Belgarath

This seems like a really dumb question, but here goes. Let's say you have a fairly "typical" TPA, and a client has a 401(k) plan on a recordkeeping platform with, (pick anyone - let's say Hancock.) Plan administration fees are billed to the EMPLOYER,not to the plan. Any revenue sharing payments to the TPA are used to directly offset fees otherwise paid by the employer. These fees can also be paid out of plan assets, as provided for in the plan document language, but are usually paid by the employer. Her's the question on the fee disclosure. Let's say that due to this arrangement, the TPA determines it is a "category 2" CSP, as this recordkeeping platform is offered "in connection with" the service contract. When it comes to the actual detailed disclosure with regard to each "designated investment alternative/investment vehicle" - what actually has to be disclosed by the TPA? Seems like two choices, depending upon how you interpret the regs: 1. TPA would disclose only the revenue sharing, and would not be responsible for all of the other stuff typically found in a prospectus - loads, transactional fees, sales fees, redemption fees, whatever. 2. TPA would be required to disclose all of this "prospectus" garbage, even though the TPA cannot possibly receive any of these amounts. Option 1 certainly seems more logical. But, if option 2 is required, then it could be covered by providing the same information required for option 1, plus providing a prospectus. Personally, I'd vote for #1. It seems like the other charges as outlined in the prospectus should be disclosed by the investment provider (Hancock, in this case.)

Calendar year PS plan is terminating 12/31/2011. there are several former employees whose 5th break year occurs on 12/31/2011. Plan termination datre is 12/31/2011. Can their forfeiture occur, or must they vest 100%? I suspect an argument could be made for either, but the conservative approach seems to be that IRC 411(d)(3) says "...benefits accrued to the date of such termination...are nonforfeitable." Has anyone ever had a real case where the IRS has opined one way or the other?

I would generally agree with you. I hesitate to give a complete blanket endorsement without knowing all the specifics!

Let me start with the disclaimer that I'm with a TPA, and not affiliated in any way with any insurance company or product sales. So I think my opinion is objective. You may not AGREE with it, but it is at least objective. I also am not a fan of insurance in plans, for a variety of reasons. That said, it isn't always bad. And while I shudder at the thought that this may give insurance salespeople another avenue for a "pitch" - consider the following situation: You have someone with a family who really does need insurance coverage, but either cannot (or more likely doesn't want to) afford it out of current income. Let's assume for simplicity and purely for the sake of illustrating the point that their combined tax bracket is 25%, and the income of the sole wage earner is $50,000. So their money in pocket after taxes is $37,500. The premium for term insurance is $1,000, which is paid after-tax, and would leave them with $36,500 for their living expenses. Now suppose the same person has a Profit sharing plan at work,to which the employer allocation on behalf of the participant is $4,000. Out of this, he purchases a term insurance policy with a $1,000 premium. He declares this $1,000 as taxable income, which increases his taxable income to $51,000. After paying his 25% tax, he has $38,250.00 left for living expenses - a $1,750.00 increase over what he had if buying the term insurance outside the plan. So not only does he have life insurance which he needs, but he has a net TEMPORARY increase in disposable income. In essence, a withdrawal from the plan that might not otherwise allow it or might otherwise be subject to premature distribution penalties. Now, he's sacrificing future income for short term gain. But that's a personal choice - maybe he expects to have a financial situation that improves, and he's only doing this for the short term - whatever. I make no judgment on the motives or reasons I merely wish to play Devil's Advocate and point out that it isn't always evil. I would have little or no concern over offering term insurance in terms of fiduciary duty or PT issues, as long as due diligence is used when selecting the company or companies from which such insurance would be available, and there is appropriate disclosure about the long term reduction in accumulation of retirement assets. Offering whole life insurance does raise such issues, which must be very carefully considered. Personally, if I were a fiduciary, I sure wouldn't allow it.

At least in the small plan world, because they do not want to pay the money (either out of pocket, or out of plan assets, which for a typical small employer is roughly the same thing, 'cause the owners have the bulk of the account balances) for proper Trustee/Fiduciary services. So they (the owner(s)) do it themselves. Now, for a financial advisor to be a Trustee/Fiduciary - assuming they avoid any PT issues to start with? I would say, in general, that's nuts. But if the financial advisor is making enough money off the plan to justify the risk, that's something I can't assess. Had the Trustee purchased appropriate liability insurance/bonding to cover himself?

Same as a C-corp.

Ok, then it depends upon the VALUE of their stock, and possibly their compensation level if you are looking at the 1% ownership test. Take a look at 1.416-1, Q&A's 16-19. I think this will give you the information you are looking for.

I'm a little confused as to the "ownership." Did he sell only the non-voting stock? Does he own any stock at all?

Diet - I don't know what the old 2678 prior to revision looked ike, but can you now use it to do a W-2 for the employer? doesn't look like it? http://www.irs.gov/pub/irs-pdf/f2678.pdf

Maybe he has time to marry a 35 year old, and reduce his RMD by over 50%. At least that will reduce his penalty until he can get it sold.

Yes, that does help. Thanks!

Gosh, I'm confused now. A normal state of affairs for me. Frizzy/Doug - I have a couple of questions: "I think using the term "11(g)" is throwing everything off. A defined benefit plan can be amended after the fact to increase benefits at any time. Therefore, no special exceptions, such as a 11(g) for plan corrections is needed in order to allow it. I think that's the whole point of 1.401(a)(4)-11(g). 11(g) allows a special exception for a plan that is past the deadline to amend to increase benefits to do so to pass 401(a)(4). A defined benefit doesn't need a special exception like 11(g). Can you add this amendment? Yes. Is it allowed to be added because of 11(g)? No, it's allowed because Defined Benefit plan amend after the fact." Frizzy - can you provide any sort of a citation for this, and is there a timeframe? For example, if it happened 5 years ago, I have trouble imagining that the IRS would give you a free pass to retroactively amend to bring in an excluded participant, without running it through VCP. And if there is no formal guidance, then I can certainly believe the IRS informally (as Doug suggests) allows the retroactive amendment within the 11(g) timeframe. I also recall some discussion amongst the actuarial bunch (of which I'm distinctly not a member - math isn't my strong point) that there was debate due to the IRS being a pain about the deduction when you did retroactive DB amendments - could you deduct it as required funding for the prior year. I realize that's a separate subject, and I don't want to hijack the question at hand unless it has any bearing. I'd just feel a lot more comfortable with all this if there is in fact some official guidance. If not, oh well. I'm also wondering if, since Revenue Procedure 2008-50 is so prevalent for corrections now, whether the IRS would follow the informal procedure Doug refers to from an unofficial statement that long ago, or if they would NOW say you have to go through VCP? I appreciate any comments or insight you may have. Thanks!

Can you use an 11(g) amendment to pass 401(a)(26)? You clearly can for 410(b), but I wasn't aware you could for 401(a)(26) - probably because it has never come up! But a quick look through 11(g) doesn't show me where it can be used for a 401(a)(26) violation. Guess I'll have to look into this a little more. Hmmm - I still don't think you can. I think you'd have to go through VCP, where the IRS might very well approve it using the 11(g) methodology. But I don't think you get a free pass by attempting an 11(g) amendment. I'll be interested to see what others think.

I want to see the DOL apply pension oversight rules to auto repair shops. Imagine the fee disclosure when you are paying "x" per hour for labor, for a three hour job, but one job has parts that cost the dealer $125.00 - which they mark up 100% and add $250.00 to the labor, and the other three hour job has parts that cost $1,000, which they mark up 100% and add $2,000 to the labor.

you may find this interesting. And there was another discussion threas even more recently that referred to the Snyder case. Search under "bonding" and you'll find some discussion. http://benefitslink.com/boards/index.php?s...&hl=bonding

Dumb question here, but does a regular old integrated plan design produce better results? I'm assuming not, but just thought I'd ask...

Since I don't know much about these types of plans, I'm just curious. Was this employee either a fiduciary, or someone whose position at the company placed him in a position to have more information about the plan workings than other employees? If not, ignoring the ETHICS of the situation, was there anything illegal about his activity?

Just to expand upon jpod's answer - the 415 limit is for the calendar year in which the limitation year ends. So assuming your limitation year ends in 2012, then you'd use the 2012 limit.

Thank you both. Effen - no, unfortunately I can provide you with specifics, as it is, at least at this point, theoretical. But based upon a comment that the EA made last year on a plan, it might become a reality at some point. For us non-DB types, it seems counterintuitive that an overfunded plan could require a minimum funding contribution, but very little in this business surprises me any more!

Question - and this is theoretical - is it possible for a DB plan to be overfunded for 415 purposes, and yet still have a required minimum funding contribution? If so, how is this possible? Is there a "disconnect" between minimum funding calculations and 415 maximum calculations that makes this possible? Thanks!

Interesting question, and I think you'd need one of the ERISA attorneys to chime in here. I don't know if there are court cases that set a precedent for this specific question. Bankruptcy Trustees are always looking for creative ways to reach plan assets, and I don't know which view would prevail here.

Provided by whom, and for what purpose? Do you mean for the new participant-directed DC plan fee disclosures? Or regular life insurance company disclosures mandated by State banking and insurance laws? I'm assuming you mean the former. And I don't think there is any concrete discussion of this. I'd first ask the insurance company, as any company selling insurance in plans will need to be able to provide this for their customers. Beyond that, I think I'd look at the DOL model disclosure "comparative chart" and try to toggle something together based upon the annuity requirements, in conjunction with whatever you get from the insurance company. Good luck!

As far as I know, yes. You'd have to then look to State law to see if thereis any protection from judgements in that State.

Right, so they will file VCP before 1/31/2012, which is within 1 year of the deadline, so they get the reduced fee ($375) and they don't have to file for a determination letter.

I think you are right. I was trying very hard to be wrong on my original conclusion.