JRN

A local government agency provides a Section 401(a) Money Purchase Pension Plan (the "MPPP") in lieu of Social Security. The MPPP is intended to be an "alternative retirement system" under IRC section 3121(b)(7)(F). The Employer contributes 12 percent of compensation for eligible employees. The MPPP requires that employees complete one Year of Service (12 months and 1000 hours) to be eligible. And, the MPPP has a 5-year graded vesting schedule. Two questions: 1) Can the MPPP be an "alternative retirement system" if it imposes a one Year of Service eligibility requirement? Full-time employees who have not met the one Year of Service requirement are not receiving the minimum benefit. 2) Can the MPPP be an "alternative retirement system" if benefits under the plan are subject to a vesting schedule? It just strikes me as inconsistent with the idea of replacing social security if benefits can be forfeited. Thanks.

RLL I think you're probably right here. Thanks. JRN

No, not an S corp. (Are you thinking 409(p) rather than 409(n)?) Owner sold shares and elected 1042 treatment in 2006. Thanks.

I see two problems here. First, "if it walks like a duck, and quacks like a duck, it's a duck." What I mean by this is that the definition of "fiduciary" under ERISA is a functional defintion. If the individual is performing fiduciary functions, he/she is a fiduciary regardless of his/her title or what some document says. Once the broker starts providing "customized" information, he/she crosses the line and becomes a fiduciary. Second, I don't think the broker can legally provide "ongoing monitoring services", "customized Investment Policy Statement", or "fund specific advice" unless he/she has taken the next step and become a Registered Investment Adviser. So, (1) the broker is a plan fiduciary, and (2) he/she is doing something he/she is not licensed to do.

Company makes cash contribution to ESOP. Owner is a participant under the ESOP and receives an allocation of the cash contribution. The ESOP purchases shares from the Owner -- non-leveraged transaction -- and Owner makes 1042 election with respect to those shares. The Owner's account under the ESOP does not share in the purchase of the shares, because under Code Section 409(n) (and terms of Plan) no portion of the 1042 shares may be allocated to his ESOP account. Rather, the Owner's account remains invested in cash. Next year, the Company again makes a cash contribution to the ESOP and again a portion of the cash contribution is allocated to the Owner in accordance with the terms of the ESOP. The ESOP again uses a portion of the cash contribution to purchase a block of shares from the Owner. Again, no portion of the cash which has been allocated to the Owner is used to purchase the 1042 shares. Rather, the Owner's account stays invested in cash. Have we somehow violated the prohibited allocation rule under Section 409(n)? Certainly, no 1042 shares of stock have been allocated to the Owner's account under the ESOP. But, should 409(n) be read so broadly as to mean that once the Owner elects 1042 treatment, he is in effect out of the ESOP as an ongoing participant -- can't share in the non-leveraged cash contributions -- for the 10 year nonallocation period. This seems like an overly broad reading of 409(n) to me, but am interested in others' view. Thanks.