined by employees. Your source either did not decribe the details of operation corectly or the plan is being operated incorrectly. For examples, employees do not reimburse themselves. They submit claims for reimbursement that are evaluated for eligibility for reimbursement. And here's the most important part: healthcare premiums cannot be paid or reinbursed through an FSA; they are not eligible medical expenses. It is possible to cover group medical plan premiums under a cafeteria plan, but not individual premiums. The arragnement described to you is not permissible. It was somewhat controversial to cover individual health policy premuims under section 125, but the practice was not uncommon. The idea has now been directly and expressly addressed by the IRS and it is not permissble.

I think you are asking if the delay in formally creditiing forfeiture amounts to the particpant accounts calls into question the proposition that the allocation was made in 2013. I think you have to take into account the totality of circumstances to determine if the allocation is in 2013, 2014, or 2015. The bookkeeping transfer is one bit of evidence, and it is negative for 2013. If there is no, or not enough, evidence of timely actions consistent with a 2013 allocation (as compared with a 2015 allocation, supported by the bookkeeping transfer), then the allocation would not be consdered to have occurred for 2013. Another proposition to consider is that the plan has an operational failure because it did not act to effect the forfeiture allocation that the plan evidently called for in 2013. Correction of the faliure might not be so scary.

Forfeiture allocations are annual additions. They are included in the test for the year of allocation. Your message is not clear about the year of alloccation

Treas. Reg. section 1.409A-2(b) is one piece of your puzzle.

You seem to be confusing sale of assets asset with sale of stock (or other equity interest). Anyway, I am confused.

"Election" does not not really compute even though that may be the way the prototype plan doucment world looks. The decision to excluse a class of employees relates to eligibility provisions of the plan. If the plan terms are changing becuse of the decision, the action to change the terms is an amendment. Plan terms should cover how to amend the plan, except that a protortype document probably will not provide enough guidance to address the corporate governance aspects of amendment . Adoption of an amendment by the board of directors of a plan sponsor is usually an uncontroversial approach to the corporate action to amend.

You might get something out of EBSA Field Assistance Bulletin 2006-1.

Does No #1 mean (a) they cannot roll over or (b) they can roll over but it need not be an inherited IRA?

Is the question about lack of documentation or actual ineligible use of loan proceeds?

Rev. Rul. 2002-45

There are break-in-service rules for eligibility (rule of parity, if that rings a bell) that use 5 years as part of the standard for determining whether or not pre-break service will be counted after a break, but those rules are trumped if the participant accrued a vested benefit before termination. The vesting rules are different, but use a five-year break standard for counting pre-break serivce.

Adding an affilaite is probably involves a plan amendment. This would be a retroactive plan amendment that should have no trouble in VCP unless there are some strange circumstances, such as an extraordinary number of HCEs in the affiliate.

"no party-in-interest transactions as no one in either family will reside there" There is more to the prohibited transaction rules than that. Any time a family member is involved in the transaction, the analysis is clouded and Departmnet of Labor opinions only proide warnings rather than resolution. All of the elements of the transaction have to be evaluated, including the financing that is casually mentioned. Also, institutional trustees often have requirements or restrictions relating to the acquisition of real property. Nothing has been indicated about property management If the investment is just too good to pass up, some serious experienced help is warranted. This is not the sort of thing that a qualified plan is supposed to do; careful navigation is required.

Yes, there is a lot of chemistry and biology involved in "smells like a duck." Then there is the administrative question about whether or not the trustee is licensed to hunt ducks.

I disagree with the suggestions and implications in the next preceding post relating to ERISA section 404© except for the need to look into.

I had in mind section 72(d)(2), but that may not fit your circumstances. I did not check the rulings you cited for context. Section 72(d) is applicable generally to qualified plans.

You would need a lot more facts to decide.

Post-1986 non-Roth after-tax contributions are treated as a separate contract under section 72. Any distribution of the after-tax amount will include a pro-rata share of earnings and the earnings are taxable.

Unembellished constructive comments - If it turns out that the trustee has no discretionalry authority under plan terms with respect to purchase or sale of plan assets, ERISA 404(a) says that the duty of a fuduciary to follow plan terms extends only to the extent that plan terms are consistent with Titles I and IV of ERISA. The trustee could determine that implementing a PT or allowing a PT to remain uncorrected is not consistent, thereby liberating the trustee from the restrictive plan terms. This should be an opportunity for the trustee to examine the plan terms in a bigger picture and make sure that the terms proved the authority and powers to allow the trustee to act properly with respect to the respojnsibilites and potential liabilities that the terms impose on the trustee. Among other things, it is uncomfortable not to follow plan terms if justified under ERISA section 404(a).

"I've been reading legal-eze until I'm almost nauseated," So puke. What do the plan and trust documents say? And at a minimum you should read ERISA reg. section 404c-1(d), even if it makes you puke some more.