jaemmons

Although I acknowledge that the stock is a "qualified employer security" (a retraction from my previous reply), the nature of the transaction gives rise to the fact that it may not be in the best interests of the participants for the plan to purchase the stock. Two "longtime" principals are selling their stock?? Why isn't the employer buying the stock? If the plan were buying stock from any other employees, besides two which potentially qualify as fiduciaries, I wouldn't raise the issue. I agree with Kirk, that the stock transaction would qualify under ERISA 408 and Sec.1107, but you must also look at whether it is in the best interests of the plan participants. Given all of the "stock" issues being brought to light with other companies, I would exercise caution with allowing for this transaction to take place.

Kirk, Thank you for the cite, but I still do not see how the stock qualifies as "qualified employer securities". Maybe I am looking at it the wrong way, so if you could explain how ERISA 408(e) applies in this case, I would appreciate it.

Only amounts which are considered employee CONTRIBUTIONS to qualified retirement plans under IRC 401(k), 125, 457 or 403(B) are allowable pre-tax deductions from payroll. Since a loan repayment is not considered an annual addition or contribution to the plan, it is the inherent nature of the expense to not qualify for pre-tax treatment. I don't know of a specific Code section which disallows loan repayments to be taken pre-tax, but seeing that they are not contributions (amount ADDED to the accrued benefit of the participant), they do not qualify as a tax exempt payroll item for the employee.

A new SPD must be provided every 5 years, so you must see when the last SPD was provided and you have 210 days after the plan year which contains the 5th anniversary of when it was given to participants.

Technically, when a new SPD is issued if must be given to, generally, all plan participants within 210 days after the end of the 5th plan year in which the the last SPD was provided. However, new participants must be furnished with an SPD within 90 days of becoming a plan participant. Since most document software systems generate the SPD with the plan document, I would just issue it when you finish the GUST restatement, including the "good faith" EGTRRA amendment (assuming you will be including one with the GUST restatement). This way you will be able to incorporate all respective EGTRRA provisions, instead of issuing an additional SMM. PS-If you don't issue an updated SPD, you MUST issue an SMM within 210 days after 12/31/02 (end of the plan year in which the material modifications become effective)

The plan cannot purchase the stock directly from the shareholders. If they do, then they have just entered into a prohibited transaction which could potentially disqualify the plan. The shareholders would need to sell their stock back to the company, but most privately-held companies attach a put option to the stock certs which allows them to buy back the issues from the non-ee shareholder at the current appraisal value. When they buy back the shares they become treasury stock which cannot be held as an investment by the plan.

Reg 1.410(B)-4(B) and Reg 1.410(B)-4©(3)(A) based upon application of Reg 1.410(B)-2. IMO based upon the application of these Regulations, I don't see how completion of an enrollment card can in any way be considered a "bona fide business criteria" for allowing an employer to not contribute on the employee's behalf. This "classification" requirement seems irrelevant in an employer funded pension plan, especially those which do not and are prevented from having participants self-direct their investments. What exactly is the "enrollment card's" purpose with respect to the plan's operation? Testing for coverage is a moot point if the plan doesn't meet this requirement. I guess it's just another practitioners conservative point of view.

The transaction should definitely take place outside of the plan. Generally, the options become a personal asset when exercised. To use qualified retirement assets to purchase "personal" assets would violate the prohibited transaction rules. The prohibited transaction rules clearly stipulate that a transaction cannot take place directly or indirectly between the plan and a party in interest. The plan would be purchasing personal holdings from the officers and other employees and qualified retirement plans are generally prohibited from doing this.

The exclusion of an employee for not completing an enrollment form is not a justifiable business reason for excluding an employee from participation(i.e.-job class, location). The purpose of adding non-service based or age-based requirements to eligibility is fine, but I have always interpreted that statute to be one which would allow for a legitimate business reason and not one of administrative ease. I know of many financial institutions which would allow for a default fund to be established for the participant if an enrollment form was not completed. Mbozek: How did you get a DB plan a favorable determination letter when participant directed investments are not an option for most, if not all, DB plans?

thanks, I thought so, but just needed someone to clarify.

both.

Explain how not completing an enrollment form allows an employer to "exclude" an eligible participant from receiving a contribution that they have earned by satisfying the age and/or service requirement under the plan document? Failure to provide an enrollment form after they have met eligibility requirements does not constitute a consentual waiver to a contribution. I don't think this is a question of 410(B) because the "waiver" of benefit is an invalid one. An employee does not need to positively consent to a benefit being contributed to a qualified retirement plan, on their behalf, but they must consent in writing to waive that right. Personally, I would think the employer needs to retroactively include those employees, not to mention the fact that they are violating 412 min funding standards.

Is a key employee for a 2001 plan year test under Code 125(B)(2) determined under pre-EGTRRA provisions? For top-heavy determination for a plan year beginning 1/1/02, the key ee's on the determination date (12/31/01) are based upon the new EGTRRA rules and there is some confusion as to whether or not this applies to cafeteria plan testing. Thoughts??

Katherine, That provision would apply only to benefits accrued and being distributed from an individual participant's account. The AP as a plan participant may be restricted as to when they can take a payout from their own individual account balance, but it does not preclude them from taking their "assigned" benefit from their former spouse's account in lieu of a QDRO, as long as the document allows for payment prior to the "earliest retirement age."

Generally, I use the greater of the capital or profit interest for each partner, since this is usually what is used in determining any attribution of outside ownership interests held by the partnership. Unfortunately, some partnership arrangements are complex as to how specific profits are divided (eg.-capital gains) and in computing this %, I usually coordinate my %'s with their accountant's. As far as citations, I don't believe there are any regulations concerning this determination.

I still don't understand what there is to review with an attorney. The AP's availability of distribution due to a QDRO is predicated upon the former spouse's ability to take a distribution from the plan. The plan document would specify the application of the earliest retirement age rule as to when an AP can receive the QDRO payment. The fact that they are a participant in the same plan does NOT preclude them from taking a QDRO payment from their former spouse's account, since the distribution timing is based upon the former spouse and not the AP's status as a current plan participant.

I don't see any problem with a NRA of 45, since it doesn't violate the maximum age permissible which is the later of age 65 or age attained at 5 years of plan participation.

There is no top heavy contribution to be made since the only non-key ee's terminated before the last day of the plan year. In order to treat the ee who terminated with less than 501 hours as a statutory exclusion, the plan MUST require an employee to be employed on the last day of the plan year to receive an allocation of the PS contribution. If the plan doesn't contain a last day requirement and is not a cross-tested/class allocated plan, then the two terminees would need to receive that same contribution rate that the one HCE is getting or the plan won't pass 401(a)(4) on the contribution allocation rates.

I don't see why you wouldn't be able to participate in two seps, if the companies are not a controlled group. Unless there is a parent subsidiary relationship, you don't need to apply the Code 415(h) limits. You need to take a closer look to see if the owner has a child under the age of 21, regardless of whether they are an employee or not. If they do, they may unfortunately become a controlled group because of stock attribution under Code Section 1563. Also, if the state where the two companies are "housed" is a community property state, the spouse, if not an employee within either company (assuming the shareholder/proprietor is married), may be attributed the owner's stock in BOTH companies due to the applicability of community property law within the state.

It depends upon the amount involved compared to total plan assets. If it constituted more than 5% of the plan's assets, I would say to go through the fiduciary correction program since it becomes a reportable event on the 5500.

FAS 106 (or SFAS 106) deals with how to report a liability on a financial statement for postretirement benefits which are NONPENSION related. Generally, this accrued liability is a reflection of retiree medical benefits provided by a company plan. I agree that no expense should have been charged to the plan, unless it was charged against the employers postretirement health plan under IRC 401(h). Employer must pay the money back to the retirement plan.

Caveat... Unless the employer elects to use the "top paid" group option before the beginning of the current plan year. Then the employee would need to earn over the comp limit AND be among the top 20% of the employer's ee's ranked by compensation.

If you provided a notice eliminating the 3% NE for the current year, then you don't have a safe harbored plan and must test with current ADP %'s.

Yes. The new loan issuance would be for $11,600 ($3,400 the participant will receive as net loan proceeds after $8,200 is used to "pay off" the original loan and extinguish the debt from the books). I wouldn't apologize because I do not feel that loans should even be offerred within a retirement plan.

Okay. If the participant refinances, and the repayment terms extend beyond the due date of the original loan (the one beying refinanced), you must add the outstanding loan and the replacement loan together to make sure that you don't violate Code Section 72(p)(2)(A). If you do, the replacement loan would become a deemed distribution. Under you example, Vested balance plus outstanding loan balance on June 30 is $23,200. $50k limit doesn't apply, so the limit is 50% of $23,200 or $11,600. Since you already have an outstanding loan of $8,200, the maximum amount of additional loan that can be taken is $3,400. Assuming that the refinance does not extend beyond the original payment terms, the participant can refinance the original loan with a replacement loan of $11,600. If the repayment terms extend beyond the original loan terms, you would have to add the $8,200 (outstanding loan) and the $11,600 (replacement loan) to see if you haven't exceeded the 72p limits. Since $19,800 is greater that the maximum of $11,600, the replacement loan would become a deemed distribution. This participant really cannot refinance this loan past the original due date without incurring a taxable distribution.