J Simmons

Madison71, In February 2007, the law firm Paul Hastings conducted a web seminar entitled Successor Liability for Benefits in Asset Sales. If you e-mail me privately, I can provide you the outline of that presentation as well as case law that I have on the topic.

Particularly in the 7th Circuit, the US Court of Appeals and District Courts have begun to develop a body of federal common law around the concept of successor employer liability even in the context of an asset purchase. This is a concept borrowed from the FLSA, and does not require commonality of ownership as many state law doctrines of successor corporate liability do. So B could perhaps be held liable even if it paid fair and full value for the assets of A. The parameters outlined in those cases should be examined, and perhaps the transaction structured around falling into that trap.

I think Bird is correct. But I would add, many ERs would like to add a SARSEP but cannot. Is it really worth all the trustee and investment issues, recordkeeping, etc. to leave the SARSEP and go to a 401k? Make sure because once you stop that grandfathered SARSEP, there's no going back.

I think you can eliminate the subsequent in-service withdrawal option as to rollovers of all benefits to be rolled into the plan after you make the amendment. The in-service withdrawal BRF has not yet attached to such amounts, even as to amounts that current participants have yet to roll into the plan. If there has been preponderance of HCEs just roll benefits into the plan (while the BRF attaches to those rolled-in benefits), and now you stop it, the timing might be discriminatory. Treas Reg 1.401(a)(4)-5.

Do you know what company was the prototype sponsor? Maybe the financial advisor could be helpful in that regard, and then you could see if that sponsor happens to have record of the adoption agreement. Back in the 1990s, a prototype sponsor was supposed to send the adopting employers a statement each January that the sponsor of the prototype continued that sponsorship, and in order to do that, the prototype sponsor needed to keep a list of the adopting employers. Perhaps that list from the prototype sponsor would be of some help with the closing agreement process if the adoption agreement cannot be found. This kind of illustrates why applying for a d-letter every restatement is not a complete waste of time.

Classify each doctor who is an HCE individually, in his or her own group. But you can't honor individual decisions between more compensation/earnings and more benefit accruals--these have to be company decisions. Otherwise you would have a disguised and most likely nonqualified CODA.

Thanks, Belgarath. There were two other interim amendments that did utilize the method you spoke of, from IRS Notice 2005-37. However, for some reason the two interim amendments I am concerned with were drafted in a way that required the sponsoring employer's signature in addition to the VS sponsor's signature, and there were no options being given to the sponsoring employer. I think that you answered my question, though. Since IRS reviewers are challenging those amendments structured under IRS Notice 2005-37 and bear the VS sponsor's signature but not that of the sponsoring employer (as no options were selected), then those reviewers would obviously be on the look out for and challenging the fact that there are other amendments that would have the VS sponsor's signature but not that of the employer too. Thanks.

I took over the design and document work for a plan that has a TRA '86 d-letter, but not a GUST II d-letter. For GUST II, it was timely restated using a VS document. We've restated it for EGTRRA using a prototype document. I'm considering making an application for an EGTRRA d-letter. In assembling the plan documents since the TRA '86 d-letter, I've noticed that on two of the interim amendments, the VS sponsor signed/dated, but the employer signed but did not date. Also, the date is faint on the GUST II restatement VS adoption agreement, but upon 4X magnification can be discerned (and it was timely). Should I make an interim amendment failure VCP application due to the lack of dates on the two interim amendments? (I know of a plan that its TRA '86 restatement docs were signed but not dated, and that resulted in a $3,500 penalty when caught on GUST II d-letter application.)

To heck with the Elvis costume, I want that pilgrim outfit--better yet, I'd like to be able to fit into that pilgrim outfit.

Good points, vebaguru. The best that I've seen is where the health plan document is in the 10-15 page range, uses concrete terms to cover eligibility, benefit accruals and payments, claims process, the ERISA 'contact' info, amendment and termination process, etc., is signed, and then has schedules of what types of medical coverages apply and what do not, and have a table of annual deductibles, co-pays, and co-'insurance' obligations. Arguably, so formatted, the 10-15 pages are readable by the employees, and with the attached schedules are comprehensive in the info provided. Nevertheless, I agree with your sentiments. Most health SPDs that are the only plan writings do not suffice the plan document requirement.

I agree with Jim. By reason of no HCEs, there is no discrimination concern. So you do not need a gateway minimum for NHCEs.

maybe. The doc and spd requirements are different. If all the doc requirements are covered in your spd, then you are okay. Otherwise, no.

That's how I understand that.

I think from an equitable and marital/community property law perspective, #1 would be favored over #2. But what does the QDRO say? If it says, as is common, that the ex-spouse gets 50% of what accrued during marriage, that is #1. However, a QDRO could be drafted in a way to give the #2 result--unless that $10,000 has already been awarded to another AP per a prior QDRO.

Yes. That only rate group could only pass if the NHCE has an EBAR equal to or greater than that of the the owner. So it passes the 70% ratio percentage test. The ABPT should be in applicable.

when the check is mailed per the law of negotiable instruments, and the obligation is then satisfied (given that the check is not dishonored by the drawee bank)

I think the plan did more than try to make payment as a direct rollover. The plan did make a direct rollover payment. The IRS accepts the plan's doing so by providing to the distributee a check made payable to the rollover institution. The f1099-R properly reflected that, particularly given the knowledge of the plan at the time it issued the f1099-R.

Is that 6% contributed as 401k elective deferrals? (if so, then no it does not reduce compensation for deductibility purposes), or as a 'company' contribution? (if so, then yes it does reduce compensation for deductibility purposes).

Would that apply if the filing instructions say that you must file a corrected form? The general 1099 instructions, section H, page 6 says Unless the statute enacted by Congress requires a corrected form and the IRS instructions are merely reflecting that (or they are found in 'legislatively mandated' regulations), I don't think the IRS can lose a couple of cases it challenges the taxpayer on and get around the result merely my making such a statement in form instructions.

So, you could use QNEC's to satisfy the ACP and QMAC's to satisfy the ADP. I guess since the employer funds both they are one in the same? To the extent the plan document permits and the QNECs are not used to satisfy the ADP, you could use them to satisfy the ACP. Likewise, to the extent the plan document permits and the QMACs are not used to satisfy the ADC, you could use them to satisfy the ADP.

Generally speaking, how you've understood it is how many plans provide explicitly. However, a plan can alter to which of the tests, ADP or ACP, certain amounts will be applied.

I think you'd have to amend under EPCRS, retroactively, to reduce the $1,000 to $200, and apply it going forward in all cases. 'Go forth and sin no more' after getting the retroactive amendment in place. Whether you'd have to VCP to do this, I do not recall--and it may depend on how many former employees have been affected by the failure over how many years. Also, this is a failure of the ERISA fiduciary duty to follow the plan document. So VFCP through DoL would be a good idea. This was an issue that I advised a plan with regards to a DoL audit a few years back, so I know it is of concern to and on the radar of the DoL/EBSA.

No HCEs in plan, no nondiscrimination problems. Red flags? Maybe if you submit for a d-letter, but you would also then be indicating that the plan excludes HCEs. Should not be a problem. You'd have to do this with individually designed plan documents, not within the confines of a prototype (not sure on volume submitter).

Yeah, but no corresponding benefits obligation either. So kind of a wash, except for the investment adviser who would have had more asset-based fees, I suppose. Not the most sympathetic victim for a court to hinge a ruling off of. Read: problems dealing with IRS mailings for months, asking for the 20% from the plan that was supposed to be withheld if you report it as a lump sum payout. The lack of a changed f1099-R does not prevent the distributee from properly declaring the distribution as taxable income. It does not get him/her off the hook and entitled to a tax-free distribution. It's self-assessment, or IRS assessment if audited. In fact, given the fact that the distributee has so approached the plan now and explained what he or she has, it might be tax fraud for the distributee not to report it as taxable income. That's separate and apart from the fact of the f1099-R, which is the issue for the payor plan.

Not disagreeing w/ your comments, is it possible that other taxpayers have a dog in this fight? If the EE uses the existing 1099 as proof that there is no taxable income, then he may have gotten (from his perspective) a "tax-free distribution". Thoughts? Other taxpayers are affected, no doubt. But courts have repeatedly held only the IRS has standing to pursue the matter in courts. I guess the point being, the plan took all steps expected by the IRS of the plan. It reported the transaction accordingly. The distributee has a tax obligation because the distributee changed his/her mind and did not deposit the check into the IRA, instead somehow cashing it. I see it is the IRS's role, not the ER's to enforce the resulting tax obligation from the taxpayer's actions. The distributee's election cause the ER to not withhold 20%, and to report the payout as a direct rollover. At the time of both, the ER had no reason to know differently. It acted appropriately. There are a couple of Tax Court cases that hold if the original return was filed on a good faith belief in the facts that later are discovered wrong, the taxpayer is not obligated to file an amended return. I just don't see how it is the plan's issue upon learning later what the taxpayer did. It's now an issue directly between the taxpayer and the IRS.