IRC401

Wouldn't the debt cancellation be treated as a contribution followed by a loan payment, which would trigger the release of more shares from the suspense account?

Now that 415(e) is gone, the answer is clearly yes, but if the DB plan is top-heavy, the owners need to understand the consequences of having a top-heavy 401(k) plan.

In case anyone is interested, AT&T's official line (per the 2001 proxy statement) is that the change to a cash balance formula was made because AT&T "needed to remain competitive". Feel free to read into that whatever you want.

I never stated that the Y plan needed to be amended before the merger. I stated that it needed to be amended. Once Y disappears into X, it is easy to forget that it existed. After a merger Plan Y will exist as part of X but may have very different provisions. The retroactive amendment of the merged plan will need to take into account all of the idocyncracies of the Y plan as it existed before the merger. This may be relatively easy, or may be difficult, especially if you are using a prototype document. My only point was don't forget about the pre-merger Y plan when you do the GUST amendments. (On the other hand, my experience with the TRA '86 amendments was that the IRS ignored effective dates; so, maybe my comment was purely academic.)

IMHO the members of the LLC are foolish if they don't get some legal advice on this issue.

There is no limit on retroactive allocations. The money could be deposited 10 years from now and allocated as of 12/31/00, BUT you need to avoid 415 problems. The 415 regulations govern to what limitation year an allocation relates. If you make a contribution in 2002 and allocate itas of 12/31/00, every single employee whose account receives an allocation needs to have 415 compensation for the 2002 limitation year. If any employee quits prior to the limitation year of the contribution, you have a 415 problem. PS: Don't forget about the definitely determinable rules, the 401(a)(4) rules, recordkeeping and administration issues, and 5500 reporting.

I am not certain if a plan can "misplace" $500,000. If $500,000 is missing, someone has a fiduciary duty to inquire as to what happened to it, and someone may have a duty to replace it. If the owners decided to pull $500,000 out of the plan, you don't have a funding issue.

I wasn't able to link to the survey. My memory is that the survey reported what the Companies' party lines were for doing what they did. No company ever admits that it changed the pension plan because it beleives that its workforce was overpaid. Have any ever admitted that they wanted to manipulate the pension plan in order to improve earnings? Therefore, I don't regard the survey as credible. [PS: I used to work for one of the 100 best places to work in the US that to this day has never told the truth to its employees about the cash balance conversion and ended up probably having increased costs after they changed the plan in response to complaints or a Wall Street Journal article. The plan did increase the rate of benefit accrual for a mjority of the participants in the plan, and quite possibly 20 employees received increases for every employee that suffered a decrease. On the other hand, the increases were immaterial, and 80-90% of the employees "benefiting" from the change, never stayed long enough to vest. See how easy it is to lie with statements about benefiting younger employees. That particular conversion was illegal only because the employer didn't give out timely 204(h) notices.]

The plan will need to be amended, and there may be a significant practical problem getting the amendments made. Who has authority to amend the plan?

1. The CB plan that you described has a formula for converting the cash balance to an annuity, which is what enables the plan to pass the definitely determinable requirement. The accrued benefit isn't the cash balance but the equivalent annuity. 2. I suppose that we can get into a debate, but I have never seen the slightest bit of credible evidence that any employer puts in a CB formula for the benefit of short term younger employees. The formulas are put in to benefit the company and have the predictable effect of screwing older employees.

You might also try. http://www.cashpensions.com

The original post stated that the plan provided that an employee could receive his early retirement benefit in the form of a lump-sum. That standing alone sounds to me like he is entitled to the present value of the early retirement benefit, which would include the subsidy. I question the relevance of the discussion as to what is required under the regs. The issue isn't how the plan could have been designed, but how it was designed. A decision not to provide the lump-sum equivalent of the early retirement benefit could open the trustees up to class action lawsuits and (at least theoretical) plan disqualification. This is not an issue that should be decided by reference to these message boards.

Set up an IRA somewhere else and ask your new IRA custodian how to move the money. You'll need to complete some forms.

I don't understand your message. Is it possible that the company is using Exchange Traded Funds, instead of mutual funds in order to defer the tax liability?

Nondiscrimination is an issue only if allocations are being made to the accounts of HCEs.

1. See IRC 4975(d)(13). 2. Consider whether under 401(a)(4) the plan administrator needs to offer to all participants the right to purchase company stock. 3. The plan document does permit the purchase of employer stock, doesn't it? 4. Have you talked to a securities attorney about investing 401(k) money in employer stock?

There is no one correct way to do the calculation. The correct way is whatever way is specified in the plan document. Most plans (that I am aware of) add both 401(k) and 125 salary reductions back to compensation for purposes of determining what the 401(k) election applies to.

401(k) contributions are subject to the PA income tax.

Kirk- I am not aware of any reason why a tax-exempt entity couldn't sponsor a "top-hat" eligible 457 plan. I should have stated that the plan must be excluded from Part 4 of Title I.

I responded to this question on the government message board. Keep in mind that "eligible" 457 plans are (as a practical matter) available to tax-exempt entities only if the plan is not subject to ERISA. If Title I applies, the 457 plan assets will need to be put in a trust, at which point they will become immediately taxable.

If a government sets up a self-inusred medical reimbursement plan, is it subject to the nondiscrimination rules of IRC 105(h). I don't see an exemption, but it seems unlikely that a governmental plan would be subject to a nondiscrimination rule. Am I missing something? Thank you.

There are a number of alternatives: 1. Tradtional NQDC that includes a substantial risk of forfeiture. 2. Life insurance, although I'm not certain to what extent split-dollar works these days. You should have no problem finding a life insurance salesman willing to make a sales pitch. 3. Discounted options. There are a number of different varieties of discounted options being hustled by Big 5 accounting firms. Some of the varities might work. The varities that are being hyped have problems that the salesman usually doesn't understand. See the discussion from June 2000 on "KeySOPs" on the NQDC message board. If you found a PLR that discusses discounted options, please post the cite. NB: Tax exempt organizations often have opportunites to improve benefits for executives using 401(a) or 403(B) plans. I don't know what your objective is, but don't overlook the qualified plans beofre you jump into some sort of NQDC.

It is always dangerous to respond without having seen any of the documents, and therefore, assuming that nothing I state is inconsistent with the documents: I have a client that was just audited by the DoL on this issue, took (with my encouragement) the position that the "reversion" belonged to the employer, and survived the audit (which is NOT to say that the DoL has a national position or consistent audit policy on this issue). I see no reason why the money doesn't belong to the employer unless there is a document provision that gives employees the right to the reversion OR the reversion is greater than the total amount of employer (excluding 125 money) contributions. NOTE: If the employees elect to have their wages reduced by $XX (and the $XX are used to pay for medical benefits via a 125 plan), I think that any reversion belongs to the employer. ON THE OTHER HAND, if the employees are told that they are paying for 20% of the cost of health insurance, they should be entitled to 20% of any reversion. What the employees are told, and what they elect under their 125 plan, are important. I think that you need to look at the 125 plan elections to answer this question for any particular client.

<< I'd caution you not to automatically equate the plan with the plan sponsor. If your role is to make decisions on behalf of the plan, it's a meaningful distinction. Once premiums are paid on the plan's behalf, the $ are the plan's; >> Why would you take the position that the $ are the plan's??? Plans are not(at least at common law) legal entities capable of owning property. (Trusts can own property.) Furthermore, there are numerous DOL advisory opinions that make it clear that an employer can pay for medical expenses. The $ are employer $ unless there is some document that converts them into something else.

Why don't they put the excess amount on the employee's W-2 and let him defer future compensation? This problem exists only because the NQDC plan is tied to the k plan.