KJohnson

asire2002--What is the basis for your assertion that only an investment manager could be paid advisory fees? While appointing an investment manager relieves a fiduciary of certain co-fiduciary responsibilites, I am not sure how this gets you to the conclusion that only an investment manager can be paid fees? Also in the situation raised by Junior are you saying that the named fiduciary of the plan would have to appoint the investment manager rather than the participant himself or herself? Then, would the named fiduciary have an ongoing duty to monitor each individual participant's "investment manager?

Jon and Junior, Could you clarify? Is the client the plan administrator/trustee or an individual participant? Jon, Are you saying its a fairly common arrangement that with participant directed accounts that a participant go out and hire a CFP for advisory services for the particiant's 401(k) account and have the fees for the CFP paid for by the Plan. In other words a large plan could be paying fees to 100's of CFP's? If so, what kind of language is in the document?

Kirk, I think the document can be amended with regard to forfeitures prospectively. However, I think there may be a cutback question. This langauge has always presented a problem with a discretionary match when an employer decides not to make a match for the year. Other than 415 suspense accounts, I do not believe that the IRS likes to see unallocated amounts after the end of the plan year. In this siutation, I always recommend that the employer declare a "match" in an amount so as to allocate the forfeitures. I think you would have to look at the langague of the plan carefully to determine whether participants have already "accrued" the right to have these forfeited amounts allocated to their accounts. If you come to the conclusion that they have not, then I think you are free to change the plan langauge with regard to the allocation of accrued forfeitures.

It sounds to me like the plan document does address the issue and the answer is NO.

There are certain rights that an employer has for information with regard to withdrawal liability (I believe including a request for an estimate). However, if you are just looking for general information, I would suggest talking to the employer association. The Board of Trustees of a multiemployer fund must be equally represented by appointees from the union and management. Typically (although not always) and employer's association appoints the management trustees. The best way to get information may be through the management appointed trustees.

I really wouldn't have been surprised by the comments in the context of "each HCE" as his or her own group in a context where you might have 15 to 20 groups, I was surprised, however, that, in the discussion, they took this down to the sole shareholder situation. I always thought that under the examination guidelines whether there was a "deemed CODA" was a facts and circumstances test. I admit that where you draw the logical line between two groups (in the case of a sole owner) and twenty groups in the case of a larger medical practice (not to pick on Doctors) is tough, but the sole shareholder situation just does not seem to have the same "hubris" as the fifteen to twenty groups situation. I think Blinky posted on this Board in another thread (either yesterday or today) that he though that the two group design with the sole shareholder as his or her own group was "very conservative" and that there was "not a chance" that it would be found to be a CODA. I would have been inclined to agree before these comments...and am probably still inclined to agree afterward.

Generally the informal guidance is yes, but watch out for your forfeitures. Allocation of forfeitures from the profit sharing portion of the plan could "blow" your top heavy exception.

Finally an answer! It is o.k. to deduct these fees from individual accounts. Also some nice guidance saying its o.k. for the employer to pay administrative expenses for active employees but to charge accounts of inactive participants. Also the advisory opinion on expenses for QDROs is withdrawn. http://www.dol.gov/ebsa/regs/fab_2003-3.html

Blinky, I agree with you. However the comment by Shultz and Holland at the Mid Atlantic Employee Benefits Conference raised the issue of whether such a two rate group scenario with the sole owner/director as one of the two groups would raise a CODA issue. Tripodi raises this issue on page 1.52 of his 2003 Outline but believes that you should be able to take comfort in the determ letter.

Nice explanation by Tom and Blinky as long as the IRS does not determine that you have set up a non-qualified CODA for the Doc.... http://www.benefitslink.com/boards/index.p...=23&t=19772&hl=

Yes--Session 13, Question and Answer Panel

You might want to look at this article: Under What Circumstances Can an IRA Invest in a Business Owned in Part by the IRA Owner and Members of The IRA Owner’s Family (Last Updated 10/17/01) by Noel Ice that can be found here: http://www.trustsandestates.net/IRAsFLPs/I.../IceSwanson.htm Personally, I don't think the article pays enough attention to the 4975©(1)(E) and (F) self-dealing issues. There are several examples where the DOL has raised "concerns" regarding self-dealing. For example when an IRA owner wanted to lend IRA assets to a corporation of which he owned approximately 1% and was an officer, the DOL raised, but did not address self-dealing issues. (Of course there was no "technical" prohibited transaction because the IRA owner did not own 50% of the corporation). Under a similar fact scenario where the IRA owner also owned 48% of the corporation, the DOL found that a self-dealing prohibited transaction was "likely " although, once again there was no technical prohibited transaction. In a third situation, DOL found that there was a probable self-dealing prohibited transaction where an IRA owner wanted to use IRA assets for a sale/lease-back of school property where the IRA owner's children were the founders and employees of the school (but did not have an ownership interest).

Thanks for the invitation and its nice (I think) to know that the Manager of Employee Plans Voluntary Compliance sometimes looks at these Boards.

This was a Q&A session: The actual question that started the discussion and its "variations" was: A cross tested profit sharing plan covers 3 HCEs and 3 NHCEs. Each HCE is in his/her own allocation class. All NHCE's are in a fourth class. Is there anything inherently or potentially wrong with this plan design? What if, in a given year 1 or more HCEs get no allocation. Is this permissible, or will the plan be deemed a CODA? I believe that is when Holland and/or Shultz started asking for more information on the input that the HCEs would have as to their own allocations. (Which then raised the question of the sole director who would always be responsible for deciding the amount for his or her allocation "group.").

I guess I should order the tape. I do recall a question about reliance on the determ letter. However, I think the question was phrased with regard to a strange variation--a plan that actually allowed the single participant in the group (not the employer) to set the allocation for the group. This does not make a lot of sense to me and I can't imagine plans were written this way--almost an invitation to find an impermissible CODA. However from a "real world" standpoint when you have a Doctors' group, this is arguably the reality (each participant setting his or her own allocation) although the Plan should still provide that the emloyer sets the allocations and not the participant.

I guess I would much rather have them speak their mind and share their thoughts than be silent on an issue. It is a fine line you have to walk between RCline's position--who cares what they say--and a position where you change what you are doing based on a few informal comments. I don't think that I would tell a client, based on a Q&A session with IRS and Treasury folks, that they have an impermissible plan design if I found support for what they were doing in the Code. However, I probably would tell the client that the issue has been "noticed" by those at the IRS and Treasury primarily responsible for issuing guidance and that it is not completely free from doubt. There were a number of scenarios posited with this Q&A (such as if the individuals in each "group" set the allocation rather than the company itself settling the allocation--is this form over substance?) and the reliance you could have on a determ letter.

We almost got the opposite response out of Holland yesterday and I couldn't believe it...then he went back and reread the question and corrected himself...oh well...

I agree with you but I think someone could read the reg and come to the conclusion that EVERYONE has to have additional disclosure in the SAR. Having all assets invested in "limited" investments (your term) or "super qualified" investments (my term) only gets you out of the first of the following 4 SAR disclosure requirements: (1) Except for qualifying plan assets described in paragraph (b)(1)(ii)(A), (B) and (F) of this section, the name of each regulated financial institution holding (or issuing) qualifying plan assets and the amount of such assets reported by the institution as of the end of the plan year; (2) The name of the surety company issuing the bond, if the plan has more than 5% of its assets in non-qualifying plan assets; (3) A notice indicating that participants and beneficiaries may, upon request and without charge, examine, or receive copies of, evidence of the required bond and statements received from the regulated financial institutions describing the qualifying plan assets; and (4) A notice stating that participants and beneficiaries should contact the Regional Office of the U.S. Department of Labor's Pension and Welfare Benefits Administration if they are unable to examine or obtain copies of the regulated financial institution statements or evidence of the required bond, if applicable; and The requirement in 2 would presumably be inapplicable since the premise is that 95% of the assets are invested in qualifying assets. As to 3, if the bonding requirement is meant to refer to the bond for having more than 5% of invesments in non-qulified assets then you should be o.k. But what gets you out of the remaining langague in 3 and the reference in 4 with regard to the finanical institution statements? Logically, it makes no sense to include this if you are excluded from disclosure under subparagraph 1, but I am not sure if this "tracks" from the exact language of the reg.

My recollection was that one of the panel members commented that given the views expressed by Shultz and Holland, people may not want any guidance on this issue whether it is soft or hard. Shultz's comment was that maybe people will feel different if "Preston" comes to call on their client (Presumably Preston Butcher the director of employee plans examiniations).

Just got back from the Mid-Atlantic Employee Benefits Conference. To the consternation of a number of people in the audience Shultz and Holland said that the following plan designs raise impermissible CODA issues. Two Groups--One group is the sole director and shareholder of a corporation and the other group is everyone else. Corporate formalities are followed at the end of the year and corporate minutes reflect the allocation to be given to each group. Shultz and Holland commented that this may be an impermissible CODA on behalf of the owner. Multiple Groups--Each shareholder is in his or her own group and everyone else is in a final group. Each shareholder informally expresses his or her recommendation on how much he or she wants for an allocation for his or her group and the Board adopts the recommendation with formal corporate action. Shultz and Holland commented that this may be an impermissible CODA for the shareholders. Shultz commented that this may be an area deserving some "soft guidance." The non-Service people on the panel commented that if this raises impermissible CODA/qualification issues, you will probably have a number of doctors out there with plans subject to disqualification.

Somone just told me that Dick Wickersham has retired. Is this true? If so, he will be missed at the various conferences and the IRS will surely miss his wealth of knowledge.

I think Sal's approach is Mike's preferred way of doing it--just run the general test on the whole plan--forget the component plan concept. I think I agree that as long as your additional nonelective contribution passes 410(b) it should be a mathematical impossiblity to fail 401(a)(4), but do you just stick a coverage test in the file for this or do you go through all the steps of the general test? As to the component test concept, my concern was actually what Mike raised--It appears that this is a design test rather than an operational test. Just because you can come up with component groups where you satisfy the formula uniformity requirement in application does not mean that the formulas, by design, are uniform.

Mike, I had always thought, like Andy H, that you would satisfy 401(a)(4) under the multiple formual safe harbor, but I can see now that you are right. As to going to restructuring, as I follow your reasoning, you could break the plan into component parts, those participants that were employed on the last day and with 1000 hours and those that were not. Thus the employees that only received the SHNEC (i.e. not employed on the last day and/or did not work 1,000 hours) would satisfy a safe harbor for 401(a)(4). However, the employees who were there on the last day and had 1000 hours would still have multiple formulas. My question is whether you still have to generate the general test on this group (although they would obviously pass) or can you say this is now a 401(a)(4) safe harbor component as well since all particpants in the component group are eligible for both formulas. My reading is that you would still be required to produce the general test.

I would be interested in this as well. I have an option in my volume submitter where the employer may select whether to allow only participants to rollover amounts into the plan or whether to also include any employee who would be a participant but/for meeting the age and service requirements of the plan. The IRS had no problem with this language. I think this is a very common provision incorporated into a number (most?) prototypes. Of course, jut because everyone is doing it doesn't make it correct.

I haven't kept up with the MEWA stuff, but my recollection is that there very well may be a Code issue as well. I would be very careful on issues of funding and tax deductibility. In particular you should look at 419A and the definition of collectively bargained plan in 1.419A-2T Q&A 2. The language in (4) of Q&A 2 about losing the collectively bargained exemption from 419A if the number of employees in the fund who are not collectively bargained increases has been a troubling factor. I have not looked at this for years, but it might be something you want to get comfortable with---especially if the collectively bargained welfare plan has a healthy reserve.