EGB

VEBAguru - For split dollar as an ERISA welfare plan, you may want to take a look at ERISA 3(1) (death benefits constitute an ERISA welfare plan) and DOL Adv. Opinions 77-23 and 92-22A. Also, 409A does NOT exempt all split dollar arrangements. See Notice 2007-34. Last, you can have a top hat ERISA welfare plan, but there is no requirement to make a top hat filing with the DOL to gain the exemption.

Facts : Cash Balance Plan ("CBP") covering only HCEs is cross-tested with a 401(k) plan. Both have 6-year graded vesting schedules. In 2008, the Pension Protection Act will require CBP vesting schedule to be changed to vest over 3 years. Will the vesting schedule in the 401(k) plan have to be changed to a schedule as least as favorable as the CBP to avoid a discrimination problem under 1.401(a)(4)-11©? Would the answer change if the CBP covered both HCEs and NHCEs? Any thoughts would be greatly appreciated.

PMC - vesting is not considered an allocation condition; 1000 hours and last day requirements are examples of allocation conditions.

Thanks so much for everyone's comments. So, both ACP and BRF tests would have to be satisfied. Correct? Satisfaction of the ACP test automatically satisfies BRF as to a non-discriminatory amount per Reg. 1.401(a)(4)-1(b)(2)(ii)(B), but we would still need to satisfy 401(a)(4) as to availability? In any event, I doubt that we can pass ACP.

Thoughts on whether the following works as a matching safe harbor and/or whether it would require any additional tests: mandatory match of 100% of the first 6%; first 4% is vested; 5th and 6th% is subject to a 6-year graded vesting schedule. Any comments are greatly appreciated.

I realize that an employee of an LLC that also is a member of the LLC cannot participate in a cafeteria plan sponsored by the LLC. Do any attribution or constructive ownership rules apply when an employee is not a direct member of the LLC, but is an "indirect" member? For example, assume that a corporation owns 100% of the LLC and an employee of the LLC owns 1% of the corporation. In this example, is the employee deemed to be a 1% member of the LLC for purposes of eligibility to participate in the cafeteria plan? I think the answer to this is no, but I want to make sure that I am not missing anything. Any help would be greatly appreciated. Thanks in advance for any responses.

I understand the general rule that a 501©(3) can have a 403(b), but does also being a governmental employer that is not a public education entity blow the right to have a 403(b), even when the entity does have 501©(3) status?

Some of the participants have terminated employment and some have not. I believe the automatic rollover provisions only apply to terminated participants (and I think we are talking about termination from employment as opposed to termination from participation in the Plan). The Plan has mandatory distributions for amounts of $5,000 or less, but currently does not have any provisions covering 1.411(a)-11(e). Also, can we make a valid argument that the plan is not in the same controlled group as another 401(k) plan for purposes of 1.411(a)-11(e) since the plan was effectively terminated just prior to the acquisition that brought the sponsor of the Plan into the controlled group; of course, there are assets remaining in the Plan. I know this "day before" termination works in the context of the 401(k) regulations as they relate to making distributions of elective deferral money and the successor plan rules, but I am not aware of similar rules in the 411 context. Does a plan have to contain 1.411(a)-11(e) provisions in order to use the rules contained therein? It seems that the best answer to this question is "yes." Because this is a terminated plan, we don't want to have to amend it, but will do so if needed.

We have a terminated DC plan, but have another DC plan in the controlled group. Would everyone agree that we would be required to transfer missing participants account balances (or non-responsive participant accounts) to the other DC plan (ie, we cannot rely on the FAB, due to the footnote in the FAB which states that it assumes there is not another DC plan in the controlled group, and due to 1.411(a)-11(e))? Could we safely use the automatic rollover regulations for amounts up to $5,000 and transfer amounts in excess of $5,000 to the other DC plan? We would like to automatically rollover all amounts for missing/non-responsive account balances, but this does not appear to be an option. The problem we have is that the other DC plan does not want to accept the trasnfers, so we need to determine what we are required to transfer and what can be avoided via the automatic rollover rules.

At the establishment of the ESOP, all contributions were contemplated to be in cash, so this was not an issue. They are now wanting to begin making some stock contributions.

Closely-held ESOP makes annual stock contribution. Year-end annual valuation cannot be completed before April 15 of next year. What amount is properly deductible? Assume filing an extention in order to allow more time to complete the valuation is not an option and that completing the valuation by April 15 is not an option. Must the 12-31 valuation for the applicable plan year be used or can the prior plan year's valuation be used since the applicable plan year's valuation cannot be completed in time for tax filing? Employer really does not want to use the prior year valuation (even if this is ok). What are the options? I believe it is common that valuations for closely-held ESOPs are not completed until 5-6 months into the next calendar year, so this question must come up fairly often for employers making stock contributions to closely-held ESOPs. Any help would greatly be appreciated!

If a split dollar arrangement is an ERISA welfare plan, does this mean that there must be a SPD? I do not recall having seen a split dollar arrangement that had a SPD or that incorporated the SPD requirements into the agreement itself, but I wanted to get folks thoughts on this. Put another way, is there an exemption to all or some of the SPD content requirements for a split dollar arrangement that constitutes an ERISA welfare plan?

Facts: Client has about 7,000 employees at 28 different companies, all in a controlled group. All but 1,000 employees are covered by fully-insured health/dental plan. The remaining 1,000 employees, who are all employed at one of the subs., have a choice among 3 self-insured health/dental plans. There are HCEs in both the fully-insured plan and the self-insured plans. 105(h)(8) states that the 105(h) discrimination rules apply on a controlled group basis. The benefits test in 105(h) states that any benefit provided to a HCE must be provided to a NHCE, and the regulations tell us that we look at both the type and value of benefits. The regulations also tell us that we can aggregate plans for purposes of satisfying the 105 non-discrimination tests. Further, the regulations tell us that we can offset benefits provided in other plans for purposes of satisfying the tests. There seems to be little guidance out there on how to practically apply these rules. What if there are some components/benefits in the self-insured plans that are more favorable than the fully-insured plans? In comparing the plans, some of the benefits in the fully-insured plan are better than the self-insured plan(s) and vice-versa. Also, what is a "benefit"? What if a copay or deductible in the self-insured plan is lower than a copay or deductible in the fully-insured plan - is the amount of a copay/deductible a benefit? What if some surgery is covered in the self-insured plan(s) that is not covered in the fully-insured plan? There is certainly no intent to discriminate and the differences in the plans, from a practical standpoint, seem that they should be ok. However, the benefits test in 105(h) is strict in that it says every benefit offered to HCEs has to be offered to NHCEs. So, if cosmetic surgery is covered in a self-insured plan (which would cover an HCE) and is not covered in the fully-insured plan at another subsidiary which has NHCEs participating, 105 is violated because there are NHCEs out there who cannot get this benefit? Surely this can't be the outcome . . . Any thoughts on this would be appreciated!

Facts: Client has about 7,000 employees at 28 different companies, all in a controlled group. All but 1,000 employees are covered by fully-insured health/dental plan. The remaining 1,000 employees, who are all employed at one of the subs., have a choice among 3 self-insured health/dental plans. There are HCEs in both the fully-insured plan and the self-insured plans. 105(h)(8) states that the 105(h) discrimination rules apply on a controlled group basis. The benefits test in 105(h) states that any benefit provided to a HCE must be provided to a NHCE, and the regulations tell us that we look at both the type and value of benefits. The regulations also tell us that we can aggregate plans for purposes of satisfying the 105 non-discrimination tests. Further, the regulations tell us that we can offset benefits provided in other plans for purposes of satisfying the tests. There seems to be little guidance out there on how to practically apply these rules. What if there are some components/benefits in the self-insured plans that are more favorable than the fully-insured plans? In comparing the plans, some of the benefits in the fully-insured plan are better than the self-insured plan(s) and vice-versa. Also, what is a "benefit"? What if a copay or deductible in the self-insured plan is lower than a copay or deductible in the fully-insured plan - is the amount of a copay/deductible a benefit? What if some surgery is covered in the self-insured plan(s) that is not covered in the fully-insured plan? There is certainly no intent to discriminate and the differences in the plans, from a practical standpoint, seem that they should be ok. However, the benefits test in 105(h) is strict in that it says every benefit offered to HCEs has to be offered to NHCEs. So, if cosmetic surgery is covered in a self-insured plan (which would cover an HCE) and is not covered in the fully-insured plan at another subsidiary which has NHCEs participating, 105 is violated because there are NHCEs out there who cannot get this benefit? Surely this can't be the outcome . . . Any thoughts on this would be appreciated!

If the plan defines compensation based on earnings from "date of participation" forward and if an employee became a participant in the profit sharing component on July 1, 2003, what compensation is used for a SHNEC that is effective October 1, 2003? The real question I have is what does a plan mean by "participation" for purposes of the SHNEC when the plan simply says "date of participation" with no specific definition of "participation". Are we talking about any participation in ANY component of the plan (which would mean July 1 for this employee for purposes of both the SHNEC and the profit sharing contributions) or does it mean participation for purposes of each component benefit (which would mean July 1 for profit sharing and October 1 for SHNEC)? I beleive the former makes the most administrative sense and is best supported by the plan's general language. Based on rcline's post, I believe he would say that Oct. 1 applies to the SHNEC. Other thoughts?

Though it appears that many agree that the pre-funding can be done, does everyone also agree that the plan document must specifcally allow the pre-funding and specifically address what will be done with gains/losses, who has investment discretion, etc.? Or, do some feel that this is an administrative issue and does not have to be specifically dealt with in the plan document; for example, assume a plan just says the employer can allocate contributions in installments or annually and says nothing else - if the plan is silent about pre-funding, then you are not doing anything that is contrary to the provisions of the plan; however, it is also something that is not really authorized by the terms of the plan. Of course, I think everyone would agree that it is certainly best to specifically address pre-funding in the plan; my question is whether it is ok to pre-fund when the plan is silent on the issue and pre-funding would not otherwise violate the existing provisions of the plan?

Any thoughts/authority on the following: (Carol Calhoun - I would really appreciate your comments - I have ordered the Govermental Plans Answer Book which possibly would be of help when I get it, but I need answers ASAP.) Gov'l entity, via merger, inherits an underfunded DB plan that was originally established by a non-governmental non-profit (501©(3)) entity. Is the plan now a governmental plan for purposes of ERISA and the IRC? More particularly, does IRC 412 no longer apply following the merger such that the 412 amortization for the underfunding no longer applies? Assuming that the plan is now governmental and that there are no state funding rules that apply, it appears that the only funding rules are the pre-ERISA IRC 401(a)(7) rules which would require 100% vesting, to the extent funded, upon plan termination or complete discontinuance of contributions (subject to the non-discrimination rules set forth therein). Last, any thoughts/authority on the application of "to the extent funded" under pre-ERISA IRC 401(a)(7)? Surely a seriously underfunded gov'l plan cannot just be terminated to avoid the underfunding?? Maybe so, but the obvious reasons that it would not likely be done are: emplyee morale issues and the huge invitation for state lawsuits based on breach of contract, fiduciary duty, fraud . . . since preemption would not apply to a gov'l plan.

Merger of two corporations (stock for stock), with possible cash earnout payments over the next few years. Some of the earnout, if earned, will be paid to shareholders' 401(k) accounts (or possibly conduit IRAs if 401(k) accounts are rolled to IRAs) based on company stock held within their accounts. Is the earnout paid to the 401(k)/IRA accounts simply considered earnings and, thus, creates no immediate tax consequence within the 401(k)/IRA? Is the answer the same if the participants sold their stock held within the 401(k)/IRA prior to the time the earnout is paid? Any thoughts are appreciated.

A little twist - what if you charge higher premiums to the NHCEs than the HCEs? Actually, the premium amounts would be based on job classifications (eg, executives, management . . . ) and higher premiums would be charged as you go down the line; but, all are eligible and the benefits of coverage are the same. Though this smells a little bad, I think it is ok. Any thoughts?

I realize that an opt-out of health insurance in favor of a cash payment needs to be run through a Section 125 plan to avoid contructive receipt issues. Suppose we want to allow each employee who opts out of health insurance the right to choose to either take cash or to put all or a portion of the cash into a medical or dependent care flex account. I assume that, so long as this option is documented in the 125 plan, there is no constructive receipt issue related to the right of the employee to choose to take cash or to instead have the amounts placed in a flax account. ?? I have seen situations in which cash is paid to the employee and situations in which the cash is placed in a flex account, as determined by the employer, but I have not seen a situation in which the employee is given the choice. Any comments would be appreciated. Thanks.

RLL-- thanks for your response. As the facts turn out, the same valuation firm is not being used for both the majority and the minority with respect to the merger. Rather, the 70% majority shareholder (also a trustee of the plan) recently used the valuation firm to value the company for purposes of assisting said shareholder in making transfers to an LLC and GRATS that said shareholder was establishing. Now, the trustees (there are three) want the same firm to issue a fairness opinion and valuation for the merger, just for the ESOP, but not for the majority shareholders. This same firm is also anticipated to evaluate the stock of the Company as of 12-31-02 for allocation purposes (a different firm has been used in the past for the annual valuation). So, the question really is whether there is any conflict in this valuation firm handling the fairness opinion given that it recently valued the company for the majority shareholder and trustee on an estate planning matter and given that it will handle the 12-31-02 valuation. The trustees want to use this particular valuation firm for a few reasons; first, it is a well-recognized, excellent valuation firm in which they trust to do a good job; second, economies of scale - because of the recent valuation, the firm has much of the information needed to issue a fairness opinion and thus will not have to start from scratch - lesser fees; and third, because the firm has a headstart, it can issue the opinion more quickly. The valuation firm is comfortable that it does not have a conflict. RLL - are the DOL objections regarding the use of the same valuation firm that you referred to in the form of DOL opinion letters?

Is it necessarily inappropriate for an ESOP to retain the same valuation firm to value the stock and issue a fairness opinion as is retained by the majority shareholders for a merger of the companys ponsoring the ESOP? Assume the valuation firm is truly independent of the company and the shareholders. Aware of any cases, DOL audit, etc. where one of the issues is the use of the same valuation firm for both the majority shareholders and the minority ESOP? Also, it is necessarily inappropriate in a merger to have the majority shareholders participate in an earnout, but not the ESOP -the ESOP is to be paid some sort of premium since it cannot participate in the earnout? The ESOP is being terminated in connection with the merger. Aware of any cases, DOL audit, etc. where an issue involves no earnout for the ESOP? Any comments are appreciated. Thanks.

Can a governmental DB Plan elect to be covered by the PBGC? This is a to-be-established DB plan that, though the sponsor is govermental, wants to "elect" into ERISA coverage and wants to be covered by the PBGC. Can this be done? Thanks for any comments.

Is Kelly correct? My facts: Merger of two corporations, A and B. A maintains a 401(k) plan with small match. B maintains a 401(k) plan with a larger non-discretionary match, with no requirements to be entitled to the match other than deferrals (e.g., no last day, 1000 hour req.). The 401(k) plans merge mid-year and they want to continue the match from A's plan (ie, the lower match) for everyone for the rest of the plan year. Plan A allocates match on payroll period compensation, but Plan B allocates match based on annual compensation. Must the Plan B match be maintained for the remainder of the year for the Plan B participants? More basic question is: In a plan that has a non-discretionary match, with no requirement to be entitled to an allocation other than deferrals, is it ever appropriate to reduce the match mid-year? Does the answer to this question depend on whether match is determined based on payroll period compensation or annual compensation? Any comments are greatly appreciated. Thanks.

The Joint Committee on Employee Benefits of the ABA posted on its website a Q&A transcript of informal discussions between JCEB and officials from the DOL from May of this year. The DOL informally responded in one of the Q&As that the portability, access and renewability requirements of HIPAA do not apply to a retiree-only health plan (though the rules relating to mothers and newborns would apply).