E as in ERISA

I would be careful about what one puts in a letter to clients in situations like this. I hope it would be limited to something like (a) a clarification of contractual obligations of the parties in re to responsibility for prep of the 5500, or (b) a general explanation of the requirements for filing or amending or whatever you're concerned about. As opposed to a detailed outline of all the client's wrongs and a warning stating that if the client doesn't remedy them, then certain penalties will apply. That could be a "smoking gun" that can be subpoenaed in court assuming that you are not an attorney and don't have attorney-client privilege. Not that a small case like this would go that far. But one ought to be careful about creating evidence that can be used against a client in order to protect oneself. A written list of the errors in a clients plan is generally not advisable if you haven't been hired to prepare that list and help correct the errors. It looks like LH's letter may have been general info.

Well, I hope he's not at work today reading these messages. This would be a good four-day weekend.

I think that it depends on whether the employer marks the termination date as December 24 or December 31 on the payroll and benefits records. I think that employers do it both ways. And the IRS has said that they don't have rules governing when the termination must be deemed to occur. As long as they are consistent throughout the year on how they do it so it doesn't look like they are trying to avoid paying benefits, I think that it's fine to make it December 24.

Invalid distribution. Plan disqualification.

Updating the SPD to communicate to participants that the plan is no longer funded by a trust. Some don't actually terminate the trust. They might just amend to not allow it to be used for that purpose. They sometimes keep it to make sure that there is nothing else that they want to use it for (since they've received that exemption). If appropriate, doing planning to make sure that it runs dry by year end so that you don't have the trust in existence for a few months next year. Otherwise you still need an audit next year.

PiP -- They are not mutually exclusive answers. Both the DOL and IRS have potential penalties and/or excise taxes on prohibited transations. The two things that you need to do are restore the participants for their loss of earnings and then file a 5330 to pay the excise tax on the employer's prohibited transaction. If you do that, you may avoid DOL penalties. If it comes in and audits you, it is going to look at your restoration of participants. If the restoration is the same as what they think it should be/what it would be if you filed for a VFCP, then you're generally not going to be imposed any penalties even though you made a late payment. No need to have filed a VFCP to avoid the penalty. If your restoration is less than what it would be if you filed a VFCP, then you're generally going to pay a penalty on the additional correction you have to make. So the point of filing the VFCP is to make sure you pay the right amount and that you're not going to pay any penalties (but there is generally a cost to preparing a VFCP filing that may be more than potential penalties or cost of dealing with an audit). I think that many feel that if their corrections are pretty accurate, not a lot of value in doing the VFCP. You can't avoid the IRS penalty. You're supposed to self-impose that by filing a 5330 even if you correct. This is a completely separate calculation. You pay the penalty based on the value that the employer benefited from the loan -- generally using the applicable federal rate.

The IRS' web site says that military differential pay is generally considered post-severance compensation and is reported on a 1099: http://www.irs.gov/newsroom/article/0,,id=129833,00.html I think that technically the position is that differential pay is not eligible for contributions. However, there was proposed legislation to fix that last year. Maybe this year too? And philosophically, I don't think that is the position. The proposed 415 regulations would allow that compensation to be counted as 415 compensation for qualified plan purposes: http://benefitslink.com/taxregs/05-10268.pdf Hopefully they will clarify the reporting of the contributions at some point on the combat zone web site....

And while you generally aggregate all companies in which there is 80% common ownership, for 415 purposes you would aggregate with only 50% common ownership. (Although it sounds like 100% overlap to me).

And I think that the attorney will want to look at some of the successor plan rules, etc. In an asset purchase, you usually want the plan to stay with the old employer in order to terminate it and make distributions without any issues. If Company B assumes sponsorship of Company A's plan and then terminates it, then I think that there could be problems in making distributions from A's plan to certain employees. Look at 401(k)(10)(A)(i) that allows distribution upon termination of the plan IF no other plan is established or maintained. Or (ii) on disposition of assets. The attorney will have to see how your facts, fit since it only appears "some" of the employees are now working for B. (But the bigger question would be why would B want to have anything to do with A's plan if A's employees weren't part of the deal?)

That's the legal issue: the sufficiency of the trust language. It's pretty easy to amend the plan to say it is merged effective 12/31/2005. But from the DOL's perspective, it's also important that the trust document accurately reflect that the new trustee has legal ownership of the assets of that date (even though they are still in custody of the prior trustee). From my experience, that is not always done well. And that is where the auditors get caught in the middle. They know that there may be a concern that the merger hasn't legally taken place on 12/31/2005 if the trust documents aren't adequately updated. And the attorneys will tell them that the legal transfer has occurred. But the attorneys won't put that opinion into writing. And that is a problem. Now the auditors have to issue an opinion stating whether the assets do or don't belong to the plan at that date, but insufficient documentation to support that opinion.

The expected release date was a while ago. It's been drafted for a while. They are just waiting for final approvals....and waiting and waiting and waiting. It has been "imminent" for ages.

Three months ago...

Depending on the circumstances, you could just have a change in sponsorship. (Does it have a new EIN?)

See proposed rules in Notice 2005-43 http://www.irs.gov/pub/irs-irbs/irb05-24.pdf

And I think that they're not normally registered unless there are minimum thresholds -- something like 500 employees and $1 million. I think that Kirk Maldonado wrote the BNA that discusses the securities law implications of benefit plans and covers some of this.

I'd think of it in terms of the broader 404 fiduciary responsibilities to provide disclosures as opposed to just the 101 blackout notice. Including 404© requirements to disclose limits on transfers, etc. So I'd agree with you that it would be a good idea to give notice. You might try for closer to 90 days so that employees have a longer period of time over which to decide when to liquidate their current investments and avoid market fluctuations.

I've heard that there is lot of pressure to extend the transition period. So that we at least know what plans and features are affected by the rules before anything has to be set in stone. E.g., the transition period during which participant distribution elections etc. can be finalized could be extended.

Is someone confusing investment transfer rules with distribution rules? 403(b) providers are often more liberal about transferring money out, because it can be done as an investment transfer to another 403(b) provider. But to actually take it completely out of the 403(b) arrangement and move it somewhere else, don't they have to actually qualify for a distribution under the 403(b) rules first (separation from service, 50-1/2, death, disability)?

At a minimum, I'd think that you'd have 40 shares subject to 409A. The initial 100 might arguably meet the requirements for exemption from 409A -- issued at FMV. I haven't paid attention to discussions to see what the feeling is about performance vesting -- i.e., whether that is a feature that is considered an additional deferral and violates the exemption. If I recall correctly, under 162(m) that would be a feature that would take it out of the exemption there and subject it to the requirements. But that is a different exemption. But isn't the actual grant date for the other 40 actually 2007? So the strike price is probably lower than the FMV at that date? And therefore, it doesn't meet the exemption? Then the timing of the taxation depends on whether you comply with 409A election and distribution rules. If you don't comply, then you're probably taxed at vesting. But if you do comply, then you defer taxation until the time of "distribution" under plan rules or the participant's election. And then the question is whether you have a performance-based plan, so the participant can make their elections six months before the end of the performance period? But that's the problem with options...it doesn't really make sense to follow 409A rules...so you're probably back to taxation at vesting.

I think that what QDROphile is saying is it's not what's left over (the net) or nothing, the choice is the net or something higher (depending on your ordering rules -- which should hopefully leave you at the net).

Definitely tax rates for the corporate issue. Have to share that tax attribute of lowest brackets even if they don't file consolidated. But discrimination is the issue for plans. Which is why you have the affiliated service group rules. So that zero-out corps without bricks and mortar (like law firms and md practices) don't get around the rules by putting the paralegals and nurses in a separate corp.

I think that the main goal of the control rules is to make sure that if one party (or a small group) has the ability to make decisions about retirement plans for two or more companies, then they are generally required to make similar decisions for all of the companies to avoid discrimination (with exceptions for QSLOBs, etc., etc., of course). I don't see anything about these facts that on their face suggest that the father controls the decisionmaking of the son's company (although he might want to do so....)

Are you 100% sure that the tax return wasn't extended?

Upcoming update to EPCRS should provide solution to excess loans.

My basic rule of thumb for the 125 plan is to provide "universal availability" to the cafeteria feature and prescribe limitations on eligibility only at the level of the underlying benefits. (I know that's not specifically required. But the main exclusion that I've seen employers to want to apply is to exclude "part time" from the 125 plan altogether. I'm not sure that 125(g)(3) allows that because you can't use full time as an employment classification under 410. I think that it's easier to technically say that the cafeteria plan is available to everyone, but then keep them out of each of the underlying benefits. E.g., it's much easier to exclude part-timers from the health plan under 105(h)(3)(b)(iii). The effect may be exactly same, but there seems to be clearer authority to exclude them at the benefit level). So I've tended to think that you should be pretty broad at the plan level and you should attach the conditions and limitations at the benefit level. But now that Rev. Proc. suggests that the grace period applies at the plan level. It does suggest that you can only use the money set aside for a specific benefit to pay grace period claims for that benefit. But that's not really a change in rules.