IRC401

A trust can not qualify as a VEBA unless it obtains a tax-exempt status letter from the IRS. See IRC 505©.

I realize that ESOP and other portions of a plan may be tested separately for purposes of 410(B), but I have never been comfortable with the notion that a plan is part ESOP and part non-ESOP. Does the client have a determination letter stating that the plan is not entirely an ESOP. If the securities are publicly traded, it seems to me that you would want to pass through voting rights. If the securities are not publicly traded (and are being purchased with 401(k) contributions, have you checked with a securities attorney whether you are in compliance with SEC rules?

There is no rule against making matching contributions to two plans. I believe that under 410(B) there is mandatory disaggregation of ESOPs. Therefore, you will need to run separate ACP tests. It is not clear how the multiple use rule would work, and if you want to test 401(k) contributions as matching contributions under the ESOP, good luck figuring out the rules.

Why do you think that they are "different animals"? If you have different valuations, the IRS can use one valuation to challenge the other. The IRS could use a gift tax valuation to show that the ESOP overpaid for its stock, or it could use an ESOP valuation to claim that the stock was undervalued for gift tax purposes (which can get really messy if there is a GST issue).

Some miscellaneous comments: 1. If you want to include expats, make certain that the plan document deals with their participation. (On the other hand, if the company has a document that automatically includes everyone in the controlled group, the expats may be in the plan whether you want them to be or not.) 2. There may be treaty provisions that protect the expats. 3. Many corporations have programs to protect employees from the higher taxes that go with many foreign assignments. Depending on how the "hypothetical tax calculation" is done, expats may have an economic incentive to want to make 401(k) contributions, even though common sense would indicate that they should be excluded from the 401(k) program. 4. Most expats will end up being HCEs because of all of the moving allowances. 5. This is a very dangerous area to practice in without coordinating with someone who does expatriate tax work.

I want to clarify my question. I am not asking about fees that banks charge to plans sponsored by unrelated entities. I am inquiring about fees that a bank's plan pays to the bank (via mutual funds owned by the bank). If the Bank chooses to invest its plan's funds in its own mutual funds and is making a profit off of those funds, it certain appears to be using its fiduciary position to its own advantage, and that looks like a prohibited transaction. Are banks (such as Bank of America and First Union) hiring independent fiduciaries to make the decision to invest in the bank's mutual funds (or am I missing something)?

Suppose that a 401(a) plan of a bank invests the plan's assets through the bank's trust department. The DoL will take the position that the bank may charge "direct expenses" to the trust but not its standard trust fees. (If a customer walked in off the street with a trust account identical in size to the 401(a) plan, the bank may not charge its standard asset based money management fee.) Why is the result any different for mutual funds? I keep reading articles (For example, see the Reish & Luftman law firm article on the First Union litigation.) That bank's plans invest through the bank's mutual funds and the bank receives asset-based money mangement fees from the plan. If a bank is not permitted to keep an asset based fee when its trust department manages the money, why is it able to keep the fee when its mutual fund operation manages the money? [Edited by Dave Baker on 08-06-2000 at 10:50 PM]

Be careful how you define participant in the plan document. Someone who is eligible to make 401(k) contributions but elects not to is a particpant for purposes of filing Form 5500, doing 410(B) testing, and ADP/ACP testing. It should be possible to elect to use the forfeitures to reduce the matching contribution.

Has anyone had to deal with the issue of a former employee who is awarded back pay by the NLRB and who wants to make 401(k) contributions on the back pay. (Assume that had the back pay been paid when it should have been paid, it would have been subject to a 401(k) election in effect at the time.)

If the plan has a requirement for spousal consent for a loan, get the spouse to sign a letter that she refuses to consent.

A client received what appears to be a routine notice of a DoL audit of a medical plan. There is a question on the document request list dealing with rebates of premiums. Has anyone had experience with the DoL taking a postion re: what should be done with a premium rebate (allocating it among past participants v. using it to pay future premiums)?

Technically, the assets belong to the employer until the benefits are paid. The employee may direct that the amount of NQDC owed to him is based on the rate of return equal to the appreciation in vlaue of a specific stock. There have been prior messages dealing with self-directed NQDC plans.

If the marriage is recognized under state law, then the joint and survivor annuity rules should apply regardless of why the marriage is valid.

Anyone know where I could find an article or some information on SEC issues related to group trusts? Thank you.

I don't know of a specific problem under PA law, but the regs, last updated in 1996, still refer to the Pension and Welfare Benefits Act. The law, at least, has been updated for ERISA.

There are some plan design issues with Davis-Bacon plans that you need to be careful about, but I am not aware of anything special about the administration.

I assume that your objective is to have an actual, as opposed to a deemed, distribution in the event of a default. You can write the plan so that you use the entire vested interest as security and list the order in which accounts will be collateral if there is a default. If there is a default before the vested interest in the matching account exceeds the loan balance, you would still have a deemed distribution. Remember that there is an ancient rev rul that profit- sharing contributions must be in the plan for at least two years before they can be distributed. Therefore, using the matching account may not solve the deemed distribution problem. I offer no opinion whether you can do what you want through a prototype plan or how hard it will be for your recordkeeper.

You are free to use whatever terminology you want. The way that the law is written an employee negotiates to have his compensation reduced, not to have money withheld from his paycheck (poor SPDs notwithstanding). If the DoL doesn't like how the law is written, it should complain to Congress, not try to make up new law.

1. Joe- I don't disagree with your real world assessment. 2. The employee has a claim for benefits against the employer, and the fact that the employer is taking its time to get money to the TPA does not get the employer off the hook. 3. I don't see how using a TPA to pay claims would create a trust (assuming that there is no trust document or trust language in the SPD). 4. The DoL may not like the IRC, but, at least in theory, government agencies are supposed to obey the law. Personally, I think that the DoL has capitualted on the issue with 92-01, but I can't prove it, and they won't admit it. 5. I am not prepared to discuss on this message board how the regs apply to 401(k) plans. Nevertheless, I would like to note that with a 401(k) plan the employee is bargaining for an allocation whereas with a 125 plan the employee is usually bargaining for insurance coverage.

Yes, an LLC taxed as a partnership can establish the equivalent of a non-qualified (non-ISO) stock option plan (but do you really want one)?

When you do your prohibited transaction analysis, consider the possibility that the TPA is getting an asset based fee from the investment organization.

Elective deferrals are neither paid to the employer nor withheld from wages. They are amounts that the employee negotiates to have his wages reduced in exchange for the employer increasing his benefits.

Doesn't 401(k)(4)(A) kill the idea? (although it wouldn't surprize me if the IRS were to grant a determination letter)

Whether someone should have an age-weighted plan depends on a lot of facts and circumstances, and we have virtually no facts. This is a topic that should be discussed with someone who understands the subject matter.

Are you certain that the DASOP is a type of ESOP as opposed to a nonqualified deferred compensation plan that uses discounted options?