pjkoehler

ubpMR: In addition, you should take a look at www.mystockoptions.com and the website for the National Association of Stock Plan Professionals at www.naspp.com.

PES: As a threshhold issue: Analyze whether or not these companies satisfy the "qualified separate line of business" definition under Code Sec. 414®. If they do, then you can ignore the controlled group relationship for testing purposes.

PES: "Plans benefitting no highly compensated employees" satisfy the minimum coverage requirements of Code Sec. 410(B). See Reg. Sec. 1.410(B)-2(B)(1) & (6). Accordingly, a plan that excludes employees of certain controlled group members should pass minimum coverage as long as no HCEs benefit. I suggest including a plan term that includes the HCEs as part of an excluded classification.

Peter: One of the ramifications of making corrective distributions is that the amount that was payable to the former employee was not part of an eligible rollover distribution. You should direct the trustee to issue a corrected 1099R if it hasn't already done so reducing the amount of the eligible rollover distribution and an additional 1099R coded to reflect the corrective distribution.

jpetrancosta: An employer's merger of the MPP into the PSS will require scrupulous planning in light of the requirements of Code Sec. 411(d)(6) with particular regard to avoiding the elimination of optional forms of benefit. Furthermore, since the merger presumably involves the cessation of benefit accruals under the MPP, it also requires compliance with employee notice requirements of ERISA Sec. 204(h) and Code Sec. 4980F.

N'siah: See 29 CFR Sec. 2520.104-46(B)(iii)(A). It provides that the determination of the percentage of all assets consisting of "qualifying plan assets" for a given plan year is made in the same manner as the amount of the bond and x-refs 2580.412 dash 11, dash 14 and dash 15. They will eventually x-ref to dash 4 and ultimately dash 5, which equates "plan assets" for this purpose to the term "funds or other property." Contributions are not considered to be "funds or other property" (and hence are not taken into account in determining the percentage for purposes of the "qualifying plan assets" percentage test): 1. If the plan administrator is other than the employer plan sponsor, until they are actually received by the plan administrator; 2. If the employer is itself the plan administrator, until they are "taken out of the general assets of the employer and placed in a special bank account or investment account; or identified on a separate set of books or records; or paid over to a corporate trustee or used to purchase benefits from an insurance carrier; or otherwise segregated, paid our or used for plan purposes, whichever shall first occur." Accordingly, the mere recording of a contribution receivable for financial statement purposes in accordance with the accrual or modified accrual method of accounting, is not enough to give rise to a "plan asset" for the limited purpose of determining the percentage of plan assets that constitute "qualifying plan assets."

Katherine: I don't think anyone is arguing that it makes sense to design a plan that doesn't provide for the participant's right to revoke periodically an earlier election, regardless of whether it's made in a negative or affirmative context. But, I can't find any guidance in the two rev rulings you cited that supports the position that this is a requirement of a qualfied CODA. The requisite "effective opportunity" to make a CODA election exists if the employee has a "reasonable period to make the election before the date on which the cash is currently available." Clearly, an opportunity to make a CODA election with respect to the compensation earned, for example, 24 bi-weekly payroll periods later is a "reasonable period . . . before that date on which the cash is currently available." The revocability of that election is a separate issue that isn't considered in these rulings. So, for example, nothing in these rulings suggests that a plan that requires a CODA election must be made by December 1 with respect to the following calendar year would not have a qualified CODA merely because it also provides that such election is irrevocable for each payroll period that begins in the following calendar year. Again, this is not say this is a sensible plan design, just that the revocability of the prior election is not governed by Sec. 401(k) or the regs. Which is probably why plans vary so much on the terms and conditions of revocability.

Katherine: In a negative election context, the participant must make an "opt-out" election to prevent the automatic election from becoming effective. A close reading of RR 2000-8 reveals that a CODA will not fail to be a qualified CODA in a negative election setting, "provided that the employee had an effective opportunity to elect to receive an amount in cash. The employee has an effective opportunity to receive an amount in cash ... if the employee receives notice of the availability of the election and the employee has a reasonable period before the cash is currently available to make the election." The election the ruling is talking about is distinguishable from a right the participant may or may not have under the terms of the plan to revoke a prior deferral election. I don't think this ruling can be used to bootstrap a right of revocation as an element of the qualified CODA requirements.

mbozek: Sec. 503(a)(1)(B) denies tax exempt status to a governmental plan that engages in a "prohibited transaction" described in Sec. 503(B), which specifies a series of transactions involving plan assets and the public agency/sponsor, a "substantial contributor," or other related parties. Transactions between the plan and a fiduciary, who is neither a creator nor a substantial contributor, are not technically prohibited under 503(B), however, the regs provide that they are subject to close scrutiny "in the light of the the fiduciary principle requiring undivided loyalty to ascertain whether the [plan] is in fact being operated for the stated exempt purpose." Treas. Reg. Sec. 1.503(a)-1(B).

jehmig: The regs are not very helpful on this issue. While logically, the published CD rate the plan sponsor/bank offers its customers would be a "reasonableness" benchmark, neither the DOL or Treasury regs specifically refer to this as a factor. But, you could argue by analogy in the light of the exemption requirements for participant loans, which require that the note bear a "reasonable rate of interest." That term is defined to mean the rate charged by persons in the business of lending money for loans made under similar circumstances. DOL Reg. Sec. 2550.408b-1(e). Of course, the CD sold to the plan didn't occur within a normal commercial setting. The bank could argue that in determining a reasonable rate, it should be able to increase it's published rate to adjust for the lack of direct marketing and other overhead costs. Whether it can justify the two percentage point differential is a factual question. I don't think this is good long term practice, especially if the population of NHCEs is steadily decreasing. The bank is probably better advised to allow the CDs to rollover at the bank's then published rates.

chris: Are (1) plan docs, (2) SPD and (3) all other written and oral communications consistent regarding the plan's vesting schedule and it's only these benefit statements that are inconsistent? If that's so, the participant is left with a mere promissory estoppel argument in support of his wrongful denial claim. The elements of such a claim include (1) the employee's "reasonable" reliance on the employer's promise (erroneous vested percentage computation) and (2) an injustice can be avoided only by enforcing the "promise." Gramm v. Bell Atlantic Mgt., DC NJ (1997). If the employee received an SPD that contained unambiguous vesting terms that were inconsistent with the benefit statements, it's going to be a stretch for the employee to show that he "reasonably" relied on the computation in the statement (at least without further inquiry of HR). Even if a court finds that his reliance on the statement was "reasonable," giving him a windfall does not avoid an injustice since the employer only seeks to enforce the terms of the plan in a uniform and nonselective manner. Id. See also Slice v. Sons of Norway, 34 F.3d 630 (8th Cir. 1994) (no injustice is prevented by enforcing erroneous lump sum calculation in favor of employee).

jehmig: See ERISA Sec. 408(B)(4) and DOL Reg. Sec. 2550.408b-4 and IRC Sec. 4975(d)(4) and Treas. Reg. Sec. 54.4975-6(B) regarding the statutory exemption for investments in deposits of banks by a plan covering the bank's own employees

JWEBB: 403(B)(7) by its nature limits the investment media to the universe of '40 Act Investment Company stock, effectively publicly traded mutual fund shares. Other than PT issues, generally a 401(a) qualified plan is not directly limited in terms of the issuers or the kinds of securities that may be plan assets. Since the universe of publicly traded mutual funds is so vast, this may not be perceived as a meaningful distinction, but it's a difference nonetheless.

JWEBB: I think this approach works as well. Of course, the district is limited in its choice of investment media compared to a 401(a) qualified plan. Also, you should be sure that the state law that authorizes the district's purchase of TDA's for its certificated employees is broad enough to permit substitution of custodial accounts. Some of these laws have not been updated since the enactment of 403(B)(7) and refer only to annuity contracts.

GBurns: Let the employer make up the noneligible rollover contributions as a corrective contribution to the plan, taking the position that it thereby assumed the legal status of obligee with respect to the terminated employees' debt. It could go through the motions of making a demand on the participants for repayment, but ultimately characterize the amounts as compensation due to forgiveness of debt applying the same reporting and withholding treatment as a forgiven employer loan, i.e. supplemental income.