jpod

The School Board may be able to make it's life much simpler by making the annual contribution under a 457(b) plan (rather than a 401(a) plan). The insurance company issuing the annuity should be able to provide some sort of model 457(b) plan document. As previously stated, need to make sure the arrangement is not in conflict with pertient state laws and regulations.

To mjb's comments, I listened to an ALI-ABA teleconference last week and one of the panelists, a well-known benefits lawyer, now lawyer/lobbyist, said that while the language of EESA is such that a pension plan could be eligible to participate, his understanding is that providing relief to pension plans is pretty low on Treasury's priority list, if they are even on Treasury's list.

What does the basic plan document say happens/applies if the employer answers "yes" as opposed to "no," or doesn't answer at all? Putting aside my question in my previous post and the answer to it, perhaps the employer can simply cross-out the entire section of the adoption agreement. There's no way that would have any effect on the employer's ability to rely on the opinion letter or otherwise affect the plan's tax-qualified status. And, unless the basic plan document says otherwise, it shouldn't have any impact on whether any investment transaction is eligible for 404c relief.

If "yes" is checked in the Adoption Agreement, will the vendor provide an SPD and/or other materials and assistance that reflects the employer's intent to comply with 404c and facilitates compliance therewith, whereas if it checks "no" the vendor won't do all that stuff?

Why bother setting up a clone plan? Can't he as a sole proprietor sign on as a participating affiliated employer?

I don't understand why this class exemption is responsive to JD698's question. First pt exemptions only provide exemptions from pts. They do not establish that an act or failure to act is not a breach of fiduciary duty under ERISA. I'm not sure why there would be a pt here, but that's besides the point. Second, and on the other hand, if your assumption is correct that the amount of legal fees necessary to file a proof of claim would exceed the delinquent amount, I think the Trustees can sleep fairly comfortably after they prepare a memorandum or minutes of a meeting that documents their reasons for not pursuing the claim. Fiduciaries must act prudently, and spending $X in hopes of collecting less than $X seems kind of imprudent to me. However, if you are merely speculating on the number of cents on the dollar which the Trustees might be able to collect out of bankruptcy, then their deliberations and documentation of same should be more sophisticated than that (and don't forget that there is joint and several liability of all members under common control with the bankrupt employer).

I am curious: how does the OP, or for that matter person B, know what the deceased individual intented to do or not do vis a vis the pension plan? Are we merely assuming that he intended to change the beneficiary of the pension plan? Obviously neither B nor A is the deceased individual's spouse, or we would not be having this exchange. Is there someone at the employer who has admitted as much, or does the employer deny this? Even if the answers are good answers insofar as B is concerned, what is A's cause of action, even assuming A has standing, which she may not? Recovery of losses incurred due to breach of fiduciary duty? What losses? Failure to administer the plan in accordance with its terms? How so?

Forgive me if I've missed some guidance from IRS or DOL, but I don't think I have. The EZ instructions, as well as the Form itself, could not be any clearer, in my mind. The EZ can be used if the plan covers only partners in a partnership. However, neither the instructions nor the form itself suggest that it can be used in a non-partnership situation simply becuase the entity is treated as a partnership for tax purposes. Also, there is a pointed question on the Form asking to check the block to identify the reason for EZ eligibility. Absent guidance from IRS or DOL, are you willing to advise your client to declare under penalty of perjury that it is a partnership?

Believe it or not, this is a common situation with employers who "go it alone" and don't have professional assistance with 5500 filings. These employers at least read the instructions and give it a college try, but they are confused by the nuanced definition of "plan" and get lost wading through the instructions. The Schedule A does not belong on the 401k plan's 5500 and should be a scehdule to a separate 5500 filing, assuming the welfare plan is large enough to require a 5500 filing.

I'm confused. Isn't the 5500 supposed to be signed by the Plan Sponsor and PA of the transferor plan? What's the problem?

1st thought: somewhere in the 401(a)(9) regs there must be something that says that the amount of the RMD cannot be greater than the amount available for distribution at the time of the distribution (but even if there isn't something that says that I think that is a reasonable interpretation of the law). 2nd thought: another alternative to consider is to document the situation carefully, and if there are no funds available by the deadline for taking the RMD but he starts taking money out as soon as funds are available, I think he would have a pretty solid argument for waiver of the Section 4974 50% excise tax, and why there should be relief from the operational violation per SCP. 3rd thought: if this is a one-person plan, or if his plan account is the only account invested in the Mortgage Pool, perhaps the IRS would prefer - in lieu of my 2nd thought - that he take an in kind distribution of the Plan's interest in the Mortgage Pool (assuming it is transferable in this fashion)

I agree with everything Bird said. I may have to duck after saying this, but for a $4k investment per year, don't worry about seeking professional advice or spending a good deal of time studying before you take the plunge; just do it. Once you've accumulated a critical mass (maybe $20k? $40k?), then start thinking about whether or not you need some professional guidance.

If by any chance the employer is a "first time filer" (i.e., no 5500s were required for any years prior to 2004), that point should be HIGHLIGHTED in the tear-stained letter. Have had 100% success with those cases.

I always wonder about spousal employment in these cases. Is it worth it to pay compensation to the spouse and have the extra FICA/Medicare tax burden, and perhaps workers comp., unemployment insurance, etc., in order to secure additional retirement plan contributions, or in this case some tax shelter through the VEBA? Maybe, but I think you have to crunch the numbers.

I am assuming that the LLC is a disregarded entity for tax purposes (and the owner is a sole proprietor for tax purposes reporting the income and expenses of his business on Schedule C). How, if at all, are the contributions deductible for tax purposes, and if not deductible what is the perceived advantage of going to the trouble of establishing and maintaining a VEBA?

Assuming one concludes that it is not a settlor expense, and further assuming that the plan document permits the payment of expenses with forfeitures and in fact always pays all expenses with forfeitures and usually uses up all forfeitures to pay expenses, wouldn't that resolve the "same position" concern?

All I can tell you is that the PPA did not touch 414(q) and the definition of HCE therein. I don't know where he went astray, but the definition of HCE for 401k and 401m testing is no different than what it was before the PPA.

Unless the DOL examiner was completely off base, the trustee of the common fund must have been a party in interest to the plan. Look at Section 408(b)(8) of ERISA and Section 4975(d)(8) of the IRC.

MarZ: When you said "no contributions," did you mean no contributions for anyone, or did you mean that there were contributions for the owner but none for the eligible employee? If the latter your client may have a problem larger than the 5500 problem.

Getting out at a time that will result in a substantial MVA may be a breach of fiduciary duty, or getting into a product in the first place that may result in a substantial MVA on the back end may be a breach of fiduciary duty. Then again, it may not. My position is based to a great extent on practicalities and the notion that if it doesn't "smell" (i.e., the owners are not getting the lion share of the MVA), it is not likely to be challenged for hyper-technical reasons. Nevertheless, if you intend to treat it as a non-elective contribution, obviously you need an amendment, and to keep things simple you can draft the amendment to say that no HCE will receive an allocation that is a greater percentage of his or her compensation than the lowest percentage of compensation allocated to any NHCE. Any HCE who gets shortchanged due to this limitation can be made "whole" via cash. I would be surprised if you have any 415 problems, but if you do then that would be a further limitation in your amendment.

There was a Rev. Rul. published within the last 10 years which sort of outlined circumstances in which an employer payment to a plan can be characterized as "damages" (e.g., for breach of a fiduciary duty under ERISA), and allocated as earnings, rather than as a contribution. While your situation, which I have seen a couple of times in the past, may not satisfy the criteria of the Rev. Rul., I don't think the Rev. Rul. says that any payment that does not satisfy those criteria will necessarily be treated as a contribution. I've seen cases where the new vendor put up the money to cover the market value adjustment (because it was worth it to get the business), and I don't think anybody would ever question that this would be a deemed contribution by the employer. So, why should the result be different just because the enmployer puts up the money rather than the new vendor. I think in your scenario allocating the payment as earnings - and not as a contribution - would be reasonable and defensible (unless you next tell us that most of the money would be allocated to the owner(s), in which case I'd be concerned).

Never mind above comment. Now I see that rcline was making an observation about ADP testing; so sorry.

I am confused as to why there is any discussion of snapshot testing here, as the question pertains to the ERISA audit threshold, and the facts suggest that nobody is being excluded from participation. Anyway, in determining whether you have 100 or more participants at the beginning of the plan year, can't/shouldn't you use the same head counting as you use for Line 7 on the 5500?

mjb: I think the concern (if there is one) is that the criminal law aspects of state wage laws might not be preempted due to the "generally applicable criminal law" exception in Section 514. On the other hand, it would be sort of comical to imagine a state atty general or other law enforcement agency going after an employer or its principals for refusing to stop payroll deductions used to repay a plan loan to the employee's own account.

Following up on QDRO's comment, I think the employer is acting as a fiduciary in connection with a plan transaction when it agrees to implement payroll deduction, so it would be acting as a fiduciary in agreeing to stop payroll deduction (assuming it doesn't have to stop as a matter of state law). The result is a breach of fiduciary responsibility under ERISA. This is not something which the employer would want to be found in a DOL audit of the plan, because the DOL is likely to find that there has been a "loss to the plan" caused by that breach, notwithstanding the participant's request to cause the loss.