Scott

Yes I have, Q-phile, but thanks.

A Uni-K is a 401(k) plan for a sole-proprietorship, so there is only 1 participant. In this case, the participant is the owner of the sole proprietorship, and also the owner of the IRA from which the shares of the S corp would come. I know that a qualified plan can be an S-corp shareholder--I'm just trying to make sure there aren't any wrinkles with respect to a qualified plan for one person. Also, the plan would be prohibited from acquiring property from a disqualified (not "disinterested" as I said in my original post) person. Since the 401(k) plan participant is also the owner of the S.P., he would be a disqualified person. I'm trying to get some comfort that the rollover of S-corp stock from the SEP to the 401(k) plan wouldn't be viewed as an "acquisition" of the stock from the disqualified person.

Not sure which board is best for this question, but here goes. A C-corp is converting to an S-corp. An individual owns C-corp shares through a SEP-IRA established by his separate sole proprietorship. Since a SEP-IRA cannot own S-corp shares, the individual (who is also a director of the C-corp) is contemplating establishing a "Uni-K" plan for his sole proprietorship, taking a distribution of the shares from his SEP-IRA, and rolling them over into the Uni-K plan. Can this be done? A couple of issues that jump out at me are (1) can a Uni-K plan (essentially a Keogh) be an S-corp shareholder, and (2) would the rollover be viewed as a prohibited sale or exchange of property between the individual (who is a disinterested person with respect to the Uni-K plan) and the Uni-K plan? Any thoughts? Any other issues I'm not thinking of? Thanks to all.

Can a publicly-traded employer contribute its common stock to its defined benefit plan? I'm aware of Keystone and the DOL's Interpretive Bulletin in which the DOL basically states that any in-kind contribution to a DB plan is a prohibited transaction. However, both Keystone and the examples in the DOL Bulletin involve real property. I have seen other guidance addressing the contribution of other types of property, but nothing on employer securities. It appears that ERISA Section 408(e) would allow this contribution, as long as the contribution does not cause the total employer stock held by the plan to exceed 10% of the fair market value of the plan's assets. Can anyone confirm this?

I did review the regulations, but they aren't too helpful. I think the answer is that divestiture is not required, but I'm just looking for some confirmation. ERISA Section 407(a)(1) prohibits a plan from holding non-qualifying employer securities. No problem here. 407(a)(2) provides that a plan may not acquire qualifying employer securities if immediately after the acquisition, the FMV of qualifying employer securities exceeds 10% of the FMV of plan assets. I don't believe this provision is violated because it prohibits the "acquisition" but not specifically the "holding" of qualifying employer securities greater than 10%. If the initial acquisition was less than 10%, this provision doesn't appear to be violated merely because the change in value of the securities and other plan assets now causes the FMV of the securities to exceed 10% of plan assets. 407(a)(3) and (4) apply to plans holding securities as of 1984 and 1979 (not applicable). Section 406(a)(2) prohibits a fiduciary from permitting a plan to hold any employer security if he knows or should know that holding such security violates Section 407(a). Obviously this means that a fiduciary cannot allow a plan to hold non-qualifying employer securities in violation of 407(a)(1), but I just want to make sure that this provision doesn't somehow impose a 10% "holding" limitation that's not otherwise present under 407(a)(2). Does this thinking sound right? Anything I'm missing?

Thanks, but neither of those threads, nor anything my searches produced, answer my specific question. I was hoping it was a simple yes or no.

A DB plan acquires qualifying employer securities, and immediately after the acquisition the FMV of the securities does not exceed 10% of the FMV of the assets of the plan. Over time, the securities appreciate and the other plan assets depreciate, so that now the FMV of the securities exceeds 10% of plan assets. Must the plan divest itself of enough of the securities to get back below the 10% threshold?

The 10% tax under Section 72(t) wouldn't apply, would it?

I'm not all that familiar with 401(k) plans funded by group annuity contracts. A client has such a plan, which is a prototype plan sponsored by the insurance company that issued the contract. The insurance company insists that the client appoint a "trustee" for a "loan trust." A few questions: 1. Why is a loan trust necessary? I thought that the purpose of the group annuity contract was to fund the plan, so why is a separate trust for loans necessary? 2. What would the typical role of a loan trustee be, and what type of fiduciary liability exposure would the trustee be taking on? Would it make sense for an officer of the company to take on this role, or would the company be better off appointing an institutional trustee?

Companies A and B are members of a controlled group. Several years ago, they created a VEBA to fund self-insured health and LTD benefits for their employees. The VEBA also paid premiums for a group life insurance policy. Company B was named as the trustee. The trust fund has always consisted entirely of employer contributions. After a few years, Company B stopped participating in the VEBA's life and LTD plans and set up its own, fully-insured plans for those benefits outside the VEBA. Thus, currently, Company A contributes to the VEBA to fund health and LTD and to pay the life insurance premiums on its employees. Company B participates only in the health plan under the VEBA. Company B is still trustee and charges Company A administrative fees. The VEBA contains approximately $300,000 relating to Company A. One Company A employee currently receives monthly LTD benefits. Those payments will continue for another 20 years or until she dies, if sooner. Company A now wants to set up fully-insured LTD and AD&D plans for its employees. The new LTD policy will not cover the existing LTD claimant. In addition, it has found a cheaper life insurance policy than the one in the VEBA. As in the past, no employee contributions will be required. To the extent possible, Company A would like to get out of the VEBA, primarily to avoid paying the administrative fees to Company B for the plans under which only Company A participates. Because Company A's new life, LTD and AD&D benefits will be fully insured and paid entirely by Company A, there is no real need for a VEBA with respect to those benefits. However, the $300,000 in the VEBA must be used up without causing prohibited inurement. Here are the alternatives I have come up with: 1. Approach the LTD claimant with a settlement offer of a lump sum or the purchase of an annuity in exchange for a waiver of her claims. Use whatever is left to pay premiums on the new life, LTD and AD&D policies until the funds are extinguished. QUESTIONS: (A) is the settlement an allowable use of VEBA funds? (B) would the use of VEBA assets to pay the premiums on the new policies be prohibited inurement since Company A is getting an indirect benefit? © would the new policies have to be issued to the VEBA? (D) if so, could the policies be removed from the VEBA when the funds are extinguished? 2. If either the settlement alternative is not allowed or the claimant does not agree to it, use the VEBA funds to continue making the monthly LTD payments to her and to pay premiums on the new life, LTD and AD&D policies. Also, amend the VEBA to name Company A as trustee with respect to Company A's benefits (all except health) to eliminate the administrative fees to Company B. QUESTIONS: Same as (B), © and (D) under 1. Also, could the VEBA have 2 trustees - Company B for health only and Company A for everything else? Anyone have any thoughts? Is there another, better alternative that I'm completely missing? Thanks.

Thanks for the input. Is there no defense in that the plan administrator relied on a false certification by the participant? Also, there is no j&s annuity available under the plan, so how would the spouse's portion be calculated?

A 401(k) plan (not subject to the QJSA rules) provides that if a participant's account is greater than $5,000, both the participant and his or her spouse must consent to a distribution. A participant terminated employment and falsely certified that he was not married, and the plan distributed his account. A few weeks later, the plan administrator learned of the participant's lie when the participant's spouse contacted the plan administrator to ask why the account had been distributed. Is this an operational failure for which corrective action must be taken? If so, what?

Here's the situation. An unmarried 401(k) plan participant designates his mother as his beneficiary. He subsequently marries, but never changes his designation. He then dies. The plan provides that the beneficiary of the death benefit shall be a participant's spouse unless the participant is not married or the spouse consents to designation of someone else. Am I correct that, despite the prior designation of the mother, the surviving spouse is entitled to the death benefit?

Thanks. So the wife is out of luck and the mother gets the benefit?

An unmarried participant in a SEP designates his mother as beneficiary. He subsequently marries, but does not change the beneficiary designation. He then dies. Does the mother get the benefit, or is a SEP subject to the rule for qualified plans that the surviving spouse gets the death benefit unless the spouse consents to another beneficiary?

Plan A is merging into Plan B. Plan A's normal retirement age is the later of age 60 or 5 years of service, while Plan B's NRA is age 65. Plan A's employer contributions are subject to a graded vesting schedule, while all contributions to Plan B are immediately vested. After the merger, must Plan A's NRA be preserved for Plan A participants? Would it make any difference if the Plan A participants are given full vesting in their pre-merger Plan A contributions?

Notice 2001-56 provides that if a plan uses annual compensation for periods prior to January 1, 2002 to determine accruals for a plan year that begins on or after January 1, 2002, the plan is permitted to apply the $200,000 EGTRRA limit for such prior periods in determining such accruals. The notice gives an example of how the retroactive application of Code Section 401(a)(17) can be used with a traditional formula plan with a benefit based on "high 3-year average compensation." An employer's cash balance plan credits each participant on December 31 with 3% of the participant's compensation for the year. Can the $200,000 limit be applied retroactively for years prior to 2002?

Code Section 420© provides that assets transferred to a health benefits account cannot be used to pay health liabilities of "key employees" for the taxable year of the transfer. Section 420(e)(1)(D) provides that "key employee" has the same meaning as under Section 416(i). Prior to EGTRRA, "key employee" was defined as an employee who satisfied certain requirements at any time during the plan year or the 4 preceding plan years. After EGTRRA, "key employee" means an employee who satisfies certain requirements at any time during the plan year (the 4-year lookback is removed). Am I correct in interpreting this to mean that, for purposes of Section 420, an employer must exclude only those who are key employees during the plan year of the transfer, rather than anyone who was a key employee during such plan year or the preceding 4 years?

Reviving an old topic. Any reason why an employer couldn't pay the early termination fee when an annuity contract is canceled early, rather than charging the fee to the 401(k) plan accounts? Would this somehow be a prohibited transaction?

We recently requested an advisory opinion from the DOL that LLC interests constitute "qualifying employer securities" under ERISA. The DOL responded orally that it could not issue a favorable opinion. We took that to mean the DOL's position is "no."

A 401(k) plan provides that if an employee defers at least 3% of his Compensation, the employer will make a matching contribution equal to 6% of the employee's Compensation. The plan document defines Compensation to exclude incentive pay. However, the plan has been operated so as to include incentive pay in Compensation. As a result, employees receiving incentive pay have been allowed to defer more than they should have and have received a matching contribution larger than they should have. How should this operational defect be corrected?

Who are "affected participants" entitled to full vesting when a DB plan is terminated? Obviously, active participants who are not yet fully vested must become fully vested. What about the following employees: (a) Former employee who terminated with zero vesting. (B) Former employee who terminated with partial vesting and is not in pay status. © Former employee who terminated with partial vesting and is receiving an annuity. Thanks.

I dug up this 2-year-old thread while searching for an answer to the question whether expenses relating to dealing with an IRS audit of a plan can be paid out of plan assets. When the thread first appeared, Jon Chambers and Bill Berke had opposing views. Does anyone have any fresh thoughts on this?

Company A sponsors a 401(k) plan. In 2001, Company A acquires all of the stock of Company B, which also has a 401(k) plan, and merges Company B's plan into Company A's plan. Employee X is an employee of Company B. During 2000 and 2001, Employee X received $100,000 of compensation. Assuming Employee X is not a 5-percent owner, would Employee X be considered a highly compensated employee for 2001, or since his 2000 compensation was earned before he became an employee of Company A's controlled group, is he considered to have zero compensation during 2000, making him a non-highly compensated employee for 2001? Would it make any difference if Company B did not have a 401(k) plan?

Thanks for the reply. Here's another question, totally unrelated to the first: A defined benefit plan's formula provides that a participant's benefit is a certain percentage of his compensation for the highest 36-month period, multiplied by his years of service. If a participant retires in 2002 and his highest 36-month period is the last 36 months that he worked (therefore including periods both during and prior to 2002), Notice 2001-56 indicates that the plan could elect to apply the $200,000 limit to the entire 36-month period. What if the participant's highest 36-month period occurred entirely prior to 2002 (i.e., 1999, 2000 and 2001)? Could the plan apply the $200,000 limit to those years in determining his benefit when he retires in 2002?