jpod

Is it clear to everyone (except me) ewhat one is to report for the current year in the case of a discretionary profit sharing contribution? How is there a "receivable" as of 12/31/06 if the employer has done nothing to justify treating a future contribution as a receivable? More likely than not, the employer won't decide what to contribute until long after the close of the year. Although we may all have a mindset that the employer will contribute the maximum deductible amount, that, no matter how likely, should not create a receivable. I think you can go strictly cash basis, and report for 2006 the contribution received in 2006 FOR 2005. It seems to me that the worst thing you can do is report something for 2006 as if it was a "receivable," but then not contribute it because you've changed your mind for whatever reason.

Is the account balance offset by the amount of life insurance received? If so, I agree that this is at least a real issue under 409a. Or, is the life insurance in addition to the account balance, and the "received by" language is merely a drafting technique to hedge the possibility that the life insurance company won't pay off (e.g., due to suicide or some other take-out provision), or will be slow pay? If this is the case, I don't think you have a 409A issue.

For those who end up filing on time, are you not unnecessarily extending the period of liminations for the IRS to disqualify the plan and assess taxes against the plan for the year in question?

You may be able to amend to say "either 1,000" or "elapsed time," but just switching to elapsed time seems to be a 411(d)(6) problem for those employees who would have satisfied the criteria using hours counting but not if elapsed time is used. EPCRS says that operational defects can be cured through a plan amendment only if it does not violate 410(b) or 411(d)(6).

It is hard to believe (but not impossible, I suppose) that the employer never received any notices from DOL if it filed in the past but then stopped. Doesn't sound right. As noted previous notices from DOL would knock you out of DFVCP for the year(s) covered by the notices. Were the filings through 2001 all EZ filings?

I apologize to everyone. I did not read the original post carefully, and as a result I thought that this was a document with QJSA language but with operational errors. I think the result is as PLAN MAN stated it: if you can't get the appropriate waiver and spousal consent, you hope that the spouse dies first.

mjb: Calm down; everything will be all right. I assume that the plan is adequately drafted and says something like "benefits will be paid in the form of a J&S absent a waiver and spousal consent." So, with that language, you would advise the plan or the employer or both that they have absolutely no legal recourse against the participant, and that they should roll over and play dead and eat the difference if they can't secure a spouse's consent?

I won't look up any dates for you, but here it goes. Tax-qualified plans have allowed loans for decades. As a result of ERISA's enactment in 1974, a participant loan is in the first instance a prohibited transaction, but it is eligible for the statutory exemption in Section 408(b) of ERISA and Section 4975(_)(_) of the Internal Revenue Code, provided that the conditions for that exemption are satisfied (and it is rare that they are not satisfied). I think Section 72(p) was added in 1982 in TEFRA. Section 72(p) doesn't "authorize" anything. Section 72(p) is a limiting provision that sets forth conditions under which a loan will NOT be treated as a taxable distribution. I don't understand the reference to "404©." Please elaborate as to what you mean by "your 404©."

taxesquire: Windfall, maybe, maybe not. If the spouse does not consent the Plan may have a perfectly good claim against the participant for the money improperly distributed to him. No harm in threatening that in the follow-up letter, if not the first letter. I don't recall anything in EPCRS or said by IRS in speeches that this would not be permissible in the context of VCP.

Mike Preston: This fish is not biting. Judges do not like to answer Qs which don't need to be answered or hypotheticals, and I'm not smart enough to be a judge, so you can't expect me to try.

SoCalActuary: Understood! But if your surplus is small enough to accomodate the 7-year rule and 415 limits, why bother with the so-called "merger," rather than an overt termination with a replacement plan transfer, followed by a rollover of the db plan benefits?

Mike Preston: I'll decline the invitation. No need to work that hard, there are about a dozen example in the -5 regs.

Effen: The reason I asked the question is if assets do not exceed liabilities, then what is being accomplished by doing the "merger" (which technically is questionable but probably no harm-no foul in a non-Title IV plan as long as you preserve J&S) vs. an overt termination followed by a rollover into a new PSP? I have heard that people do this transaction with surpluses in non-Title IV plans and think that it escapes income and excise taxes, but I have never seen any sensible explanation for why it works under the law.

Effen: Does this attorney also take the position that any surplus in the DB plan escapes income and excise taxes?

Mike Preston: My answer to your last question to me is "maybe." I can't even begin to analyze the issue until I know what the original poster has in mind when he/she says "retroactive to 2002." Depending upon how that issue is clarified, further facts may be necessary.

Mike Preston: Insofar as 401(a)(4) is concerned, the regs. do say that it is the "timing" of a plan amendment that must be analyzed for discrimination. This may not be a real issue here, and in truth the regs. give so little guidance that the rule is difficult to apply in many cases, but it is possible that an amendment which is perfectly nondiscriminatory on its face could be discriminatory under the regs. because of the "timing."

I'm not sure I am grasping all the ramifications of making the vesting "retroactive" to 2002. Which participants do you intend to cover vs. not cover by this change? For example, is it the intent that only individuals who were active plan participants 1/1/02 or later will be subject to the new vesting schedule? Are there people who ceased to be active participants prior to 2002 who still have vested deferred benefits in the plan? Or, was the plan first established in 2002?

I also suggest that you include in your Statement of Reasonable Cause something like the following "This plan was not subject to Form 5500 or 5500-EZ filing for any year prior to its final year." I am assuming based on your post that this is a true statement.

masteff: Point well taken. However, because this is in effect a plan spin-off, there are certain changes which one might wish to make but can't (e.g., protected benefits, etc.). My suggestion was aimed at getting a clone document ready for Day 1. Clean up amendments - to the extent things can be cleaned up - can be done at a slightly more leisurely pace.

Don: I think mjb correctly observed that the really difficult issue here might be whether a proper defendant really exists. You can't address the standing issue until you can identify a cause of action and a proper defendant.

As to the plan documents, why wouldn't you just produce an identical copy of each existing plan, change the names and dates, and voila? The employees are not going to a new employer, so the drafting issues we usually see in connection with that type of transaction are not present here. Putting that aside, I agree with everything Janet said, but would further note that whether or not the trustee will agree to serve, I don't think you can have a tax-exempt trust unless and until you have a written plan.

mjb: Look at the forest, not just the trees. According to Randy, this individual should have been recognized as a participant with an account balance of $5k. He did not receive it, through no fault of his own. Most likely, it was due to the employer's error(s), or error(s) of the employer's agent(s). Would you advise the employer to spend money to defend his lawsuit? I would not; I can't tell you exactly why without research, but I know that I would not. My answer would not change if it was $50k, but if it was that much I would also suggest going after the person or people who received too much money.

mjb: Without attempting to comment on your points, let me just say that my impression from the previous posts by Randy is that this is not a "missing participant" case, but it is a case where the individual's participant status was not recognized until after the plan was terminated. If I am correct, I think the equities/sex appeal of this case are vastly different from those of a missing participant case.

Bad cases make bad law. I'll admit to doing no research on the issues raised by mjb, or even reviewing part 5 of Title I of ERISA. However, I believe that most judges would find a way to provide a remedy for this "participant" under ERISA, even if a stretch application of ERISA is required to do so, whether it's a claim against the employer as a successor to the plan, or a breach of fid. respons. claim against the employer, or something or another. Absent a statute of limitations problem, this individual would win his or her case and collect the $5k. Whether he or she would get interest or the type of consequential damages described by Randy is another story.

Everett: I haven't studied the issue (at least not that I can remember), but I don't think that a promise to pay money as compensation in the future would ever be considered a transfer of property under Section 83, even if that promise is secured by a lien or other interest in property.