pjkoehler

Morningstar has an online 401(k) plan investment advisory services I believe. I know FinancialEngines provides a probability forecast tied to beta based on the mix of mutual fund investments in the account. I don't know if either service provides an analysis of the impact of individual publicly traded stock, but it would be interesting to see if their forecasting models track individual publicly traded securities, as well as mutual fund shares. If they do, then it would be helpful to participants to model their employer stock allocations to determine whether or not they are being compensated for the additional risk, or, conversely, whether they can achieve an allocation including employer stock the provides comparable probability of achieving specified returns for a given level of risk.

You've got two issues here. First, satisfying the exception to avoid treating the loan as a distribution under Code Sec. 72(p)(2)(A). Second, satisfying the exception to avoid a prohibited transaction by providing that the loan is "adequately secured." ERISA Sec. 408(B)(1). The $1,000 loan satisfies the limit set forth in Sec. 72(p)(2)(A)(ii), not taking into account any prior loan balances. But, a participant's vested matching account balance will be adequate security for the loan to the exent of the plan's ability to satisfy the loan's outstanding balance in the event of default. DOL Reg. Sec. 2550.408b-1(f)(1). Accordingly, if the plan's loan policy provides that the loan may only be secured by the participant's vested matching account balance ($200 in your example), you will not have satisfied the statutory PT exemption for a $1000 loan, unless the participant pledges additional security. A little understood rule is that, even though for Sec. 72(p) purposes in determining the amount of the loan, an account balance of $10,000 or less will support a loan amount equal to 100% of the account balance, for PT exemption purposes, no more than 50% of the vested account balance can be used for meeting ERISA's "adequately secured" requirement. DOL Reg. Sec. 2550.408b-1(f)(2). So the maximum loan for the employee you've described, where the loan policy limits the security to the vested matching contribution, is only $100 (50% of his vested account balance). While the loan policy may limit the loan amount to the entire matching account balance, which would theoretically permit him to obtain a $1,000, he's going to have to provide collateral in addition to his vested matching account in order to secure $900 of the loan. Allowing participants to secure their loans with property other than their vested interest is usually not administratively feasible for any but the largest plans.

If the employee sent the trustee or other fiduciary a check as repayment of a loan, which was payable to the trustee, then the trustee or other fiduciary held that check for the benefit of the plan. It was obligated under ERISA to insure that the proceeds got into trust solution. That fiduciary clearly breached its duty in multiple ways and probably engaged in a self-dealing prohibited transaction as well. Under ERISA Sec. 409, the fiduciary is liable for the loss sustained by the plan caused by the misdirected deposit, plus the lost interest from the date of the deposit. Disgorgement would seem to be the appropriate remedy. The plan could certainly accept a check drawn on this bank account for that purpose. But there is also another issue. Presumably, the check was payable to the trustee of the plan. It was clearly inappropriate for the bank to allow the trustee or a nontrustee to negotiate that check and deposit the funds into a nontrust bank account. The trustee, or other fiduciary, could probably recover from the bank even if the breaching fiduciary doesn't make up the loss to the plan. I disagree with Dave Baker's analysis that the borrower failed to make a timely loan payment because of the fiduciary's mishandling of his check. The borrower clearly tendered payment to a plan fiduciary. His check was a plan asset as soon as the fiduciary took custody of it. The borrower does not indemnify the plan against a breaching fiduciary's mishandling of plan assets. The Plan's claim is against the breaching fiduciary and maybe the bank, not the borrower. Would the borrower be out of luck if the fiduciary simply embezzled the funds. I can't imagine that a court would seriously consider this to constitute a default under the note. [Edited by PJK on 07-14-2000 at 06:13 PM]

Kirk, while reasonable people can disagree, I think on just an empirical level, a strong case can be made that employees who participate in self-directed 401(k) plans that permit investment in employer stock tend to make less rational decisions about taking long positions in that security. They tend to buy it without regard to any rational asset allocation strategy causing their portfolios to have a higher beta coefficient for the level of its return. For sophisticated investors, I doubt this is much of an issue, but self-directed 401(k) plans are, as we know, in general not well managed. Since they are increasingly the delivery vehicle of retirement benefits in the private pension system for low and middle income workers, I think the public policy issue is unavoidable. The present value of a worker's future earnings is already exposed to a substantial unemployment risk which is tied directly to his employer's economic fortunes. Holding employer securities in the worker's 401(k) account further increases his exposure to this risk and frequently results in suboptimal risk-adjusted rate of return. If the worker also holds shares outside the plan or stock options, he's almost certainly over-weighted in that security. Think of the unions who frequently want the trustees of multiemployer plans to invest in projects that boost the employment prospects of its membership or make other economically-targeted investments. In general, these strategies inevitably involve a tradeoff between portfolio performance and nonretirement objectives. [Edited by PJK on 07-17-2000 at 04:49 PM]

I assume you mean a medical FSA in which HCEs have a higher maximum annual participant contribution than NHCEs. Otherwise, I don't understand what you mean by a "smaller contribution" for the NHCEs. Technically, contributions to the FSA are treated as "employer contributions," but, as a practical matter, they are amounts withheld from the employee's paycheck in exchange for the right to make claims for reimbursement up to an annual maximum for specified benefits. A medical FSA that provides a higher annual maximum contribution for HCEs than NHCEs will almost certainly result in "excess reimbursements" to HCEs in a particular taxable year. This doesn't make the plan "illegal." It merely means that the excess reimbursements are not excludable from the HCEs' gross income under section 105(B) for that year. Treas. Reg. Sec. 1.105-11(e)(1). The NHCEs and the HCEs who didn't receive excess reimbursements are unaffected. Similarly, to the extent the FSA is funded through a cafeteria plan that is discriminatory in a particular plan year, the "Key Employees'" salary redirections are not excludable from gross income under section 125(a) for the taxable year that ends with or within that plan year. Prop. Treas. Reg. Sec. 1.125-1, Q&A-10. While all of the "Key Employees" are affected, none of the NonKeys are affected. In any case, the plan goes on without any form of correction or employer penalty, other than the adverse tax consequences that befall the HCE/Key Employee group.

There is a lot of literature recently published in economics and personal finance journals that is of the view that investing an employee's retirement assets in company stock too often results in suboptimal diversification of the employee's total portfolio, especially if he/she already holds stock or stock options outside the plan. I don't think you'd have much trouble finding some aritcles on the IFEBP web site.

I don't think you're going to find any more formal guidance. However, there is a very interesting discussion set forth in an informal DOL letter reported at 1994 ERISA LEXIS 56 (8/11/94).

The plan's definition of "plan year" is frequently incorporated by reference in the definition of other terms, e.g. "eligibility computation period," "vesting computation period," and "limitation year." These terms are directly related to the operation of the plan. If the plan is maintained by a corporation, a resolution of the board of directors is probably not sufficient to amend the plan. You'll have to look as the specific procedural requirements for amending the plan set forth in the plan document. But most plans provide that the plan is amended in the same way that it was established, by an instrument signed by the appropriate officer. Typically, a board resolution merely authorizes a specified officer or his/her delegate to execute a form of an amendment that the directors reviewed and approved. By analogy, if the board approves the execution of a contract, but the contract is never executed by an officer of the company, is there a contract? Probably, not. You can argue that such approval has the legal effect of amending the plan, but it's a stretch because logically that means that the orginal board resolution approving the adoption of the plan in the first place was sufficient to establish the plan, even if the plan document was never actually executed. In my experience that sort of plan establishment argument wont pass the "smile test." But even if the board resolution constitutes a plan amendment, you still have the problem of having a plan document the terms of which are not consistent with the operation of the plan. A basic qualification violation. You also probably didn't meet the SPD modification disclosure rules, which is an ERISA violation. What you might consider is having the plan amendment currently executed with a retroactive effective date. Have the board approve another resolution ratifying this action and take the position that such a retroactive amendment is not a remedial amendment or other amendment to effect legal compliance, so it's not governed by the limitation on the remedial amendment period. You should probably go in under Walk-in CAP under such an approach. Alternatively, you can look at the effect of undoing the plan year change for prior plan years and make the change currently effective, as a self-correction, since this wont involve a retroactive amendment.

In order to avoid being treated as a taxable distribution, the loan documents must provide for substantially level amortization over the term of the loan. Code Sec. 72(p)(2)©. The loan may, however, provide a prepayment provision. Keep in mind that the loan must have adequate security. If the security is a portion of the employee's vested account balance, then he will not be able to take a distribution of that portion of the account until the loan is paid off, unless he chooses to default and receive a plan loan offset distribution. If the employee needs a short-term bridge loan for less than 60 days, it might make more sense for him to elect a direct rollover to an IRA, take a withdrawal from the IRA and redeposit the funds within 60 days. This can be done once each calendar year with no tax consequences. This effectively the employee him an interest-free loan for 60 days, without the hassle of originating a new loan in the plan. Since he is over age 59 1/2 he is not subject to the 10% tax on premature distributions under Code Sec. 72(t). If the plan the employee isn't retiring or terminating employment, check to see if the plan provides for a nonhardship in-service withdrawal upon attainment of age 59 1/2.

It is, of course, common practice for plaintiffs bringing wrongful denial of benefits claims under ERISA to name the plan administrator as a defendant, as well as the actual fiduciary who adjudicated the claim. So before we get to the applicable standard of review, the threshold issue is whether the "plan administrator" was the party that denied the claim, i.e. is a proper defendant. If the plan administrator did not exercise its discretion to deny the claim or participate with the insurance company in the denial of the claim and had no discretionary authority to review the claims denial (whether or not it exercised it), then the "plan administrator" is a strong position to ask the court to grant a motion to dismiss for failure to state a claim against it, as a proper defendant. The facts you've mentioned tend to show that the "plan administrator" delegated its claims adjudication fiduciary responsibility by contract to the insurer. You have to be careful here, because insurance companies are renowned for trying to avoid fiduciary responsibility even when, as a procedural matter, the contract requires that they make the initial determination. ERISA provides that no delegation or allocation of fiduciary duty is effective unless its is explicit and accepted in writing by the delegate. Unless the contract contains very explicit fiduciary responsibility delegation language, the insurance company is likely to take the position that, while it made the initial determination as to medical evidence supporting the plaintiff's claim for benefits, the plan administrator retained the fiduciary responsibility to determine whether the Plan should pay the benefit on request for administrative review or an outright benefit appeals. In other words, plan administrators who think this was all the insurance company's responsibility get hauled into court on a "denial of access to the claims procedure theory." The insurance company is likely to argue that providing access to the Plan's claim's procedure is the responsibility of the "plan administrator." Generally, courts listen to this argument, where the "plan administrator" just dropped out of the picture while the claimant and the insurance company's claims personnel go round and round. In such a case, the plaintiff could well argue that the plan administrator's passive role was a denial of access to the claims procedure, which doesn't fit under the Firestone formulation because it's not related to a fiduciary's interpretation of ambiguous plan terms.

At the heart of the discussion with IRC 401 is a misuse of the term "elective deferral." This term as defined in the regulations has absolutely NO application to amounts excluded from gross income under Code Section 125(a) (the Cafeteria Plan exclusion). See Reg. Sec. 1.402(g)-1(B). "Elective Deferrals" refers exclusively to: (1) "elective contributions" under Sec. 401(k), (2) "employer contributions" to a SEP under Sec. 408(k); (3) "employer contributions" to a tax-sheltered annuity under 403(B); and (4) any deductible "employee contribution" to a trust exempt under Sec. 501©(18). Common sense would indicate that, since a Cafeteria Plan merely permits an employee to exchange a taxable benefit (typically cash compensation) for specified nontaxable benefits ("Qualified Benefits"), and exclude the taxable benefit from gross income, there is no DEFERRAL going on. Deferred compensation is expressly excluded from the range of Qualified Benefits that a Cafeteria Plan can offer, so any reference to "elective deferrals" in this context is just plain wrong. Prop. Reg. Sec. 1.125-1, Q&A-7. Logically, the absence of any reference to "elective deferrals" in the the DOL "plan asset" regs discussed in this thread does not support the inference that IRC401 appears to be making, i.e. these regs don't apply to amounts that an employee has withheld from his paycheck for purchase of a Qualified Benefit under a Cafeteria Plan.

Rather than an exemption that is specific to the plan, the exemption is technically a limitation of the scope of the accountant's examination and report required by ERISA Sec. 103(a)(3)(A). See Reg. Sec. 2520.103-8. The so-called "limited scope audit exception" effectively exempts from the accountant's examination consideration of the accuracy of any statement or information prepared and certified to by organizations that are eligible for treatment as "direct filing entities" (MTIAs, CCTs, PSAs and 103-12 Investment Entities). Now, if it turns out, that 100% of plan assets are held in such investments, a plan is effectively exempt from the the auditor's report requirement, if the DFE files a DFE Form 5500 and the plan sponsor attaches Schedule D to the Form 5500.

You say that Company B was acquired by Company A in a stock-for-stock deal. The transaction results in Company B becoming a member of the Company A controlled group of corporations. Since the acquiring company typically assumes the liabilities of the acquired company, the fate of the acquired company's 401(k) plan is normally given detailed treatment among the reps and warranties and the selling shareholders' covenants set forth in the acquisition agreement. This apparently didn't happen, which means that you're in the position of determining what exposures Company A will have with respect to the Company B 401(k) plan. This is essentially a due diligence function that logically should have been completed before the close of the transaction, since it may well have had a materially adverse affect on the value of Company B. If you suspect there are major compliance issues, you may want to consider your self-correction options by maintaining the Company B Plan as a frozen plan for a couple of Plan Years, continuing to allow the participant's with loans to service those loans. Terminating the plan at this point will probably not constitute a distribution event anyway, at least for the 401(k) portion of the plan. Until you figure out the compliance posture of the Company B plan and any form or operational asymmetries that may make plan merger problematic, you probably don't want to go there. At least not as your first option.

Kim, take a look at the option attribution rules set forth in Code Sec. 1563(e)(1) and Reg. Sec. 1.1563-3(B)(1). You probably know that Code Sec. 414(B) incorporates most of Code Section 1563 by reference, including most of its constructive ownership rules. In general, these constructive ownership rules provide that a person holding an option to purchase shares of stock shall be treated as owning the shares. One issue with your example, is when does owner 1's right of first refusal ripen into an option. I assum that owner 1 cannot purchase the shares in Company 2 held by owner 2 until it receives notice from owner 2 of its intent to sell the shares to a third party at a specified price. Until that condition occurs, the right is arguably not an exercisable option. You could probably argue that current exercisability is a condition on the application of the option attribution rules. This is probably worth some research. Also, I would research guidance under the Sec. 318 attribution rules. While Sec. 318 is not directly relevant for Sec. 414(B) analysis, Code Sec. 318(a)(4) contains an option attribution rule that is word-for-word the same as 1563(e)(1)

Seems like a perfectly acceptable approach. Nothing in the Code or ERISA prescribes a nondiscrimination standard for the rate of the employer subsidy for a full-insured accident and health plan. The employer can provide 100% employer-paid fully insured benefits to a select group of highly compensated employees and no benefits to other employees if it wants to, even with a zero rate of employer subsidy. So, a plan that merely reduces the rate of employer subsidy for the other employees is far less problematic. Whether such an arrangement is consistent with state insurance law, which may impose certain underwriting constraints, i.e. whether you'd actually find an insurance carrier that would issue such a policy, requires a separate analysis. We also know that a cafeteria plan that excludes all Key Employees is not going to violate the Code Sec. 125 nondiscrimination test.

BNYMTC, the only way you're going to get to a self-dealing PT issue is if you first have a "fiduciary," acting in a fiduciary capacity (i.e. exercising the kind of discretion that makes it a fiduciary), that causes the plan to enter into a transaction involving plan assets. The "TPA" firm you've described is more than a third party administrator in the classic sense of "third party" to the plan. The firm is performing both fiduciary and nonfiduciary actions. With respect to its nonfiduciary role, you need to analyze who has engaged the firm. Typically, the corporate plan sponsor engages the third party administrator to perform ministerial services for the real "plan administrator," who typically is the board of directors of the corporation or its delegate. Most administrative services agreements are written by the TPA to stress that the TPA is not a fiduciary with respect to the services that it performs as a TPA. While this is far from dispositive as the TPA's ultimate classification as a "nonfiduciary," it was clearly not engaged by the plan and has no contractual right to receive payment of its services from plan assets in the event the corporation doesn't pay its fees. Such a TPA is intended to merely function as a contract service agent to the "plan administrator," which does not make the TPA a "service provider" to the plan within the meaning of ERISA's definition of "party in interest." In accepting its appointment as trustee, the firm is a named fiduciary. But if the trust agreement is a directed trust, i.e. the trustee has little if any discretionary authority with respect to the investment or distribution of plan assets and is obligated to follow the instructions of other plan fiduciaries, then it would be reasonable to infer that the trustee does not have the kind of discretionary authority over plan assets in order to engage in a transaction involving plan assets as consideration for providing free ancillary services. So long as the senior executives who benefit from the receipt of the free ancillary services are not plan fiduciaries themselves (e.g. if the board of directors is the responsible plan fiduciary making the decision to engage the firm as trustee and none of the execs sits on the board, or they recuse themselves from such board approval), then you're still not going to have a self-dealing type PT, unless the facts support an indirect PT because, for example, the benefitting execs have the power to appoint and remove the outside directors. On the other hand, if the benefitting senior executives exercise the discretionary control or authority over plan assets that makes them fiduciaries to cause the plan to engage the firm as plan trustee and transfer plan assets to its custody in exchange for the free ancillary services, then you almost certainly have a self-dealing PT. [Edited by PJK on 07-10-2000 at 02:31 PM]

Is your question with respect to a corporate transaction in which the acquiring company purchases 100% of the outstanding shares of the corporate sponsor maintaining a 401(k) plan, in which some plan assets are held in employer stock?

The dash 20 regulations provide guidance for the limited purpose of meeting the notice and consent requirements set forth in Code Section 401(a)(11) and 417. The answer to Question 27 merely says that in specified circumstances the consent of a married participant's spouse is not required to meet these requirements. In the case of "legal separation," the the exception applies only if a court (which is going to be a state domestic relations or family court) issued an order to that effect. Theoretically, a plan may contain supervening language, i.e. provisions that exceed the minimal compliance burden imposed by Code Sections 401(a)(11) and 417. For example, the plan might impose a more stringent spousal consent requirement (i.e. one that doesn't recognize a legal separation exception). Dash-20 regs provide no relief from the general qualification requirement that the plan must be operated in accordance with its terms. See Reg. Sec. 1.401-1(a)(3)(iii). Even if the plan doesn't contain a more stringent spousal consent standard, it is not uncommon for the parties to enter into a stipulated QDRO that establishes the spouse's right to consent to the participant's waiver of the QPSA/QJSA during and after the pendency of the judgment for marital dissolution. Q&A-27 of the dash 20 regs does not bar the spouse's enforcement of such a QDRO against the plan.

Assuming that the plan assets are not used to pay the TPA's fees, then we lack a predicate fact for a ERISA Sec. 406(a) per se form of PT, viz. a transaction involving plan assets. We may also lack another predicate fact, a transaction between the plan and a party-in-interest, since the TPA is not a "service provider" with respect to the plan, merely because it has been engaged by the corporate plan sponsor to provide services to the corporate plan sponsor (not the plan). We also may not have an ERISA Sec. 406(B) "self dealing" type of PT, since you haven't stated that the "free ancillary services" are consideration in exchange for the fiduciary engaging in a transaction involving plan assets. To the contrary, they seem to be consideration in exchange for the corporation entering into a contract with the TPA, with respect to which plan assets have no exposure to the TPAs performance or nonperformance. The IRA CPTEs mentioned by Kirk can be distinguished, since there the IRA trustees/custodians were clearly "parties in interest" with respect to the IRA's whose assets they hold for the benefit of the account holder and the IRA account holder is treated as a fiduciary, with respect to the account, for PT analysis purposes. If the Plan's trustee (or other fiduciary or service provider) was offering the corporation "free ancillary services," we would have a fact pattern akin to these exemptions. [This message has been edited by PJK (edited 07-05-2000).]

Wessex, the underlying policy rationale for not subjecting "direct rollovers" to the 60-day rule (for determining the timing of the inclusion of the amount of the distribution in gross income) that applies to other "eligible rollover distributions" is that the exempt trust assets, which comprise the "direct rollover" never leave "eligible retirement plan" solution. While this is an attribute that "direct rollovers" share with "trust-to-trust transfers," as Reg. Sec. 1.401(a)(31)-1, Q&A-14 points out, "direct rollovers" are treated as distributions (not trust-to-trust transfers) for purposes of the benefit notice and consent requirements and the determination of protected benefits under Code Sec. 411(d)(6). The 60-day rule described in Code Sec. 402©(1), is an income timing rule. It's not intended to protect the distributee from mishandling of the rollover funds by the plan fiduciaries handling the funds. In the context of an ERISA Title I plan, a plan fiduciary that exercises discretion in the handling of "direct rollover" funds will be exposed to fiduciary liability for acts or failures to act that fall below the applicable standard: (1) exclusive purpose, (2) prudent expert, (3) diversification and (4) plan document.

I think you're right that a fiduciary that exercises the discretion that makes it a fiduciary to cause the plan to enter into a transaction in which his lineal descendent has a financial interest, probably engages in self-dealing-type PT under ERISA Sec. 406(B), in the absence of an applicable exemption. However, one of the advantages of an ERISA Sec. 404© Plan is that a participant that excerises independent investment control over the assets of his account "shall not be deemed to be a fiduciary by reason of such exercise." ERISA Sec. 404©(1)(A). It may be argued that the right to determine the brokerage firm merely expands the scope of the participant's independent investment control over the assets in his or her account and, therefore, that the participant's choice of broker is not a fiduciary act. See 29 CFR Sec. 2550.404c-1(d)(1). An investment that is not the result of a fiduciary act cannot, on its face, be a self-dealing form of PT.

Nothing in the IRC Sec. 414© regulations makes board membership a surrogate for equity ownership. The term "controlling interest" is central to the definitions of "parent-subsidiary" and "brother-sister" controlled groups. "Controlling interest" is variously defined for different forms of organizations, but the unifying element is equity interest. Reg. Sec. 1.414©-2(B). In the case of incorporated entities, a "controlling interest" means owership of stock possessing at least [the threshold percentage of either (1) total value of all classes of stock or (2) voting power of all voting shares.]" The brother-sister form of controlled group is also defined by reference to the existence of "effective control" among the same five or fewer persons who collectively hold a "controlling interest." "Effective control" is similarly defined solely by reference to ownership of an equity interest. The 3rd version of the PWBA Qs&As regarding Form M-1 says that the principles of Code Sec. 414 apply, with the exception that 25% is the threshold percentage, but I don't see even a hint that board membership is a substitute for equity ownership in determining the existence of a "control group" for MEWA purposes.

RSnyder, the regs provide that (1) The right to receive a periodic or nonperiodic distribution on termination of employment is a Sec. 411(d)(6) protected benefit. Reg. Sec. 1.411(d)-4, Q&A-1. (2) Section 411(d)(6) protected benefits cannot be eliminated by reason of an involuntary transfer to another qualified plan. Reg. Sec. 1.411(d)-4, Q&A-3(a). (3) A plan may not be amended to add employer discretion or conditions restricting the availability of Section 411(d)(6) protected benefits. Reg. Sec. 1.411(d)-4, Q&A-7. Based on this revised hypo, at a minimum, to safeguard the qualified status of the Purchaser's Plan, it should be amended (and the SPD modified) so that the transferred accounts are treated as immediately distributable (i.e. without regard to their employment by Purchaser) to the same extent that they would have been under the Seller's Plan if the transfer had not occurred.

In Hughes, the plaintiffs' chief objection was that the new noncontributory plan benefitted participants who never made employee contributions to the frozen plan and that Hughes was, therefore, using "their[plaintiffs'] money" to achieve a corporate purpose related to the establishment a new pension benefit plan, and to obtain substantial savings by satisfing its funding obligations thereto by transferring "frozen plan" assets. If an employer can establish a new noncontributory plan for one class of employees, and offset its funding obligations by transferring assets from a contributory plan that covers a separate group of employees, it achieves a financial benefit in direct proportion to the assets transferred. But that is of no moment, according to the Supreme Court, so long as the transferor plan's benefit structure is left intact. It can be argued that treating a demutualization award that is paid in exchange for membership rights in an erstwhile mutual life insurance company as a corporate asset, without affecting the benefit structure of the plan for which the policy is the funding vehicle, stands on the same footing. As far as state insurance laws, it can be argued that a state law, even if codified in the state insurance code, which purports to determine whether or not a demutualization award is a "plan asset" of an employee benefit plan, is not a law that "regulates insurance," and, therefore, isn't saved from preemption under ERISA Sec. 514(B)(2)(A). [This message has been edited by PJK (edited 06-28-2000).]

Jeff, I agree that given the current absence of guidance, the prudent approach is to treat the entire demutualization award as a plan asset. However, someday the DOL should have to distinguish the holding in Jacobson v. Hughes Aircraft, 119 S.Ct. 755 (1999). There a contributory defined benefit plan was overfunded by about $1 billion, Hughes ceased making contributions in 1987, but the mandatory employee contributions continued to be withheld from employee paychecks and contributed to the plan. In 1989 the plan was amended by adding an early retirement incentive benefit for certain employees. In 1991 Hughes froze the plan and Hughes spunoff a noncontributory plan, funded by a portion of the excess assets. The plaintiffs claimed that, as contributing employees under the frozen plan, they had a right to a portion of the excess assets in the form of enhanced benefits. The Supreme Court, however, held that participants in a contributory defined benefit plan have no right to any portion of excess assets accumulated in the plan. The Court reasoned that the participants held an interest only as to their accrued benefits, regardless of the level of overfunding. How is it then, that the DOL can logically argue that participants in a noncontributory pension plan have any right to have any portion of a demutualization award? [This message has been edited by PJK (edited 06-28-2000).]