Wessex

Terminating Plan. Participant who has been in pay status for about 25 years, who was divorced sometime after his benefits commenced in the form of a QJSA, and who never informed the Plan that he was divorced, is now complaining about benefit information received from the annuity provider that his former spouse is his joint annuitant as he does not wish his former spouse to receive anything. The divorce occurred after benefits commenced and the participant never notified the plan administrator that he was divorced. Based on current information, the divorce decree did not specifically address pension benefits and no QDRO was entered. The plan does not provide for substitution of a joint annuitant after benefits have commenced. I am leaning towards responding to the participant that his former spouse remains his joint annuitant unless he can provide evidence of a court order that his spouse is not entitled to survivor benefits if he dies before his former spouse, or at least the date and court in which the divorce was granted if there is any obligation for the plan administrator to search for an order. I cannot imagine that such an order would be granted, but you never know. Thanks for any helpful insight.

Company has a QACA safe harbor 401(k) plan with matching contributions made on a payroll basis. The company is considering entering into an arrangement with an insurance company to have it make short-term disability payments to the company's employees. The arrangement is NOT insurance. The insurance company will determine whether employees are disabled and, if so, make payments directly to the employees using the insurance company's EIN, and withholding taxes, garnishments, etc., and issuing W-2s to the employees. Loan repayments and 401(k) deferrals will not be withheld. The employer company will then reimburse the insurance company for the payments made. I am familiar with ASO agreements to administer short-term disability payments, but not direct payments by the insurance company that are not insurance. No one I know professionally has heard of this type of arrangement and each thinks the payments are compensation from the employer company. The insurance company says they've been doing this for years for many clients and the payments are not compensation from the employer. Are these payments compensation from the employer company (and not the insurance company)? These non-insurance payments are being made on account of service with the employer company.

Does anyone have a link to the text of DOL Advisory Opinion 81-78? Thanks for any help given.

A participant's last day worked was December 31, 2001. The participant was age 73 and not a 5% owner. Did this person "retire" on December 31, 2001 with a required beginning date of April 1, 2002 or did she "retire" on January 1, 2002 with a required beginning date of April 1, 2003. I think the former, but have found nothing in the regulations that specifies either way. The regulations generally say "retired during 1999" or some such. I'm about to research private letter rulings, but I would be very grateful if anyone can provide an answer.

Outside counsel for a plan sponsor submitted the GUST restatement of its individually designed, calendar-year plan in proposed form on February 28, 2002 and asserts that under Rev. Proc. 2002-6 the deadline for actually adopting the plan will be 91 days after the IRS issues a favorable determination letter. Rev. Proc. 2002-6 (which covers determination letters in general, not just for GUST) does not say that; it does, however, provide that determination letter requests may be submitted on "proposed" transactions." The regulations under Section 401(B) provide for the 91 day extension, but I don't think it is applicable here. I think the deadline was February 28, 2002 for adopting the restatement (not just submitting the restatement), and the 91 days will be for adopting an amendment to reflect any changes that the IRS may request before issuing the determination letter. For TRA '86, the IRS specifically allowed for submission in proposed form if the document was submitted by December 31, 1994, but if the plan was signed by December 31, 1994, it could be timely submitted as late as March 31, 1994 (I think, if I'm remembering correctly). Does anyone have any insight as to whether the proposed approach would be permissible for GUST?

My issue relates to whether spousal consent is required for a loan under the following circumstances: A money purchase pension plan has been merged into a profit sharing plan (with or without a 401(k) feature). Separate accounts were established for the balances attributable to the money purchase pension plan; these accounts will be adjusted for earnings and losses. Assets attributable to the money purchase pension plan will not be used as security for a loan. Section 401(a)(11)(B) and Q&A 5 of Section 1.401(a)-20 are clear that the J&S rules apply only to participants with the transferred assets and only to the transferred assets if there is separate accounting. Section 417(a)(4) provides that "if section 401(a)(11) applies to a participant when part or all of the participant's accrued benefit is to be used as security for a loan, no portion of the participant's accrued benefit may be used as security for such loan unless" the spouse consents. Q&A-24 of Section 1.401(a)-20 contains similar language and also provides that "spousal consent is not required if the plan or the participant is not subject to section 401(a)(11) at the time the accrued benefit is used as security". If a participant is obtaining a loan using only the non-money purchase plan assets as collateral for the loan, no spousal consent should be required because neither the plan nor the participant is subject to the J&S rules for the benefits being used as collateral. I understand that Dick Wickersham has informally confirmed this approach. Nonetheless, some persons are viewing the literal language of Section 417(a)(4) and Q&A-24 without the context of separate accounting approach for merged assets and concluding that no portion of the account can be used as security for a loan without spousal consent. As a service provider, whichever interpretation is correct obviously has system implications as to whether loans can be processed in a "paperless" manner without spousal consent. I am particularly interested in hearing the approach other service providers are taking, but all opinions are welcome!

A merger is not a termination of the plan, although I agree that after a merger there is only one plan. The original post does not specify whether both plans are currently maintained by the same plan sponsor, in which case the different-limitation-years rules would be currently applicable. I assumed, perhaps incorrectly, that the plan to be merged is a new acquisition, and that those rules would apply if the merger were delayed until 9/30. A review of the regulations regarding changing limitation years would probably be helpful.

The client is wilfully ignorant and irresponsible.

I am not certain, as it has been a while since I reviewed the rules on changing a limitation year, but you may have a problem with merging the plans as of May 31 because it seems that you would have two short limitation years for the 9/30 limitation year plan, and I believe that is prohibited. Can the merger wait until 9/30? There is an old Revenue Procedure that deals with maintaining plans with different limitation years (very complicated provisions).

A profit sharing plan, among other types, does not have to file a Form 5308 to change its plan year. A Form 5308 would be required, however, to change the trust year unless the trust qualifies for automatic approval. As pointed out above, one of the requirements for automatic approval is that no change in plan year have been made for any of the preceding four plan years.

I don't believe there is any exclusion permitted for eligibility service credited prior to the inception of a plan. There are no eligibility service exclusions. Eligibility service can be disregarded only after breaks in service. See Sections 410(a)(3) and (5). Unlike for eligibility service, there is such an exclusion (among others) for vesting service for service credited prior to inception of the plan. See Section 411(a)(4).

See Q&A 5 through Q&A 8 of Treas. Reg. 1.72(p)-1. They are somewhat obtuse and I have not reviewed them recently, but I believe a loan for construction is permissible if structured properly. If I remember correctly, the 1986 changes referred to by Richard Anderson were intended to correct perceived abuses in the "reconstruction" and "rehabilitation" areas.

I know I had the same reaction as Larry M from the information given. (Of course, making assumptions is always risky.) Free401k - is your firm a law firm? I have never heard anyone in a law firm refer to a partner or associate as a "legal rep," which you did in your initial post.

This sounds highly unusual; it smells.

I wholeheartedly agree with the comments by MWeddell and KJohnson. Anyone who wishes to use annuity contracts needs to do high level of due diligence and be certain that they understand the fee structure and limitatins. I am constantly surpised by the number of plan sponsors who had no idea of the fees that would be charged until they wished to transfer to another provider or participants were entitled to distributions.