Alonzo

You won't find anything in the 410(a) regs or guidance that prohibits you from naming names. The reg I cited is the only 410 reg that addresses the practice. One thing you might want to bear in mind -- if you intend to add names as you go along, you will have to amend the plan often, and make sure the amendments are signed before a "named" employee otherwise becomes a participant. This could be a very awkward procedure, particularly if plan amendments require board approval.

I think the reg you have in mind is 1.410(B)-4(B). This just relates to the "reasonable classification" portion of the average benefits test.

Hmm...don't think I 'd try a "find employees" approach in the 6th circuit, then. I have to say, looking at the case (a.ka. Hendon v. Yates , 287 F.3d 521), and the precedents cited, that this is an unimpressive performance by the judges dictated by earlier unimpressive performances by earlier judges. I also note this passage: "In their opening brief on appeal, the appellants argue that the Fugarino decision departs from a plain reading of ERISA, conflicts with advisory opinions of the Department of Labor, and is contradicted by the caselaw of eight other circuits. But these arguments belong in a petition for rehearing en banc; the three judge panel before which this appeal is currently pending has no authority to overrule Fugarino. " Sounds like someone is looking for an excuse to overrule the controlling precedent.

Agree with your last post in most repects. People who want bankruptcy protection clearly need to: 1. Find themselves an employee to cover; or 2. Find themselves another person to become a part-owner in the business. It happens, however, that that person could be Grandpa or Junior. #2 only would work if the business is corporate, as a partner is not deemed an employee, regardless of the number of partners. What I do not know is how the courts/regulators are going to traet a situation where it's evident that the new employee or owner is cosmetic window dressing. That's why you need a pro.

I don't know what these guys are marketing. But it strikes me that a corporate entity could find itself a 1% owner -- who is a member of the family but not the spouse -- who is not the business owner, and slip around the rules. A non-corporate sponsor could cover sonmeone who is not a partner or the spouse, and pay them a nominal salary some service or other. This does not sound like the sort of consulting done by an insurer. But if someone is real concerned about the situation, this is something that could be looked at. (Note -- I am talking from the top of my head. Anyone who is interested in trying something like this should see a professional advisor, not a message board post.)

Your cite is DoL Reg. 2510.3-3(B) & ©. Incidentally, the restrictions in that regulations really apply only to plans that cover a 100% owner and his spouse and partners in a partnership. Since the reg does not use constructive ownership principles (as are found in the controlled group/ 5% owner definitions in the IRC), I can see somebody marketing an evasion around these rules that works.

It's a fair point to indicate that many investors do not act wisely. My example on top of page 2 involved an investor who did act wisely, and then was kidnapped into other funds because the plan reverted to employer direction. As we know, institutional investors invest for the good of the plan as a whole, not neccessarily for the good of a specific individual. So, instead of having his capital conserved, our hero loses part of his nest-egg, and has to wait until the market recovers. Really, for the participant, defined benefit plans are the best solution to this problem.

The first union case I had in mind involved the acquisition of Signet bank. What I remember of it had an awful lot to do with whether plan amendments had authorized the actions, and the great earnings a fund associated with Capital One was earning. I could be wrong. I did not do a LEXIS search before I wrote my post, and I am no lawyer. Anyway, the point of my posts was not a discussion of case law but more a worry about disavantaging participants close to retirement.

I referred to First Union as a roughly analagous situation that triggered litigation. (Although the switch did not involve moving out of 404©, it did involve moving from one set of funds to another, just to see some of the old funds do far better than the First Union funds.) QDROphile, I am sympathetic to your point that at some time the transition has to end. A solution to transition problems would be to allow in-service distributions to individuals over age 59.5 so that they indeed can continue managing their own investments in their own IRA, if they feel strongly about that. This may be a better solution than the ideas I was propounding in earlier posts. What I am wary of is unilateral employer action without sufficient communication. That always leads to a perception that the employer is up to no good.

QDROphile: If somebody is moved out of their low yield safe fund just in time for a stock market plunge (because the fund is now actively managed), that employee will complain, particularly if that employee is close to retirement. He might delay his retirement. He may even sue. Remember the First Union litigation? I am not saying that making the switch is a bad idea. But you can't move from one retirement investment model to another without lots of communication and allowance for employees who have operated under the current retirement investment model.

The worry I would have in this situation is that a participant will be cashed out of his investment at a really bad time. It strikes me that you would want a long lead time to make this change mandatory, and have a period which allows participants to "hand it all over to the professionals". I can see participant unhappiness if the change is made abruptly, without much communication. And, as we know, participant unhappiness can generate legal action.

Query: Where are you getting the idea that you need worry only about employer contributions in determining whether life insurance is incidental or not? The old revenue rulings governing qualified profit sharing plans seem to apply the 25%/ 50% limits to what is held in a participant's account, and do not exclude rollovers or after-tax contribution accounts from the application of the limit.

You need the trust to be in existance. You do not have to have money in it. That is my memory.

Without a trust (and trust document) in place, there's no deduction available for the individual. This is true, even if there were board resolutions or even a plan document that has been properly drafted and adopted.

1. Does plan have testing language in it? 2. Is the Plan individually designed? 3. If so, has the plan been submitted for its GUST letter? If the answer to either 1, 2 or 3 is no, you can probably do what you want to do. (Just add the requisite amendment to the Plan). If the answer to all three questions is yes, and the plan designates the current year method as the 401k method of choice, I do not know how you could accomplish what you want to accomplish.

The benefit paid under the Plan does not meet the definition of a QPSA. See 1.401(a)-20, Q& 18. ("A QPSA is an annuity for the LIFE of the surviving spouse of a participant.") Accordingly, there's no way this can be the default option at death. As earthy points out, this can be an option available to participants, provided the QPSA notice and waiver procedures are followed. I have seen plans that provide a benefit like the one you desribe to the eligible spouse of a participant, and then power down to the QPSA monthly amount upon the spouse's remarriage.

1. Yes, list each prohibited transaction. However, note that if a contribution was not made in the first payroll period of the month, and additional contribution was not made in the second payroll period of the month, you have a single prohibited transaction occuring on the 16th business day of the following month. 2. Attaching a spreadsheet is probably fine. That's what I've done in similar circumstances.. 3. There's no reason why you couldn't file now. The form doies not have a big "2000" on it.

I disagree. The spouse in jail can seek a QDRO (if he can get one from jail). But, if there's a judicially recognized separation, the employee can designate whoever he or she sees fit as beneficiary, unless a QDRO provides otherwise. (See 1.401(a)-20, Q&A 27, but make sure your plan document is not more restrictive)

This sounds like one for the lawyers. While divorce isn't necessary, legal separation or a court order showing the spouse has been "abandoned" is.

That's my reading. But, since you have no idea of who I am or what I know, I'd suggest you look at the following: Reg 1.411(B)-1(B)(2)(i)(B). (This is what the testing rule comes from. Actually, you should reread all of -1(B)(2) Rev. Rul. 78-252. (Which illustrates the operation of the accrual rules with respect to an obviously flawed PIA offset formula.) Good luck. This is a tough one to resolve.

The 411 accrual rules were part of ERISA, which was passed after 71-446 was issues. Unless I had some post-ERISA authority, I would not rely on the 1971 revenue ruling.

The case was brought by a fairly famous plaintiffs attorney in the benefits area. My understanding is that the guy had an ad in the AARP's magazine that advised participants who thought they were getting a raw deal with their pension should contact him. The participant who came in just missed out on some early retirement subsidies, and wanted to sue on the basis of the way his service was credited. The attorney took a look at the formula, and felt he had a profitable class action on his hands, based on the accrual formula. There's no Rev. Rul. 71-446 exception to the accrual rules. This is why most offsets you find are pro-rated.

Excuse the glitch. I meant any projected future year can't be more than 133-1/3% than the year being tested.

This plan does not pass by design. My guess is your client, or the persons that advised your client are relying on Reg. 1.411(B)-1(B)(2)(D), because of its title and its reference to "social security benefits". But you need to read that reg very carefully, because it is the source of your problem. If you read the regulation absolutely literally, you assume that the participant's social security benefit will never change and the participant will continue to receive compensation at his current rate. Assuming the participant has a typical compensation pattern (prior year compensation lower than current year), you will have 4/3 test failures in years where a participant gets a substantial raise. I believe the consensus on interpreting this reg is to assume "social secutity benefits" means to assume the social security formula remains the same As you know, social security is essentially a career average plan that provides a fairly high portion of compensation to the lowly compensated, and a lower portion of compensation to those who make close to the wage base. (The place where the formula changes is the "bend point".) To test to see whether a participant will meet the 4/3 rule, you assume that the participant has earned the compensation he's earned in the past, and will earn his current year compensation in the future, and use that to determine both the gross benefit and the offset. Because of the bend points, an employee with a typical accrual pattern will have jumps in his accrual rate. One note. the 4/3 rule says that all projected accruals in the future will nt exceed the current accrual rate. A gradual acceleration is not acceptable. Note. I learned this rule by some very harsh experience. A major client was sued over a similar fact patern. They're still in litigaton.

This plan probably fails because of the Social Security bendpoints. The fractional rule is the only method that would give you a chance of passage, and you will find that at least some participants are getting less than the fractional rule benefit. The plan undoubtedly flunks the 133% rule.