KJohnson

Ksuhre--Good point. I think if you have been paying the Medicare portion of FICA this would be strong evidence that even before you knew of the grandfathering provisions of 409A you did not treat the non-compete as creating a substantial risk of forfieture.

QDROphile--For a number of NQ plans I don't think that non-competes are put in to create a risk of forfeiture under Section 83--these plans relied on lack of constructive receipt notions to avoid current taxation. I agree if you are trying to use non-competes for an economic benefit/Seciton 83 argument as your sole means of avoiding taxation the regs severely limit you in this regard. I take it from your answer, though, that you think it is unlikely for the IRS to argue that there is a substantial risk of forfieture created under a NQ plan based on a non-compete and therefore no amounts are grandfathered?

To be grandfathered there must not be a substantial risk of forfeiture under Section 83 concepts. The Section 83 regs seem to state that there is a presumption that a non-compete does not create a substantial risk of forfeiture, but that presumption can be rebutted based on certain facts or circumstances (Compared to a substantial risk of forfeiture under 409A in general which can never be created by a non-compete) Has anyone given any thought on whether the IRS would ever try and rebut the regulatory presumption and argue that a non-compete does create a substantial risk under Section 83 for purposes of saying that amounts deferred under a NQ plan are not grandfathered? I would think that they would be hesitant to make such an argument since it could come back to haunt them in "normal" Seciton 83 disputes.

I agree that if you get a QNEC you must get the gateway but the QNEC can be part of the gateway. Where I still have a problem is how can you then use the QNEC in your ADP and ACP tests? You must pass (a)(4) with and without the QNEC in order to do so. If the only way you can pass (a)(4) is through cross-testing and the only way you can use cross-testing is with the gateway, and the only way you can make the gateway is by adding in the QNEC then how can you meet this requirement? The (k) reg sends you back to 1.401(a)(4)-1(b)(2). I think the analysis has to be, how do I satsify this reg section excluding the QNEC? Through a safe harbor, through general contributions testing, or through cross-testing? If cross-testing then you have to meet the gateway without the QNEC. Again, I don't view it as a gateway question but as an ADP/ACP test question.

I think my prior conclusion was that you can use the QNEC to satsify the gateway but then you lose the beneift of the QNEC in the ADP and/or ACP test because of the regs that Tom cites. 1) You have to pass (a)(4) without and without the QNEC in order to use the QNEC in ADP and ACP. 2) The only way you can pass (a)(4) is with cross-testing 3) The only way you can use cross-testing is with the gateway 4) If you need the QNEC to make the gateway and you exclude it then you cannot use cross-testing and therfore cannot pass (a)(4) 5) Therefore you cannot use the QNEC in your ADP/ACP testing Here is a prior discussion (that links to another discussion) http://benefitslink.com/boards/index.php?s...c=22403&hl=qnec

Some of these links might be more helpful: http://www.seethebenefits.com/CRLframeset8...hemtogether.htm http://www.grantthornton.com/content/72939...rex=&bhcont=lan http://www.haynesboone.com/knowledge/knowl...=pubs&pubid=432

You really need a wrap document to accomplish this. I would suggest searching the boards with the search: wrap 5500

You may want to look at this from the regs Q-7: If health coverage is provided to a qualified beneficiary after a qualifying event without regard to COBRA continuation coverage (for example, as a result of state or local law, the Uniformed Services Employment and Reemployment Rights Act of 1994 (38 U.S.C. 4315), industry practice, a collective bargaining agreement, severance agreement, or plan procedure), will such alternative coverage extend the maximum coverage period? A-7: (a) No. The end of the maximum coverage period is measured solely as described in Q&A-4 and Q&A-6 of this section, which is generally from the date of the qualifying event. (b) If the alternative coverage does not satisfy all the requirements for COBRA continuation coverage, or if the amount that the group health plan requires to be paid for the alternative coverage is greater than the amount required to be paid by similarly situated nonCOBRA beneficiaries for the coverage that the qualified beneficiary can elect to receive as COBRA continuation coverage, the plan covering the qualified beneficiary immediately before the qualifying event must offer the qualified beneficiary receiving the alternative coverage the opportunity to elect COBRA continuation coverage. See Q&A-1 of Sec. 54.4980B-6. © If an individual rejects COBRA continuation coverage in favor of alternative coverage, then, at the expiration of the alternative coverage period, the individual need not be offered a COBRA election. However, if the individual receiving alternative coverage is a covered employee and the spouse or a dependent child of the individual would lose that alternative coverage as a result of a qualifying event (such as the death of the covered employee), the spouse or dependent child must be given an opportunity to elect to continue that alternative coverage, with a maximum coverage period of 36 months measured from the date of that qualifying event.

I think Pax was referring to DOL's suggested course of action: However, in these circumstances, we note that appropriate action could include relaying the evidence of invalidity to the State court or agency that issued the order and informing the court or agency that its resolution of the matter may affect the administrator’s determination of whether the order is a QDRO under ERISA.(5) The plan administrator’s ultimate treatment of the order could then be guided by the State court or agency’s response as to the validity of the order under State law. If, however, the administrator is unable to obtain a response from the court or agency within a reasonable time, the administrator may not independently determine that the order is not valid under State law and therefore is not a “domestic relations order” under section 206(d)(3)©, but should rather proceed with the determination of whether the order is a QDRO. It is not a question of standing, it is just a question of alerting the court. If the court doesn't do anything of its own accord-- on the grounds that the plan is not a party or for other reasons-- then you go ahead and accept it for purposes of whether it is a DRO.

From the "sham QDRO" opinion letter 93-13 http://www.dol.gov/ebsa/regs/AOs/ao1999-13a.html You have asked for an advisory opinion as to whether, and if so when, a plan administrator may investigate or question a domestic relations order submitted for review to determine whether it is a valid “domestic relations order” under State law for purposes of section 206(d)(3)(B) of ERISA. ******** When a pension plan receives an order requiring that all or a part of the benefits payable with respect to a participant be paid to an alternate payee, the plan administrator must determine that the judgment, decree or order is a “domestic relations order” within the meaning of section 206(d)(3)(B)(ii) of ERISA — i.e., that it relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of the participant and that it is made pursuant to State domestic relations law by a State authority with jurisdiction over such matters. Additionally, the plan administrator must determine that the order is qualified under the requirements of section 206(d)(3) of ERISA. It is the view of the Department that the plan administrator is not required by section 206(d)(3) or any other provision of Title I to review the correctness of a determination by a competent State authority pursuant to State domestic relations law that the parties are entitled to a judgment of divorce. See Advisory Opinion 92-17A (Aug. 21, 1992). Nevertheless, a plan administrator who has received a document purporting to be a domestic relations order must carry out his or her responsibilities under section 206(d)(3) in a manner consistent with the general fiduciary duties in part 4 of title I of ERISA. For example, if the plan administrator has received evidence calling into question the validity of an order relating to marital property rights under State domestic relations law, the plan administrator is not free to ignore that information. Information indicating that an order was fraudulently obtained calls into question whether the order was issued pursuant to State domestic relations law, and therefore whether the order is a “domestic relations order” under section 206(d)(3)©. When made aware of such evidence, the administrator must take reasonable steps to determine its credibility. If the administrator determines that the evidence is credible, the administrator must decide how best to resolve the question of the validity of the order without inappropriately spending plan assets or inappropriately involving the plan in the State domestic relations proceeding. The appropriate course of action will depend on the actual facts and circumstances of the particular case and may vary depending on the fiduciary’s exercise of discretion. However, in these circumstances, we note that appropriate action could include relaying the evidence of invalidity to the State court or agency that issued the order and informing the court or agency that its resolution of the matter may affect the administrator’s determination of whether the order is a QDRO under ERISA.(5) The plan administrator’s ultimate treatment of the order could then be guided by the State court or agency’s response as to the validity of the order under State law. If, however, the administrator is unable to obtain a response from the court or agency within a reasonable time, the administrator may not independently determine that the order is not valid under State law and therefore is not a “domestic relations order” under section 206(d)(3)©, but should rather proceed with the determination of whether the order is a QDRO.

You might want to look here: http://benefitslink.com/boards/index.php?s...t=0entry23072 The "toaster" class exemption, 93-1, that Kirk refers to, if I recall, only applies to IRA's and any other non-ERISA plan. This was because for purposes of 4975 the owner of an IRA is generally considered a fiduciary and if the bank gives him or her a toaster for opening an account, the person is arguably using "plan assets" for his or her own benefit. My recolleciton was the exemption specifically excludes plans covered under ERISA.

I guess they could. Question 18 requries you to list all contribuitons and amounts for the current plan year and the last 5 years. However, the only time I have ever had it come up if there were no-contribution years immediately preceding the year of termination. I have never seen them "back it up" any farther than the time the last contribution was made. Suppose you had an '05 termination and no contribution in '04, a contribution in '03, but no contribuiton in '02, '01 or '00. I think they would reuqire full vesting as of 12/31/03 but I don't know if they would question the earlier years because fo the '03 contribution.

Two issues arise on 5310s. The first is that suppose you terminate in '05 after not having made a contribution in '03 and '04. The date you last made a contribuiton will show up on the 5310. To the extent that you have forfeited amounts for anyone who terminated in '03 or '04 (which they also can tell from the 5310) you better believe that the IRS is going to raise this issue and say that everyone was fully vested at 12/31/02 (assuming a calendar year plan). Although not relevant to this topic, they will also look at your list of employees who terminated without full vesting for the last five years to determine whehter there may have been a partial termination.

Listening to the conference now. They just said that acceleration of vesting in connection with an '05 termination would be a material modification.

I've been looking at this as well. I don't see any direct reference allowing the acceleration of vesting upon termination of a plan prior to 12/31/05 although several secondary sources appear to think that this is o.k. Are people thinking it is implicit in Q&A18©. I don't think Q&A15(a) gets you there because adding a provision with regard to accelerated vesting would appear to be a material modfication not expcitly exempted under Q&A18.

You can find various audit guidelines here: http://benefitsattorney.com/modules.php?na...=viewlink&cid=2

As to the first point I think EPCRS is pretty clear that an amendment to conform to operation is the correction of an operational failure:. (1) Availability of correction by plan amendment in VCP. A Plan Sponsor may use VCP for a Qualified Plan to correct an Operational Failure by a plan amendment to conform the terms of the plan to the plan's prior operations, provided that the amendment complies with the requirements of § 401(a), including the requirements of §§ 401(a)(4), 410(b), and 411(d)(6). As to the second point, 2004-25 applies to: "disqualifying provisions described in § 1.401(b)-1(b)(1) that are put into effect (in the case of new plans) or adopted (in the case of existing plans) after December 31, 2001," " The applicable reg then states: (1) A provision of a new plan, the absence of a provision from a new plan, or an amendment to an existing plan, which causes such plan to fail to satisfy the requirements of the Code applicable to qualification of such plan as of the date such plan or amendment is first made effective. I have never thought the amendment contemplated would be the kind that would fall under the RAP, but maybe I am wrong.

I think the point is that the IRS does not recognize scrivener's error as such. With scriveer's error you "pretend" like the plan has always been written in accordance with its intent and operation. The IRS says that the plan is what the plan is and you have an operational failure because you did not abide by its terms. Now, under VCP what is the proper correction for this operational failure? I think in determining whether it will allow you to adopt a retoractive amendment to conform to the plan's operation the IRS considers (among other factors) the same factors that you would need to establish scrivener's error. But the factors to establish scrivener's error will not get you all the way there. Thus for example if you have a claim of scrivener's error, no matter how well supported, but the "amendment" benefits only HCE's to the detriment of NHCE's my guess is that they are not going to buy-off. If you did not go through VCP, the IRS's position would be that you had a disqualifying operational defect. Then, whether they would be successful would be for the court to decide when you proffer a scrivener's error defense.

As to the RAP, I don't know of anything that would allow such an amendment "pursuant to § 401(b) or another statutory provision." Further my understanding that generally a RAP for "other" amendments covers two kinds of failures: (1) A provision of a new plan, the absence of a provision from a new plan, or an amendment to an existing plan, which causes such plan to fail to satisfy the requirements of the Code applicable to qualification of such plan as of the date such plan or amendment is first made effective. (2) A plan provision which results in the failure of the plan to satisfy the qualification requirements of the Code by reason of a change in such requirements-- As long as the "incorrect" vesting that is in the plan meets stautory minimums, I am not sure if it si something that can be corrected in a retroactive amendment through a RAP. I think the second point (and Austin's) is well taken Really a scrivener's error argument means there is no operational failure at all. Therefore, if there is no error there no need for VCP. I don't think the IRS considers the factors that you would use to establish scriviner's to determine that there has not been a failure but rather for the notion that your correction--a retroactive amendment--is reasonable.

The guidance has been substantially revised since 1999. A plan document failure is defined as: "The term "Plan Document Failure" means a plan provision (or the absence of a plan provision) that, on its face, violates the requirements of § 401(a) or § 403(a)." Unless you had a vesting schedule which was contrary to the Code, I don't think you would have a plan document failure in the instance described above. I think it is pretty clearly an operational failure in the IRS' view.

I think it is an operational failure, like early participation, allowing hardships (wher the plan has no harship provision) etc where the correction is a plan amendment to conform to the operation of the plan. However, this retroactive amendment cannot be done through SCP but must go through VCP.

Welfare benefits case (life insurance), but an interesting analysis of Egelhoff by the 5th Circuit that came out on 12/22. Although state law might be preempted it goes on to find that a divorce decree can "trump" the beneficiary designation under federal common law. http://www.ca5.uscourts.gov/opinions/pub/0...212-CV0.wpd.pdf

The IRS's opinion is, I believe, that it is a factor that they will consider if you submit through VCP. If they discover it on an audit, I believe that you will have problems with the IRS although you might be succesful in the Courts. This is from the 2002 ASPA Q&A' 40. Assume a profit sharing plan with a one-year of service eligibility and 2/20 graded vesting. The TDR restatement of the plan in 1986 (for which there is a favorable determination letter) reflects 2/20 vesting in the adoption agreement, the SPD, and plan administration. Everything was fine until it is discovered in 2001 that the TRA ‘86 restatement (signed in 1992, and has a favorable determination letter on top of the 1986 letter) erroneously has the 100% vesting box checked on the adoption agreement instead of the 2/20 box. The SPD and the plan administration continue to show and apply the 2/20 vesting schedule. Will the Service approve a scrivener's error amendment to correct the vesting schedule election on the TRA ‘86 adoption agreement to the one that has been used for the last 18 years of plan operation or must we retroactively fully vest everyone in the plan during the TRA ‘86 restatement? A. Fact and circumstances will determine the results, but the employer’s only legitimate choice is to come in to the Service through VCP in order to resolve this one way or the other.

Becky, I assume you mean asking through VCP?

There is a difference in saying that a QDRO revokes a beneficiary designation as opposed to a divorce decree revoking a beneficiary designation. A plan administrator probably only sees a fraction of the divorce decrees whle, by definition, they must see a QDRO.