ERISA25

Under Section 4062(e), an event occurs if: (1) ER ceases operations at a facility; (2) as a result of the cessation, one or more employees of the ER who are participants in the plan are separated from employment ("affected participants"), and (3) the number of "affected participants" is more than 20% of the active base (active base looks at participant count prior to ER cessation decision. For purposes of determining whether you have a 4062(e) event, I am trying to determine whether you have to include individuals who have been guranteed their benefits in annuities (in other words, they received irrevocable commitments from an insruance company). For example, in a frozen plan, an employer may attempt to avoid the "event" by obtaining "commitments" for some of its younger employees (i.e., that is, they make the decision to get commitments after the decision to cease operations). By obtaining commitments, there appears to be an argument that these individuals are not "affected particpants" because they were not "participants" at time of separation and would not be considered in the numerator for purposes of determining whether there was a 20% reduction. Thoughts?

Your post reminds me that I left out an important fact: this is a safe harbor plan. Sure, a plan can do whatever it wants as long as the provisions are written within the plan. There's nothing precluding a plan from saying 'anyone whose last name begins with X shall not be able to defer in the months of January and February'; as ridiculous as that sounds. The caveat is that it must continue to pass the appropriate non-discrimination tests; and many practioners often disagree on whether or not certain provisions need to be tested (or which tests apply). The question here, and always, is why would you do that? There would, generally, be logic or reasoning behind anything a plan does. What would be the benefit of extending the suspension period beyond 6 months. You may, if the plan is written that way, but why? Good Luck!

EGTRRA and Notice 2001-56 seem to suggest that the suspension period for taking a hardship is exactly 6 months, but the regs under 401(k) say the period is at least 6 months. Under Treas. Reg. 1.401(k)-3©(6)(v)(B), a plan may limit the amount of elective contributions on account of a hardship distribution for 6 months in accordance with §1.401(k)-1(d)(3)(iv)(E). §1.401(k)-1(d)(3)(iv)(E) says for at least 6 months after receipt of the hardship distribution Can a plan impose a suspension period that is greater than 6 months? Any guidance you can cite?

It seems as though the plan document would govern on this because I am not seeing any regulatory guidance on this.

Is there any guidance in regard to how often the applicable interest rate is compounded? Plan uses applicable interest rate for determining actuarial equivalence, so we compounded interest on an overpayment annually, but I'm not finding anything specific that says how often 417 rate is to be compunded. thoughts?

Plan and trust agreement provide that unless otherwise required by law, trustee has voting and tender rights with respect to qualifying employer securities in the plan. I see nothing in ERISA or the Code that would require a pass through vote on whether 401(k) plan should sell qualifying employer securities of a public company to an independent buyer. Any thoughts? I have been trying to locate a good treatise or some regulatory guidance regarding the process for voting employer securities of a public company (held in a 401(k) plan) in the context of a stock sale. It is clear that the trustee is subject to ERISA fiduciary standards in voting and tendering stock held in the plan, but I am wondering if there is a source discussing the potential securities law issues (including any procedural issues). Also, it appears to me that although not specifically required, an independent trustee is advisable if trustee is part of company management?

I am also interested in knowing the timing requirements for the seller's bond under 4204; does the bond have to be posted by the closing date of the sale.

Section 4204 says that the buyer must post a bond for a 5-year period beginning in the first plan year after the sale year. Does that mean for example that if a sale occurs in July, the bond must be in place by Jan 1 for a calendar year plan? If the sale occurred on December 25, is there a delay allowed for the purchaser to purchase the bond, etc.? Is there any guidance on this point? e.g. PBGC Opinion Letters?

Yes you are correct. 4204 has a number of other requirements that have to be met besides the buyer assuming the obligation to contribute to the plan. The buyers WL will be based only on its own contribution history. Thanks, Bill. One follow-up. Have you seen situations where an employer assumes the CBA and then negotiates out of the obligation to contribute only a few months after the asset sale. In that case, the new company would have only a few months of contribution history and I suppose its withdrawal liability would be dependent on the plan's method of calculating liability (as provided in the plan document). Presumably, the liability would be small with such a short history. Have you seen similar situations?

Assume following: 1. 100% asset sale 2. seller going out of business 3. buyer will assume CBA for purposes of employing seller's employees Absent a 4204 agreement, the sale will result in complete withdrawal of seller from m/e plan (seller-side liability). In other words, even though buyer assuming CBA, it is not assuming contribution history of seller, and buyer's withdrawal liability will just be based on its own contribution history. Is this correct?

That's right.

I am trying to figure out what happens when a Plan is late in signing its amendment to convert a plan to a nonelective “safe harbor.” In this example, assume that Plan A intended to adopt the safe harbor nonelective amendment prior to the beginning of the year, but for some reason failed to do so and the amendment was not signed until November of that first year. Would this mean that they must pass discrimination testing for that year or can they do a VCP to get IRS approval for the adoption of the amendment retroactively to the beginning of the plan year. I have reviewed the regulations and realize that there is not an exception to the 12-month rule (nor anything specific in EPCRS), but I am wondering if anyone has any experience under VCP with this issue.

I am wondering if there has been any guidance issued on this point since the last comment? I am trying to figure out whether an LLC taxed as an S-Corp can issue ISOs. I cannot think of any reason why not. As I see it, the biggest issue is that LLC units are not exactly "stock," as that term is defined in 1.421-1. I am a little confused, however, as to the meaning of 1.421-1(d)(3), which provides: "for purposes of this section . . . ownership interests other than capital stock are considered stock." Also, Rev. Rul. 64-284 provides that shares or certificates of beneficial interest in a real estate investment trust that is taxed as a corporation are shares of stock within the meaning of Section 421(d) of the Code. Any thoughts are appreciated.

IRS Response to Technical Assistance Request #4 suggests that reshuffling provisions (or cash out provisions) that apply only to terminated employees and treat all of the terminated employees the same do not raise current or effective availability concerns under 401(a)(4). It would seem to me that there could be a 401(a)(4) issue if an ESOP has thresholds for cashing out terminated participants. In other words, anyone with a balance over $100,000 will be redeemed and placed into a cash account over the course of 5 years, but accounts valued at less than that amount would be redeemed immediately, placed in a cash account and ultimately distributed upon receiving consent. I think this would run afoul of 401(a)(4).

The arrangement is an exempt separation pay plan where the individual can leave with good reason within 1 year following change in control. The CIC has occurred and good reason exists, but new company would like for individual to stay on. Are there any issues with creating a new arrangement under which individual will be paid the same amount under a 409A-compliant separation from service plan? The arrangement is exempt so not subject to the substitution rules, but I am concerned that the new arrangement may be viewed as an impermissible deferral election for the separation pay payment under the old arrangement. What about allowing the existing arrangement to continue and then lapse with the new arrangemetn kicking-im immediately thereafter? Thoughts?

Does a plan that is being involuntary terminated by PBGC (PBGC is in the process of terminating) have to provide the 2010 annual funding notice? Assume that it is a calendar year plan and that the PBGC is imposing a retroactive termination date of February, 2011.

Where can I find the 417(e)(3) rate for August, 2011?

If you have a safe harbor noelective 3% plan, can you exclude certain categories of participants (e.g., associates in a law firm or some other classification of employees)? If so, can you provide a citation in the regs for this point?

Any thoughts on whether a participating employer is legally required to continue contributions to a multiemployer health fund during a strike or a lockout. It appears to me that it will depend on the terms of the CBA. In a single employer plan, I believe an employer could cut benefits that have not accrued prior to the strike, assuming there is no contrary provision in the cba. Any thoughts? Any relevant case citations?

Here's the situation: Particpant A receives a bonus on 1/31/2011 and the company treats the bonus as eligible 401(k) compensation. Particpant has an election in place and the Company funds the contribution to the Plan on 2/02/11. However, under the bonus program, a participant forfeits a prorated portion of the bonus if he or she fails to remain employed through the end of the year. Participant terminates on 3/1/2011. Company decides to remove a portion of the 401(k) contribution that was made out of the bonus under the rationale that the participant did not have a right to the entire bonus b/c he did not remain employed. this seems problematic. Any thoughts? The regs say that you may not fund contributions before the participant has perfomred the services to which the deferral relates. See treas. reg. 1.401(k)-1(a)(3)(iii)©. If there is a restriction on the bonus, i.e., continued employment, has the particpant peformed the services to which the deferral relates before satisfying the continued employment requirement?

Thank you. Good suggestion.

Does anyone know of any procedural guidance regarding plan terminations that occur while there is a Form 5300 pending? Can you substitute a From 5310 in its place?

It seems to me that a service provider and service recipient may agree to a reduction in an annual payment under a plan that is subject to 409A, assuming that the SP agrees to permanently waive any right to the amount that has been waived. Is there anything in the regs that would not allow this type of waiver? Should I be concerned that this may constitute some type of operational failure?

I assume that the MPPAA reorganization rules still apply after PPA. Is there any guidance that talks about the intersection of the reorganization rules and the PPA rehab rules?

Thank you for your response. I guess this is something that is assumed (it makes sense) because I cannot find anything in the regs.