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Steve - thanks for your response. Your assumptions are correct. It is a quarterly valued, balance forward plan that is participant directed. I have always thought this type of conversion should take between 2 to 6 weeks in a plan that is not daily valued. The trustee/recordkeeper had all the information needed from the client in order to prepare allocation data, etc. and the conversion was made on a new plan year basis (ie, the plan year was 1-1 to 12-31 and the change was to be effective 1-1). The trustee/recordkeeper has no real excuse at this point as to why it was unable to give the appropriate allocation information. At this point, I have talked to only one individual who thought five months was "no big deal" and that it "happens all the time." Even if it does happen all the time, I personally do not think five months is reasonable beyond very extenuating circumtances.

Alf - thanks for your response. Your assumption that I was referring to trustee/recordkeepers is correct. Your experience of 2-4 weeks is the same as my experience. I have a situation where a trustee/recordkeeper failed to pass on allocation information to another trustee/recordkeeper for FIVE MONTHS (though the trust assets were passed on in two weeks). That is, the old trustee turned the assets over to the new trustee, but did not give the allocation data necessary to actually allocate those assets for an additional five months. Accordingly, the assets sat in a money market account earning 2% for five months. The value of the assets was about 4 million dollars, so the lost earnings is fairly substantial.

What is a typical "black-out period" to move qualified plan assets from one trustee to another (ie, to new investment options with the new trustee) in a quarterly-valued plan? I realize that this would vary depending on the investments that have to be liquidated to accomodate the transfer to a new trustee. I am looking for what "typically" happens. I am interested in what typically happens. Is it reasonable in a quarterly-valued plan for the terminated trustee to transfer the funds to the new trustee within two weeks, but not to provide the new trustee with data necessary to allocate the money for five months? Any thoughts would be greatly appreciated.

Right or wrong, I know of many employers who have chosen to pay COBRA premiums on behalf of various employees as part of a severance package. I do not see a problem with doing this. ScottN asked whether other employees could demand similar treatment - while they might try to, I do not know of anything that requires non-dicrimination in the application of COBRA.

It is clear to me that the IRS is holding off on enforecment of filing requirements for certain "specified fringe benefit plans" under Section 6039D until more guidance is issued. However, it is unclear to me what 5500 requirements may still apply. If an employer is maintaining (1)a group term life insurance plan (self-insured); (2)weekly sickness and accident benefits plan(self-insured); and (3)$1200 death benefit payable (out of the employer's general assets)only to employees who reach a certain age before dying, and each of the foregoing plans has more than 100 participants, which, if any, are required to file a 5500? Note: It is my understanding that the death benefit is a welfare plan under ERISA. In determining the number of participants in the death benefit plan, would it be all employees since they are all potentially eligible for the benefit?

Assume two 401(k) plans are being maintained by Company A and Company B which are in the same controlled group and that Company A's PY is 1-1 to 12-31 and Company B's PY is from 10-1 to 9-30. How is controlled group testing done for 410(B) purposes? Would a 410(B) test be run for Company B at 9-30-99 based on data on Company B at 9-30-99 and data on Company A at 9-30-99 and then a 401(B) test would be run for Company A at 12-31-99 based on data on Company A at 12-31-99 and Company B at 12-31-99? Also, can anyone recommend a comprehensive book/resource that covers 401(k) testing issues in great detail (with examples, etc.)? I would like something that goes beyond a citation of the regulations. [This message has been edited by beth beaube (edited 12-07-1999).]

David -thanks for your response. Nothing is too trivial for me. However, we do not have a QDRO. I have seen a number of rulings that involved the question of "who gets the money", but have not found one that fits my situation. For example, I have seen cases (1) where the participant remarries and forgets to change his benef. desig. from the x-spouse to the current spouse; (2) where the divorce decree says one thing and the benef. desig. says another; (3) where a participant's will and his IRA/plan benef. desig. differ, etc. It seems that the cases tend to say, "you should have changed your beneficiary designation in the 401(k) plan." Our case is tougher because he had named beneficiaries for the IRA to which he had elected a rollover. My feeling is still that the plan desig. probably controls, though I would not be at all surprised if a court looked to the clear intent of the participant. Any further thoughts on who should be paid and/or on whether a declaratory judgment is appropriate would be greatly appreciated.

A member in an LLC (assuming the LLC is set up to be taxed like a partnership) is treated like a partner in a partnership. A partner is treated as a self-employed individual and elections are based on "earned income" (which should be defined in your plan document). The issue of what constitutes earned income is a complicated one and depends on various factors such as whether the member is treated as a limited or general partner. The Tax Management Portfolio on LLCs has a decent discussion of this issue (which includes the applicable citations).

Chris - a few things to note. First, even if companies are in a controlled group, all of their employees do not have to be covered under one another's plans unless the plans are on standardized prototype documents. If not on standardized prototype document(s), companies can be excluded. However, if two or more companies within a controlled group (or ASG) maintain separate plans, those plans will have to be aggregated for certain testing purposes. Your situation does not appear to be a controlled group, such that Company B's employees cannot participate in Company A's plan without creating a multiple employer plan.

Thanks for the responses. GregSelf - A is not an x-spouse. Yes, all the documentation had been executed by the participant (ie, new IRA established to roll the money to; beneficiaries designated under the IRA; rollover forms completed to move the money from the plan to the IRA). As Kip Kraus points out, the one thing that was not done that could have been done was to change the beneficiary designation under the 401(k) plan. Any more thoughts on the appropriate thing to do? Would it be appropriate for the plan administrator to seek a declaratory judgment? Of course, if a declaratory judgment is appropriate, next question becomes whether the administrator can properly charge the expenses associated with seeking and obtaining a declaratory judgment to the plan's trust.

Participant in 401(k) terminates employment and completes rollover forms to roll money into an IRA. Participant dies two weeks later before rollover to IRA is made. Beneficiary designation under 401(k) plan names A as the beneficiary. Beneficiary designation under IRA names B as the beneficiary. Who gets the money? The clear intent of the participant is for B to get the money, but the rollover had not yet occurred. It seems to me that A gets the money since there was not actually an IRA with money in it at the time of the participant's death (ie, the money was in the plan at the time of the participant's death, such that the 401(k) designation controls). How much weight, if any, is given to the clear intent of the participant?

davef - thanks for your help. Are you saying that you have seen plans that attach an hours requirement to a six month service requirement (or other period of service less than 12 months), and further provide that, even if the employee does not meet the service/hours requirement, he/she will participate if he/she has 1000 hours in a twelve month period? [This message has been edited by beth beaube (edited 11-23-1999).] [This message has been edited by beth beaube (edited 11-23-1999).]

mwyatt - I agree on your first point (ie, to amend for GATT by 12-31-99 to avoid dual calculation in 2000); I am doing this in DB plans. As to the second point, my understanding is the opposite of yours. My understanding is that, if you have a DB plan that incorporates 415(e) by reference, then you may need to amend by 12-31-99 to avoid an unintended increase in benefits (to do so after 12-31-99 would be a cutback). However, those plans that do not incorporate 415(e) by reference do not need to be amended until the end of the remedial amendment period.

It has always been my understanding that a plan that contains a six months of service requirement for purposes of eligibility to participate could not also attach an hours of service requirement. For example, while it is ok to require six months of service, it is not ok to also require 500 hours of service. Where is this limitation specifically found (ie, regulations, revenue ruling, etc.)? I have found two resources that state you cannot do, but they give no citation. I have also found several prototype sponsors who seem to think attaching an hours requirement to a six months of service requirement is acceptable. Thanks in advance for any responses.

Singletary - thanks for your comments. I did locate one case wherein, in satisfying the fifty percent (50%) requirement, the interest personally owned by a plan fiduciary in a partnership was aggregated with the interest he held as plan trustee. Accordingly, the partnership was a party in interest of the plan where a trustee owned thirty percent (30%) of the profits interest in the partnership and held an additional twenty-four and one-half percent (24.5%) of the profits interest as plan trustee. See Fischer v. McKenzie (ED WA) No. C-84-868-JLQ (10-8-85).

In determining whether an individual owns 50% of the profits interest of a partnership for purposes of determining whether a purchase by such individual in the partnership constitutes a prohibited transaction, would any interest held by the individual's IRA in the partnership be attributed to the individual? For example, assume that X, an individual, holds a 20% interest in a partnership and X's IRA holds 30%. In determining whether X's IRA can purchase an additional 10% interest without violating the prohibited transaction rules, would X be considered to own 50% (X's interest and the IRA's interest) or would X only be considered to own X's 20% interest? (This example makes the assumption that the IRA's initial purchase of the 30% interest in the partnership was not a prohibited transaction itself). More generally, is there attribution from an IRA to its owner in the world of prohibited transactions? Seems like this may be considered "indirect" ownership. I just can't find much out there about what constitutes an indirect holding in determining who is a party in interest. I did find one case where a trustee's holding of a company through a qualified plan was aggregated with his direct holding of the company in determining that the company was a party in interest. My scenario seems fairly analogous. Thanks in advance for any help.

Can anyone provide me with a source that contains a good discussion of a WRAP plan (ie, a plan designed to allow the filing of a single 5500 for multiple welfare plans)? Does anyone have a sample document? What allows the use of a WRAP plan and filing of a single 5500 for multiple plans (ie, what statute, reg, etc.). Any help would be appreciated. Thanks in advance.

Owner of IRA ("X") wants to invest IRA assets in an LLC in which he owns 45%. The other owners of the LLC are unrelated to X. In addition to owning 45%, X will either be the manager or chairman of management committee of the LLC (ie, he will have operational control). Will this constitute a prohibited transaction? It does not appear to me that this would be prohibited since his ownership percentage is not at least 50%. Next step (assuming first purchase is not a prohibited transaction) - assume X, through the initial purchase, purchases 10% through his IRA. Then, a year later, X wants to purchase more. Is he then conidered to own 55% (45% owned directly and 10% owned through IRA) due to his IRA holding in the LLC such that the second transaction would be prohibited?

Assume an employer maintaining a DC plan (which is not being terminated) has exercised its fiduciary duty to locate a number of participants in the plan whose account balances are payable, but has been unable to locate them (ie, assume diligent effort has been made - locator firm hired, IRS locator service utilized, etc.). In a DC context, what can the employer safely do other than to continue to maintain these account balances? Can the money be transferred to an interest bearing account for the account of the missing participants? Can the money be trasnferred to an interest bearing account for the account of the employer (probably not)? Can the plan be amended to provide that, in the event a participant cannot be located after diligent effort has been made, his/her account will be treated as a forfeiture under the plan (either reducing future employer contributions or reallocating to other participants)? I am aware of the missing participant program for DB plans, but would like to know what others are doing with this situation in a DC context (and when there is no plan termination).

If a C-corp establishes an ESOP that purchases 51% of the outstanding C-corp stock pursuant to an agreement signed by each shareholder, including the trustee of the ESOP, to convert the C-corp to an S-corp effective the next month, would a valuation premium for the 51% be appropriate in recognition of the fact that the ESOP will not be liable for federal income tax on its allocable share of the S-corp's earnings? While the participants of the ESOP will eventually pay federal income tax on the distribution from the ESOP to them, the present value of that tax burden should be far less than the present value of not having to pay any federal tax. Any thoughts would be appreciated.

I have a client that maintains a leveraged ESOP. February 2000, the ESOP loaa will be completely repaid. At that point, the client wants to convert the ESOP to either a profit sharing plan or a money purchase plan. My understanding is that this conversion can happen without fully vesting all participants (and, obviously, no cut-backs under 411(d)(6) can occur). However, I am not sure what happens with the stock that has been allocated to participants' accounts. Is it possible to (or required), upon the conversion, replace the stock in each participant's account with cash (assuming an accurate valuation)? If they can't replace the stock with cash (which may not be financially feasible anyway), then I assume the stock remains in the accounts and no further stock is allocated or contributed by the client. What are our options? Another issue - an ESOP has to be designed to invest "primarily in employer securities". What minimum percentage of trust assets would need to be invested in employer securities to meet this rule?

Boetgerinc - Is the greater than 50% identical ownership test actually satisfied? It seems to me that the identical ownership is exactly 50% (not greater than 50%) as was suggested by Richard.

Is anyone putting in-service distributions in a money purchase pension plan once the participant has reached age 59 1/2 and has reached the plan's NRA? See Ltr. Rul. 8137048.

I understand that if a hardship or in-service distribution is made in a plan that contains joint and survivor/single life annuities as the normal form of benefit under the Plan, that the participant must elect the distribution in writing and the spouse's written consent to the distribution must be obtained. In getting these consents, is a plan required to also give the J&S/Single life annuity notices?

No responses! Come on - surely someone can help. This can't be unchartered territory. Any response would be greatly appreciated.