Belgarath

I think the best answer, in this case, is to read 1.72(p)-1, Q&A-20. This will answer your question far more coherently than I could.

Well, the argument doesn't make any sense to me. It runs against the regulations under 1.401(a)(26)-1 and -2. I was trying to think about why anyone would think this - I suspect that this may stem from a situation where there are SURPLUS assets, and the plan provides for the full or partial allocation of these surplus assets to the participants. If any HCE receives any of the surplus assets in this situation, then the "free pass" on coverage testing wouldn't apply, and you'd have to test. Perhaps this is what they really mean. Just speculating...

You'd have to ask a product actuary. I would like to think that there is in fact a correlation. I suspect there is, particularly in an older policy that wasn't designed for a "rollout" such as those the IRS has just targeted. To my admittedly non-mathematical mind, using nothing more than the rule of 72, if you have a 100,000 CV now, at 5%, it would become 400,000 in around 29 years. That would put these folks somewhere in their 90's? So at a guess, this seems reasonable, but I'm speaking from a position of ignorance.

Blinky - you're absolutely right! Wasn't thinking clearly, trying to do too many things at once - my apologies to all. See why I refer these to ERISA counsel?

Andy - I'm not sure what you mean when you ask if the sale makes sense from the plan perspective? Are you asking if the cash surrender value is a valid sale price from the plan perspective? The plans I've seen with LI usually specify that the policy will be offered to the participant, either as a distribution or as a sale for the cash surrender value. The plan usually has to either transfer policies to the participants or surrender. From what you say, it sounds like a surrender value sale by the plan is valid. If the plan surrenders the policies, this is all the value the plan would receive, so this amount satisfies PTCE 92-5 or 6, I forget which one governs a saly by the plan. But maybe I'm answering something totally different than you are asking!

First, is the son under age 21? Second, are we discussing only controlled groups, or are you also looking at an affiliated service group? The 1563 controlled group attribution between parents and children is different than the ASG attribution under 318. Under 318, age is irrelevant. Assuming we are looking only at a CG, and the son is 21, then IMHO I would say there is no attribution to Dad, but there is attribution to Son from Dad, because Son owns more than 50%. So Dad would own 100% of Entity 1 and 40% of Entity 2. Son would own 100% of both 1 & 2. I'm also assuming nothing fancy, like stock options, trusts, etc. If I seem overly cautious, it's because I always refer these questions to ERISA counsel - the possible permutations become horrifying!

I'm a bit confused - how, in an actual plan termination, can the plan fail to allow a distribution? If the plan is merging, then fine, no distributions and no successor plan rules. But if the first plan is actually terminated, then even if the partipants elect to do a direct rollover to the new plan, it is still a "distribution" - albeit nontaxable - from the original plan, and the successor plan rules apply. I think the old timers are right. I believe 410(k)(2)(B) and 401(k)(10)(A) support their position. I also agree with Mike that there shouldn't be anything prohibiting establishing a new plan, and simply stopping deferrals in the old plan.

FWIW - I agree - it shouldn't be a valid QDRO. Is the alternate payee by any chance the ex of a Trustee/Plan Administrator? If so, my increasingly suspicious mind might suspect the possibility of a sham divorce...

In 1.416-1, T-16, T-17, and T-19, it is capital or (my emphasis) profits. So for practical purposes, you would take the greater of the two percentages.

Tom, I don't read it that way. The instructions for line 6 and 7 say, This category does NOT (my emphasis) include (a) ..... or(b) former employees who have received a "cash-out" distribution... So I'd say you don't have to include them.

Assuming the document allows it, I don't see a problem with your approach. The IRS does allow a waiver of participation - I've seen it in tons of documents. The docs I've seen do require that the waiver be signed PRIOR to satisfying the reguirements for eligibility. I don't think it is generally allowed in Standardized prototypes (I say generally because individual reviewers sometimes let some unusual provisions slip through) but I've seen lots of Non-Standardized prototypes (and of course Custom and VS documents) that allow it.

From CCH - excerpt below. I think it requires some level of interpretation - but when it says "otherwise would have been distributed to the partner" it would seem reasonable to think that this allows for calculation of taxes - otherwise there is no way to determinae what would be distributed to the partner. REG-PREAMBLE, PEN-RUL ¶24,176, EMPLOYERS GIVEN 15 DAYS AFTER MONTH OF RECEIPT TO PAY PARTICIPANT CONTRIBUTIONS TO PLAN., (August 7, 1996) c. Partnerships Two comments were received relating to when contributions by partners to section 401(k) plans become plan assets. The letters represent that, under 26 CFR 1.401(k)-1(a)(6)(ii), a partner's compensation is deemed currently available on the last day of the taxable year, and an individual partner must make an election by the last day of the year. They ask when the monies, which otherwise would be paid to a partner, but for the partner's election, become plan assets, inasmuch as partners do not receive wages. In the view of the Department, the monies which are to go to a section 401(k) plan by virtue of a partner's election become plan assets at the earliest date they can reasonably be segregated from the partnership's general assets after those monies would otherwise have been distributed to the partner, but no later than 15 business days after the month in which those monies would, but for the election, have been distributed to the partner.

1. My opinion would be that since the Revenue Procedure (2003-44) is an IRS program, that a DOL audit should not preclude using VCP. Section 4(.02) says that if the Plan Sponsor is under Examination, VCP is not available, but I'm assuming this means an IRS examination. Section 5(.03) defines the term "Examination" and I don't see anything about a DOL audit. I don't know if others have a differing opinion. 2. I believe yes, although I didn't delve through the Rev. Proc. to make sure. 3. That's a sticky one, and I would seek legal counsel. My personal inclination would be no, but I'm pretty conservative in my views of fees being paid from plan assets. To me, since the filing is due to a plan sponsor error/delay, I'd be inclined to consider this a "settlor" expense that shouldn't be paid from plan assets. Since the DOL is auditing it already, perhaps the client could discuss this with them?

That's very hard to say without having the document. In a very general way, if you have a document that allows for it, the "new" employer (the S-Corp) can usually adopt the existing plan by assuming the assets and liabilities of the plan. But since in my experience most LLC's are taxed as partnerships, there may be some items in the document or adoption agreement that require changes.

Hey, did you see the text of DOL Advisory Opinion 2004-02a(on Benefits Link) this afternoon? While it doesn't address the specific question that started this thread, the reasoning the DOL uses is instructive. It would appear to me to bolster the position that the previous QDRO isn't affected. BUT, it also seems to make clear that an existing QDRO can be subsequently amended. See excerpt below. Nice of them to have the timing so perfect! A plan administrator may determine that an order is not qualified only on the basis of the requirements set forth in section 206(d)(3) of ERISA. In our view, nothing in section 206(d)(3) suggests that a State court (or other appropriate State agency or instrumentality) may not alter or modify a previous domestic relations order involving the same participant and alternate payee, as long as the new domestic relations order itself meets the statutory requirements.

Kirk - since you responded to me, I just want to make sure you aren't reading anything negative into my response, and maybe you weren't. The comment about the dinner invitations was purely an attempt at humor, what with the switcheroo of the marriages and divorces. Other than that, I'm baffled that you think you could have been gentler, as all you did was express an opinion. Seemed pretty gentle to me. Ditto for pension newbee - that was just an opinion as well. And I think that anybody on these boards recognizes (or should recognize) that an opinion by anybody here is just that. Even an opinion with no citations is worthwhile - if you post a question, and get 8 opinions on one side of an issue, that at least provides for some indication that the position isn't necessarily crazy. There are a lot of very bright and experienced people here, and their opinions are likely to be pretty good. We're all professionals here, and reasonable people can have strong opinions and disagree without taking offense. As long as the responses don't get personally abusive, I've never seen why folks should have to worry about being "politically correct" in their responses. So from my viewpoint, you certainly don't have to worry about carefully phrasing a response. I'm not easily offended!

Kirk - must get tough when writing out the dinner invitations! But I agree, I don't see how there is any invalidation of the prior divorce. And it therefore doesn't seem to me that the terms of the QDRO are invalid either (assuming not a sham in the first place.)

Edited Rev. Proc. number. My magic thumbs managed to type it incorrectly. I may be all wet here, but I'd say that no 5330 required. A 401(k) plan isn't subject to minimum funding standards. I'd say you just have an operational error, which can be self-corrected under Rev. Proc. 2003-44. Whether you classify it as a "significant" or "insignificant" violation shouldn't matter here, since you are still within the 2-year time limit for "significant" errors.

I agree that it isn't required by law, but the document issue is a tough one, especially without being able to read it. Sounds like you are floundering (sorry, couldn't resist) - I'd be inclined to take the approach that since the clear intent of the document (which, in the event of conflicting provisions, must of course be interpreted in its totality) is to exclude union employees from any contribution other than a required match, that this is sufficient. Of course, that's easy for me to say since I'm not the one who will hang for it.

As a non-attorney, I'll add an uninformed personal opinion. A lot of plan documents are not terribly clear or specific in the situation you mention - most leave it to the "Employer" or "Sponsor" to appoint another Trustee/Plan Administrator. Of course, the Employer/Sponsor no longer exists. I was always under the impression (very possibly erroneous) that a court appointed successor would be required. But I'm sure some of the legal experts on these boards can give you a much more accurate response.

I've actually seen it done once - for the sole purpose, ostensibly at least, of creating a controlled group.

Edited version - I left out a sentence in original version - inserted below in italics. I think Blinky should have to answer this one. (This is a real situation, by the way) You have three businesses - corporation A, B, and C. All sell catfish fillets or fish sandwiches or some such stuff. All are owned by a combination of the parents and adult children. Ownership is such that A & B are clearly a controlled group, but C is not, at least at first glance. No stock options, etc. They have been operating a plan as a controlled group, and came to us to take over administration. We told them that they need to get an attorney's opinion as to whether C is part of a controlled group or not. If attorney says yes, fine with us! But something was mentioned which I have never encountered - these businesses are evidently franchises, and these particular franchises are only granted to an INDIVIDUAL, not to corporations. The father is granted the franchises, then somehow farms it all out to the corporations. So is it possible that this franchise arrangement when swirled together with the ownership somehow transforms it into a legitimate controlled group? (And it isn't an affiliated service group, according to client) I'm not sure if this is something they did on porpoise, or if I'm being fed a line. But it may be a very effishient way to conduct business. If it turns out to be illegal, I'm going to whale for the carps, and perhaps a sturgeon to perform brain surgery on the appropriate people. If the attorney won't rule in their favor, it may require an act of Cod. I thought the whole situation smelt anyway.

I agree with Katherine.

His book is in a question and answer format.

Mr. Watson opines that in a community property state, there is direct ownership, and that therefore the "no direct ownership" condition of 1563(e)(5) cannot be satisfied. (He also cites the Aero Industrial case) He does go on to say that there is a way around this - having their stock treated as separate property. HOWEVER, he goes on to caution that there are potentially serious side effects to this approach as well, and it would require competent counsel to advise any client attempting to use this method.