E as in ERISA

Are you sure that you have the correct info regarding the ownership? Your facts suggest that the deceased left all of the stock to his sister for a term of 7 years, and that at the end of that period all or part of that stock will then go to his daughter. That would be a unusual form of transfer. It would be more likely that the daughter's share would be placed in a trust that she couldn't touch for that period of 7 years (until she reaches a certain age). The aunt might even be the trustee. And the aunt might be voting all the shares, controlling the company until the daughter reaches a specific age. So every considers her to be the sole owner. But if a trust is involved, then under the rules of 1563 the daughter would probably be considered as owning the stock.

I also agree -- unless voting power is different than ownership percentages. Look at it this way: It is assumed that there is not a small influential group that has enough power to make the same decisions for both companies. The votes are scattered enough that the decisions could easily be different. Therefore, they aren't forced to make similar decisions for both companies. If X owned 100% of Y, then it would be assumed that the governing body of X would be influential in both decisions. So the answer is different.

That looks like a cite to the Internal Revenue Manual (IRM), not IRC. See http://www.irs.gov/irm/page/0,,id%3D102941,00.html#ss7, which only says that the IRS issues determination letters on multiple employer plans.

Regardless of what you do with the 1014, disclosure of changes in the trust and its operations are required on the 990 that you file for the VEBA.

Looks like you can either (1) amend by 9/30 (and file within the later deadline), or (2) amend after 9/30 and pay an extra $250 fee?

Section 125 provides that a 125 arrangement is not discriminatory if it benefits a nondiscriminatory group described in 410(b)(2)(A)(i) and meets the following service requirements -- the eligibility requirement is the same for all employees (but not more than 3 years) and employees enter no later than the first day of the next plan year. I don't see the 1,000 hour rule applying because it is a service requirement and 125 has its own service requirement (same for everyone, but no more than 3 years). I think that you look to 1.410(b)-4 for the nondiscriminatory classification requirement. It requires that the classification be based on objective business criteria and that reasonable classifications include "job categories, nature of compensation (i.e., salaried or hourly), geographic location, and similar bona fide business criteria." It also requires that the classifications meet certain numerical tests. Unless someone is running those calculations, I believe that the best thing to do is just make the 125 arrangement available to all employees and then select the appropriate eligibility requirements for each of the underlying benefits. This will make almost all employees eligible participants of the 125. However, in many cases, the discrimination requirements for the underlying benefits will be satisfied based on the entire population of employees -- and not just eligible participants. You might have to distribute communications to more employees; however, the cafeteria arrangement itself (not considering any FSA) is not subject to ERISA so the disclosures would be limited.

Yes. The eligibility requirements for the 125 may be broader than those of the underlying benefits.

Even ignoring the participant level reporting issues, you don't report benefit distributions from a retirement plan as liabilities unless they have been approved and processed for payment as of year end (i.e., you've done everything short of mailing out the payments as of year end).

Exactly. I think that the IRS has made it pretty clear that in the context of a termination, you don't have to make a contribution for that final year. And although there is no official guidance at this point, most believe that the same is true for a merger. I tend to agree. My only concern is that in a merger, the plan is actually continuing and employees are still employed on the last day of the plan year and they are continuing to earn credited service under the plan, etc. In certain situations, there is the potential for the argument that the result should be different than in a termination. So when large sums of money or a hostile workforce are involved, it wouldn't be a bad idea to go in for a ruling and get the IRS to issue guidance on the merger issue.

It's all a matter of the drafting. When you are only reducing the accrual to 0%, you are likely to have language in both the amendment and the notice that specifically says that you are reducing the accrual to 0%, and the IRS has issued guidance that makes it clear what the results are in a termination or frozen plan. When you are merging the plans (with a resultant reduction of the accrual to 0%), then it is possible (probable) that neither the amendment or the notice even mention anything about the accrual (they often just state that the merger and transfer of assets are occuring) and the IRS has not issued guidance about what the results are. I think that with a very poorly drafted merger amendment, either the IRS or a plaintiff's attorney has more room to argue that an accrual is required for the year of merger. I'm not saying I agree with that conclusion. I'm just saying that it is riskier, because the language is less specific and there is no guidance. It may depend on the specific language. If there are significant sums of money involved or there is a hostile workforce, then it could be beneficial to obtain a ruling confirming that the IRS agrees that no accrual is needed.

That's probably just a standard question. The real test is whether the auditors are actually coming into your shop and reviewing your processes and internal controls. The SAS 70 would generally allow you to avoid having each of the plan's auditors come in and conduct their own reviews. If they aren't performing such reviews, then you probably don't have a lot of need for a SAS 70 either. However, the reviews of internal controls may become more intensive when the Sarbanes Oxley assessments become required. So it may be beneficial to have one in the future.

There's a major document provider who has a sample merger package available on the web. The sample MP to PS merger says something to the effect of "Whereas employer wishes to merge the MP and PS and transfer all the account balances from the MP to PS....Now therefore the MP trustee shall transfer all of the assets of the MP to the PS trustee (and some details about accounting for the balances but nothing about the PLANS actually being merged!)...The merger shall take place as of ____, 20__." It leaves a lot to be desired in terms of what happens to the allocation for the year....

So they merged the plans as of 10/15/2002 and for reporting purposes, they have a short plan year of 10/15/2002 for the MP. That doesn't necessarily mean that you have a "plan year end" for purposes of the MP accrual. It may depend on the precise wording in all the documents. What if both the old and new documents (and the SPDs) say that participants have to be employed as of plan year end to receive the contribution for the year, but both the old and new documents (and the SPDs) define the "plan year" to end on 12/31. If the amendment and notice aren't clear enough about how the 10/15/2002 "merger date" affects the accrual of benefits for the year, then I believe that the IRS (or a court) could decide that employees who were there on 12/31/2002 were entitled to a contribution for 2002.

Maybe I should just say, "Where's the legal basis for your conclusion?" But I'm not saying that I disagree with it -- or even that the IRS would disagree. I'm just saying that we don't currently have any guidance re how the IRS will rule in a merger situation. My understanding is that we only have guidance re termination and freezing. Those are clearly different from a merger. Depending on the circumstances, it's possible that the IRS could say that the funding requirements still apply because the merged plan was still in existence at plan year end (albeit in a different form) and the participants were still employed on that date. My greatest concern is that there are no standard "merger" terms. I've seen many very poorly drafted merger documents. Some that don't even have legally operative terms that actually effect the merger (e.g., they only state the intent to merge, but don't really even actually merge). If the details of the merger transaction and the transition aren't explicitly spelled out, the IRS could fill in the gaps however it wants.

Blinky -- It is my understanding that, while practitioners believe that is the conclusion that the IRS would reach based on similar rulings, there is actually no rulings from the IRS in the merger area that confirms that result. I.e., there is some risk in this approach and it may be advisable to obtain a ruling if the circumstances warrant (e.g., large dollars involved, adversarial workforce, etc.) Agree?

Kristina -- You are correct -- the auditors often prepare those schedules. However, it is NOT their responsibility. The standard audit report would say something like, "These supplemental schedules are the responsibility of the PLAN's MANAGEMENT. The supplemental schedules have been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole." After Enron, there should be much more reluctance for the auditors to be involved in both the preparation (which they should not be doing) and the review (which is the only part that they should be doing).

BFree -- What are you thinking is the difference between your two scenarios? You say that the loan from the plan is paid with "after-tax dollars. (previously taxed) Earnings on the loan taxed at retirement." Then you say the loan from the bank is paid with "after-tax dollars. (never-taxed) Earnings on this income is taxed at retirement." What is "never taxed"? You don't end up with any excess from the bank loan. You get $10,000. You pay the $10,000 back, plus you pay them interest. You have paid out more than you took in. (Did you think that you were going to end up with more than you had started with -- and that the excess outside the plan is not taxed -- while the excess inside the plan is taxed at distribution? Sorry, but the bank ends up with the excess and it is taxed on it.) Also note that when you do financial analysis, you have to look at the impact on all your resources, consider opportunity costs, etc. So when you consider the bank loan you have to consider what is happening to the assets in the plan

It is my understanding that there is not a significant advantage to actually doing the filing if you believe that you have fully corrected the late deposit -- following the method outlined in the VFCP. If the DOL later audits you and find some additional amounts that need to be corrected, it will NOT go back and assess penalties on the other amounts that you have corrected. The penalties apply only to the incremental amount. If you had filed, you would have been protected against such penalties. But there is time and expense in preparing a filing, so it may be better to take your chances at audit roulette. Especially if you believe that you have fully corrected.

I agree with all of those who say it is essentially tax neutral. To me, the decision of whether or not to borrow from the plan is based primarily on two factors: rate arbitrage and whether you intend to say with your employer during the repayment term. E.g., if your plan assets are growing at 5% and the plan and bank are charging 5% interest for a loan, it doesn't matter a lot what the source of the funds is. Either way, at the end of the loan term the plan assets will have grown 5% while your assets outside the plan have been reduced (on a net basis) by the 5% interest you paid. Compare that to a case where your plan assets are not growing and the plan and bank are charging 5% for a loan. You may be better off borrowing from your plan. The plan earns 5% while you reduce your assets outside the plan by the 5% interest. (If you had borrowed from the bank, the plan would have earned nothing, while you reduced your assets outside the plan by 5%). Then compare it to a case where your plan assets are growing at 10% and the plan and bank are charging 5%. You may be better off borrowing from the bank. Your assets in the plan will be 10% ahead, while you've only reduced your assets outside the plan by the 5%. (If you had borrowed from the plan, it would have only earned 5% for that time, while you reduced your assets outside the plan by 5%). Of course, this all depends on your ability to predict the markets and foresee what your plan earnings rate will be during the next five years.....But three years ago when markets were sluggish and interest rates were 9%, plan loans had some appeal.... However, you always need to consider that whether you may leave your employer before the maturity of the plan loan and repayment will be accelerated.

Instead of encouraging them to leave the plan, why don't you encourage them to go to a rollover? Lots of IRA providers have very attractive envelope stuffers. The breadth of investment options available in an IRA can be very attractive (unless you already allow self-directed brokerage accounts -- those can eliminate some of the incentives for moving to an IRA). For those participants who simply don't know how to go about doing a rollover, the IRA materials would provide them some of the necessary information. There may be others who are concerned about fees for an IRA, and the materials would answer some of those questions. Others may just be waiting for a complete turnaround in the market before they sell. NOTE: Check your plans with legal counsel before you do anything, because there can be implications of "recommending" a provider.

Bottom line: Be very nice in your negotiations. The doctor has nothing to lose and everything to gain in forcing the issue.

Those may be your arguments. But I don't think that they are 100% foolproof. I think that there is no doubt that an error occurred when the plan failed to deposit the money as directed. But unless you can prove an affirmative responsibility on the part of the doctor to review the statements for your errors and notify you of such errors, then your argument could lose. I don't know if messaging on a statement can be used to establish that responsibility on the part of the participants. I'm not aware of anything that requires participants to read statements or creates a presumption that they read statements. If they don't read the statement, then they can't get the message! So I don't know that messaging on the statement creates any legal responsibility on their part -- or that failure to so so creates an error. I think that your argument would be more viable if it was in the SPD and all employees had signed statements that they had read the SPD (which most employers require these days).

I've seen lots of IRS notices but only one actual penalty notice (I think $15,000?). After providing a letter of explanation of the circumstances, the penalty was fully abated. And if I recall correctly, the explanation was primarily employee turnover, lack of a qualified person handling the matters for a time, etc. The process had been improved and some action taken in the meantime. (It's always a good idea to describe how things have been improved in order to ensure that the same doesn't happen in the future). Anyway, the IRS was very reasonable in abating the penalties. (Compared to the DOL, which now typically abates most but not all of the penalties -- and clients end up paying $5,000 if they don't fix in advance of the Notice to Assess).

Well, the executives would most likely be the ones in possession of the "smoking gun" memo from a whistleblower....

It may sound craxy at first. But remember that one of the complaints in the Enron case is that while the stock prices plummeted, the employees were blacked out from selling stock in the plan and the executives sold their stock outside the plan. So there are rules that prevent certain execs from selling stock while rank and file employees are blacked out. See Section 306 of Sarbanes Oxley. http://benefitslink.com/laws/hr3673.shtml Make sure your facts meet the rules.