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To clarify, therefore, your employer may say: "We're sorry if you think we mischaracterized your status, but even if we did, that did not contribute to your loss. The loss was entirely due to the performance of your investments, and all investment decisions were made by you." This would be a substantial defense for the employer, although not a slam-dunk. I have no idea what a court do in your case, if it ever got to court. It would depend upon all the facts, including the terms of your plan.

Sorry if I'm confused, but your initial post asked if the employer would be liable for your loss, and I was trying to give you a heads-up as to what your employer's defense might be.

Why is the 401(k) plan subject to the J&S rules? Is it a transferee plan?

I am assuming that you had the right to change your investments on a daily basis, and will continue to have that right as long as there is any money in your plan account. While I am by no means making light of your loss, you should expect that the employer's response will be something like the following: "Our plan is a self-directed plan that satisfies the requirements of Section 404© of ERISA, and each participant is solely responsible for his or her investment decisions, including the decision not to make any investment changes. Therefore, the length of time that elapsed from the date you requested a distribution has no bearing on the value of your Plan account." Nevertheless. good luck.

It would seem to be a prohibited transaction. There is a class exemption (92-5) that covers transfers of a policy on the life of a plan participant if the transfer is BY THE PARTICIPANT, but you said this was corporate-owned insurance.

You are correct.

Be careful: make sure that the age of the IRA holder, the length of the mortgage, and the amount of the mortgage relative to the IRA holder's other IRA assets won't cause problems with compliance with the minimum distribution rules after the IRA holder attains age 70-1/2.

The answer to the question is "yes;" an irrevocable trust certainly can be designated as a beneficiary. RNorris' very correct response addresses the 401(a)(9) minimum distribution implications of naming a trust as beneficiary. Nonetheless, the trust IS the beneficiary, in the sense that the trust gets the $$ left over at the death of the participant, regardless of who the beneficiaries are or their number.

If you're using the term "top hat" to mean a welfare plan that satisfies the exemption from the reporting and disclosure rules set forth in the DOL's regulations, there is nothing to file, regardless of the number of participants.

It depends what you mean by "necessary." If an employer intends to establish a NQDCP and wants to ensure, to the extent possible, that the obligations it assumes in connection with the plan are only those which it intends to assume, then there sure better be a written plan document (although technically it may not be "necessary"). Another way of looking at this, from a design perspective, is that if the plan is intended to be a "top hat" plan exempt from the ERISA reporting and disclosure, minimum standards and fiduciary responsibility requirements, which is almost always the case, it may be difficult down the road to defend the plan's top hat status without a written plan document that has all the top hat bells and whistles. If the plan is subject to ERISA but is not intended to be a top hat plan (which is extremely rare for a NQDCP), a written governing instrument is required per Section 402 of ERISA.

It is a welfare benefit plan under Title I of ERISA. If it covers 100 or more participants at the beginning of the plan year, 5500-reporting is required by that law.

If the original structure was a multiple employer plan, and the employer's portion of the plan assets was transferred to a separate trust for that employer's participants, I think it's a fair assumption that there is a new, single employer plan, at least insofar as the regulations under Code Section 414(l) would be concerned. The only other possibility is that the trust is merely a separate investment medium for the same multiple employer plan, and the assets of that separate trust are available to pay benefits for all other participants in the multiple employer plan. However, wouldn't you agree that this is highly unlikely?

Assuming it was a multiple employer plan, then there is, I believe, a new plan for all purposes under the Code and Title I of ERISA. How could the old document be appropriate after this plan to plan transaction? Maybe it was written as if it was a single employer plan, which calls into question the characterization of the original plan as a multiple employer plan. If I were you I'd advise your client, repeatedly and in writing, that it should seek competent ERISA counsel to sort through all of these issues. Until the client secures ERISA counsel, you should cover yourself by not giving the client any 5500s, reports, or other work product without a reminder that you do not know what problems are lurking due to the potential legal issues.

The bankruptcy courts have, for the most part, ordered that participants stop repaying their plan loans. While recognizing that a plan loan default triggers adverse tax consequences and adds further salt to the participant's wounds in a bankruptcy situation, the courts' attitude is that a plan loan is in reality a fiction and money should not be going into the participant's plan account that could go to his/her creditors. If you can find the May/June 2000 edition of the Compensation & Benefits Review (Sage Publications), you'll see an article on the subject at page 54.

If the demutualization proceeds are received by the employer long after the db plan has been terminated and all assets distributed, how do you report the distribution of the proceeds by the employer to the plan participants, assuming the employer wished to give it to the participants? Are those distributions subject to the joint and survivor annuity requirements? Are they relevant for purposes of the 415 limitations? The timing is critical in these cases. We start with the premise that the "value" of the surplus assets are subject to income tax and the 50% excise tax at the time the surplus is distributed. So, for example, if there was a terminal annuity involved, but at the time the surplus was distributed there was no demutualization plan, wouldn't it be reasonable to assign a zero value to the annuity? Yes, the right to participate in a demutualization is a "plan asset", but at the relevant point of time that plan asset had a value of $0. It would seem to follow, therefore, that if the demutualization process began afterwards, the demutualization proceeds would not be subject to the excise tax. Maybe it's foolish to assume that the value could ever be $0, no matter how remote the possibility of a demutualization at the time of the distribution of db assets. The point I am trying to make, however, is that the value is whatever it is at the time the plan is liquidated, and that value may be $0 or only a tiny fraction of the demutualization proceeds which the employer may ultimately have the good fortune of receiving down the road. But, only that value at the time of the db plan liquidation should be considered a "plan asset" or subject to the excise tax.

I have three comments. First, there is also exposure to a penalty under the Internal Revenue Code which the IRS can assess, independent of the DOL/ERISA penalty. Paying the DFVCP sanction won't get you out of the IRS penalty, technically. Second, I believe the exposure to significant IRS and DOL penalties, if any, is much less if the plan is a "first time filer;" another words, no 5500s were ever filed, and the obligation to do so was just discovered, as opposed to a plan that had been filing and then dropped the ball for a few years. Finally, whether it's a first time filing situation or not, one cannot be certain that the IRS and/or DOL will or will not impose penalties and in what amount if the plan does not take advantage of DFVCP.

I don't have handy a cite for the Rev. Proc. or other IRS notice that extended the GUST remedial amendment period to the end of the 2001 plan year, but it's obvious from your query that you agree that there is an extension to that date. The further extension attributable to filing a determination letter application by the end of the remedial amendment period is derived from the IRS' regulations at Section 1.401(B)-1(e)(3).

The amendment deadline for a calendar year plan is 12/31/01. There is no requirement to request a determination letter. However, if you request a determination leter by 12/31/01, you will be able to make corrective amendments thereafter if the IRS says they are necessary.