traveler

I understand that the IRS filed an amicus brief in the Matz v. Household International Tax Reduction Investment Plan case which discusses its position on a partial termination that may have occurred over a number of plan years. Does anyone have a copy of that brief?

Thanks for your response. The client will hire the employees under the 501©(3) entity, and leave the for-profit as a shell for now. I see now that I did not include that fact. It seems to me that so long as no entity in the control group sponsors a qualified defined contribution plan, the 401(k) can be terminated and assets distributed. I am a little concerned that the 403(B) plan might be classified under ERISA as a defined contribution plan. If that is the case, then merger should be an option.

Thanks for the reply. I was afraid that the merger would not work- but what about terminating the 401(k) and then allowing distributions on the theory that the client does not sponsor another defined contribution plan. The participants could then rollover their accounts to the 403(B) if they want, or rollover to an IRA.

A non-profit client sponsors a 403(B) plan, to which it makes employer contributions. It has recently acquired a for-profit subsidiary which has a 401(k) Plan. I understand that under EGTRRA, signed on June 7, 2001, eligible rollover distributions from a 403(B) may be rolled over into a 401(k) and vice versa. The client would like to consolidate the two plans into one, but I am not sure that the new law gets me there. The problem, as I see it, is that if I terminate either plan, the rule that prohibits distributions of deferrals while the individual still works for the control group and maintains another defined contribution plan would prohibit the distribtuion and rollover. Is it possible to do a plan merger now - i.e. freeze the 403(B) plan and transfer the assets to the 401(k)?

I have a client that will be merging two 401(k) Plans, one of which has a December 31 limitation year end (the surviving plan), and the second of which has a September 30 limitation year end. The merger will take place as of May 31st. Do I need to amend the transferor plan prior to the merger to change its limitation year so it will match the remaining plan? How else would I be able to test for 415 compliance for the transferor plan? Is there written guidance from the IRS on this issue? I know the 415 regulations explain how to change a limitation year. I am just wondering if in a merger situation, is this something that needs to be done.

I am in agreement with Mr. Zellmer, although, I have no recent IRS guidance that I can rely on with respect to this question. I remember being faced with this question when TRA 86 amendments had to be adopted. I think that the IRS at that time had said that if one plan was merged into another before the end of the remedial amendment period for TRA '86 amendments, and the surviving plan was timely amended, then the plan that was merged into the surviving plan was deemed also to be timely amended, and no additional action was needed.

As I see it, the definition of nonresident alien does not solve the dilemia, because the first step is to count the number of employees in the control group. In doing that count one cannot exclude individuals who might later be excluded from eligiblity, such as union folks or nonresident aliens with no US source income. What I would love to find is something that says, oh, by the way, for SIMPLE Plans, we want to encourage offering of retirement plans, so for control group purposes, one can disregard (when applying the 100 employee test) all employees of control group members who are non-U.S. corporations. Any thoughts on how a non-U.S. parent corporation could be excluded from the control group as defined under 414(B)?

In counting employees to see if the employer has less than 100 employees and may offer a SIMPLE IRA plan, does any one know of any guidance which would allow a U.S. subsidiary (which is part of a control group with a foreign entity) to disregard the foreign employees who are employed outside the U.S.? As I read IRS Notice 98-4, Q & A B-1, employees who can be excluded from participation in the SIMPLE under Code Section 410(B)(3) (union employees, and nonresident aleins with no US source income) still have to be counted for purposes of the 100 employee threshold. This would preclude the U.S. sales office of a foreign corporation from offering such a plan. What policy purpose can be served by precluding a small sales office of a foreign entity from offering a SIMPLE?

Thanks for the responses. The plan does not have a buy-back provision because of the normal 5 year cliff vesting provision. With no buy back provision, its seem that 411 would not allow one to disregard the prior service for vesting purposes, even if the participant received a 100% distribution of his accrued benefit.

I have a client with a defined benefit plan that has a 5 year graded vesting schedule. There will be a partial termination with respect to a group of employees who will be fully vested. Most of these individuals will take a lump sum distribution of their full accrued benefits. If one of these participants is subsequently employed at a different location and again becomes a participant of this plan, do years of service prior to the break count towards vesting in the benefit accrued after the break? For example, an indivual who had 2 years of service became 100% vested because of the partial termination. 4 years later he is rehired and participates under the same plan. Under 411(a)(6) it does not seem that this pre-break service can be disregarded, even if the break were more than 5 years since he was fully vested before he left. The cashout rule of Reg. 1.411(a)-7 does not seem to help either. Seems like I must be missing something, because it is burdensome to have to keep track of prior participants just so one knows whether or not to credit prior service. Any thoughts would be appreciated.

I am looking for additional guidance on what is a management organization under Code Section 414(m)(5). The proposed regulations issued in February 1983 are not helpful. I have a situation where a partnership provides management services for my client and at least one other non-related corporation. My client would like to allow the employees of the partnership to participate in its 401(k) plan. Since my client and the management partnership are not part of a controlled group, it seems that a management organization that is an affiliated service group may be the only way to show that we do not have a "multiple employer plan". Does the fact that the management partnership performs services for other non-related entities cause it not to be an affiliated service group? If the partnership receives more than 50% of its revenue from my client, is that sufficient? What if it is less than 50%? Any guidance would be helpful.

I have a corporate client (Company A) who acquired a couple corporations (Company Y and Z) during 1999. Each of these entities sponsored a 401(k) plan. The Plans sponsored by Company A and Y were standardized prototype plans, neither of which were amended prior to the corporate transaction to specifically exclude participation by employees of other members of the controlled group. It seems to me that walk-in CAP asking for reformation of the plans would make sense, since each group was covered by a 401(k) plan. Anyone have any experience with a situation such as this?

I just wanted to add that the prohibition on loans to owner-employees comes from the prohibited transactions rules of ERISA Section 408(d), and IRC Section 4975(d) and (f)(6). The IRS, at a 1997 Q & A session with the Pension Actuaries indicated that Limited Liability Corporations should be treated as analogous to partnerships, sole proprietors or S corporations for loan purposes, until the IRS specifically addresses the issue.