IRA

I agree. But here is the bottom-line question. Assuming you do have a safe harbor match, how do you keep track of employees who terminated more than 5 years ago - say 10 or 20 years ago - and are later rehired? What is everyone doing out there?

The change to section 1.401(k)-1©(1) involves vesting for purposes of the rule of parity as it relates to vesting. I don't think that section says you have to treat elective deferrals as vested for purposes of the rule of parity as it relates to eligibility. See also Section 1.401(k)-1(a)(4)(ii), which says elective deferrals are treated as employer contributions for purposes of 411, but does not mention 410. Nonetheless, I tend to agree with you. It is just that something in the back of my mind tells me that a safe harbor match is treated as an elective deferral.

That's vesting. I'm talking about eligibility.

If a plan has only a 401(k) arrangement and a safe harbor match, we know that the elective deferral is not counted for determining whether a person is vested for purposes of the rule of parity under 410(a)(5)(D). But what about the safe harbor match? Is that considered an elective deferral for this purpose or does the safe harbor match mean that the participant is vested and thus the rule of parity cannot apply for eligibilty purposes?

This is a non-exempt PT, plain and simple. You can't use your qualified retirement plan money to start your own business unless you are acting solely as an investor, and even then there are PT problems you have to work through. Until Bob Doyle or Ivan Strasfield blesses it, I wouldn't do it.

I would never consider this to be an escheat issue. If I pay a bill and the payee doesn't want my money, I just keep the money and maintain an account payable on the books. I wouldn't send the money to the state. Is there something else going on here?

We are looking for new defined contribution health plan software (including HSAs, HRAs, and even FSAs). Does anyone have any thoughts/experiences/recommendations they are willing share?

It seems to me if she is taking a distribution now (directly or indirectly) then the money should be considered when her financial aid is determined. After all, she will have the money, won't she? If she is not, i.e., deferring or rolling it over, then it should not. But I'm not, of course, a finanical aid expert. I think your question is more about financial aid and less about QDROs. Is she trying to figure out how she can lie to her financial aid office, or do the financial aid rules permit something like this?

Why can't the AP justs defer the distribution until after she finishes her schooling? Or does she need the money now?

Can you avoid the excise tax if the ESOP sells shares before the 1042 sale and then after the 1042 sale the ESOP still meets all relevant rules (e.g., holds 30%). In other words: (1) One day after date of 1042 sale, ESOP sells the 1042 shares, and thus (2) there is a 4978 excise tax; but (1) One day before the date of the 1042 sale, the ESOP sells a number of shares equal to the number of 1042 shares to be acquired in the 1042 transaction, and thus (2) there is no 4978 tax provided that the shares held by the ESOP for three years does not fall below the number held on the date of the 1042 transaction (and all other requirements are met). Also, is there any authority for taking the position that using the cash proceeds to pay the ESOP loan reduces the amount recognized?

It makes sense that this rule would only apply to non-majority owned corporations. If a group acquires 30% of a majority-owned corporation then you don't really have a change in effective control because the majority owner would continue to control the sub (unless the group also acquire 50%, in which case the majority owner would no longer have control but then you would have a change in ownership). Does this seem correct or am I missing something?

Brooks, In your article it seems to me that you take the "simply forgot" language out of context. The courts are not saying that Congress "simply forgot" to include other damages. They are saying that Congress did not "simply forget" to include other remedies but instead made a deliberate decision not to include them, and if Congress deliberately decided not to include them then the courts won't add them. Also, why would your theory not take us back to the Lochner era? Why does have Congress have the power to prevent us from entering into a contract that requires an employee to work 80 hours a week for $2.00 an hour? If an employee is willing to do that and needs to do it to get a job and feed her family, how can Congress prohibit that? If the employee signs the contract and then breaches that contract demanding minimum wage and overtime, doesn't the employer, under your theory, have an inalienable constitutional right to sue for breach of contract notwithstanding the FLSA? I think most ERISA lawyers worth their salt would agree that ERISA should be changed, if we could ever get the change past the special interests groups (yeah, right, and do we wonder why Bush's plan to make all health insurance premiums pre tax whether or not employer sponsored can't go through? Answer, employer plans would be gone and there would be no ERISA plans and thus no ERISA protections.) Day after day we see the financial industry and service providers using ERISA as a shield to protect them from claims arising out of their own negligence brought by both employers and plan participants and beneficiaries. Yet ERISA was supposed to protect the employers and plan beneficiaries and participants, not the financial industry and service providers. But whatever we think of ERISA, I just don't think of punitive damages as being an inalienable right. Congress has the authority to regulate many contracts. Nobody has to be in an ERISA plan if they don't want to be; they don't have to work for that matter (See the 13th Amendment). But if they do agree to participate in an ERISA plan, they are subject to the contractual terms provided under that plan, even as those terms are modified by Congress.

If an ESOP aquires more than 50% of the company, is that a change in control for purposes of 280G?

Has anyone heard any rumors about subprime mortgage ERISA litigation?

Everyone, good analysis. Thank you. We've got the securities laws aspects covered. On the PT/adequate consideration side, I'm inclined to focus in on the different advice, including that of TMills who said, "If the appraiser has not already factored the transactions you mention into the report, the trustee should at least ask the question" and that the brokers' sales are not necessarily determinative of FMV. Since the purchase of shares by the KSOP from the company is a transaction with a disqualified person, the bottom line is the trustee must in good faith make a determination as to whether the appraised price as of the date of the transaction is adequate consideration. As RLL noted, that value can become "stale." I think to be prudent the trustee should at least document why he/she thinks the appraisal price is still good despite the brokers' sales. While this may increase administrative expense and burden as the year goes by (purchases are made every payroll period), I'm beginning to believe this is an unavoidable problem with KSOPs. I'm surprised that with all the commentary out there on KSOPs that I found nothing that addresses this. If anyone has any other thoughts, please chime in.

The appraiser does take the transactions into account, but the appraisal is done just once a year. It can't take into account subsequent transactions. The brokers are just selling the stock for what the market will bear. I wouldn't say they are overpaying. Obviously, if the brokers were selling it for lower than the appraised value then we would have a problem and at a minimum the trustee would have to make an independent determination as to whether the appraised value is the correct value. Here, the appraised value is lower than the "market" value so it seems easy to say no harm to the plan/no foul, at worst it is a self-correcting PT. Any other thoughts?

My client has a KSOP. It gets only one annual valuation each year and uses that value for the entire year to purchase company stock through 401(k) deferrals (offered as an option under the 401(k) feature -- I know, don't go there). The client is closely held, but does have two or three brokers who will from time to time trade the shares; assume the stock is considered not traded on an established market. The FMV for the traded stock is consistently higher than the appraised value. Assume there have been no transactions between the plan and any disqualified person other than contributions of stock for the ESOP and purchases of stock through the 401(k) deferrals. The ESOP is not leveraged. Is there a problem with using the annual valuation when the client knows that value is lower on a consistent basis when compared to the market price the brokers get for the stock? FYI, the company uses the appraisal value for all relevant purposes, e.g., including for the 404 deduction limits, 415 limits, etc. Any thoughts would be appreciated.

I have not looked at the FAB recently, but I'm pretty sure it has to be in the SPD or you can't pass it along.

Possible Solutions: 1. Ignore it if the participant doesn't care. I can tell you the IRS and DOL won't care. Technically the participant could bring a claim against the plan now for the distributed money. Get a signed waiver from the participant in exchange for the plan's agreement not to pursue the matter further and move on. 2. Ask the parties to get a QDRO that permits a distribution when it was actually made. 3. Tell the AP that you are going to sue to get the money back unless they get a QDRO that permits a distribution when it was actually made. 4. Even better, tell the AP that you are going to issue a 1099R unless they get a QDRO that permits a distribution when it was actually made. A 1099R would be appropriate because the plan is technically disqualified and therefore the distribution was not eligible for a rollover. Don't tell the AP that part. Just say you are going to issue a 1099R and go from there. 5. Look at the divorce decree and ask a family lawyer in that state (preferably, one of the parties' lawyers) if under state law the QDRO could be interpreted to permit an immediate distirbution (e.g., clerical error). It seems to me that unless the plan forced the distribution, the former spouse had to consent and therefore thought he or she was going to take an immediate distribution. 6. See if the plan requires an immediate distribution, regardless of what the QDRO says, or just permits an immediate distribution. If the plan requires an immediate distribution, and has an IRS letter, move on. I know people will say you can't do these things, but the reality is that you can.

I've also heard law firms say the IRS has in the past had some rule of diversificaation. There must be a source out there. Just because I can't find it doesn't mean it doesn't exist. Again, I know it is impossible to prove a negative.

This guy has worked for the EBSA since the EBSA was at the IRS, e.g., before the Reorganization Plan of 78. I know it is impossible to prove a negative, but I still think there is something out there.

A person who works at the EBSA for the DOL told me that the IRS told him that the IRS no longer requires diversification. I don't think the DOL guy was fibbing. So there must have been some obscure guidance out there under which the IRS previously required diversification. Anyone know anything?

I've heard the IRS requires or did require IRA investments to be diversified, but I can find no guidance. Does anybody know of any?

I agree with Fiduciary Counsel. If you represent the participant, you have duty to represent that participant zealously (unless your state rules provide a lower standard for attorneys or you happen to be in a collaborative law situation that somehow lowers the standard of representation you owe the client or something like that).

I'm looking for thoughts on the pros and cons of choosing between (1) terminating the plan and distributing all assets before the determination letter is received in order to avoid filing the 5500 in the following year or (2) terminating the plan and obtaining the determination letter before distributing.