BeckyMiller

Now - I think Enron illustrates another substantial fiduciary risk. Let's assume that you are a fiduciary for a public company plan that includes participant direction and you know that the company is at serious risk of failure. But, that is just a risk, not a certainty. Public knowledge of this problem could significantly increase the risk. Are you required to advise the plan participants of this risk, so they can decide to sell or hold with full knowledge? Or, are you required to keep quiet, so the participant's fearful response to the knowledge doesn't trigger the proverbial "run on the bank" that destroys any chance the company might have had of weathering the storm? I guess it goes back to the first comment - conflict of interest.

But, remember, ERISA binds the fiduciary to the terms of the plan only to the extent that those terms are not otherwise inconsistent with the law. ERISA Section 404(a)(1)(D). I am not sure that this is as helpful as it sounds. But, I would definitely argue that the fiduciary is relieved of the obligation to invest in company stock, if that company stock is a known loser. (You decide what a "known loser" is.)

Actuarysmith - A minister's "parsonage" allowance, while excludible from income, can likewise be counted as compensation for purposes of a qualified plan. Rev. Rul. 73-258, 1973-1 C.B. 194. This is cited as current in the 2002 versions of both the BNA benefits service and the CCH service. I had thought that this had been reversed in the 1996 tax legislation, but... I can't find any reference to it. See Sections 1461 to 1463 of the Small Business Jobs Protection Act for what changes were made.

fidu - I think you would get a better response to this question if you posted it under ESOPs, rather than 401(k) plans. I agree that conflict of interest is the number 1 risk. For a private company, tracking cash flow or doing your distribution planning is also a huge risk. Next?

O.K. First realize that I am totally biased because I work for a firm that does participant accounting for ESOPs. We have taken over many ESOPs that had been done in-house. I totally appreciate your concern about costs. But, think about the cost of acquiring the software and keeping someone up to date. 10 years of experience puts you way ahead of many ESOP administrators, but think about the value of the second opinion. The opportunity to learn from the ideas generated by a company that handles hundreds of ESOPs, not just yours. If, that doesn't convince you, here is what I know. Quantech will do share accounting. You have to calculate your collateral release, if leveraged. You will have to separately program in things like forfeiting cash before stock. Quantech will track basis by participant for shares contributed, but you will have to modify for leveraged shares or for the activity of an S corporation. I believe that Datair has the same limitations, but I have not looked at them for years. There used to be a company out in New Jersey who offered a very slick ESOP program on a unix platform, but I believe that they went out of business about 4 years ago. It also required you to make the technical decisions, it just had the flexibility to handle a lot of different allocation methods. Not much help - sorry. It is just such a specialized marketplace that the best software has been developed in-house by the major ESOP admin. providers.

This is a reply to Belgarath regarding Minnesota's weird treatment of IRAs. This also applies to their treatment of Keogh plan contributions as they went through conformity changes in 1981-1984. Basically Minnesota just gave up one day and allowed folks to bring their Minnesota tax treatment into conformity with Federal. It was pretty silly. On a serious note, with so many states facing budget problems this year, I am a bit concerned about their getting down to business on this technical issue and creating the necessary conformity. I suggest that we all contact our State representatives to advise them of the need for this action.

Shanka - You are not alone with this kind of a problem. The DOL has a relief program in place for you. It is called DFVC, search for it off the home page for Benefitslink. Realize that many plan sponsors will put all of their welfare benefit plans under an umbrella plan which allows them a single Form 5500 filing. This is not a straight forward option, but has been successful in many situations in reducing penalty costs for late filings and reducing ongoing costs. You should check with your ERISA advisor to explore your options here.

1. You have to satisfy the general non-discrimination rules as you noted and Yes, this shouldn't be hard. 2. You have to satisfy the general rules regarding in-service distributions - participant in the plan for 5 years or funds in the plan for 2 years has been the traditional standard here. (Assuming diversification is handled with a distribution and not just a change of investments within the plan.) 3. You have to be able to deal with the potentially unexpected consequences on corporate cash flow to convert balances from stock to other assets. This is the most serious concern from my perspective. 4. Not sure on this one, but I know the SEC has taken a hands off policy about the statutory diversification rules and registration. Might want to check with securities counsel to see if they are comfortable that offering such a choice on a more liberal basis than required would trigger any kind of a securities event.

Judy - go to www.google.com and search for "self-directed IRAs" or "participant directed IRAs." The marketplace changes every time I seach for these guys. They will charge a fee and frequently have limits on the percentage of assets that can be non-traded, the size of the account, etc. Your best bet, if you are in a smaller town is with your local bank trust department. They will charge a fee, but will frequently take almost anything that is legal. Good luck!

Do you mean that the participant has the right to diversify in the event they separated from service and chose to defer their distribution? If yes, then this provision is somewhat similar to what is provided for statutory ESOPs. Though an ESOP is permitted to require 10 years of participation. As such, I would say that the feature is unusual, but applying the privilege to diversify to both active and former participants would be fairly common. Not much help, sorry.

Sounds like a quote from my materials. You will note the extensive use of hedging language in the comment. The DOL has consistently hedged their position on when a plan is considered funded. In the early days of ERISA they issued an advisory opinion regarding a deferred compensation arrangement that noted that references that the arrangement was backed up by a specific life insurance contract could trigger a funded plan. In the mid-90's they issued an advisory opinion to a TPA firm in Florida that basically said that certain common arrangements of that firm in handling their clients funds could trigger a funded arrangement. Recently, they have been making oral comments implying a more liberal interpretation of the concept of "funded." The status of the funds with the TPA is only one indicator. The sponsors treatment of those funds on their own books, for tax purposes, etc. is another. We see an awful lot of sponsors who expense the funds once they are forwarded to the TPA, that makes the situation even more vague.

Hey Pete - A little public service is good for all of us. I agree with all of your comments. I am curious why they have the VEBA, as it does not sound like it is doing any good and it is increasing their compliance costs. The DOL Chief Accountant's office regularly states that they look at every single report filed with anything other than an acceptable opinion. They don't however choose to pursue an audit on each case. Thus, your client may have just gotten lucky in the past. The right answer is to do the actuarial work and get a clean opinion, then terminate the VEBA (if feasible) since they aren't getting any benefit from it anyway. I would justify the cost of the actuary based upon the management information that you can get from this work. Realize, that I have seen many cases where the actuarial work involved to comply with SOP 92-6 is very modest. The plan may not have any substantial obligations and a simple claims lag study may be all you need. If they just don't want to do this, they are assuming the risk of continuing to file as they have in the past. To get out of that risk, they need to reconsider why they have the VEBA. If they can, they should get rid of it. Putting my ERISA hat back on, I do have to note that if the plan receives employee contributions that are not deposited through a 125 plan, they have to have the trust. This is because of the plan asset regulations. If that is the case, they need to add the 125 plan or come to grips with running the VEBA right (including the proper financial reporting.) Becky

Hey - I watch this stuff very carefully. There is no change in the Form 5500 reporting rules or the accounting guidance on this point. A funded welfare plan is subject to filing a Form 5500. A plan that includes a VEBA is generally considered funded. (There is some discussion about this in the context of a VEBA that has never included any assets, but outside of that rare circumstance, the arrangement would be considered funded and subject to Form 5500 reporting.) (Note, I am assuming that your client is subject to ERISA - e.g. not a government plan.) The audit is required once the plan covers 100 participants. If you filed a Form 5500 in the past as a small plan, your client would be eligible for the normal 80 to 120 participant transition rule before hitting the audit requirement. There is a lot of misunderstanding about what is "funded" for a welfare plan and when the audited financial statements are required. It may be that the CPA just learned what the rules are. Or, the plan was audited in the past, but included some other report for the failure to disclose the SOP 92-6 benefit obligations, it may be that they misunderstood the transition rule and thought it was broader. If you need to stay up to date on the evolution of the financial reporting rules for benefit plans, you should consider getting a copy of the risk alert that the AICPA prepares each year for benefit plans. It updates all of the regulatory and financial reporting activity of the prior year. Hope this helps!

The DOL had granted multi-employer plans an extension on their requirement to comply with SOP 92-6. That relief program is now over and their future filings are to be consistent with GAAP. I am not aware of any MEWA exception, I suspect that you just got some confusion between multiple employer arrangements and multi-employer plans. To the extent that a single employer welfare plan includes benefits that may trigger future benefit obligations, they have been subject to SOP 92-6 since 1994 (I think). Failure to comply with the SOP may result in a qualified or adverse opinion. The DOL has always taken the position that the only acceptable letters are unqualified opinions or the statutory disclaimer (limited scope). Thus, the failure to comply with SOP 92-6, if material, could trigger an unacceptable opinion. See Chapter 4 of the AICPA Employee Plans Audit Guide for more information.

Ah - sorry I focused on the issue of its semi-exempt status and not on the coverage of members. You are right, the Co-op sponsoring the plan would be sponsoring it for the common-law employees of the co-op. To the extent that you want to make a vehicle available that would let the farmer's sponsor a plan with many of the features of a larger employer plan, you would end up with a multiple employer plan. Because of the one member - one vote that is a requirement of a coop. it is extremely unlikely that you would ever end up with a controlled group arrangment. That means that the farmers get the advantage of the cost sharing, but each farmer would be considered to sponsor his or her own plan. We see arrangements with credit unions, where they have a master plan for all the credit unions and then each separate credit union covers its own employees. In the credit union world, we have seen the separate credit unions delegate the "Plan Administrator" duty to the lead organization. That enables that entity to execute most of the required amendments to retain qualified status without having each adopting entity sign off. As long as each member's contributions go just to that member or their employees, the nondiscrimination testing would be done on a member by member basis and not in aggregate. (I wouldn't think you would want to have it aggregated.) The filing rules for such an arrangement are described in the instructions to Form 5500. I don't know that I would recommend such an offering by a farmer's cooperative. The separate calculations of net self-employment income for each member may be so complicated that the coop's accounting staff may find themselves more involved in their member's tax situations than they would like to be. Since each farmer can maintain a regular SEP with full annual discretion on their own contributions and no annual filings, it seems that approach would be simpler. Obviously, that approach may not be attractive if most of your members have common-law employees that would have to be covered.

I have to agree with Carol. As a governmental unit, adopting a general prototype agreement for a 401(a) plan may not be all that simple an option in the long run. I suggest that you start with one of your professional associations - for example, I believe that there is an association of city managers. Those associations may be aware of service providers for this specialized service to a small governmental unit.

I have to agree with Carol. As a governmental unit, adopting a general prototype agreement for a 401(a) plan may not be all that simple an option in the long run. I suggest that you start with one of your professional associations - for example, I believe that there is an association of city managers. Those associations may be aware of service providers for this specialized service to a small governmental unit.

This whole partnership termination thing is frustrating. There are mechanical rules in IRC Section 708 regarding the mandatory termination of a partnership if within a 12-month period there is a sale or exchange of more than 50 percent of the capital interests of the partnership. I once worked on a partnership that terminated 3 times within the same calendar year. Most partnership plans provide for the continuation of the plan by a successor employer. Typically in these circumstances the new partnership takes on that role. The fundamental issue becomes the measurement of compensation, timing of any deductions, contribution, any last day rules, etc.

I agree that he can't set up a plan of his own on this income as you outlined. It may, however, be possible for him to continue to participate in the LLP plan. But, it requires for them to permit participation without any hours requirement and may require special terms regarding end of year employment status. Typically we don't see this happen because of the cost of making it nondiscriminatory. But, in a partnership with few, if any, non-partners, it could work. Note - I am not making a recommendation, just offering something for you to consider. Under the tax rules, the concept of a partner separating from service is murky at best. So, it offers room for interpretation.

IRC Section 401(k)(1) refers to plans sponsored by "rural cooperatives" as being covered by its provisions. But this is a very narrow concept covering electric companies, irrigation districts, etc. See IRC Section 401(k)(7). This would not include your typical farmer's cooperative. However, IRC Sectin 401(k)(4)(B) discusses the eligibility of tax-exempt entities to offer such a plan. It provides that any entity exempt under this subtitle can include a 401(k) plan as a part of a plan offered by it. So - yes you can.

BNA used to publish a several volume set entitled "Compensation and Benefits Guide." It was terrific for these kind of state charts. In this electronic age, I don't know if they still offer it. Panel Publishers publishes an annual volume on Mandated Benefits. Chapter 9 of that publication includes such a chart. (I have to tell you that my firm gets a royalty from that publication - full disclosure, you know.)

I am assuming that this is considered a funded plan. I have to say that because the use of the term "grantor's trust" wouldn't always mean that. For a funded plan, try the AICPA's Audit and Accounting Guide "Audits of Employee Benefit Plans." Chapter 4 covers the financial reporting for funded welfare plans. The appendix includes sample financial statements. If it is a plan that requires an audit, you may need some kind of actuarial or lag study of the incurred, but not reported claims, future obligations, etc. This is discussed in AICPA Statement of Position 92-6. If it is a small plan, you just need the same kind of information that is requested on Schedule I of the Form 5500 series. You may have investments with related gain/loss or earnings, as you would see in a retirement plan. You also will have contributions, you may have fees, you will see a bunch of claim payments or premium payments. If you aren't sure what they were expecting to see, you might ask for a copy of their exemption application. That filing typically requires the inclusion of some financial estimates.

I may be able to help you find some resources, but first a question or two - why are you doing this? Are you wanting to get around the limits imposed on annual deferrals in a 457 plan? Do the majority of the employees participate in the current plan or just a select few? What kind of employer is it - tax-exempt or governmental?

I may be able to help you find some resources, but first a question or two - why are you doing this? Are you wanting to get around the limits imposed on annual deferrals in a 457 plan? Do the majority of the employees participate in the current plan or just a select few? What kind of employer is it - tax-exempt or governmental?

Just wanted to chime in that I support rcline. I can find nothing that says that any answer other than that is correct. At the same time, I have to tell you that this is one of many ignored rules in practice. I have had very large, ERISA competent and well-informed law firms tell me that I am all wet on this. In our partnership, we solicit the other expense information from each partner and take what they give us. We do not currently go back and ask for any verification such as a copy of their tax return.