jpod

What happens is that some people may get sued by former participants. If this was an ERISA/PBGC-governed plan, and if the persons involved in selecting the insurance company were prudent and diligent in their selection process, and if the pension plan document does not provide for any further relief, the sad answer (for them) is that the participants have no recourse against anyone other than the insurance company and state insurance guarantee funds. But, naturally, the circumstances are such that some participants may be inclined to at least consider suing the persons involved in the termination process and selecting the insurance company for breach of fiduciary duty, and/or try to get the U.S. Department of Labor to investigate the matter.

I checked the regs under 401(a)(11) and see that I was wrong. A dc plan not subject to the j&s rules may have a one-year rule before the spousal preference kicks in. So, if 2Muchstress' plan uses the one-year rule, we're back to square one, in which case someone needs to study the beneficiary designation and determine if the money goes to the ex-spouse or if there is something funky in the designation that would raise a question in that regard. (For example, maybe the designation should be interpreted as making the ex-spouse the beneficiary only for so long as they were married. This type of interpretative question comes up in wills all the time.) If 2Muchstress' plan does not use the one-year rule, spouse #2 gets the money.

Can you have a one-year rule in a defined contribution plan that is NOT subject to the J&S requirement? (I don't think so.)

I agree with PAL100759, assuming this is an ERISA-governed plan. If this is an ERISA plan, this seems to be a no-brainer: spouse #2 gets the money, unless she expressly consented to the designation of some other beneficiary. 2Muchstress: Is there some fact here we are not aware of? Is the employer a governmental employer? If so, what does the plan say about beneficiary priorities, spousal preferences, etc.?

I will offer the standard caveats that one must look at the plan documents and see what they say about the implementation of cost-sharing percentages, etc. Technically, it's allowable only if it is permitted by the plan. On the other hand, if the more favorable cost-sharing is not disproportionately made available to HCEs or Key Employees, IRS won't care, and who else could complain? Therefore, if it is not exactly in line with the terms of the plan documents, why can't you just amend the plan documents, retroactively, to conform to what is being done?

Thank you for the free education. However, I believe that the poster said, twice, that it was an ISO.

Rickthetech: The difficulty is that there is no way, legally, for you to get the option your holding into the hands of the Roth IRA trustee/custodian. And, there is no way for you to take cash from the Roth IRA, use it to exercise the option, and then get the stock acquired upon exercise of the option into the Roth IRA. There are several legal obstacles to either approach; way too many to describe in a message board format. Take our word for it; it won't work.

Why would he have said "ISO" and "stock options" in the same breath if he meant "IPO"?

Kirk: Why would we need a reg. dealing with when employee contributions become plan assets if all contribution obligations became plan assets the minute the obligation arose? As a matter of law, an employer's legal obligation to deposit employee contributions arises - i.e., it owes the plan money - at the time that money is withheld from pay or turned over to the employer's hands. But, the reg allows a short amount of time before the contributions become "plan assets" for purposes of applying ERISA. Would you not find it illogical if employer contributions were considered "plan assets" at the minimum funding deadline, whereas employee contributions were not plan assets until sometime after the employer has possession of those contributions? If employer contributions became plan assets at the minimum funding deadline, why wouldn't employee contributions become plan assets the moment the employer has a debt to the plan? By the way, the preamble to the PTCE that deals with late contributions to multiemployer plans (76-1) confirms that the failure by an employer to make timely contributions is not a pt. The exemption was needed to allow certain activities relating to the plan's collection of outstanding receivables that might otherwise be pts.

Timeout: Are you getting something out of this ruling which I am not? According to the ruling, it's only a "restorative payment" if a non-frivolous lawsuit has been filed or the employer has reason to fear a non-frivolous lawsuit. This is what Mike Preston said from the get go. The fact is, evidently, that this employer does not want to admit to a fiduciary breach or to do anything that could be construed as an admission of a fiduciary breach, and I don't blame it.

There is no pt because the "plan asset" is the receivable; nobody is doing anything with that receivable that would implicate the party-in-interest or self-dealing pt rules. At least, that's my take on it. If there is some authority to support my interpretation I am not aware of it.

1. I just want to be clear. The employer wants to put the money in the employees' plan accounts, right? If the employer was just going to give the employees the money directly, that would be W-2 compensation subject to full withholding, FICA and Medicare, etc., but you woudln't have all of the deduction issues. 2. I agree, based on precedent, that the CDSC is in the nature of a "capital cost" of the Plan's underlying investment, rather than an administrative expense. Therefore, a reimbursement by the employer would be treated as a contribution, absent the "fiduciary breach" approach which Mike Preston has described. 3. Query whether the decision to terminate the arrangement with the insurance company, thereby triggering a CDSC, is ITSELF the fiduciary breach, as opposed to the initial investment with the insurance company in the first place. 4. At the risk of mentioning the obvious and making myself look foolish, if you haven't signed on the dotted line yet with the American Funds, and if the plan is large, maybe American Funds (or its advisor or distributor) will cover the CDSC. If American simply pays it to the insurance company, there is no transaction to account for at the plan level. If American reimburses each participant's account, it seems to me this should be treated as plan earnings.

Did you mean to say that the opinion did NOT tell you anything about the 408(a)(3) issue? If so, I agree; it's not a "prohibited transaction" issue and would not even be within the jurisdiction of the Department of Labor.

Potwasher: This is news to me. Do you have cites for your statement that owners may now "enjoy tax deductible insurances and such"??

The advisory opinion deals with prohibited transaction issues. Implicit in the question is another issue: whether ownership of an interest in a partnership that owns life insurance violates the rule prohibited IRAs from holding life insurance. I think this product is being marketed, but there is an issue (in my mind, anyway), as to whether or under what circumstances the intervening partnership, llp, llc, whatever, is a legitimate way to avoid the life insurance prohibition.

The issue is a state law issue; not an IRC issue. The IRC is concerned only with how fast/slow the money is paid out; who gets the money is a question of local law. The issue of concern to some trustees/custodians is whether the IRA trust instrument or custodial agreement, combined with applicable state law principles, allows the beneficiary to name a beneficiary. For example, if the beneficiary dies before he/she has received everything in the IRA, who gets the balance: The beneficiary(ies) named by the beneficiary? The estate of the beneficiary (and his/her heirs)? The estate of the IRA depositor (and his/her heirs)? I don't know the answers, only the questions.

I certainly agree with getaxa's approach and it is what I advise clients for both 403(B) and 401(a)/401(k) plans, with one caveat: If the employer is playing fast and loose with the employee vs. independent contractor distinction, it should understand that failure to allow an alleged indedpendent contractor to participate could have an adverse impact on the entire plan if that individual is subsequently determined to be an employee, if that individual would otherwise meet the plan's eligibility requirements. In the case of a 403(B) salary reduction only plan, while the universal availability requirement does not apply to plans maintained by 3121(w) "churches" and "church-controlled" organizations, it would apply to any other plan, even one that is a 414(e) "church plan."

I think that letter dealt with the old 401(k) statutory language, i.e., "separation from service," and noted that a termination of full time status and reemployment on a part time basis was not a "separation from service," within the meaning of the statute. However, my reponse to the origiinal post assumed that we were not dealing with 401(k) statutory issues, but simply that the profit sharing plan by its terms linked distributions to "termination of employment," or some language to that effect. I think the IRS would say that if your plan has a termination of employment requirement, it is implicit that the termination must be "bona fide," and you would have an operational defect if a distribution is made on account of supposed termination that was less than bona fide. The fact that the employer and the employee are, before the fact, talking about her/him being "reemployed" suggests to me that there would be an issue as to whether the termination is bona fide.

1. If the termination was not bona fide, it shouldn't matter that the employee was paid out before being "rehired." 2. My fiduciary breach concern assumed that it was an impermissible distribution. Sorry I was not clear on that.

1. Very likely tax-qualification problems (i.e., plan not being operated in accordance with its terms) on the theory that there was no "bona fide" termination of employment; therefore, no bona fide distributable event under the terms of the plan. I am assuming that employee could not get an in-service distribution at this time or on the same terms; otherwise, why would he/she bother to "terminate"? 2. Also possible ERISA fiduciary breach issues.

I'm sure the 5500 instructions state that there is no filing for an IRA that is not part of an employer plan. Yes, it's in the DOL regs somewhere, but you can find it yourself through this website. Why do you think it's counterintuitive?

Is the good doctor willing to consider amending the plan to accelerate the vesting schedule in some fashion for the termnated doctors and all other participants similarly situated?

If she is not at least 59-1/2 years old, only if she quits her job.

I'm not sure I'm following the line of thinking concerning his listing on the SSA. Let's say he terminated in 1983, and he was listed on the SSA for 1983. Now what? We're trying to find out where the X corp db plan is right now. It may have been merged into a plan, followed by another half-a-dozen plan mergers. Assuming my guy could actually get his hands on the SSA for 1983 (and I'm not sure it's eligible for disclosure by the DOL), what could he do with that? Insofar as the benefits statement idea is concerned, obviously, if he had a recent benefits statement, that would be nice. However, there is the problem with his change of address long ago which I mentioned in my first post.

X Corp, and all the successors, were substantial, publicly-traded companies, so I think it is unlikely that there were any asset sales along the way, or if there was an asset sale, that a plan covering "sold" employees would be left behind.