ERISAatty

JanetM, Thank you for your reply. Yes, in this case, the seller is taking over the union contract. Hats off to you if you work in the multiemployer area on a regular basis. This stuff is a little daunting, but I'll get there. Thanks, again.

Hi, all, I have some 4204 questions to which I'm not finding answers in the boards: I am involved in represenation of a multiemployer seller who is selling some assets to a buyer. The assets being sold DO NOT constitute 70% of the seller's total assets, and therefore the sale does not constitute a partial cessation. Therefore, assuming we've calculated correctly, there is no current withdrawal liability. ERISA Section 4204 allows seller to become secondary for withdrawal liability for five years following the sale, while the buyer is primarily liable. Question 1: If the buyer goes insolvent within the five years (bringing sellers secondary liability into play) HOW DO YOU CALCULATE THE LIABILITY. According to 4204 and case law, the 4204 transaction transfers the five-year period of contribution history prior to the sale TO the Buyer. So if there was no withdrawal liability at the time of sale, wouldn't Seller owe nothing, in this scenario? Question 2: Since we think that the withdrawal liability is zero, how do we meet the bond requirement of a 4204 transaction? Document the fact that the amount is zero, and therefore we can't get a bond? OR - Question 3: - should we think about not doing 4204 at all in this situation? Thanks to anyone out there with any knowledge of this issue.

Thanks, Effen, Yes, by "future," I'm referring to after the death of the ex-spouse. In this case, he's quite a few years older than she is, so his predeceasing her is fairly likely. Thanks again to all.

Thanks to you all for your helpful responses.

Hi, all, I'm not a QDRO expert, and am confused: A family member of mine divorced (in Indiana) shortly AFTER her spouse's DB plan entered payment, due to the spouse's retirement. A form of annuity was selected and commenced (in the form of a joint and 50% survivor annuity). My family member was named, at the time of the annuity selection, as the recipient of the future 50% interest. The divorce was relatively friendly, and both ex-spouses (both still living) agree that my relative should receive the future 50% interest. At the time of the divorce, attorneys told her that no QDRO was needed, because the annuity was already in payment status. This advice strikes me as possibly wrong. Were the divorce attorneys correct? Or does anyone recommend getting a QDRO, anyway, to clarify that my relative maintains this future 50% interest, despite the divorce. Perhaps it also depends on whether the divorce judgement so specifies. I also need to look at that. Thank you for your insights.

In negotiating a executive's employment agreement on behalf of an employer recently, the executive's attorney requested that the employer agree to INDEMNIFY the executive, in the event that the employment and nonqualified deferred comp. agreement turned out NOT to comply with 409A, and therefore resulted, in the future, in tax liability as a result of income inclusion. We said no, and it was left at that. But I'm wondering if anyone else has thought about this. Since 409A puts the whole burden of a failed 409A-subject plan on the employee, it seems that the employer has no interest in agreeing to indemnify any employees. The employer's interest is just to draft the plan properly. But I suppose, in theory, indemnification is permissible, if both parties are willing. Any thoughts?

Thanks, everyone. Harwood, I agree that the employer is 'stuck with the consequences.' The employer is willing to make a contribution to the affected employees' accounts to make up for the failed 401(k) deduction, and this will come out of the employer's coffers (without trying to get these execs to agree to return the excess). Where I'm stumped on is how to do that, exactly. For now, I'm working on the assumption that this is an insignificant Operational Failure under EPCRS, and that, since we are within two years of the event, we can self-correct (by making a QNEC contribution, subject to any applicable FICA).

Help - I'm trying to figure out the solution to a similar problem. Here, there is no payroll administrator to blame (the employer failed to withhold for 401(k) on 401(k)-eligible bonus compensation to some executives on the last check of the year). We're thinking of just advising that the employer pay to put the money into the 401(k)s now, out of the employer's pocket, but we are wondering how to do it correctly. I.E., would this contribution be subject to FICA? I'm just starting to research the EPCRS guidelines. Maybe I'll find help there. In the meantime, if anyone has an idea, I would welcome it!! Thanks.

Gentlemen, Thank you very much for the discussion and the Izzarrelli v. Rexene case site. Most helpful and appreciated!

Thank you, mbozek, for your guidance. FYI, I hear the IRS may issue regs tomorrow, so waiting on that point is a good suggestion. For my understanding though, I'm trying to grasp the issues here vis a vis the nonqualified plan. I think this really all boils down to a constructive receipt question. The nonqualified deferred comp agreement states that an unfunded amount will be credited to the CEO's "account," which he is then paid within 2 1/2 months after the year end. The agreement states that the deferred money is unsecured, and is made on a "mere promise to pay" basis. Given those facts, I don't see constructive receipt here. I conclude from the absence of constructive receipt that the CEO and Company could agree that he won't be paid the money after year end. (Although I have a feeling that the IRS would still try to say that the money should be treated as received after year end, so that he has to pay tax). Does anyone have any constructive receipt insights out there? (This is not my usual area of work). Can an agreement like this be cancelled, or the amount reduced, ahead of payment of the full amount, such that the full amount won't be deemed taxable?

Strange situation here. Any insights, or suggested resources much appreciated. A CEO of a company had a misunderstanding with the board of a company, and resigned. The board talked him into staying for a while (a couple of years), but at reduced compensation and with reduced CEO obligations. As part of this arrangment, the board is reducing his compensation by $X0,000 per year, which happens to be the same amount that they would have contributed on his behalf to a profit-sharing plan, per year. The CEO apparently is accustomed to his nice salary, and states that he can't afford to have his compensation directly reduced by $X0,000 per year. So, the Board is looking at other ways to trim $X0,000 from his total compensation. We already know that the board can't just eliminate the profit-sharing contribution, since the profit-sharing plan is a qualified plan that requires any opt-out to be performed before at the beginning of the year, and not now (late in the year). The CEO also has an undfunded Non-qualified deferred comp arrangement. Under the arrangement, the CEO may elect, prior to each calendar year, to elect compensation to the Plan, which is credited to his "account" during the February following each calendar year, but which is not payable until his termination. According to the agreement, CEO has an unsecured claim against the assets of the company for the credited amounts, and has no right to receive the amounts. There is a mere promise, by the company, to pay the amounts. Here's my question. Assuming the CEO has already elected, prior to 2004, to defer money for 2004, can anyone think of any reason why it would be problematic for the CEO and Board to negotiate that now the CEO's 2005 nonqualifed plan credit (for work performed during the 2004 period) will be reduced by $X0,000 of the 2004 deferral? (I also wonder if this would be a material modification under ACJA). I'm thinking there could be a possible contructive receipt issue - i.e., that the IRS might say he can't turn down that money. On the other hand, he doesn't, it would seem, really have a right to it, and I don't know why the CEO and Board couldn't "settle-up" their new compensation reduction in this way. (Unless, of course, such agreement would be a material modification, which might trigger income inclusion, etc.) Help.

I don't think there's a choice here. 409(a)(1) requires the plan to (i) meet "the requirements of paragraphs (2), (3), and (4), and (ii) to be "operated in accordance with such requirements." I read (i) and (ii) as a documentation requirement, and as an operational requirement, respectively. Then, paragraph (2) provides for permissible distribution events, one of which is disability, as defined in the Act. As you point out, the Act defines disability as (i) unable to engage in ....... OR (ii) is, by reason of any ....... This is a classic disjuntive definition. Disability means (i) or (ii). Under this scheme, I don't see that the Plan sponsor is at liberty to select that disability means (ii), but not (i), or (i) but not (ii), since the Act states that it could possibly be (i) OR (ii). Even if the Plan defined disability in only one of the two ways, it would be an apparent violation of the Act not to operate the Plan using both definitions. That's my read, anyway.

Steve72, Thanks for pointing me in the direction of the recent thread. Interesting....

I am familiar with the "Bona Fide Wellness Program" proposed regulation Section 54.9802-1. Under this program, a "reward" (with a value of up to 20% of the cost of single employee health coverage) can be offered if a participant meets the standard of a bona fide wellness program. So far, so good. BUT - I have a client who wants to give all employees a Health Risk Assessment test (HRA). If an employee refuses to take the HRA, the employer wants to charge the employee the full cost of their health insurance premium, whereas those employees who take the HRA would pay only about 1/4 of that amount. Assuming, for example, that the full cost of the premium is $1000, and that the discounted premium for employees taking the HRA is $250, the "reward" for taking the HRA exceeds the 20% differential allowed by the proposed reg. Accordingly, I advised that the program doesn't meet the requirements of a bona fide wellness program, and therefore violates HIPAA. My client assures me, however, that this is done as standard practice in the market. The client's argument is that, since the discount is based NOT ON A HEALTH FACTOR, but merely on TAKING THE TEST, this program cannot violate HIPAA. Any insights from you pros out there is welcome. Do you think that the client could be right - that HIPAA, and the Bona Fide Wellness Program Reg. are not applicable under these circumstances? Thanks!

Second try - on more closely examining I.R.S. Announcement 2004-72, I see that the list of approved non-bank, non-insurance companies listed there DOES apply to IRA accounts, as well. See, e.g.: http://www.natptax.com/200472.pdf or http://www.irs.gov/pub/irs-irbs/irb04-41.pdf (pages 1, and 650-662).

I haven't heard anything about a model amendment. But the new Labor Reg. 2550.404a-2 states that: (iii) The investment product selected for the rolled-over funds shall be offered by a state or federally regulated financial institution, which shall be: A bank or savings association, the deposits of which are insured by the Federal Deposit Insurance Corporation; a credit union, the member accounts of which are insured within the meaning of section 101(7) of the Federal Credit Union Act; an insurance company, the products of which are protected by State guaranty associations; or an investment company registered under the Investment Company Act of 1940; 2550.404a-2©(3)(iii). So my understanding is that Banks and Insurance companies are automatically eligible to serve as trustees of the new IRAs (this would be similar to the law on the eligible trustees for Health Savings Accounts). I do not know if non-bank or insurance companies can apply to be the trustee of an automatically rolled-over IRA, as they can with regard to HSAs (see, e.g. I.R.S. Announcement 2004-72, Oct. 12, 2004).

pax, no worries. After reading the quote, I discovered that the source was the BNA TM portfolio # 351, to which my employer subscribes. And I did not use the language verbatim. I would argue that we're squarely within 'fair use' here. But, while we're on the topic of automatic 401(k) enrollment, I'm still debating how specific the PLAN needs to be on (1) either the default percentage deferral, or (2) that the plan uses a 'negative' election, which can be opted out of. This plan formerly did not use the negative election. I think I'm leaning towards amending the plan to describe the negative election feature, but leaving the specific percentage out of the plan, and controlled by the SPD and other Plan Administrative Committee documents. Any thoughts? Anyone?

Lori, thank you very much. I appreciate it!

I have been searching in vain for some proposed SPD language to describe a client's automatic enrollment feature for a 401(k) plan. This is a classic "negative election" set up by which a new employee will be automatically deferring a certain percentage of pay into the plan unless they opt out, or opt to raise or lower the percent of elective deferral. Would any of you good, kind people be willing to share, either on the message board or by e-mail, a sample SPD paragraph that you might be using to describe an automatic deferral feature. I would be humbly in your debt.... Thank you in advance.

Whoa! Having earned a Master's Degree in Washingon, DC, I can appreciate a healthy East Coast bias, as well as the view that Georgetown is a fabulous place to study. But I have to put in a good word for John Marshall's LLM program, to balance out the scales here. I am familiar with the location and library of John Marshall, having earned my J.D. down the street at another Chicago law school. I keep tabs on the interesting Employee Benefits LLM program at John Marshall, and am on their mailing list. I've had contact with two of the main faculty in the program, and have been impressed with both. I am in my second year of ERISA practice (J.D. only) in Milwaukee, and know that I would have hit the ground at a much greater speed had I chosen the John Marshall program. (Actually, I didn't focus on ERISA practice until some time after graduation). ERISA Kid, if you know that you're interested in Employee Benefits, and are sure that you want additional training, an LLM from John Marshall would serve you quite well, I am sure. Just follow the EB Attorney job postings on BenefitsLink. There is always an open position somewhere, in this field, and any additional training - from a "name school" or otherwise - will put you ahead of the not so large pack. Feel free to contact me directly (from my profile page) if you have further questions or comments about the relative pros/cons (in my view) of Washington D.C. versus Chicago living/studying.

I haven't seen the answer to this question in earlier posts. A not-for-profit employer maintains a safe-harbor 403(b) plan (no discrimination testing) under which employees receive a 4% employer match for their elective deferrals. Inadvertently, the employer over-contributed with respect to the matching contributions for a highly compensated employee. Namely, the employer failed to observe the $200,000 limit. I am trying to figure out the best correction method. I'm thinking of: 1) Since the HCE never should have received the excess $$, under the Plan, the Company should forfeit it (and then no-one gets taxed, or has to file an amended tax return, etc.), 2) Treat the excess as after-tax contributions, and leave the excess in the Plan (but I'm worried that might necessitate an ACP test), I'm hoping that choice #1 can work out. I'm assuming that this can be corrected under EPCRS as an operational failure. I'm not finding enough authorty on this to feel comfortable yet. Any thoughts? Thanks much!

jfp, You're right, of course. The last known mailing address of the parties (or of their attorneys, as the next post notes) must appear on the QDRO. So yes, if the parties are reading the QDRO, the cat's out of the bag. On the QDROs that I see most often, attorneys approve the QDRO as to form, and the court signs it. I don't know how often parties actually get a copy of their own QDRO (which is another interesting question). We do not send a copy of the QDRO when we notify participant's of its qualifed status. So in our case, sending separate determination letters will not provide the ex-spouses' address. Whether they may know of it already, I guess is of less concern to me. I suppose I want to make sure that it's not ME who is letting the cat out of the bag... And if the parties don't want their identifiable address on the QDRO, they can work that out with their attorney or with USPS. Thanks again to everyone for the input.

FYI - What we've decided to do is simply to have the determination letters mailed to each party separately, with a "cc" to the ex-spouse. This is a simple solution that avoids sharing the ex-spouses' addresses with one another, and thereby, preserves privacy.

The P.O. box is a good idea. Thanks for your input!

Hi, Everyone, I recently purchased a house from a divorcing couple. Their real estate agent gave me their respective forwarding addresses, but let me know that the ex-wife does not want the ex-husband to know where she is living now. I was requested not to share her address with anyone. I don't know the details in this case, but I imagine that, in cases where domestic abuse was involved, ex-spouses may have good reason to want to protect the confidentiality of their new address. That got me thinking about the QDRO Process that many of my clients use. As counsel to the Plan Administrator, I usually draft letters announcing the determination result of the QDRO review process. The letter is then sent out by the Plan Administrator on the Plan Administrator's letterhead. The home address of both the Participant and the Alternate Payee is standardly included in the determination letter. Have any of you ever experienced any problems or complaints as a result of including both addresses in a determination letter? In other words, are any of you aware of an instance in which an ex-spouse may have obtained their former spouse's address FROM the determinaiton letter, and thereafter caused problems for the other spouse? Would a plan administrator face any liability in such a situation? Of couse, the law requires the QDRO itself to contain both addresses. So if either part reads the QDRO, the addresses are shared. Has anyone ever tried, putting a statement in the written QDRO procedure stating that both addresses will be included in the determination letter UNLESS either the Participant OR Alternate payee opts to receive separate mailings? I appreciate any feedback on this topic!