Randy Watson

We have a missing participant who should have received her first minimum required distribution last year. We have not had any luck locating the individual through the suggested search methods (certified mail, letter forwarding programs etc...). The failure to distribute a MRD seems to be an operational failure. Then again we are technically following the terms of the plan in attempting to locate this individual so that we can make the distributions. If we do have a failure how can we possibly correct it while the individual is still missing in action? There are no plans to terminate the plan any time soon. Any suggestions on how to deal with this (other than suggesting additional search methods)? Thanks.

Thank you.

Company A and B are related, but not to the extent that they constitute a controlled group of corporations. They also fall outside the realm of affiliated service groups. Company B did not establish another plan, however, B is in a controlled group and there is a company within B's controlled group that does maintain a 401(k). Company B employees will participate in that plan. Are you thinking that 401(k)(10) would come into play based on B's termination of participation in A's plan? If so, that's okay because we are not hanging our hat on being able to force out distributions from A's plan...we just want the participants to be able to take a distribution from Company A's plan if they like.

Assume that a 401(k) plan sponsored by Company A is also adopted by Company B. Is there anyway that Company B's termination of participation in the plan would constitute a distribution event that would enable Company B's employees to take a distribution from the plan? Unless there is some guidance out there that says this is equivalent to a termination of employment or a termination of the plan (with respect to Company B employees) I don't see any basis for a distribution. However, there is some language in the plan that appears to suggest that this is a distribution event.

I just realized that I should have told you that it's a new plan that we are currently drafting.

I have a DC plan where benefits are paid in the form of a lump sum distribution. No other distribution options are available. I believe I can apply the 5-year distribution rule in every case where the participant dies prior to receiving benefits, including distributions to the surviving spouse and a designated beneficiary. Is that correct or are these categories entitled to elect the life expectancy option? Some secondary sources seem to suggest that they are entitled to elect the life expectancy option. I can't believe that we would be required to give them the life expectancy option when the only form of distribution under the plan is a lump sum. I was always under the impression that benefits could always be paid out more rapidly than the MRD rules.

Assume that you have a nonqualified wrap plan. Participants in the plan can elect to have a portion of their nonqualified deferrals transferred to a 401(k) plan after the permissible contribution limits of the 401(k) plan are determined. For example, a participant elects to have $50,000 deferred to the wrap plan and then have that amount reduced by the maximum permissible contribution to the 401(k) plan. The PLRs that I have read all say that if a participant elects to transfer an amount that is greater than the maximum contribution allowed to the 401(k) (for example, the ADP results for the 401(k) prohibit a contribution greater than $8,000 even though the participant elected to contribute the 402(g) limit) that the difference between the permissible contribution and the elected amount ($8,000 and the 402(g) limit) will be paid to the participant in cash by March 15 of the following year. The cash payment apparently preserves the CODA requirement. My question is if this cash distribution is required, then what is the benefit of creating this type of arrangement? Why wouldn’t you just have a 401(k) plan and an unlinked NQ plan? Did I miss a PLR or something else?

If the only form of distribution under a DC plan is a lump sum how extensive must the RMD provisions be? It seems like the vast majority of the provisions that would otherwise be necessary are completely inapplicable. Take the model amendment for example. The only provisions that are applicable are those on the timing of the distribution. Is a minimalist approach okay?

Good point on the family member issue. But what if the offset provisions are only applied to the individual that received the benefits, not "innocent" family members? Is that impractical? I'm not sure how we would have a 510 issue. If the offset provisions are set forth in the plan document and apply to everyone on a nondiscriminatory basis how can this be intereference with a protected right? The "right" is merely a benefit that has built in limitations.

It is a self insured plan administered by a thirdy party.

Don, See Providence v. McDowell, 385 F3d 1168 (9th Cir. 2004) addressing the lack of removal jurisdiction. It's a good case for employers. For the state of the law in the Ninth Circuit with respect to the enforceability of reimbursement provisions under ERISA, see FMC Medical Plan v. Owens, 122 F3d 1258 (9th Cir. 1997) and Reynolds Metal Co. v. Ellis, 202 F3d 1246 (9th Cir. 2002). I assume you have the Great West case, but if not you can find that at 534 U.S. 204 (2002). I'd like to hear your comments on these cases. There is no need to talk about the state cases, as the state I am speaking of has long held that reimbursement agreements between an insured and an insurer are against public policy and unenforceable.

The law was well settled in the Ninth Circuit (and elsewhere) that you could not seek legal relief pursuant to the terms of a reimbursement provision because ERISA only permits equitable relief. Then the Providence case came down in 2004. The court reversed the finding of a district court that held that a state breach of contract claim (based on failure to reimburse under the reimbursement agreement) was preempted by ERISA. That's good news for some in the Ninth Circuit, but there are states within the Ninth Circuit that will not uphold reimbursement agreements. If you are in one of those states, you are SOL.

Successfully pursuing a reimbursement/subrogation agreement is dead in many circuits. Could we include an offset provision in a health plan that would reduce future benefits by the benefit paid out when the participant collectes from a third party and refuses to honor the reimbursement agreement? It seems like we could argue that this is equitable relief since we are reducing benefits rather than seeking monetary relief. Any thoughts?

If you have an ongoing transaction (such as a lease or a loan with multiple payments) that is not a prohibited transaction at the time it is entered into, but an individual involved in the deal later becomes a party in interest, is the entire transaction a PT? I suppose there are two alternatives and those are: (1) that it is not a PT because the individual was not a PII at the time the transaction was entered into; or (2) that only those transactions that occur after the individual becomes a PII are considered PTs. Any thoughts?

What can an employer do, if anything, if it knows that the maximum OASDI has been paid on behalf of an employee. For example, say Employee works for Company A from 1/1 to 6/30 and then is transferred to Company B, which is a subsidiary of Company A. Employee's is paid well, so Company A paid the maximum amount of OASDI during the first couple of months of the year. Company B knows how much Company A has paid in OASDI. Is Company B still required to pay OASDI on Employee's salary even though it knows that the full amount required to be paid for that individual has already been met? The same thing can occur if Employee works for Company A and Company B at the same time. It seems odd that the employee can get the tax credit for his/her overpayment, but an employer cannot get a tax credit or take other action for its overpayment.

Just how agressive is this? Has anyone taken this position in front of the service?

This means that that participants in a newly established 457(b) can't make any form of catch up contributions if the sponsor is a tax exempt entity.

Good point.

The participation requirement appears to only apply in determining the underutilized amount and not whether someone is eligible for the catch up.

While we're on the topic of 457 catch-ups, how would the "special catch-up" rule work with a newly established 457(b)? Under the special catch up rule, an eligible participant could contribute the lesser of: (1) 2 times the maximum deferral limit or (2) the underutilized amount. The underutilized amount is defined as the maximum deferral limit for the year, plus the maximum deferral limit for any prior taxable year less the annual deferral made for that year. So, does this mean that the "underutilzed amount" for a catch up eligible participant in a plan established in 2006 would be $29,000 ($15,000 for 2006 + $14,000 for 2005)? Or would it simply be 2 x the annual limit, or would there be no catch-up eligible participants? Please help.

As we all know the DOL requires employers to deposit participant contributions as soon as they can reasonably be segregated from the employer's general assets. This rule applies to participant contributions only, such as deferrals, catch ups, after tax etc... I believe that matching contributions do not have to be made to the plan until the due date of the employer's tax return. That's fine when you are dealing with an annual match, but what about a match made on a per payroll basis? When does that have to be contributed to the plan (assume there is no plan provision addressing the contribuition due date)?

I am little confused about how and when the 402(g) limit applies to NQDC plans linked to 401(k)s. I believe that the 402(g) limit will apply to NQDC contributions only if there is this mid-year type of election (for example, NQDC contributions kick in mid-year once the 401(k) plan fills up). I also believe that the 402(g) limit would not apply to the NQDC plan where the NQDC plan fills up first and is then reduced by the maximum allowable contribution to the 401(k) (as explained in example 12 of the proposed regulations). Does anyone agree with this or have any comments?

Is it premissible to exclude leased employees from the tests under Section 105? They are not specifically mentioned in the regs, but I was wondering whether there was anything out there that includes or excludes them. Thanks.

I don't see why it wouldn't be the new plan sponsor unless the purchase agreement stated otherwise.

Ah, yes. Thanks, Danny. So this why benefits that accumulate under a nonelecting church plan would be subject to marrital property laws (such as community property rights) upon the death of the participant. Correct?