E as in ERISA

Can you do an interpleader and deposit the benefit with the court and let it decide?

I think that most would treat the plan as unfunded -- with no audit required -- when the account from which benefits are paid is set up in the name/EIN of the employer. However, as you realize it is not a completely risk free situation. If it has been represented to employees that it is funded with a special account, it might be treated as a trust for some purposes. Or if for some other reason it is considered a trust under state law. But I don't think that there is really much enforcement effort against such arrangements -- particularly if there are no problems.

Are the auditors going to agree with that conclusion? Where was the money? Why didn't the auditors catch that themselves during the audit?

"Trust" issue is often grey. Does the SPD tell the employees that the benefits are unfunded or does it suggest that there is an account set up specifically to pay benefits for this plan?

I think that the DOL recognizes that POAs are governed by plan terms: See the FAQ on reservists (http://www.dol.gov/ebsa/faqs/faq_911_2.html), which says -- Q. I am a participant in a 401(k) plan. While I am on active duty, may I give my spouse or another individual the authority to change my investment allocations through a POWER OF ATTORNEY or other legal document? Can that individual also apply for a participant loan or hardship withdrawal on my behalf? A. THE TERMS OF THE PLAN WOULD GENERALLY GOVERN THIS SITUATION. However, if some employees are permitted to designate individuals to act on their behalf in other contexts when they are away from work, the employer should permit the service member to designate someone to act on his or her behalf also.

Did the plan administrator send out a Sarbanes Oxley notice?

You get a Schedule A based on the contract dates, not the plan year. So if you have short contract, you would have an extra Schedule A and attach it the the 5500 that ends at the same period. But if the contract years are different than the plan years, you just attach the Schedule As for the contract years ending within the plan year. http://www.dol.gov/EBSA/PDF/2003-5500inst.pdf

http://www.dol.gov/ebsa/Newsroom/tr92-01.html

Are they pretax contributions through a cafeteria plan? The DOL has a non-enforcement policy -- from about 1993 or so -- where it doesn't enforce the trust or audit requirement for plans with pretax contributions.

Off the top of my head, I would guess no. First, you don't have a banking type institution or trust. But more importantly, you don't have two layers (i.e., you don't have both the interest in the trust and underlying assets), do you?

My general rule of thumb is that if you don't pay FICA or SE tax on it, then it's probably not eligible to be used as the basis for retirement plan/IRA contributions.

The starting date for the spouse's annuity is the participant's death (or expected death). That's much less than if it started at retirement.

I assume that 10 to 15 percent is a valid worst case scenario. E.g. for purposes of a merger where the target has not obtained necessary consents and you want to estimate liabilities for negotiation purposes. Or where someone is having a heart attack because someone just found out that they didn't get consent on a million dollar distribution and you want to assure them that their worst case scenario is significantly less so that you can settle them enough for a discussion. For a specific situation, I'd find out both the participant's and spouse's ages. Then determine what interest rates and life expectancies you want to use.

It's the same as if you had $1,000 deducted for insurance premiums and never made a claim. Your taxable income is reduced by the full $1,000 even though you never got any benefit.

Maybe your boss will let you take the time anyway.

The subsequent loan would also be treated as a taxable distribution unless the participant agrees to payroll withholding or gives additional security. See Q 19.

Yes. I should have said that "withholding is applied under the supplemental rules."

So doesn't that source confirm your conclusion? When the person actually takes a vacation and gets paid the normal amount for that time period, then you generally don't treat it as a supplemental payment -- you just withhold on it as regular wages. When the person doesn't take vacation and takes the money in cash -- or if he gets paid more than he normally would for the period -- then it would get taxed under the supplemental rules.

See Q 19 in the 72(p) regs

The WITHHOLDING rate might be higher. Look on the IRS web page for Publication 15, Circular E. A higher flat withholding rate may be applied to a supplemental payment that is made separately from regular payrolls. But then he may get a higher refund if that rate is higher than his marginal rate.

For what purpose? Daily valuation v. balance forward are recordkeeping methods. But the audited financials would generally still be on the accrual basis regardless of the recordkeeping method. And the Form 5500 should agree with the audited financials.

ERISA Section 404(a)(1)(B) requires the plan fiduciary to discharge its duties "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims."

There was an advisory opinion issued to American Bankers Association last year: http://www.dol.gov/ebsa/regs/aos/ao2003-02a.html

Technically, I believe that the individual could potentially exclude from income $14,000 for 2003, even if neither plan allowed catch-ups. 1.402(g)-2(b) Participants in multiple plans. Paragraph (a) of this section applies without regard to whether the applicable employer plans (within the meaning of section 414(v)(6)) treat the elective deferrals as catch-up contributions. Thus, a catch-up eligible participant who makes elective deferrals under applicable employer plans of two or more employers that in total exceed the applicable dollar amount under section 402(g)(1) by an amount that does not exceed the applicable dollar catch-up limit under either plan may exclude the elective deferrals from gross income, even if neither applicable employer plan treats those elective deferrals as catch-up contributions. But I think that the person might be limited by plan terms and operations. Some plans just wait for a participant to notify them that there is an excess in their plan. Others proactively collect information on prior deferrals under unrelated plans. The latter may have to rethink how they handle this information for catchup eligible participants.

The DOL will usually send a notice in this type of situation. That is definitely something that it looks for and that generates a notice. However, it generally won't assess a penalty unless one fails to respond to the notices. It may also be a good idea to file an amended return with the audited financials attached -- in order to demonstrate that you have appropriate review processes in place (although not timely in this case) and are proactive. But note that problems occur when the amended return and notices start getting crossed in the mail and you end up with two sets of incomplete returns floating around (e.g., you changed some things and added more to the amended return, but then hired someone to answer the notice and they didn't get the other changes and forgot something else and vice versa). Make sure you maintain one file with a complete return that includes all changes to date.