rocknrolls2

This is intended as a poll of how the different readers of this message board would handle the following situations. Assume Company A is a Fortune 500 company and maintains Plan X. Company A is in the process of making several acquisitions. In certain cases, Company A merges the plan of the acquired business. How would you determine the qualification of the plan that is being merged into or that is spinning off a portion of its plan into Plan X in the following situations: (a) Company A buys Company B and merges Plan Y into Plan X? (B) Company A buys the assets of a small trade or business of Company C and has Plan Z spin off the account balances of the employees of the sold trade or business into Plan X?; © Company A takes Officer M from its subsidiary A-1 and wants to spinoff his account balance under Plan W? The problem is that the official IRS position is that a plan that violates the qualification requirements and is merged into another plan taints the surviving plan. Should you do a compliance audit on the other plan; obtain an indemnification from the other employer? There is no clear guidance on what would be sufficient to protect the surviving plan. In the area of rollovers, the IRS has published regs stating that if the receiving plan reasonably concludes that the transmitting plan is qualified, the receiving plan is protected if the transmitting plan is later disqualified.

If an employer maintains a US qualified plan and has Puerto Rico resident employees, how does the employer go about qualifying its plan with the Puerto Rico Treasury Department? Where can one get a copy of the qualification procedure and forms?

An individual serves as an outside director for many corporations and sets up a Keogh plan to defer a portion of his directors' fees. He defers an additional portion of his directors' fees with the corporations for which he is on the boards. Assuming this individual receives $50,000 in deferred directors' fees in 2002, can he defer a portion of such payout into the Keogh plan? With common law employees, it is clear that the receipt of deferred compensation may be treated as compensation for 415 purposes. See Reg Sec. 1.415-2(d)(3)(i). For self-employed individuals, there is a cross-reference over to earned income. However, I am unaware of any exclusion from earned income of deferred compensation received. Any thoughts?

A VEBA providing post-retirement medical benefits has been paying the employee portion of premiums for medical insurance for retirees. If the medical insurance pays a dividend of which the attributable portion is placed into the VEBA, what is its tax treatment for UBIT purposes?

A self-insured medical plan provides that the portion of contributions required to be paid by retirees is dependent on service. (e.g., if normally a retiree who had longer service had to pay only 25% of the premiums, a shorter service retiree had to pay 50% of the premium). Is this provision discriminatory under 105(h)? The Regs under 105(h) (1.105-11) provide that providing different contribution levels for employees in a cafeteria-plan can be discriminatory under 105(h). See 1.105-11©(3)(i) ("A plan that provides optional benefits to participants will be treated as providing a single benefit with respect to the benefits covered by the option provided that (A) all eligible participants may elect any of the benefits covered by the option and (B) ... the required employee contributions are the same amount.") For retirees, the regulations merely require the "type, and the dollar limitations of benefits provided to retired employees who were highly compensated individuals" to be the same for all other retired participants. Reg. Sec. 1.105-11©(3)(iii). Thus it appears that the inclusion of such a provision would not be discriminatory. Does anyone have a different opinion?

Husband and wife work for different employers and are covered under their cafteria plans. Husband terminates employment. Since termination of the spouse's employment is a change in status event, can the wife (a) reduce or eliminate optional life, AD&D and (B) increase dental and still satisfy the consistency requirement?

Plan A is being merged into Plan B at the end of calendar year 2000. Plan A's loan policy provides that participants may continue repaying loans after terminating employment or retiring by bank draft. Plan B's loan policy requires full repayment within 60 days after termination or retirement. Can participants with outstanding Plan B loans be required to repay the loan balance at termination of employment or retirement?

I have seen an unofficial prediction of the 2001 limits. The DB dollar limit will increase to $140,000, the DC dollar limit will increase to $35,000 and the 457(B) dollar limit is being increased to $8,500. The other limits will remain unchanged.

Calendar Year - Plan requires participation in same level of coverage for same dependents for 2 calendar years absent a change in status.

Yes.

For a qualified transportation fringe benefit plan, if an employee regularly reports to two different office locations every week, may the employee be covered for transit and parking expenses between his or her home and each office location? For example, on Mondays, Wednesdays and Fridays, employee X reports to Office 1 in City A. On Tuesdays and Thursdays, employee X reports to Office 2 in City B.

Company X provides a cafeteria plan to its employees. Employees are permitted to elect annually the coverages they will receive during the following year. However, with respect to dental coverage, an employee's election remains in effect for two plan years, in the absence of a change in status. Is a two-year lockout a violation of the cafeteria plan rules? If so, on what basis?

Company Y is a subsidiary of Company X. Effective 1/1/2001, Company Y's qualified plans are to be merged into Company X's qualified plans. Company X ordered a compliance audit of Company Y's qualified plans in anticipation of the merger. Although there were no document defects for which Company Y did not have reliance on its determination letters, there were some ambiguities and inconsistent amendments. Therefore, Company X directed Company Y to apply for a determination letter before merging the plans. Should Company X merge the plans after Company Y applies for the determination letter or should it wait for the IRS to issue its determination letter to the Company Y qualified plans?

As a prototype sponsor, we are moving to restate our prototype documents for GUST and the elimination of optional benefit forms. We are also adding language for the two types of elective transfers, which we are calling, distribution elective transfers and elective plan transfers. As an employer, my company is looking at what options it wants to eliminate, considering utilization statistics, among other reasons. As for the DL, I expect IRS will issue a new Rev Proc stating what they plan to do in this instance. As for the LRMs, the LRMs were lasted updated in February. Although it is possible the IRS will issue new LRMs for the anti-cutback relief for DC plans, there are no guarantees. I hope this helps.

My Company is preparing to implement a salary reduction qualified transportation fringe benefit program effective 1/1/2001. In designing the program, the following issues arise: 1)If an employee ceases to make salary reduction amounts but remains employed, may s/he seek reimbursement for qualified transportation provided in the future until his/her account is used up? 2) If an employee prepays a parking expense before the program is implemented, may s/he seek reimbursement for each month as the parking is provided? 3) Can contributions be generic and applied to parking and/or transit passes or are there two separate categories? 4) If an employee is paid biweekly, then s/he will be paid three times during two months of every year. Q&A-13 of the Proposed Regulations limits salary reduction to the combined limit of $240. During months when the employee has three payroll dates, it is possible that her/his salary reduction amount will exceed the combined limit. Any suggestions for dealing with this situation?

401(k) Plan A is merged into 401(k) Plan B. 401(k) Plan A permits recalculation of minimum distributions to be made monthly and provides for monthly installment. 401(k) Plan B permits only annual recalculation and provides for annual installments. Minimum Distribution Recalculation. Under Code Section 401(a)(9)(D), recalculation is permitted no more frequently than annually. Thus, it appears that monthly recalculation is illegal and annual recalculation can be permitted going forward. Anti-Cutback Rule. The tricky issue is this: the current final anticutback regs permit an amendment to an optional form of distribution affecting timing only to no more than two months of the timing of a pre-amendment distribution form (6 months for in-service distributions). Thus, it appears that 401(k) Plan B would be permitted to change the availability of minimum distributions to former 401(k) Plan A participants to quarterly installments. My question is, can this amendment also apply to participants currently receiving minimum distributions?

In determining the previously excluded contributions component of the exclusion allowance, are SEP, SARSEP and/or SIMPLE contributions included? Neither the regs nor the final audit guidelines specifically cross-refer to them. Although a tax-exempt cannot maintain a SARSEP, a for-profit educational operation could have maintained one and then elected to go not for profit, qualified under 501©(3) and adopted a 403(B). As for the SIMPLE, the Code requires that it be the only plan. An employer could have adopted the SIMPLE, frozen it and then adopted the 403(B). Does anyone have any thoughts on whether these contributions are part of the previously excluded contributions component of the exclusion allowance?

Company A sells Division 1 to Company B on 1/1/2000. Company A spins off its 401(k) plan for the Division 1 employees to Company B's 401(k) plan. Company A permits its participants to receive a distribution of Company A stock in kind. Company B gives the Division 1 employees until 7/1/2001 to reallocate their balances attributable to Company A stock to other investment options. Reg. Sec. 1.411(d)-4, Q&A-1(B)(1) provides that an optional form of benefit includes all features relating to the distribution form, including medium of distribution (e.g., cash or in-kind). However, Reg. Sec. 1.411(d)-4, Q&A-1(d)(6) and (7) provide that "the right to direct investments" and "the right to a particular form of investment" such as investment in company stock are not protected benefits. How does one reconcile these apparently conflicting positions? My thought is that Company B can prevent Division 1 employees from making new investments in Company A stock either from future contributions or transfers of other investment options into Company A stock. However, Company B must make available to Division 1 employees the right to receive their account balances in the form of Company A stock. Any thoughts on this?

Company A acquires Company B. Each has a 401(k) plan. Company B's 401(k) Plan has 100% vesting of employer contributions. Company A's 401(k) plan has a vesting schedule for employer contributions. Now, Company A wants to merge the Company B 401(k) plan into its 401(k) plan. I know that Company A cannot reduce the vested percentage of employer contributions in Company B's 401(k) plan prior to the merger date (ala Sec. 411(a)(10)(A) and that a participant with at least 3 years of service has to be given an election to remain on the old vesting schedule (ala section 411(a)(10)(B)). My questions are: (1) would the merger be treated as the amendment of Plan B so that participants with at least 3 years of service can elect to remain with the 100% vesting for employer contribuitons under the Company A 401(k) Plan? (2) For those participants with less than 3 years of service, or if the answer to (1) is no,for all participants, could Company A subject the Company B employees to its vesting schedule for all future Company A contributions to its 401(k) plan (while retaining the 100% vesting of the Company B 401(k) Plan account up to the date of the plan merger)?

I'm a little confused about example (1) in Q&A -14 of Proposed regs on transit passes. In the example, the employee reduces his or her compensation for up to the statutory limit each month and receives a pass for that month. The IRS says this example is an example of a valid compensation reduction election. Thus, if an employee reduces compensation during March and receives a pass for March during March, that is acceptable. A more realistic example, and one that would be more palatable to employers and employees is to have the employee make payroll deductions in February and receive the pass at the end of February so that the employee could purchase tickets for March. Neither the proposed regulations nor the examples state that such an approach would be acceptable. Any thoughts on this?

Participant in a 401(k) Plan is non highly-compensated and makes 401(k) Contributions in excess of the 402(g) limit. These excess deferrals were matched. Section 411(a)(3)(G)provides that matching contributions related to excess deferrals are to be forfeited. Since the purpose of forfeiting such matching contributions is to avoid a discriminatory rate of match, would such forfeiture be required in the case of a non highly-compensated employee?

Assume Employer A has a qualified plan with a calendar year plan year. In 1999, Employer A terminates the plan. In 2000, Employer A establishes a SIMPLE IRA. In the first quarter of 2000, Employer A makes the last contribution to the terminating qualified plan. Question: Does the last contribution to the qualified plan in the year the SIMPLE IRA is established cause the exclusive plan rule to be violated? Notice 98-4 states that an employer is considered to be maintaining another qualified plan if any employee receives an allocation of contributions for any plan year beginning or ending in the calendar year. Here, the right to the contribution was earned in the preceding year, but the contribution was made in the following year. Any thoughts would be sincerely appreciated.

Thanks Kip and Kirk! However, there is a bit of kicker. What if the cafeteria plan imposes a 31 day limit on requesting changes in status(e.g., You get divorced on July 31. You have until August 31 to request a change in status)? In many cases, hard documentation may not be available.

Employee advises employer of legal separation with spouse and drops him/her as dependent. A few months later, the dropped spouse notifies the employer that there was no legal separation and that he/she should not have been dropped. To what extent does the plan administrator have a right to rely on the employee's representation in connection with a change in family status? In the joint and survivor annuity area, ERISA provides that if the fiduciary was prudent in relying on participant representation of no spouse, there is no liability. Here, there is no duty of spousal consent, so there would appear to be no specific duty to investigate the participant's claim. Any thoughts?

For purposes of the minimum distribution rules, are QVECs (otherwise known as VDECs or DECs) subject to the IRA minimum distribution rules or the qualified plan minimum distribution rules? This is critical in 2 respects: the ability or inability of an active employee to defer the required beginning date to retirement and the ability of a deceased spouse to consider the QVEC as his/her own. My research has not disclosed any answer. Under ERTA proposed regs, no deductible contributions could be made to QVECs after 70 1/2. However, for distribution purposes, the QVEC was subject to the rules of Code Section 402(suggesting it was a type of qualified plan). This is not an academic question, so I would sincerely appreciate any thoughts anyone may have on this subject.