KJohnson

Mike, I just wanted to reconcile your last two answers. In your response to jaemmons does your response simply reflect the fact that because you have a cross-tested plan involved, each rate group in the cross-tested plan would have to satisfy 410(B) and therefore you would have to pick up information on employees from the entire controlled group. However, if you, for example, had two plans in a controlled group that passed 410(B) and one had a "comp to comp" formula of 10% and the other had a "comp to comp formula" of 3% then each plan would be tested on its own populaiton for 401(a)(4) and that since each had a safe harbor formula there would be no issue 401(a)(4) issue?

As an example of what Archimage is talking about suppose that you had separate plans and coverage in Company A and Company B as follows: Company A 1/1 non-excludable HCE's covered 3/3 non-excludable NHCE's covered. Company B 1/1 of non-excludable HCEs covered 50/50 of non-excludable NHCE's covered. If both Company A and Company B were treated as separate entities, your 410(B) ratio percentage would be 100% in each. However, when you test coverage on a controlled group basis you would fail ratio percentage for Company A's plan because you would only be at 11.3%. However, if both plan A and plan B passed coverage testing on a controlled group basis (for example if plan of Company A covered 50/50 non-excludable NHCES) then you would only apply your ADP test for those individuals who were actually eligible to participate in each Plan and not on a controlled group basis.

It seems that to come to 100% you are actually doubling the shares rather than attributing ownership. I don't think this is a controlled group. For a similar example see Derrin Watson's explanation at this link: :http://benefitslink.com/cgi/qa.cgi?databas...d=236&mode=read

I agree with your analysis. However, I am not sure why any multiemployer plan would remain a money purchase pension plan because of the minimum funding and allocation issues that arise. I would think that they woudl switch to have this simply being a profit sharing plan with a mandated contribuiton. This solves a number of problems. I would guess the problem is ignored. The excerpt from the IRS' multiemployer examination guidelines clearly indicate the problem and excise tax implications: A funding deficiency under a plan may be attributable entirely to the delinquency of one or several employers in making required contributions to the plan under the terms of the collective bargaining agreement. If only one employer is delinquent, that delinquent employer is solely liable for the IRC 4971 tax. If more than one employer is delinquent in its contributions, the IRC 4971 tax will generally be allocated in proportion to each employer's share of the delinquency. See Prop. Reg.54.4971-3(B)(2).

At the ASPA and ABA conferences, there are also DOL Q&A's. Here is their response to this question over the last three years: QUESTION 8. Can a retirement plan charge participants' accounts (directly) the cost of issuing a check to the participant? DEPARTMENT OF LABOR ANSWER. 2000 Answer: Staff is examining this and so is not prepared to answer. We should expect guidance in the not too distant future. 2001 Answer: Staff said it is still working on the guidance. This year, however, staff offered a few clues about its position. Staff observed that the relevant issue in this situation, as in connection with PWBA's published guidance on the costs engendered in a plan's DRO/QDRO review, is whether or not an imposed plan charge to the participant "burdens a statutory right." It is that issue that impedes a positive staff approval of the proposed response. 2002 Answer--The issues raised by this example continue to be under active review by the Department. The Department indicated that, while there was internal agreement regarding many of the issues, a final decision has not been reached.

I must admit, I find the reference in Sal's outline a little confusing at least in the 2003 eddition that I am looking at . In 2.e3) of that section he says that minimum account thresholds for an investment option are a BRF that must be tested. In 2.e3)a) he then says that a difference in FEES for investment options is a "closer call" However as an example of a difference in "fees" he returns to the 1999 ASPA Q&A regarding minimum account thresholds. Returning to the question presented I would think that the distinction might be what is the investment option offered? If the investment option is the directed brokerage account and everyone can have directed brokerage then I think there probably is not a BRF problem. In other words if a Plan offers 10 different mutual funds and a directed brokerage account and there is no minimum for any of these options I would think that you would not have a BRF problem. However, once inside the directed brokerage account if a participant decides to invest in an option that has a minimum investment threshold even I (as a BRF "hawk") would have problems thinking that this is a BRF issue. Could you say that since one account balance is sufficient to buy 1,000 shares of IBM while another is only sufficient to buy 100 shares of IBM, the ability to buy 1,000 shares of IBM is a BRF that must be tested?

I don't think provided = "available and easily accessible." This is one of the most common failings that I see in 404© compliance. The mutual fund only "knows" its customer on the plan level and not the individual account level so the participant does not get a copy of the prospectus from the mutual fund when he or she switches investments. The employer is unaware when the employee goes "in and out" of an investment and there are a number of TPA's who don't think to address this issue with their clients who want to be 404© compliant (maybe because they can't comply or know that it would add to their costs.) Look at this link http://www.benefitslink.com/boards/index.php?showtopic=4655 From a policy standpoint, I am not sure that this requirement makes all that much sense when you think about real participant behavior. 2-3 page "summaries" of each investment option provided on a periodic basis would seem, to me, to be more useful to participants and easier for plan sponsors. However, the reg is what the reg is, and you have to deal with it.

I don't see how it can be on "substantially the same terms." Someone who has the minimum balance has the BRF and those who do not have the minimum balance do not have the BRF. Admittedly, if the balance is minimal, you probably pass 410(B) on the BRF. Also, I don't think this tracks from the rest of the reg. The IRS specifcially stated that you could place a minimum account balance in the case of one BRF ( plan loans) and not have to test the BRF. However, they placed the minimum at $1,000 1.401(a)(4)-4(B)(2)(E). Thus, they thought they specifically needed an exemption in the regs for making a BRF contingent upon a "minimal" account balance of $1,000. No such exemption exists in the case of investment options.

MBOZEK--You see hung up on "plan terms" I don't see that in the definition of BRF. Also, in a daily environment, if you know account balances on a daily basis and presumably know account minimums on a daily basis then the "math" of the percentage of individuals who satisfy the account minimums for the investment option does not strike me as that big of a deal if anyone put their mind to it. Finally, I would agree with Mike Preston's prior post that the "economic" reality of the situation is that, right now, the IRS may look the other way on this issue. They, in fact, indicated as such at a more recent ASPA conference. However at the 1998 ASPA conference, they took a different view--at least as to effective availability: . Nondiscrimination: Nondiscriminatory Benefits, Rights and Features An employer has a profit sharing plan with individually directed accounts at a major mutual fund house. The participants are all being given the option of electing to use an investment manager for their accounts if they so desire. The management fees would be paid directly from the participant's account. Only the HCEs have account balances at the minimum amount necessary, as established by the investment manager, to be serviced by the manager. There is a concern that the use of investment managers by the HCEs would violate the benefits, rights and features requirements of the non-discrmination rules. Is this an issue? RESPONSE Yes, there is an issue. If the option of using individually directed accounts is only effectively available to HCEs, the plan is in violation of the nondiscriminatory benefits, rights and features requirement. (end of Q&A) What their view tomorrow might be is anyone's guess. Will they ignore the issue all together. Will they only look at effective availability and not current availability (Who knows how you could arrive at this analysis under the regs. ). Will they ask whether the Plan attempted to negotiate the minimums on a plan level rather than an individual account level, or whether they requested a waiver of the minimum account balance requirement? (touchy-feely compliance--did you care enough to ask?) However, I generally find that addressing what I think appears to be a fairly clear compliance issue with the answers: "The IRS isn't looking at that" or "Our software won't do that" is a strategy that may lead you into trouble.

I agree with Kirk that an independent fiduciary would be the best course, but for a $35,000 asset you may spend about 1/4 or more of it for his or her services.

I guess to restate my view, 1) I don't think that the investment feature being considered "part of the plan" is the test on whether it is a BRF, 2) Investment options offered to participants are BRFs no matter where they "appear" or how they are offered 3) If you fail 410(B) with regard to the offering of a BRF because of account balance limitations youhave a problem under the regulations no matter who sets the limit. (Although you can offer BRF's on a discriminatory basis as long as you provide that only individuals UNDER a certain account balance are entitled to the BRF--see 1.401(a)(4)-4(B)(2)(ii)(B)) 4) The risk of catching this on audit, or if caught the risk of the IRS pursuing it for political reasons is very low. That said, a complaint to the IRS along the lines of "My boss said that he could use a stock broker to invest his plan account balance but that I can't because I don't have enough money in my account" may, in fact, raise some eyebrows.

Actually, if you track through the statute and regs the plans are--generally-- not parties in interest to each other just because they have the same plan sponsor. So, I don't think you have a 406(a) prohibited transaction quesiton. The real question is a 406(B)(2) question as to who is going to be making the decision on each side of the transaction? Buyers and sellers are typically "adverse" even in the most friendly of transactions. I have heard of such situations in a multiemployer fund context involving a Board of the same 4 trustees sitting on 2 different funds. For the selling fund, two vote to sell while the other two abstain. On the other side of the transaction the other two Trustees vote to buy the asset while the two voting for the selling fund abstain. I have never, myself, done a thorough analysis of this from a 406(B) standpoint. Of course, even if this works, there are fiduciary considerations to both buying and selling the asset apart from the prohibited transaction considerations. Also, if you have one plan providing services to another plan in some sort of services sharing arrangement, the plans may, in fact, be parties in interest to each other.

I agree with you on both counts. I think the political reality and not an analysis of the regs is why the Service intimated at an ASPA conference that if the broker set the minimum there should not be a BRF problem. Also, I would think that if you pass 410(B) on current availability grounds, then I would think that you would not have a problem with effective availability. I suppose there might be a far-fetched factual secnario where this is not the case (i.e. small company where HCE has spouse and five kids working who would all otherwise by NHCE's and therfore he can "play" with the 410(B) test), but even there I think the IRS would be hard pressed to make an effective availability argument.

I think the analysis has to be "is it a BRF"? If it is, then doesn't it have to be tested for current availability--a purely mathematical test-- as well as effective availability which may be a reasonableness test? I am not sure where the idea of "profitability" and "reasonableness" get you for current availability. If it fails 410(B) standard incorporated into current availability how do you come to the conclusion that the IRS couldn't strike it down. Is it because you don't think it is a BRF? If its not a BRF then there would never be an effective availability issue.

Mbozek. We have had the discussion before and I disagree. The regulations state that "...the term other right or feature generally means any right or feature applicable to employees under the plan. Different rights or features exist if a right or feature is not availalbe on substantially the same terms as another right or feature." Thus I think the test is whether the investment option is "applicable" to any employee under the plan and this does not mean that the investment option has to be "part" of the plan or "provided in" the plan. Also, I don't agree that " Requiring a minimum amt is not discriminatory because it is not based on compensation of the participant" I don't think you are saved because the BRF is based on account balances rather than a participant's compensation. Let's say that you only allowed participants with over $1 million account balance to receive a lump sum distribution. Are you saying you would not have to test this optional form of benefit (which is a BRF) for discrimination because it is based on account balances rather than a participant's compensation? http://benefitslink.com/boards/index.php?showtopic=17791

QNEC's must satisfy 401(a)(4) testing under 1.401(k)(1)(B)(5)(i) and (ii). However, if the only person getting the QNEC is one or more NHCEs, where is the 401(a)(4) problem? You can even still meet the 401(a)(4) safe harbor under 1.401(a)(4)-2(B)(vi)(D)(2).

A sole proprietor with a few employees incorporates. I had always figured that the proper course is for the incorporated employer to fill out a new 5305 and just count the "predecessor service" with the sole proprietorship for future eligiblity for the SEP. I then turned to the Code an realized that 414(B), 414©, 414(m) and 414(n)—controlled groups, common control, affiliated service groups and leased employees- all reference 408(k) and apply to SEPs. However, the provisions of 414(a) with regard to successor employers and crediting service with the predecessor only references “plans” and not 408(k). I can’t imagine that the intent was to “freeze” out everyone and make them requalify for eligibility simply because the sole propietorship incorporates. Has anyone else dealt with this issue?

Even though Rev. Rul. 73-258 states that a housing allowance CAN be included in the definition of compensation for a 401(a) plan, I assume that you could NOT include it if your plan's definition of compensation was limited to W-2 wages. PLR 200135046 tracks the alternative definitions of compensation in 415 including W-2 Compensation and states that the housing allowance does not fall under any possible 415 definition of compensation. The conclusion is, therefore that you cannot use the housing allowance in your 415 testing. However, I would think that a corrollary to this rule is that if your plan defines compensation as W-2 compensation then you could not use the housing allowance for any purpose? Does anyone have other thoughts?

Thanks, RTK I did notice that and I went through the steps and a good portion of the 100% vested HCE's benefit was actually in 4044(a)(4)(B) and therefore was subject to reallocation for discrimination purposes. I do have a question, however. In my copy of ERISA 4044(a)(4) states that: "For purposes of this paragraph, Section 4021 shall be applied without regard to Susection © thereof." 4021© is the definitional section of the coverage provision. What does this mean?

Thanks, Blinky--I have posted the Rev-Rul below for anyone else who looks at this thread in the future. The applicable language with regard to 401(a)(4) is the assets shall be allocated, to the extent possible, so that the rank and file employees receive from the plan at least the same proportion of the present value of their accrued benefits (whether or not nonforfeitable) as employees who are officers, shareholders, or highly compensated. Rev. Rul. 80-229 1980-2 C.B. 133, 1980-34 I.R.B. 8. Internal Revenue Service Revenue Ruling TERMINATION; ASSET ALLOCATION; DISCRIMINATION; DEFINED BENEFIT PLAN Published: August 25, 1980 26 CFR 1.401-4: Discrimination as to contributions or benefits (Also Section 411; 1.411(d)-2.) Termination; asset allocation; discrimination; defined benefit plan. Guidelines and examples are provided for determining if an asset allocation is discriminatory under section 401(a)(4) of the Code upon the termination of a defined benefit plan; Rev. Ruls. 55-60, 59-241, and 65-294 superseded. SECTION 1. PURPOSE The revenue ruling provides guidelines for determining whether an asset allocation is discriminatory within the meaning of section 401(a)(4) of the Internal Revenue Code upon the termination of a defined benefit plan. The ruling supersedes Rev. Rul. 55-60, 1955-1 C.B. 37, Rev. Rul. 59-241, 1959-2 C.B. 118, and Rev. Rul. 65-294, 1965-2 C.B. 136. SEC. 2. BACKGROUND INFORMATION Section 401(a)(4) of the Code provides that contributions or benefits under the plan shall not discriminate in favor of employees who are officers, shareholders or highly compensated. Section 411(d)(2) and (d)(3) of the Code provides certain vesting standards regarding prohibited discrimination, which are also qualification standards, in the event of plan termination. Section 1.401-4© of the Income Tax Regulations provides restrictions on the distribution of assets for certain employees in the event of early termination of the plan. Section 1.401-4©(1) of the regulations provides that the Commissioner may determine that such restrictions are not necessary to prevent prohibited discrimination in the event of an early plan termination. Section 4044(a) of Title IV of the Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. 93-406, 1974-3 C.B. 1, sets forth the rules applicable to the allocation of assets to participants and beneficiaries by priority categories in the event of the termination of a defined benefit plan. Under section 4044(B)(4) of ERISA and section 1.411(d)-2(a)(2)(ii) of the regulations, assets that would otherwise be allocated pursuant to paragraphs (4)(B), (5) and (6) of section 4044(a) of ERISA may be required to be reallocated to the extent necessary to avoid discrimination within the meaning of section 401(a)(4) of the Code. Further, section 1.411(d)-2(e) of the regulations provides that assets in excess of the early termination limits may be reallocated to avoid discrimination. SEC. 3. ASSETS NOT LESS THAN PRESENT VALUE OF ACCRUED BENEFIT In the case of a terminating plan in which the value of plan assets as of the date of termination is not less than the present value of all accrued benefits (whether or not nonforfeitable) as of such date, a distribution of assets to each participant equal to the present value of that participant's accrued benefit will not be discriminatory within the meaning of section 401(a)(4) of the Code if the formula for computing benefits as of the date of termination would not be discriminatory had the plan not terminated. All present values and the value of plan assets are computed using assumptions that are acceptable to satisfy section 4044 of ERISA. If the assets as of the date of termination exceed the present value of the accrued benefits (whether or not nonforfeitable) as of such date, the plan will not be considered discriminatory if such excess reverts to the employer or is applied to increase benefits in a nondiscriminatory manner. One method of applying the assets to increase benefits in a non-discriminatory manner is to amend the plan to provide a new benefit structure such that (1) the benefit structure would not be discriminatory if the plan were not terminated and (2) the present value of the revised accrued benefits (whether or not nonforfeitable) as of the date of termination equals the value of plan assets, and to distribute assets equal to the present value of the revised accrued benefits. The new benefit structure must satisfy other requirements of the law such as sections 411(d)(6) and 415 of the Code. The guidelines provided by this section may be applied whether or not the termination would otherwise invoke the early termination restrictions described in section 1.401-4© of the regulations. The guidelines described in this section may be illustrated by the following examples: EXAMPLE 1. A plan provides a benefit of 10% of the first $5,000 of compensation plus 47 1/2% of compensation in excess of $5,000. Such plan satisfies the requirements of Rev. Rul. 71-446, 1971-2 C.B. 187, and is fully integrated. As of the date of termination the assets equal $100,000 and the present value of the accrued benefits (whether or not nonforfeitable) equals $80,000. The plan distributes the $100,000 by providing each participant with assets equal to 125% of the present value of such participant's accrued benefit (whether or not nonforfeitable). Distributing assets equal to 125% of the present value of the accrued benefits is tantamount to amending the plan by multiplying each of the terms of the benefit formula by 125% and distributing the present value of the accrued benefits. The revised formula would be 12.5% of the first $5,000 of compensation plus 59.375% of compensation in excess of $5,000. The revised formula is discriminatory in an ongoing plan because the formula fails to integrate properly. (See Rev. Rul. 71-446.) Accordingly, such distribution is discriminatory. EXAMPLE 2. The facts are the same as in Example 7 except that the distribution is revised as follows: By a separate actuarial computation it is determined that a nonintegrated increase in the benefit formula of 1% of all compensation would increase the present value of the accrued benefits by $4,000. The plan has surplus assets of $20,000 ($100,000 of assets as of the date of termination less $80,000, the present value of accrued benefits as of such date). Therefore, an increase of each of the terms of the benefit formula by 5% ($20,000 surplus)/($4,000 present value of accrued benefit for each 1% increase in benefit formula) will produce a benefit formula that would be nondiscriminatory in an ongoing plan and whose present value of the accrued benefits (whether or not nonforfeitable) equals the value of plan assets. The benefit formula is therefore revised to provide 15% of the first $5,000 and 52 1/2% of compensation in excess of $5,000, and assets equal to the revised present value of the accrued benefits may be distributed without causing discrimination. SEC. 4. ASSETS LESS THAN PRESENT VALUE OF ACCRUED BENEFITS .01 Applicability--This section applies to the termination of a defined benefit plan in which the value of plan assets as of the date of termination is less than the present value of all accrued benefits (whether or not nonforfeitable) as of such date whether or not the restrictions of section 1.401-4© of the regulations apply. .02 General Rules--The following guidelines apply in testing for discrimination in the case of a plan described in subsection .01 with respect to which the benefit structure, if the plan were not terminated, would not be discriminatory under section 401(a)(4) of the Code. (1) Except as provided in paragraph (4), the assets of a plan are allocated in accordance with sections 4044(a)(1), (2), (3), and (4)(A) of ERISA. (2) Subject to the requirements of paragraph (1), the assets shall be allocated, to the extent possible, so that the rank and file employees receive from the plan at least the same proportion of the present value of their accrued benefits (whether or not nonforfeitable) as employees who are officers, shareholders, or highly compensated. (3) Notwithstanding any other paragraph, in the case of assets restricted by section 1.401-4© of the regulations, assets may be reallocated to the extent necessary to help satisfy paragraph (2). (4) In the case of a plan establishing subclasses within the meaning of section 4044(B)(6) of ERISA, the assets within any paragraph of section 4044(a) of ERISA may be reallocated within such paragraph to the extent that such reallocation helps to satisfy paragraph (2). (5) Subject to paragraphs (1), (2), (3), and (4), the assets shall be allocated in accordance with section 4044(a)(4)(B), (5), and (6) of ERISA. .03 Examples--The guidelines described in subsection .02 are illustrated by the following examples: Example 1. A plan described in subsection .01 which provided benefits on an ongoing basis as of the date of termination that were not discriminatory within the meaning of section 401(a)(4) of the Code, terminates. The plan has two employees: A, an officer of the company, and B, a rank and file employee. The value of plan assets as of the date of termination is $130,000 which would, without regard to this section, be allocated to the employees under section 4044(a) of ERISA as follows: Paragraph of section 4044(a) Allocation to Allocation to of ERISA Employee A Employee B --------------- ------------- ------------- (3) $120,000 0 (4)(A) 0 0 (5) 10,000 0 (6) 0 0 ------------- $130,000 The present value of A's and B's accrued benefit on the date of termination, whether or not nonforfeitable, is $240,000 and $60,000, respectively. The limits described in section 1.401-4© of the regulations do not apply. The proposed distribution described in section 4044(a) of ERISA would not satisfy section 4.02(2) of this revenue ruling because (1) employees who are officers, shareholders or highly compensated would receive 54% ($130,000)/ ($240,000) of the present value of their accrued benefit whether or not nonforfeitable and the rank and file employees would receive 0% and (2) there are assets in paragraphs (4)(B), (4) or (6) of section 4044(a) of ERISA to be reallocated to minimize the discrimination. The $10,000 allocated in paragraph (5) to A should be reallocated to B. a would then receive $120,000 (50% of the present value of his accrued benefits whether or not nonforfeitable) and B would receive $10,000 (16 2/3% of the present value of his accrued benefits whether or not nonforfeitable). This distribution would be deemed nondiscriminatory because the assets have, in accordance with section 4.02(2) of this revenue ruling, been allocated to the extent possible to preclude discrimination. Example 2. The facts are the same as in Example 1 except the early termination restrictions described in section 1.401-(4)© would limit the assets to be allocated to A to $100,000. It is proposed to distribute $120,000 to A and $10,000 to B. The proposed distribution does not satisfy section 4.02(3) of this revenue ruling because (1) the assets allocated to officers, shareholders, and highly compensated are 50% of the present value of their accrued benefits and the assets allocated to the rank and file employees are 16 2/3% of the present value of their accrued benefits and (2) there are assets that are restricted by section 1.401-4© of the regulations that may be allocated to preclude discrimination. If an additional $16,000 were allocated to B so that A would receive $104,000 (43 1/3% of the present value of his accrued benefit) and B would receive $26,000 (43 1/3% of the present value of his accrued benefit) the distribution would be nondiscriminatory even though A is receiving $104,000 and the limits described in section 1.401-4© would otherwise limit his benefits to $100,000. Example 3. A plan described in subsection .01, which provides benefits on an ongoing basis that are not discriminatory within the meaning of section 401(a)(4) of the Code, is terminated. The plan has two employees: A, a shareholder employer whose benefits are not nonforfeitable, and B, a rank and file employee whose entire benefits are nonforfeitable. When the assets are allocated in accordance with section 4044(a) of ERISA only B receives an asset allocation. It is proposed to reallocate the assets to provide both A and B with the same proportion of the present value of their accrued benefits whether or not nonforfeitable. The proposed reallocation is not permitted. Because the rank and file employees are receiving at least the same percentage of the present value of their accrued benefits as the employees who are officers, shareholders, or highly compensated, there is no discrimination within the meaning of section 401(a)(4) of the Code and no reallocation under section 4.02(2), (3), or (4) of this revenue ruling and section 4044(B)(4) of ERISA is permissible. The assets, in accordance with section 4.02(1) and (5) should be allocated in accordance with section 4044(a) of ERISA. SEC. 5. EFFECT ON OTHER RULINGS Rev. Ruls. 55-60, 59-241 and 65-294 are superseded. Rev. Rul. 80-229, 1980-2 C.B. 133, 1980-34 I.R.B. 8.

Mbozek, thanks for the comment--I have always dealt with standard terminations in plans covered by the PBGC where you have to cover all accrued benefits and the standard practice was to get a waiver from the owner if assets were insufficient. However, this is a non PBGC covered plan and I am now wondering whether a waiver is the way to go in this context. I guess where I am having problems is that if you are dealing with situations where participants are only partially vested and if 411 only requires full vesting upon termination "to the extent funded" then could you simpy just fund based on the vested status immediately prior to termination. Arguably participants would be paid their full "vested" benefit even if they were only paid out at their vested status (20%, 40% etc) immediately prior to termination --because the termination did not result in 100% vesting under 411. Thus, you would not be walking away from a plan without paying vested benefits. The problem that I have with this, is that to the extent that an HCE was already 100% vested pror to termination he would be getting 100% of his accrued benefit while other participants would only be getting a portion of their accrued benefit (although their full vested benefit). Does this raise 1.401(a)(4)-5 or other problems?

I have a follow up question in this regard. I have a small defined benefit plan not covered by PBGC that is terminating. One HCE is 100% vested, one HCE is 60% vested and the two nhce's are 20% and 40% vested. The Plan is underfunded even for vested benefits--Can the plan be funded only for vested liability and not accrued liability and then participants only be paid their vested benefit? My reaction was probably not. However, I had a question on 411(d)(3) which only requires for vesting upon termination "to the extent funded". As I see it there are the following provisions: 1) 411(d)(3) which required vesting "to the extent funded" 2) 1.401(a)(4)-5(B)(2) which requires that benefits distributed to any HCE or former HCE must be non-discriminatory under 401(a)(4) upon termination. 3) ERISA 4044(a) distribution provisions with regard to a terminated plan. Is paying benefits only to the extent vested prior to termination non-discriminatory under 1.401(a)(4)-5(B)(2)?

Mbozek--I was just responding to your post that " The participant has the right to see all correspondence...." There is no such right under ERISA (outside of discovery in a civil action). Even in discovery, there are certain "exceptions" to the "fiduciary exception" that I believe are discussed by the 9th Circuit in U.S. v. Mett--don't have a cite handy.

Mbozek--I think the point that Mike was making is that there is no ERISA duty of dislosure of the types of materials that you are talking about, even upon the request of a participant, unless they are "instruments under which the plan is established or operated" under 104 of ERISA. Of course if the plan has sued the participant and you are in discovery, then the obligation to respond to relevant discovery and the privilege issue that you raise comes into play. Mike--I think any case cited that does not take into account the Supreme Court's decision in Great West is a problem. The relief that you can seek in these instances would seem to be the same equitable relief that you could recover in a subrogation case for a welfare plan.

As to the refund claim against the participant--I have two words--- Great West....