Dowist

DOL rules on loans say that loans must be available to all participants on a reasonably equivalent basis. I'm not sure how a suspension would fit with this requirement.

You should look at Reg. ss 1.410(B)-4(B) which defines "reasonable classification established by employer," in connection with the average benefits test of the coverage requirements. It says: "Reasonable classifications generally include specified job categories, nature of compensation (i.e., salaried or hourly), geographic location and similar bona fide business criteria. An enumeration of ees by name is not considered a reasonable classification."

The prohibition against measuring a year of service on less than a 12 month period is to protect pts against a plan change that would result in part of their service not being counted. Suppose you had an employee who was part-time except from November through January (Christmas season) when he worked full-time. Overall he always works 1000 hours in a calendar year, but most of it in those 3 months. Say you go from a calendar year to a July to June year effective June 30, 1999. If you were able to prorate the service requirement for the short year, he would not get a year of service because he doesn't have 500 hours of service through June. Now suppose he quits on December 31, 1999 - he has 1,000 hours in the 1-1-99 to 12-31-99 period, but he doesn't have 1000 hours in the July 1999 to June 2000 year. If you had been allowed to prorate he would get no years of service for the period Jan 1999 through Dec. 1999. If you follow the ERISA and IRS rules requiring overlapping periods, he'd have 1 year of service.

The combined MPP/stock bonus ESOP would be considered one plan for 5500 purposes, and there is no requirement that all of the stock assets be allocated to the stock bonus part of the plan - in fact I could argue that the when the stock went in each year that it would have to be split between the MPP and stock bonus accounts (in other words the MPP Plan is part of the ESOP and would be equally subject to the ESOP rules requiring that assets be primarily invested in stock.) So far as using cash from the MPP side of the plan to pay for stock of departing pts, I've seen it done, but I would be uncomfortable with it - especially if the plan has not done it before and is doing it primarily to pay off these big accounts. What would be happening is that the ongoing participants would be purchasing the stock of the departing participants, and the percentage of th ongoing participants' accounts invested in stock would increase - the result would be that they would be moved to riskier investments because of the decision to make payments this way. What would happen if the stock tanked after all those pts with big accounts were paid with the ongoing pts cash? You could - IMHO - have a lawsuit, a big mess, unhappy pts, DOL interest, and scared fiduciaries - I would not want to be the fiduciary who directed that approach in this situation. Now you have some arguments that all this ok - an ESOP is supposed to invest in co. stock - BUT I would not want to be an ESOP fiduciary when a company tanks. If it's going to happen anyway, the fiduciary better have his fiduciary insurance up-to-date.

Don't know, but one way to get this result would be to wait to merge the plans until the first day of the next year.

This is governed by state law - most states have a set of laws called "Wage and Hour" laws that govern what an employer can do with wages, and vacation and sick leave. There probably is something that says the employer must disclose the rules relating to sick leave and has to follow them, but you'd have to look at your state's laws.

The normal retirement date is the date when benefits fully accrue. The normal retirement age is the date when benefits must be fully vested (regardless of years of service). The accrual of benefits may be determined in part by the NRD - for example, (and this assumes a certain type of plan) if your NRA is June 15, 2009, so that your NRD is January 1, 2009 and as of January 1, 1999 you had 10 years of service, your accrual fraction (using the fractional method) would be 1/2. This fraction would be applied to the plan's benefit formula and your particular data (compensation), and this would result in your accrued benefit payable at NRD as of January 1, 1999. Now if you were to change the NRD so it was the actual NRA, the fraction above could change - instead of it being 1/2 as of Jan. 1, 1999, it might be slightly less. Because of the anticutback rules, you'd have to protect the benefit as of the date of change. (Note that this might result in the now famous "wearaway" situation in which the participant's benefit accrual is briefly suspended.) Also, you should probably give the 204(h) notice as there is the possibility for some participants (as in the example) that there will be a reduction in the rate of benefit accrual. Because you're not changing the NRA, you would not have a vesting issue. If you had a situation in which the NRA was increased, you would have to follow the rules that apply to a change in vesting schedules. By the way it probably is easier to calculate an accrued benefit when the NRD is the first day of the year or at least the first day of the month.

Not only is this probably discriminatory, but it doesn't seem right. What would this participant say if there was a revaluation and the value of the account went down? Why should the plan bend its rules because some participant with a lot of money and clout is throwing his/her weight around? The plan is interpreting the rules of the plan to accomodate one powerful participant. The other participants may not know enough (because they don't really know what's going on, or how it affects their accounts) to object, and the IRS may have a hard time making anything stick, but this is the essence of discrimination. The only way I would want to be associated with this (unless I represented the individual) would be if the plan changed its valuation dates permanently. The plan and the employer (if they're not the same) should show a little backbone - the plan says what it says and everybody is treated the same, so this person should lump it.

Question: Why does Buck or Segal call it a "Pension Equity Plan?" Sorry to those who coined the term, but it doesn't seem to be a very descriptive name. Is it more equitable than a traditional db plan, or than a cash balance plan? What's equitable about it?

Careful. "Pension Equity Plan" is also another term that is sometimes used for a nonqualified plan (a top hat plan) that provides benefits to highly compensated employees that can't be provided under a qualified plan. It is "equitable" because it results in highly compensated employees getting the same benefits as nonhighly compensated employees when you put the two plans together. It all depends upon your perspective as to whether it is truly equitable. A nonqualified plan is not subject to the tax rules - no pre-59 1/2 withdrawal penalty for example.

Isn' there a restriction on changing from current year testing to prior year testing? Are there limits if you go out of the safe harbor and decide to use prior year testing?

A few questions> It seems to me that there is also a requirement that the employees vote on the FICA drop. Isn't there also a requirement for employer contributions? Also, does a 457 plan meet the definition of retirement plan?

You'd have to review the plan summaries and the plan documents in effect when he left and when he came back. It was not uncommon for plans back then to say that if you left before you were eligible for employment, that you lost everything, even if you came back later. It's possible that the plan was the State's plan - if so, it was probably set forth in the state statutes. In any case, as a governmental employer, there is probably something in the state statutes of that time that limits the governmental employer's authority to establish a retirement plan. You might also consider posting this message on the governmental plan board - the rules applicable to governmental plans are different - and require a state by state analysis. ------------------

Don't you lose the income tax exlcusion if you put it in the plan? Also no opportunity to get it out of your estate?

I would also think you could use the entire year's compensation, but it may require that the acquired employer adopt the plan. I don't think the acquired employer is one with the plan sponsor until the date of the acquisition. In order to count the compensation for the prior period the acquired employer would have to adopt the plan. You run into lots of other issues with this? How do you do the coverage and nondiscrimination testing for the 1/2 of the year before the acquisition? The answer may be to use the principles of the multiple employer rules - IRC 413 - because you have unrelated employers in a single plan - at least for the first 1/2 of the year - but you'd have to think it all through.

Administration fees can be paid from plan assets - generally the fees are asset-based, although some will be transaction-based - such as uniform per participant account fees, loan fees, check fees. The fiduciary who selects a TPA or insurance company or whomever to do the administration has a fiduciary responsibility to make sure fees are reasonable - if fees are excessive I think the pts have a right to sue (or practically speaking at least to complain loudly). The Department of Labor has recently published a number of communiques on fees, although there is currently nothing that requires that fees be disclosed to participants - except perhaps the transaction fees. The DOL has also published a uniform fee disclosure form which is helpful in indentifying fees. See the DOL PWBA website.

The way I look at it the 20 hours a week exclusion could be a violation of ERISA if the plan is subject to ERISA. So if you've got an ERISA plan and you want to keep these people out, you need to have one of those provisions that says you're excluded if you don't normally work 20 hours a week, but that if you actually have 1000 hours of service at the end of the year that you'll come into the plan. I would think that you would be ok to bring them in prospectively at that point - the 1000 hour standard is an ERISA standard that does not require immediate participation. If you're not an ERISA plan, I see no problem with the 20 hours exclusion, provided that it is administered in a reasonable, uniform and nonarbitrary way. The 20 hours a week standard is a factual issue - if the employer actually makes a determination that the employee doesn't normally work 20 hours a week when the employee is first employed, and if that status is reviewed regularly, I would think the employer would be ok. The problem would be if the standard was used arbitrarily - for example, if the employer used it to exclude all "contract nurses" or all temporary employees, without regard to whether the employees really worked more than 20 hours a week (because of special situations, overtime, etc.)

In our state there are a number of cases in which ees claimed that a plan benefit could not be reduced because of the contracts clause of the US constitution - the government can't adopt legislation that changes contract rights. You might have a problem with this and if there is doubt you ought to have a lawyer who is familiar with these issues in your state look it over. Also, many plans used to have a provision that said that benefits would be provided to employees on termination of the plan "only to the extent funded." If your plan has this clause, your argument would be that the unfunded benefits weren't promised.

Qualification rules would REQUIRE that the plan give pts a direct rollover option. The direct rollover, if eleceted by the pt, may be accomplished either by writing the check directly to the IRA provider and sending it to the IRA provider, or by writing a check to the IRA provider and giveing it to the pt for transmittal to the IRA provider. If you write the check to the pt, it is not a direct rollover and would be subject to 20% withholding.

I think the proper analysis is that the matching contributions would have to meet 2 tests: 1. the 401(m) test determines whether it is discriminatory (not the general test), and 2. different levels of matching contributions have to meet the "availability test" of the 401(a)(4) regulations.

I don't think this works for 2 reasons. 1. It would take you out of the standardized plan - a standardized plan has to meet the "uniformity" requirements of the 401(a)(4) regulations - essentially this means that everyone has to get the same level of contributions as a percentage of pay (or with matching contributions have access to the same level of contributions). 2. It violates the definitely determinable benefits standard - which is that once a contribution goes into the plan, the plan document (and not a resolution) must state exactly who is entitled to the contribution and how it will be allocated. This standard requires that all aspects of the allocation of contributions be stated within the 4 corners of the plan document.

You might also want to think about a defined benefit plan, especially if the owners are old and the other employees are not. With a db plan you could possibly get more than 30000 for each of the owners into the plan each year. But db plans are more expensive and they are a BIG commitment.

Just speculation, but I'm guessing that there will be another extension - there's too much to be done by the IRS before it can begin accepting the amendments (such as opening up the prototype program and reviewing and approving prototypes).

A loan can be rolled over just like any other asset. In order to administer the loan in the new plan, you'd have to review and have the loan agreements and procedures. The current procedures of the other plan may not allow it - most plans in my experience are set up so that payments are made through salary reduction and when a participant terminates employment, the procedures provide for acceleration of the loan. Another issue arises for the plan that accepts the rollover - this becomes an administrative problem for it - it will have to get a new salary reduction election if payments are to be made by salary reduction and it will have to follow the other plan's loan agreement - also there are DOL rules that say that if you have a loan policy for anyone it has to be available to everyone - I'm not sure that you could continue the loan for this person and not make loans available to others - you'll have to review the ERISA regulations (ERISA 408 I believe). Another alternative - and one that may be easier for everyone - would be for the new company to loan the new employee the money to pay off her loan so that she can roll cash. Then the loan would be between the company and the employee and you wouldn't have these plan issues.

Yes. It is not uncommon to name a trust as a beneficiary.