jpod

Under the DOL regulation, it's an ERISA governed plan. I don't know if there is a court decision out there that says something different, but based on the regulation you should expect that the DOL would be looking for a 5500 (rather than an EZ), bonding, and anything else required by Title I.

Deductible by whom? If the Q pertains to a W-2 employee wanting to know how his or her elective deferrals are deductible, the answer is that they are not deductibe by him. They are excludible from his or her gross income for Federal Income Tax purposes and aren't counted as taxable gross wages in the first place; hence, no deduction. If the Q pertains to a partner in a partnership or another self-employed person, look at Section 404 of the IRC (I don't remember which subsection of 404).

What limits are you talking about? If you mean the compensation limit, you would work off 2011, i.e., $245,000. If you mean the 415 limits, that would depend upon the "limitation year."

Do you mean "responsibility" in the sense of direct liability under ERISA or for the excise tax under Section 4975 of the IRC? If so, it depends why they were late in being deposited to the Plan's trust account and the TPA's role in the late deposit. Do you mean "responsibility" in the sense of the TPA's obligation to indemnify the plan sponsor for its liabilities attributable to the late deposits? If so, that would depend upon a variety of factors pertaining to the TPA's arrangement with the plan sponsor.

If the employer is incorporated or an LLC, there is no issue in having the sole trustee and the sole participant be the same individual. If he is unincorporated, and not even an LLC, then it is a theoretical problem because it might not be a valid trust under state law where the same individual is the settlor (i.e., the employer), the trustee and the sole participant (I am going back 30+ years but I believe this is due to the "merger doctrine"). This can be fixed, in my view, if the spouse or some other willing sole is appointed as co-trustee, even if he or she doesn't do anything.

It sounds to me like the lender really doesn't have the security interest it thinks it has. The client may also wish to consult a good lending law attorney and possibly a criminal defense attorney because there may be issues of fraud vis a vis the lender.

Peter beat me to the punch. Two of the elements to consider in evaluating his suggestion are (1) how much money is in the plan, and (2) for what year was the last contribution deduction taken (i.e., has the SOL on back income tax assessments expired). Depending upon the answers, the best approach may be to close out the plan account(s), pay tax on the money, and move on.

I can't think of a valid theory for challenging a perfectly executed 414(l) spin-off, even one done for the sole purpose of avoiding the audit requirement starting the next plan year. I can understand DOL's motivation to wish there was such a theory and to suggest that one exists, but that doesn't make it the law.

It depends on what the gropu contract says. If they were ineligible, then they are still ineligible, and they are not losing coverage as a result of a qualifying event so you're right there is no COBRA. You also may be sued by the employees who were led to believe that they would have health insurance and COBRA rights, under what legal theory I am not exactly sure, but you should expect to be sued.

Andy, if you were responding to my 414(l) suggestion, I am not following you. If you were responding to ESOP Guy, I think he was suggesting that Sungard was recommending a 414(l) spin-off or split-up, so that each plan would have 90 participants (in your example) at the beginning of the following plan year, so I'm not following you there either.

Don't you think a court would likely interpret the Title I term "plan" in the same way that it is defined under 414(l) of the Code, given that 414(l) was enacted by ERISA and there is no other definition of "plan" in Title I?

If you self-corrected in accordance with published guidelines, the manager is likely bluffing. Wait until they actually propose that you need to pay something per audit cap to get out of this. If they do propose something that is more than nominal, there are a couple of different ways to call their bluff. One way would be to immediately contact your Congressman and Senators and tell them what is going on, and also inform the local media what is going on, or at least threaten that this is what you will do if they don't back off. Another way is to tell them to go ahead and do what they have to do and you'll see them in the United States Tax Court.

There was no "filing" required, if you mean it had to be submitted to IRS or some other government agency. The only "filing" necessary was to preserve it in a file in case you needed it later.

Consider having the plan sell the policy to the insured in accordance with the Class Exemption. I would think that would solve the problem, unless the plan by its terms provides that life insurance on the life of each participant MUST be purchased and held by the plan, in which case you may have a discriminatory amendment problem if you amend the plan to get rid of that.

One could not know unless one researched state statutes, regulations or ordinances that could possibly impose sanctions under an enforcement regime that are more serious then some reasonable amount of "lost earnings." Absent that, unless the pertinent plan documents or participation election forms impose some time limit, the best approach may be to do nothing, because once you volunteer something someone will smell red meat.

Maybe some constructive use for the $150k can be found other than simply paying it out to them (or, for that matter, dumping it into a plan on a fully vested basis). For example, maybe it can be used to provide "stay bonuses" that are earned incrementally over a period of time that makes sense given the buyer's objectives vis a vis the target's employees. Maybe it can be used to provide a medical insurance premium holiday for a period of time (i.e., thereby converting taxable or tax-deferred dollars into tax-free dollars).

How much money are you talking about for the target's employees? If it's not significant, one solution might be just to give it to them as a (taxable) bonus (it would have been fully vested anyway if contributed to the terminated plan.

If I were in 401(a) Chaos' shoes I would definitely research this in depth, and if I could not find anything specifically supporting it I wouldnt do it. I can't help thinking that a "termination" has no significance if contributions which weren't binding pre-termination can be made post-"termination." I assume that employees of target are participating in buyer's plan. As an alternative fix, and assuming no 410b or 401a4 issues, why can't buyer amend its plan to provide for a special nonelective allocation for target's employees for this year?

With only $250K of EI ("only" is a relative term) and age 64, presumably he is not going to be able to afford to fund to the maximum 415 limit over a short period of time. Given that, I am struggling to see how he could seriously overfund. If he does "too well" on investments couldn't he just jack up his benefit upon termination? Also, and maybe I am not seeing the forest through the trees, but what's the downside of doing too well on investments? If he pays 90% tax on a reversion what's wrong with that?

I am afraid I am not following the logic here. If a plan is not a 3(3) plan (because it is a one-paticipant plan under the regulation), it can't be either a 3(2) plan or 3(3) plan. I may be missing something, but what is it that I'm missing? What's Sal's technical explanation?

I tink a 3(2) plan is also a 3(3) plan, so I think my second answer is correct.

I take that back. 408b2 regs don't appear to apply to one-participant plans. They apply only to employee benefit plans as defined in Section 3 of ERISA, and there is an existing regulation that says, in effect, that a one-participant plan is not such a plan. One should look through the preamble to the final reg to confirm this; right now I don't have the time or the energy.

Agreed. The regulations under 408b2 apply to the comparable statutory exemption under Section 4975 of the IRC, to which "one participant" plans are subject. However, one participant plans are not subject to Section 404 of ERISA. I feel your pain. (Phillies phan.)

I don't understand your questions. Doesn't the employer want to get the money back? If so, and it gets it back this year, I believe it can handle its 941 and W-2 obligations in a fashion that would zero out any tax liability of the employee and any employment tax liabilities. Getting it back next year presents more complex tax issues. If the employer doesn't want to bother getting the money back, then what's the problem?

Sure sounds like it is EI. If it is reported on a w-2, or 1099-Misc as non-employee compensation, that will support the IRA contribution.