E as in ERISA

I believe that Kirk Maldonado is the resident expert on this topic. Hopefully he will respond. My understanding is that most qualified plan transactions (except "discretionary transactions") were exempt. Discretionary transactions only included certain transfers and distributions. The SEC release on August 28 continued the old exemption for qualified plans and created a special rule for certain discretionary transactions. See the link posted on this cite today. So I believe that the answer is "NO". I am not aware of anything that differentiates between matches made in stock and matches made in cash.

Exactly.

Can the investment result in a loss greater than the participant's account balance? Do the Schedule H instructions answer your question: "Participant-directed brokerage account assets reported in the aggregate on line 1c(15) should be treated as one asset held for investment for purposes of the line 4i schedules, except that investments in tangible personal property must continue to be reported as separate assets on the line 4i schedules. In the event that investments made through a participant-directed brokerage account are loans, partnership or joint venture interests, real property, employer securities, or investments that could result in a loss in excess of the account balance of the participant or beneficiary who directed the transaction, such assets must be broken out and treated as separate assets on the applicable asset and liability categories in Part I, income and expense categories in Part II, and on the line 4i schedules."

This is not a contribution. It is restoring income to the plan.

See the Sch H instructions for the 5500. For 2001, I think that the instructions for Schedule H indicate that if you have coded the plan to indicate it has such brokerage accounts (using "2R" or something like that on the 5500 itself), then you currently have the choice of either entering the asset by asset or entering all assets on one specific line (although some assets that could result in a loss to the rest of the plan may have to be entered line by line).

It is my understanding that not all CDSC are the same -- some may apply each time a participant withdraws from a fund; others may apply only when the entire plan is withdrawn from the fund, etc. The terms of the contracts and the economics of the situations may vary significantly. There are at least two questions that need to be answered -- Who gets allocated the charges? and How does the employer's repayment of the charge get treated? The results could (should?) be different under different circumstances. In PLR 200137064, the IRS does not consider the question of who should be allocated the charges. Participants have been had a guaranteed rate of return, and most have been receiving even more. It is assumed that based on the plan terms and the contract, that the individual participants who are invested in the funds will have their accounts charged, depending on how long they have been invested in the fund. The charge will reduce the rate of return (but it will not reduce it below the guaranteed amount). The employer was going to make a payment to the plan that would be allocated directly to these individual's accounts. The IRS concluded that the payment was an additional contribution that had to be discrimination tested, etc. The basis for this conclusion was that such payments are not "restorative payments" if they make up for general market fluctuations or if similarly situated participants are treated differently. The IRS said this was a fact specific conclusion. Has the IRS opined in writing in a situation where the CDSC was charged only when the entire plan was withdrawing? In a case where the CDSC is only being charged when the entire plan is withdrawing from the fund, I think that you have to start with the question of who should be charged the fee. I wouldn't necessarily assume that the charge will be allocated only to those currently in the fund based on how long they have been in the fund. You may have to allocate the charge across the board. So you have different issues about the allocation of the charge and different issues about the allocation of the payment. I think that makes a better case for arguing that the payment is a restorative payment, because it is not necessarily an offset to previous earnings of a participant within the fund and similarly situated participants may have the same treatment.... I don't know what the IRS would think of this argument. (I guess that most on this board would believe that the IRS would not agree?) But at some point it would have to give recognition to the fact that not all of these arrangements are the same.

The employer should make a contribution to restore the loss to the plan.

It can be a fine line. When an administrator follows specific procedures established by the sponsor/fiduciary, etc. the DOL or courts don't necessarily consider the administrator to be acting in a fiduciary capacity in making the initial determination -- as long as the sponsor or other fiduciary has the ability to review that decision. But it isn't risk free.

Many times the sponsor still files the Form 5500 at 10/15. It then receives a notice from the DOL because there is no audit attached. But the penalties are rarely (if ever) assessed by the DOL unless the sponsor fails to respond to the notices. This is just practice....I believe that the DOL is entitled to assess the penalties from the start if it chooses. The DFVC is really the legitimate answer. In a worst case scenario where the audit is not available until after the penalty is assessed, then at least maybe you can use the filing to claim "reasonable cause"?

457(B) has lots of rules that you have to comply with and limits that you have to apply -- kind of like a qualified plan. 457(f) is used by those who want to go above the limits of 457(B) and allow certain employees to defer more. But the monies have to be subject to a "substantial risk of forfeiture" in order not to be taxed. (The money is essentially "unvested" and once it becomes "vested" then its taxable -- even if the person hasn't received it yet). Does that make sense?

#2 If any benefits are paid out of a trust during the year, then the whole plan is audited for the entire year (including monies that don't run through the trust). #1 I recommend against money reverting to the employer, but I've seen others do it.... A trust is not required for employer contributions to a welfare plan, so it may be okay (although there may be a tracing requirment or something?) Maybe someone else can tell you. Even if there is no rule against it, sometime the trust terms limit the use...

Another thing to look at -- the differences in the two benefit plans. Does one have a better employer contribution or better performing investments? If the target's plan is better but its employees are going to be transferred into the acquirer's plan, then employees may be dissatisfied when they come over to the new company. On the other hand, if the acquirer's plan is better and the target's employees are going to be transferred into it, then this could change the economics of the transaction -- i.e., the costs of the target business may increase when you put them into the acquirer's benefit plans. It's not unlikely that the benefit plans have been almost completely ignored -- that they have barely been identified in the transaction documents and that there is almost nothing in "the room" relating to the plans. See what you can pull off the internet -- from freeerisa.com, the target's website, and Edgar (if they are a public company), etc. -- before you put your list together. Also find out the size of the transaction. The importance that the benefit plan issues will be given frequently depends on the size of the plan in comparison to the size of the transaction. E.g., if you have a $100 million purchase price for the target but the target's benefit plan is new and only has $1 million, then the plan issues might get ignored. If you have a $10 million purchase price and the benefit plan is $10 million, then you might be able to get some attention for plan issues (esp. if you can quantify them and be specific about the impact).

And if that seems unfair to the first spouse because he was married to her for 5 years and the second one for only 6 months....well, the first spouse should have obtained a QDRO at the time of divorce!

If all participants are getting charged the fee every time a transaction occurs that would be one thing. I don't like that answer, but at least it seems fairer than the situations where these DSCs aren't charged to individual participants when they transfer in and out of an investment -- only when the whole plan transfers out of the investment. So the IRS might have a different answer if presented with the second situation. At some point, you almost get to the settlor vs. plan expense argument.... (I said "almost" -- you clearly can't claim this is a "settlor" functioned as defined by the DOL).

Is the IRS' conclusion in PLR 200137064 correct in the first place? And if so, does it really apply to all DSCs? First, not all amounts deposited into a plan are subject to 401(a)(4), 404, 415, and 4972, are they? If an employer reimburses a plan for expenses, that reimbursement doesn't always get allocated to all participants and subjected to those rules, does it? Second, it seems that the DSCs might work differently in different plans, depending on the arrangement... I have been in an investment election in a plan (e.g., a fund with bonds or a GIC) where I had to stay with that election until maturity and only then did I have a choice to roll into the superceding bond or GIC fund or change to a different investment. (And I had notice of that). But I have been in lots of other investments where there was never any limits on how long I had to stay in. In PLR 200137064, it appears that participants were subject to time commitments and DSCs were being charged to the participants' accounts even before they changed to another investment provider. It says, "[t]he contracts... provide for withdrawal charges equal to eight percent of the account value during the first five Participant Account Years, four percent for the Participant Account Years six through ten, and zero percent thereafter. A Participant Account Year begins when an individual account is established and an initial contribution is credited to the account. A Participant Account Year ends on the day immediately preceding the next anniversary of such date. The withdrawal charges are assessed directly against individual accounts." So even if participants terminated and took a distribution, then they were getting hit with a DSC? Regardless of whether the whole plan changes investments? But aren't there a lot of participant-directed plans where these charges are not incurred while participants are transferring money among the different funds or taking distributions -- the charges are only incurred when the plan as a whole changes to another investment provider? So a person who voluntarily transfers out of the funds on one day may have no charge, but the person who happens to be in them on the day the plan investments are changed gets hit with a charge.... I think that under the facts of the PLR you have an argument that the individual participants shouldn't bear an expense caused by the fiduciary's decision to change investments. And I think that you have a much stronger argument in the second situation when the charge is clearly related only to the fiduciary's decision to change investments and not to the participants' decision.

I don't know the answer. Hopefully someone else can comment. I believe that this article, "Claims Procedures For Pension Plans Providing Disability Benefits" suggests that the 210-day rule applies to the claims procedures in an SPD: www.jenkens.com/jenkens/newsletters/BIB/bib_v4i1.pdf I believe that this article suggest that the SPD had to be changed by the applicable date: http://www.ebia.com/weekly/questions/2002/...RISA020703.html If the first author is correct, then I believe that the distinction lies in the fact that the claims regulation change is a substantive change and the QDRO change was a change to the SPD rules themselves.

Good point. Some commentators suggest that if you have a standardized prototype, then you may not be able to take advantage of the transition rule for coverage.

It looks like there are more facts now. But I guess that what I'm saying is that we'd need to know which arrangement governed the specific claim in order to know whether it was timely or not. I'm guessing that there are several arrangements between several parties -- each of which may or may not apply to the specific claim. There is a participant, an employer, a plan, a service provider (the "hospital"?), a third party insurance company, etc. There may be arrangements between the participant and the hospital, between the insurance company and the employer and/or plan, between the insurance company and the hospital, and between the hospital and the employer and/or plan. The insurance company could be acting as an insurer or providing administrative services only. And various other considerations.... The hospital's arrangement with the insurance company does not necessarily extend to every claim in which they are both involved. That contractual arrangement may be irrelevant here. (That sounds like what the insurance company is saying?) If the insurance company is not obligated to pay this claim under their contract, then the question is who is obligated to pay? And what conditions (such as timely submissions of claims) must the hospital meet in order to get paid? The hospital could have arranged with the employer and/or plan to submit claims directly to the insurance company on behalf of the employees. Or the hospital may be doing so voluntarily. So maybe the only relevant contractual relationship is that between the participant and the hospital. The hospital will bill the participant for the amount not claimed. The participant will submit the claim to the plan again. If the plan doesn't pay the participant (because it wasn't submitted timely), then the hospital may never collect. (Not because it's not entitled to, but because the participant doesn't have any resources...)

This would require more than a post on a message board. A few considerations for starters.... 1. Determine the form of the transaction (purchase of assets vs. purchase of stock, etc.) -- to see if the plan will come over with the business or will be left behind in a shelled out company. I.e., see if this is an issue for your company. 2. Determine if the transactional documents discuss what will happen with the plan (whether the intent is to terminate it, have the acquirer adopt it, etc). 3. If the plan is coming over, request copies of plan-related materials from target for the past three years or more (5500s, audits, participant reports, payroll reports, documents, etc.). 4. Review materials to see if the other the other plan has qualification issues (so you know whether you want to merge it with your plan -- if yours is fairly clean -- and to quantify the risk). 5. Determine if there are any other outstanding liabilities -- employer contributions due, etc. 6. Plan issues can be considered in the transactional negotiations -- either to adjust the purchase price and/or just to decide whether you will allow the plan to be merged, etc. 7. Consider the interim administrative issues (what happens to loans, when do target's employees get into your plan, do new forms have to be completed, can the employees get distributions from the old plan, etc., etc.)

I agree with Mike Preston. The general thought is that this is a restorative payment.... However, there have been other threads suggesting that it doesn't hurt to have someone review the contract (and the plan?) and see if there is any way to have all or a part of the back end charges paid as an expense outside the plan. (If that works, it seems that maybe there is a way to have them characterized as an expense and paid by the employer inside the plan??)

The claims regs contain substantive rules about claims procedures that have to be followed by the "applicable date." The regs provide that the procedures have to be included in the SPD. The commentators are saying that the "applicable date" applies to the substantive rules, and that the normal 210 rule applies to the SPD requirement. (I believe that this is different than the new QDRO requirement -- which was not a change in the substantive requirement -- just a requirement to add it to the SPD).

I asked a similar question on 6-4 labeled "Revoking an election." Per my search of earlier threads, it appeared that the answer was that state law sometimes requires that employees be allowed to stop salary reductions at any time (including loan payments!) but that the code did not specifically required it. I suggested that maybe the "cash availability" requirement of 1.401(k)-1(e)(2) requires that participants be given the regular opportunity to elect cash (which seemed to be a key factor in the approval of automatic 401(k) enrollments). I think that some thought that once a year or so is regular enough. I'd feel comfortable with something more frequent than that....but I don't know about "any time."

Do the plan and contracts prohibit them from either: 1. Paying it outside the plan. 2. Treating it as a payment of an expense within the plan.

The 2001 instructions said, "If the 2001 Form 5500 is not available before the filing due date, use the 2000 Form 5500 and enter the dates the plan or DFE year began and ended in Part I." I would do the same for 2002. I thought that the DOL also issued some guidance about marking up the dates....but I can't remember where.

http://www.taxlinks.com/rulings/1991/revrul91-4.htm