IRC401

Gee, is it possible that PWC figured out how to do an age-weighted 401(a)(4) general test and is selling it as "LEO" to law firms?

Kirk- I am not suggesting that Congress would undo all ESOPs. What I am suggesting is that Congress might remove cash or deferred arrangements from ESOPs (which is what I thought they thought (incorrectly) that they were doing in 1997 after the Color Tile bankruptcy). I am also not suggesting that they would do anything retroactively, but they might require all 401(k) money to have diversification rights as of some date in the near future, which is what it appears that Bush wants for both 401(k) and match money. [Note: I am relying on news reports; I haven't read the bills.] As for adverse retroactive ESOP legislation, remember IRC 2057 ?

Have you considered allowing the HCEs to make a one time election instead of having a 401(k) arrangement? You may not be able to use a prototype document.

I assume from the fact that you posted the quesiton on the NQDC board that the LEO plan is a nonqualified plan. Nonqualified plans are always dangerous for law firms because they shift tax liabilities from some partners to others and make the Firm less attractive to younger attorneys. I am going to make a wild guess that LEO stands for "leveraged executive option" and is equivalent to Deloitte's Keysop or E&Y's Option-It (and I don't know what KPMG calls theirs). Let me know if my guess is in the ballpark.

Any chance that there is another part of the order stating that the amount is adjusted for subsequent gains/losses ?

You are correct about the ESOP exception. I forgot how big of a loophole that Congress left. What you are missing is that there will probably be some legislation that results from the Enron debacle. (I didn't state that it would be good legislation.) If Congress repeals the ESOP exception and the plan needs to let all participants move their 401(k) accounts out of employer stock, is the plan prepared to deal with that change in the law?

1. See ERISA section 407(B). 2. If elective deferrals are being invested in employer stock, and the stock is not publicly traded, have you discussed securties law issues with a securities attorney.

NQDC plans don't have any assets. Someone needs to look at all of the contractual provisions.

If a plan document isn't in compliance with current law when it is terminated, the IRS can disqaulify the plan (and disallow all of those rollovers to IRAs among other things).

Be careful. If you take the position that there was a breach of fiduciary duty, you may have to disclose the breach in the financial statements or on the Form 5500.

There are ways to deal with the problem if the company is willing to compromise and to pay for good consulting advice (and probably a custom plan document. If the company is not willing to pay for advice or isn't willing to pay attention to the nondiscrimination issues on an ongoing basis, it should forget about a plan for the salaried employees. I am impressed that they can keep over 1000 employees these days without a 401(k) plan.

The sponsor should also take a look at what happens to plan administration fees. Will there be a signifcant shift of plan expenses to the accounts with less than $10,000 such that they will be paying much higher costs than the self-directed accounts?

When the 404© regs were issued, a colleague called them "a nonsolution to a nonproblem". Are any of you aware of a lawsuit filed by a participant claiming breach of fiduciary duty for letting the participant make the investment decisions? The concern is that compliance with 404© rules will eventually become so commonplace that failure to comply will be viewed as a breach of fiduciary duty. IMHO employers who have (or think that they have) 404© plans need to pay more attention to the matters that 404© doesn't protect them from, such as choosing crummy mutual funds or not paying any attention to plan expenses.

In response to the original question, I assume that by "prohibited transaction", the author was referring to an ERISA 406(a) violation. I recommend looking at ERISA 404(a) and 406(B). A fiduciary making a loan to a family member is probably dealing with plan assets for his own benefit.

See http://www.benefitslink.com/articles/selfi...ure020107.shtml

My recollection is that all you need is an election form and a shoe box to collect receipts (although I don't actually recommend using a shoebox). You don't need a trust.

Has the partnership considered whether it could achieve the desired result by improving its qualified plans?

The original comment asked for comments on the new Advisory Opinion. I read it three or four times and decided that I had to read between the lines to figure out what was going on. Because the facts are so vague and because the letter appears to conflict with (or at least significantly modify) the Frost letter without mentioning the Frost letter, I wonder if the DoL really understands what it opined on. I expect another letter on the subject, but I have no idea when.

I suspect that you don't have the correct explanation of the idea and that the idea works as follows: The plan year is changed to Dec 30. On Dec 31 the employer deposits a sum of money for the 12/31-12/30 plan year that just began and deducts it for the tax year that ends on that date. The actual allocation need not be made until the end of the plan year (the following Dec. 30), although there would be a faster allocation requirement if 401(k) money were involved. This idea was dealt with by the IRS in (a very poorly reasoned) Rev. Rul 90-105 and is currently #1 on the Treasury's list of abusive tax shelters. I happen to believe that the idea works if the contribution is actually deposited but not if it is accrued. Deloitte was pushing this idea (until the Tax Shelter list came out?)

Isn't it possible for a group of unrelated employers to band together to purchase insurance together (to get a better rate) without having a MEWA? BTW I agree that you should know whether or not you have a MEWA and leave the feelings out of it.

Do the premium payments go directly from the employers to the insurance company or do they flow through an intermediary? If they flow through an intermediary, why wouldn't you need a trust?

Whatever the typical period is may change after the Enron litigation. Does anyone know how long the infamous Enron blackout period was?

MGB: 1. The last paragraph of the letter you refer to states that the recipient is not permitted to rely upon it. 2. The regulation referred to in the letter pre-dates the change in the law and therefore, is irrelevant. The IRS is taking the position that an act of Congress doesn't override one of its regulations. That is why there is no authority!

I feel a need to point out that there is no authority for MGB's position, but every third party administrator that I am aware of is going to follow it.

NOTE: I DON"T PRACTICE LABOR LAW (including wage and hour work) !!! Suppose for purposes of discussion that: 1. An employee works 2000 hours per year. 2. The employee spends 1200 hours on Davis-Bacon work. 3. The employee earns $15/hr. 4. The employer makes a 4% p/s contribution ($1200)for the employee. The DOL will (or at least they used to) take the position that because all employees received a 3% contribution, only 60% of the first 3% P/S contribution counts toward the prevailing wage requirement. [60% of the first $900, plus the additional $300 (4th %) = $840. $840/2000 hrs = $0.42] Therefore, the employer gets to count 42 cents per hour toward meeting his prevailing wage requirement. If the employer needs all $1200 ($0.60/hr) to meet prevailing wage rules, then he is in violation of the prevailing wage rules (but I don't think that the plan has a qualification problem, assuming that the allocations are actually made in accordance with a definitely determinable allocation formula in the plan document). I don't see any problem putting Davis-Bacon employees in the same plan as other employees, but keep in mind that contributions that are intended to count 100% toward the prevailing wage requirement are subject to special rules, such as 100% vesting and an independent trustee. Furthermore, there will be (at least) two different allocation formulas that need to be tested under 401(a)(4). [ In the above example, I don't regard the first 3% as a Davis-Bacon contribution. ] I doubt that Davis-Bacon contributions could be used for cross-testing, 401(k) safe harbors, or meeting top-heavy minimums. Guessing wrong on these issues could create qualification issues.(although I doubt that there is any clear authority on point and I doubt that any IRS or DOL auditor would look for the issue). In any event, the overlap of the IRS and DOL rules is complicated enough that any employer attempting this should get some good advice.