alanm

I think you are way off the mark. See Revenue proc 2002-21. Receipient must not control the employee. Item 3 and 4 are mutually exclusive. You can't have a leasing organization the common law employer if item 3 is the case.

They come into C's plan as a merger, no rollovers allowed as it is not a distributable event unless separation of service occurs and in this case it does not. C should have signed an adoption agreement to be in the multiple employer plan(MEP) as should have A&B as a control group, thus any new plan setup by C is a successor plan and C must order a spinoff from the MEP, which is a merger into their new plan. Since C must have been tested in the MEP separately from AB, they have a prior ADP rate to take with them to the new plan.

This paragraph is in a prototype plan that I received a D letter for: "If a segregated, participant directed, investment account is closed and distributed at the request of a terminated participant, any residual dividends or interest received from mutual fund companies after the distribution, not exceeding $20, shall not be paid out to the terminated participant but be used to offset plan administration expenses at the discretion of the trustee if the allocation/accounting fee charged by the third party administrator would be greater than the $20 residual earnings." In July, I asked Robert Doyle in person, the Director of Regulations for the DOL, if it was ok to send in small balances as a tax deposit and he said it was not. In several DOL audits, I have asked whether small balances must be paid out or can they be forfeited and used to pay plan expenses and the auditors said they would not take any position on the matter nor would they pursue restitution. In other words, the DOL has no de minimus policy statement, but they don't enforce the payout of small balances either. If you ask officially, they will say pay it, if they audit they won't say anything.- they know it costs more to issue a check for a few dollars than it is worth. I understand the DOL has a project going to determine a de minimus level in the future, so we will get a regulation on the matter.

They can terminate the simple any time in 2004, but they can't start the 401k until 1/1/05. They can also just freeze the simple IRA plan in 2004 and not contribute to it in 2005.

The adopting company can't start the 401k in the same calendar year that contributions are made to the simple IRA. The participants in the simple can roll their money to an individual IRA, then from there roll to the 401k at a later date.

However, a non profit can adopt the 401k, which is the case you stated. therefore, you can have a MEP plan drafted and all the companies, including the nonprofit can adopt on. Although there still must be a business link between the companies: see section 413c for a description, also Sal Tripodi's book has a section on this.

Kirk is correct, there is no such thing as a prototype multiple employer plan. And, if you draft a MEP and apply for a D letter, you won't get approval if you combine 403b with the 401k.

I don't think you can co-mingle the two trusts. A 403b trust must be kept separate from a defined contribution plan trust. A multiple employer plan under section 413c, allows for comingling for employers with a common business relationship and only for similar plans: a defined benefit cannot be combined with defined contribution. The PEO industry commonly uses the multiple employer plan arrangement for their clients.

DOL field assistance bulletin 2002-3 deals with the float issue. However, it depends on what auditor you have. Some will say you should pay the participants some interests although they can't point to a regulation other than the fiduciary standard of trading. Your auditor just wanted to avoid the co-mingling issue by having a separate bank account. The account, by the way, should be in the name of the plan. As a sponsor, you could negotiate an interest bearing account if the amounts are large, and that is the DOL's point. In practice, the cost of allocating the interest often exceeds the interest.

It is more complicated than taking a balanced fund. For example, a participant age 65 who moved their account to the money market to avoid risk is suddenly defaulted to a balanced account in a plan merger. You have given the participant risk he shouldn't take, maybe. In any case, if the blackout period is less than a few weeks and the participant can make an investment change after that time, I would feel more comfortable putting them in the money market. They can sue you no matter what you do, but I have been defaulting to the money market for years and never had an issue in 500 plan mergers. It all comes down to the notice and the time you keep them out of the market.

Here is the disclosure we make on the web: planRight.com, the SPD and enrollment material: "Revenue paid by mutual funds as reimbursement of the expense ratios they charge will be credited back to participants on a cash basis. These revenues include 12b-1 and sub TA payments that are paid to the broker of record, usually with a three month lag, but may be up to a 13 month lag . As broker of record, SIC will receive the monies and credit participants who own the funds on the date the credit is processed by SIC, usually within 30 days of receipt of the credit. No accrual of this revenue will occur to participants who traded out of the funds in the interim." The Broker or advisor gets paid by having a service contract with the plan and does not receive compensation through the back door. The contract basis point fee is also fully disclosed and represents a service fee for conducting enrollment meetings, reveiwing the platform of funds yearly and making recommendations, and giving individual investment advice to participants that request it. Ultimately, the plan sponsor must buy the brokers services in a negotiated contract, arm-length. Many brokers don't like disclosing what they are getting, but they realize the law is changing and they had better do it. By using no load funds, often they get more than the 12b-1 fees because the expense ratios are reduced by 100 basis points if VAnguard funds are plentiful. We have a lot of Vanguard funds and no load funds on the platforms because the broker no longer cares about 12b-1 fees and we try to get the plan sponsors to select these, but there are always some funds they select that pay these fees and we credit them back. Obviously, only long term investors who stay put in the funds will receive the full benefit of the crediting: but this is what we are supposed to be telling the participants and it goes along with the SEC's concern about market timing. We also display the "net expense" ratio after the crediting.

EGTRRA stated that the annual deduction limit is 25% of total compensation paid to all eligible employees for the plan year. I don't think it makes any difference whether the eligible employee chooses to defer or not.

Yes, and I say this thinking the Docs occupied the same office as sole proprietors, then changed structure to a partnership. Just changing structure is not going to change the necessity of aggregating for the 200k cap in compensation. The situation would be synomous with a merger of companies because they probably contributed their office funrniture and other assets to the partnership as part of their capital account. But this is just a scenario, I don't have the facts.

I think the bank can hold in a common collective trust the different group annuity contracts. The DOL has issued several opinions that are flexible enough to allow it. Opinion 94-31A is one and 96-23A says: "when a plan indirectly retains investments services by investing in a pooled investment vehicle, the assets of the vehicle should be viewed as plan assets and managed assets.......the same result would occur without using the vehicle of the trust. REgulation 2510.3-101(g) provides that: where plan assets are held jointly with others, the plans identifiable property shall be treated as the sole property of the separate entity." The key element is the sub-accounting to cleary identify who has what. Also PTCE 84-24 is also applicable.

Put the fee and to whom it is paid in the SPD and the enrollment material and you will meet the disclosure requirements.

The issue for the DOL will be: why isn't some interest due the participants for the time it sits uninvested. Who keeps the interest on the bank float? Is there some self-dealing going on? Is the float disclosed to participants? I would make sure you have an answers, if participants complain to the DOL and they inquire.

The excise tax rate is multipled times the interest owed not the amount of the late contribution. Also, whoever files the 5500 should check the box saying the employer was late. Too many excise taxes sent in may trigger an audit, then your definition of what is late, which is probably the 15th business day, will get challenged. So tell the sponsor to pay attention.

the 12b-1 fees are paid to a plan clearing account maitained by the broker of record. then they are allocated to participants by the record keeper based on ownership of the funds at the time, then the money is sent back to the fund companies where the plan omnibus accounts are maintained. The participants see the credits on their statements quarterly and the money never leaves the plan because the broker clearing account is designated as a plan account.

There is an opinion from the NASD that says you can credit the fees to the participants and it is not a violation of NASD rule 2740. Look at letter to Jay Knight dated March 8th, 2001 signed by Philip Shaikun, Counsel for the NASD. Look at DOL opinion 95-15A, the "Frost Letter" where this was approved. If the 12b-1 fees and sub TA fees are in excess of plan administration costs and the excess is returned to the participants who generated the revenue by their investment choices, I fail to see how they got an unearned dividend because those fees ultimately reduce their returns in the first place. It would seem to me they were just getting their due. I will bet in the future that the regulators put out guidance saying this is the preferred way for fiduciaries to act because it removes bias from brokers anf others who select the platforms. As you know bias is not allowed under NASD rule 2830 and ERISA 406, all you have to do is read the Wall Dtreet Journal to see what is happening to "pay to Play" arrangements or view proposed rules 15-c2 and 15-c3 on the SEC website.

The Firestone case determined that, if unspecified in the plan, the administrator has the power to pay plan expenses from plan assets including the forfeiture account.

My firm credits back 12b-1 and sub TA fees to participants. The practical aspect of this is that revenue payments from the funds often are subject to a waiting period, sometime as long as a year in the case of some Oppenheimer funds and typically three months for others. So when you receive the revenue, often the participant has sold the fund generating it and it is too difficult to track. We have a policy of allocating this revenue on a cash basis to participants who actually own the fund at the time of receipt, as a fair an equitable way of distributing earnings back to the plan in excess of plan costs.

Unless the Docs work for mutlple medical organizations, reclassifying usually doesn't work. The main reason they try to do the contract worker thing is so they can have individual retirement and comprehensive medical insurance and exclude the nondocs.

I would disagree that the profile for plan participants must be produced by the mutual fund company. 404© does not define "prospectus", and in opinion 2003-11A it states: "It is the view of the Department than, under 404© the term prospectus includes a Profile. The Department believes that delivery of a Profile by a plan fiduciary or designee to participants satisfies the requirement 404©." It is plan information as specified in CRF 2520.102 and not regarded as advertising material for the sale of a security, which is really under the governance of the SEC section 10(b) and fund distribution by brokers under NASD rule 2830. The DOL has stated that a prosectus satisfies the information requirement of 404c, not that it is the only route.

You hit the nail on the head. Even if you test it as a contribution, you must allocate a contribution according the plan's formula and you can't fit a formula to the actual charges to the account balances of participants. A problem that can't be solved by following all the various rules. The only sure way is to pay the participants the back end charge outside the plan as an increase in their paycheck and tax it. then allow them to make an extra deferral if they wish. Many insist it is ok to restore the back end charges to the plan because they have always done it that way. They will probably continuing doing that until they are audited, as I have been. Since these type of transactions infrequently come up in plan audits because they are not very visible, they get away with it.

I think so under sec. 410b -(6)©(i)