Alonzo

1. Have there been any changes to DFVC as a result of the implementation of E-Fast? 2. How will reasonable cause letters for a late fringe benefit filing be handled under the new system. (The plan in question is not required to file under ERISA -- just the IRC)? Thanks for your help.

That should work.

I don't know I agree with PAX here. The participant had reached NRA. This means 401(a)(14) comes into play, unless the employee had participated in the plan for less than 10 years. That Code section would require payments retroactive back to the 60th day after the close of the plan year in which the employee terminated. Plan language can help, if the Plan truly requires in its language that the participant applies for his benefit or else he will not receive it.

Rates of match have to be both "currently" and "effectively" available to all employees on a nondiscriminatory basis. "Effective availability" is a smell test (see 1.401(a)(4) -- 4©) designed to prevent the kind of behavior you suggest.

My understanding is that a discretionary match refers to a set up where a discretionary contribution made by the company is allocated on the basis of the employee's deferrals for the period for which the match is made. (The period can be the plan year, the quarter, the month). I have difficulty believing that the Cincinatti Office could sustain a position that the employer could not change the contribution each period, and thereby change everyone's match percentage. All 1.401-1(B)(ii) says is that there has to be a definite predetermined formula for ALLOCATING the contributions made to the plan.

Has the IRS position been reported anywhere?

If the individual is being given a 1099, and not a W-2, the employer does not think he's an employee. If the employer is correct in this determination, he would disqualifiy his plan if he did include the 1099 people. If he is not correct, he might be in trouble if he excludes these individuals if (i) the plan is not written in a way that excludes anybody receiving a 1099 (regardless of whether the employers determination on employee/ic status is correct) or (ii) the plan is ok but the ics are employees, and the exclusion of those folks causes the plan to violate 410(B). The determination on whether a person is an "employee" is notoriously complex. You need to evaluate your sitruation carefully to determine the best approach.

This does not smell quite right. Does the change in valuation date create the nondeductible contribution, or increase it somehow? ------------------

From A-1, 1.401(a)(31)-1 "To satisfy section 401(a)(31), a plan must provide that if the distributee of any eligible rollover distribution elects to have the distribution paid directly to an eligible retirement plan, then the distribution shall be paid to THAT eligible retirement plan in a direct rollover." All Q&A 2 is meant to do is say that you are not required to make a direct rollover to a defined benefit plan. The "although" sentence you are getting the word "any" out of has to be read in harmony with Q&A 1. The purpose of the sentence you are quoting is to say that your plan can permit direct rollovers to a defined benefit plan. Your client is going to get itself into trouble if it attempts to prevent a participant from exercising his right to make a direct rollover into scamco's IRAs.

Read 401(a)(31)(A) and Q & A 1 of the 401(a)(31) regs. The plan is not qualified if its terms do not permit a distributee to make a direct rollover to the eligible retirement plan specified by the distributee. As PJK indicates, this is a basic qualification requirement that is not to be evaded. ------------------

The "eligible employees" who would have joined the acquired plan have to be permitted to join the merged plan. See IRC 414(a)(1).

An employer is terminating a plan. His plan does not currently permit lump sums, if the lump sum would exceed a certain amount. The employer considering whether he wants to add the lump sum option for all employees. In the meantime, the employer is sending out Notice of Plan Benefits (as required by the PBGC). The Notice going to the employees who are over the lump sum threshhold says nothing about lump sums. Does the fact that the employer has sent out an NOPB that says nothing about a lump sum option cause the employer problems, if the employer later decides to add the lump sum option? ------------------

A freeze can be a partial termination if the plan is fully funded on a termination basis. See 1.411(d)-2(B)(2).

The answer to this is going to depend on the wording of the merger agreeement (does it say anywhere that the terms of the agreement are intended to amend/modify/change the terms of the plan) and the provisions in the plan document that describes how the plan may be amended. Look at both documents careflly.

I would suggest, given the amount of advice that has been dispensed in this thread, that a call to the DoL might be a good idea. The worst they will tell you is what PJK has already said. And you will have something solid to tell your client. The "DVFC Hotline" is (202) 219-8776. As with all government lines, the answer may depend on who is manning the phone that day. To cover yourself, you would want some kind of cover letter to go with your amended filing. It will probably be lost when the IRS processes the amended return, but it will give some kind of contemperaneous record to show you are trying to do the right thing. If you have the time, could you post the answer from DoL? I'm interested on their informal take on the situation.

PJK: Have you ever had a client asessed a penalty because they failed to include the auditor's report with the 5500, if they later corrected the error? In my experience, the IRS will tell you to file a 5500 without an auditor's report, if one is not available on the due date. I have not had a case where this has resulted in the IRS or DoL claiming the return was filed "late". If you will look in some old PLRs/TAMs/GCMs, you will find a published ruling invovlving an employer that filed a 5500-R, when a 5500-C should have been filed. IRS ended up ruling that no penalites should be assessed, even though most of us would consider such a filing "substantially incomplete". With DVFC, you are talking a five figure amount to "resolve" the problem with DoL. You can argue there is an even larger liability for not filing. But if nobody can think of a time when the worst case scenario, or bad case scenarios have actually happened with this set of facts, then shouldn't the client be told of this record? (I know the rules will soon be different, because I expect DoL will be tougher now that it has taken over the processing. But the years in question are still in the IRS' jurisdiction.) ------------------

Is filing amended returns for the years in question out of the question? Usually, a 5500 filed without an accountant's report gets an IRS letter. If you respond within the IRS time frame (and supply the auditor's report), you do not get asessed a penalty. In my experience, the one time DoL kicked back a return, because it did not have an auditor's report, they did not threaten to assess a penalty, as long as the report was supplied within the response time outlined in their letter. Do others of you have different experiences? ------------------ [This message has been edited by Alonzo (edited 05-26-2000).]

Since you don't have a lump sum option in place, you do have a fair number of options. You can add a "trust to trust transfer" option. This is going to look like a restricted direct rollover option to the participant, but is actually authorized by 1.411(d)-4, Q&A 3, not 401(a)(31). If you read that reg carefully, it appears that you can cash-out benefits of $5,000 or less by doing an automatic transfer of assets to the 401(k). Note that you probably do not want to give your terminated employees this option. Consider offering those employees a lump sum.

The arguments against PJK's position are old "qualified plan" arguments. See Rev. Rul. 73-238, regarding the coverage of former employees in a 401(a) plan. See also 1.401(a)(4)-11(d)(3)(iv)(A)(1), for the update of that rule. Although the IRS position may not be what we would like, it is totally consistent with the way they have handled employer contributions over the years. Lest we forget, plans are provided for the exclusive benefit of EMPLOYEES and their beneficiaries. (401(a)(2)) ------------------

Probably exempt. Unless the lawsuit is by participants or former participants in the plan, and relates to benefits that "should" have been paid by the Plan. But there are exceptions to everything. Talk to your lawyer. ------------------

I don't know what your employer's benefit programs are like, but the idea that comes to my mind is to use the VEBA amounts to pay group medical or dental premiums.

I believe the Rev. proc (or Rev Rul 91-4) says that the IRS must rule that the contribution is not deductible before you can retrieve the contribution. In any event, it is prudent to wait. Note that your employer may get hit with the excise tax for nondeductible contributions. ------------------

Your plan document may have language which provides that all contributions to the plan are conditioned on their deductibility. (All plan docs have language regarding the return of contributions. Look closely in that language.) ------------------

Not yet. IRS has said informally they are "seriously considering" an extension of the remedial amendment period because of the delay in the full opening of the GUST process. ------------------

I don't see this working. When you aggregate for 410, you have to aggregate for BRF testing. If I understand the IRS notice correctly, the intent here is to extend BRF principles to the availability employer contribution allocation rates. ------------------