E as in ERISA

You could report the prior year assets at cash basis, do a "cash to accrual" adjustment as on "other" item for the current period on the income statement, and report the ending assets on the accrual basis?

Sounds to me like an insurance underwriting issue, not a legal issue?

You have not described the current funding mechanism for the plans -- general assets of the employer, taxable trust, VEBA trust, insurance arrangements?

I don't disagree. (In fact, I think that there are lots of provisions in Sarbanes Oxley that are misguided or overreaching). But the point is that the law as written is not clear. If you put in the search term ' "sarbanes oxley" 906 "11-k" ' on the SEC web site, you will see that others (mostly the CPA firms) are requesting clarification from the SEC on this issue in the final rules.

I don't know. I'm just agreeing with "hank" that this is a valid issue -- for which there doesn't appear to be any clear guidance.

And under Section 2(a)(7) of Sarbanes Oxley an issuer is defined as follows: "The term `issuer' means an issuer (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)), the securities of which are registered under section 12 of that Act (15 U.S.C. 78l), or that is required to file reports under section 15(d) (15 U.S.C. 78o(d)), or that files or has filed a registration statement that has not yet become effective under the Securities Act of 1933 (15 U.S.C. 77a et seq.), and that it has not withdrawn."

Section 906 adds Section 1350, which provides in relevant part: “(a) CERTIFICATION OF PERIODIC FINANCIAL REPORTS- Each periodic report containing financial statements filed by an issuer with the Securities Exchange Commission pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a written statement by the chief executive officer and chief financial officer (or equivalent thereof) of the issuer.” Aren’t 11-Ks filed pursuant to Section 15(d). So even if the CEO of the company doesn't sign the certification, doesn't the "CEO- or CFO-equivalent" of the plan have to do so?

If I recall, its very hard to find information on this topic. My vague recollection is that the only thing that you can set up is a SEP and then you are subject to a 10% excise tax. So it's just best to pay the household employee enough so that he or she can contribute to an IRA. I think that there was something in one of the proposals of the last year that would fix this.

Are you attaching a schedule of nonexempt transactions to the audit report? And reporting them on the Form 5500?

I would note that its my understanding that the 5330 is usually only filed for the year of correction. What I would have normally seen in this case is a 2002 Form 5330 filed for the interest on the 2001 late deposit....and in some cases for the interest on the interest (which is usually nominal). Its my understanding that the IRS doesn't pursue those further (from a former IRS employee).

Once you cross over January 1, you have a second prohibited transaction. See the instructions for Form 5330, Part VII line 26b. It says, “When a loan is a prohibited transaction, the loan is treated as giving rise to a prohibited transaction on the date the transaction occurs, and an additional prohibited transaction on the first day of each succeeding taxable year (or portion of a taxable year) within the taxable period that begins on the date the loan occurs. Each prohibited transaction has its own separate taxable period which begins on the date the prohibited transaction occurred or is deemed to occur and ends on the date of the correction.” There is an example where a loan is made on July 1, 2001 and repaid on December 31, 2002; and interest is $1,000 per month. The instructions say that the 2001 Form 5330 shows one prohibited transaction of $6,000 (for 6 months of interest at $1,000).” The instructions indicate that the 2002 Form 5330 shows two prohibited transactions – $6,000 for 6 months of interest in 2001, and $12,000 for 12 months of interest in 2002. I'm also assuming that the interest itself starts accruing interest if you fail to deposit it at the time that you deposit the deferrals.

The distinction here is that the person is getting treatment in order to enable them to be the one to administer the medical care themselves. Without the hypnosis, they might be in a condition that causes them to administer the injections incorrectly. And the results of putting the injection in the wrong place could be very costly.

What is the alternative to the hypnosis? That the plan would have to pay a third party to do the injections? That the person would have to be given anxiety drugs?

A bill in the House would possibly resolve this problem by allowing the money to be sent to the PBGC.

Brian -- You are right. It is the "prudence" standard of ERISA Section 404 that requires that a fiduciary do what a prudent investor would do -- and that includes regularly reviewing the appropriateness of the investments. In a DOL audit, one of the first things they will ask for is copies of your quarterly benchmarking reports. Many large companies regularly review not only the investments but also the investment managers and advisors (often with the assistance of an independent third party).

The issue of whether you should merge has little to do with the rate of match. First, even if you have two different plans, you might still have to test them together and then you may have to increase the match to B in order to pass. (It all depends on what your HCE ratios are. If you have a lot of HCEs in A and few or none in B, then you are possibly going to have to enhance the benefits to B in order to pass. If you have similar ratios of HCEs to non-HCEs in each -- or at least 70% -- then you probably can test them separately or even continue with the current structure with combined testing). Second, if testing them together is not an issue, then you can have two different matching rates for two different classes of employees (A and B) in a single plan. The decision to merge is primarily based on considerations such as: What is the cost of maintaining two plans versus one plan? Does either plan have possible qualification issues that would taint the other plan? If B has possible qualification issues, then you should consider having the former owner terminate that plan prior to the transaction. There is generally no requirement to 100% vest B upon a merger of that plan into A. A merger is a continuation of B in a different form, not a termination.

The principal portion of the loan repayments are merely changes in investments -- the loan fund is reduced and the fund in which the money is reinvested increases. The interest portion of the loan repayment is investment income (on the loan fund).

If it's a stock sale and all the employees are moving over, you probably don't have much in the way of partial termination or severance issues. And they appear to have already made the decision to continue both plans (hopefully they evaluated all the alternatives before deciding that?) I presume A already knows whether there are any operational issues in, liabilities to the plan -- and is negotiating purchase price adjustments based on the costs? And that A has compared and contrasted the benefit structures? The plans will have to be tested together in the future. The benefits might need to be changed in the future in order to pass testing (if one has a match and the other doesn't). If the benefits under B's plan will have to be enhanced, they need to understand the cost. And they should take that into consideration in determining purchase price.

The essence of a license to “practice law” is that it allows the person to represent clients before the courts of a specific jurisdiction. As a corollary to that, most jurisdictions consider “practice of law” to include giving advice to clients about how the law applies to the specific facts of their case. The reasoning there is that one advising about the probability of success of a specific case should be one who is licensed to prosecute or defend that case in those courts. (Note that even lawyers who are licensed in one jurisdiction generally cannot practice in the courts or give advice in another jurisdiction). Many non-attorney consultants provide advice to clients based primarily on IRS published guidance, etc. The advice is not fact specific -- they give the same advice to everyone. In those cases there is often very little risk of a lawsuit, because the IRS is the main “adversary” and the consultant is advising the client to follow the IRS’ guidance. (It is usually the attorneys who are telling clients to ignore or question or contest regulations that have never been finalized, are beyond the scope authorized by statute, etc...because they are ready, willing and able to take that case to court). But there is risk when non-attorney consultants start giving advice about grey areas of the law where there is no published guidance…or when they question the authorities…or when there is risk of litigation from third parties whose interpretations have not been published (such as participants). The news of the past year demonstrates that there has been a lot more of the latter type of advice in recent years. Accordingly, I don't think that this issue is going to go away.

Actually ERISA Section 404© says: "such participant or beneficiary shall not be deemed to be a fiduciary by reason of such exercise."

RIA has a set of tax books that includes a little info on plans.

Why don't we just add our social security numbers, too? Just kidding, of course. I would advise everyone to follow the suggestion of using 1904 (or some other obscure number). It is not a good idea to publicize too much information on the internet -- which is available to everyone. And many professionals already have too much out there....

If the plan is silent and you do something to protect the alternate payee before you get the DRO, then the participant can sue you claiming that there is nothing in the plan or the policies that allows you to restrict his account. See Schoonmaker v. Employee Savings Plan of Amoco Corp., 987 F.2d 410 (7th Cir. 1993).

The IRS 72(p) regulations only tell you how much of the loan has to be treated as taxable. It is the ERISA regulations that require that loans bear a reasonable rate of interest. So technically interest should continue to accrue at the stated rate during the cure (although I'm guessing that a lot of plans just use the original amortization schedule and don't update it for actual payments?).

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