KJohnson

For a cite on the non-applicability of the 10% tax in the case of levy see Code Section 72(t)(2)(A)(vii).

Someone just sent me a link to this web site where it is very easy to pull up those old 1960's and 1970's Revenue Rulings. http://www.taxlinks.com/

If he incorporates this into his 125 Plan, which I would assume that he would have to do to make them pre-tax, then it sounds like it would have the indicia of corporate sponsorship to make it an ERISA plan (even though the 125 itself may not be an ERISA plan). I think there are some prior threads regarding DOL's Advisory Opinions with regard to this question.

If you are looking for something understandable and quick (although probably not exhaustive) you can look at the IRS FAQs regarding plan lanugage issues that can be found here: http://www.irs.gov/retirement/article/0,,i...d=97170,00.html

I have an ESOP that was sumbitted for a GUST determination letter as a combined money purchase/stock bonus. ( Post-EGTRRA I "stripped out" the money purchase portion after giving a 204(h) notice). Then the Plan was subsequently terminated. I filed a 5310 on the termination. I called with regard to the 5310 and the apparent problem is that I still haven't received my GUST letter I was informed by the GUST screener that they had received guidance that two user fees and two applications were required for combined money purchase/stock bonus plans and that all plans that had not provided multiple user fees were shipped back to Cincinatti. That guidance was subsequently withdrawn, the plans shipped back to screeners but that the screeners still did not know how to go forward. Has anyone else heard anything similar? I had one combined plan go through without any problem.

Yes you have to amend. Here is an article regarding various options for multis http://www.segalco.com/publications/bullet...treservists.pdf It provides: Funding Issues In accordance with USERRA, a multiemployer plan can adopt rules to assign the contribution responsibility. If the plan does not adopt its own rules, the law provides that the last employer for whom the employee worked before entering military service is liable for making the contributions. If that employer is no longer in operation when the veteran is reemployed, the funding obligation reverts to the plan. Sponsors of multiemployer plans are free to consider alternative ways to allocate the cost to specific employers, such as prorating the obligation among the employers for whom the employee worked during the 12 months preceding the military service. It also appears that the plan may cover the cost directly, or the employers and unions may agree to treat it that way in the collective bargaining agreement.

"ERISA requires that a fiduciary who manages plan assets for a fee must be a registered investment advisor under fed or state law." MBOZEK--I agree that you must be an investment advisor to be an investment manager and that a trustee or named fidicuary will not be provided any type of fiduciary "insulation" unless the person who is named to manage plan assets is an investment manager--but where do you get the requirement that any fiduciary who manages plan assets for a fee must be an investment advisor?. I know for example, in certain multiemployer plans there are compensated trustees (who are neither employees of the union nor sponsoring employer) and they are not qualified investment advisors.

A plan has a discretionary match based on "a percentage of a participant's deferral contributions." The plan has a last day of the plan year employment requirement for the match. The employer decides to match 50% of all deferrals. Is there any reason that the minutes have to be in place by the end of the year? Since you are "following" the discretionary formula I don't see any "cut-back" issues (like there might be if you tried to impose a "cap" if one did not exist in the document) if you decide on the match sometime in January or February. I have a TPA insisting that the minutes must be in place by 12/31. On a related issue I am now seeing documents where the discretionary match is based a percentage of the participant's deferrals, but the document specifically provides that the employer also has the right to a discretionary "cap." This is a major protype provider. I guess the IRS saw no "definitely determinable" issue here? I noted some prior discussion on this board stating that you could not have discretion in both the matching percentage and the cap because of definitely determinable concerns.

Treasury put out a press-release regarding Bush's new pension/ira proposals. It can be viewed here: http://www.ustreas.gov/press/releases/kd3816.htm Does the budget proposal related to ERSAs affect any other defined contribution plans? Yes. The proposal includes the following provisions that would greatly simplify the administration of all defined contribution plans: 1. There would be a single test to show that the plan meets the nondiscrimination rules with respect to coverage -- ratio-percentage coverage. Under this test, the percentage of an employer’s nonhighly compensated employees covered under a plan would have to be at least 70% of the percentage of the employer’s highly compensated employees covered under the plan. The other coverage testing alternatives would be repealed. 2. Permitted disparity and cross-testing would be prohibited for defined contribution plans. 3. The top heavy rules would be repealed for defined contribution plans. 4. There would be a uniform definition of compensation for all purposes for defined contribution plans – the amount reported on form W-2 for wage withholding, plus the amount of ERSA deferrals. 5. A simplified definition of highly compensated employee would be adopted under which all individuals with compensation for the prior year above the Social Security wage base for that year would be considered to be highly compensated employees.

Yes

USA Today is reporting the following today regarding Bush's new retirement reform legislation that will be introduced on Monday: Eliminate some rules that make 401(k) plans costly and complex, such as the requirement that companies contribute to accounts of lower-paid workers if most benefits go to top executives. That could be a moot point, because business owners might prefer the expanded Roth and new savings account to setting up a 401(k), some experts say. Is this an inartful way of saying they are going to propose a repeal of top-heavy requirements?

I don't know the answer to your question, but I remember that the the whole notion in 83-19 that you could have withdrawal lialbility with no UVB's was a big issue in the late 1980's and early 1990's. I think the PBGC "flip-flopped" on issues related to 83-19 but ultimately came back around to support it. I am not sure what the current status is: Here is a quote from a case ARTISTIC CARTON COMPANY, et al., v. PAPER INDUSTRY UNION-MANAGEMENT PENSION FUND > 971 F.2d 1346 a 7th Circuit decision in the early 1990's In 1983 the PBGC issued an opinion letter (No. 83-19) concluding that a pension fund need not have net unfunded benefits for a particular employer to have an "allocable amount of" unfunded benefits. Section 4211, > 29 U.S.C. § 1391, gives funds several ways to define each employer's responsibility. One way to understand § 4211 is to say that "allocable ... unfunded vested benefits" means the amounts produced by application of the statutory formulae. One of these is direct allocation. If some employers have chipped in more than the amount necessary to pay for their employees' vested benefits, while others have paid less, the latter group may have "allocable" unfunded benefits even though the pension trust as a whole is solvent. Pension funds that allow firm-by-firm negotiation of benefits may find that this is a common situation. The Paper Industry Fund allows the employer and union to negotiate over both contribution and benefit levels. So although the Fund spans many employers and protects workers against transitory or insolvent businesses, there is not a common contribution rate or benefit level for the entire industry. Some employers may be contributing too little to pay for benefits they agreed to provide, while others are over-funding their promises. Allowing withdrawals without collecting employer-specific shortfalls acts as a tax on the payments by other employers. It also creates a discontinuity. Suppose a method prescribed by § 4211 requires a given employer to pay $500,000. If the pension fund's net worth is a penny less than the present value of vested benefits, it may collect the whole half million; if its net worth is two cents greater, it collects nothing. Such considerations led one court of appeals to agree with the PBGC's opinion. > Ben Hur Construction Co. v. Goodwin, 784 F.2d 876 (8th Cir.1986). Although the PBGC persuaded the eighth circuit, the eighth circuit did not persuade the PBGC. After reading > Ben Hur, the agency did an about-face and concluded that an amount is "allocable" only if the plan as a whole has "unfunded vested benefits." Notice of Interpretation, 51 Fed.Reg. 47342 (Dec. 31, 1986). If the plan is solvent, there is less risk of "runs" by employers seeking to avoid future obligations and no need to regulate private activity in order to reduce risk to the insurance pool. Plans get their choice of actuarial assumptions; if they cannot find even one set of assumptions that causes the value of benefits to exceed current assets, they must be secure indeed. Just as there are anomalies in saying that the fund may not assess employers with sums computed under § 4211, so there are anomalies in allowing collection while the fund as a whole is above water. When a plan is terminated, no employer pays anything extra so long as the fund has the assets to meet vested obligations. > 29 U.S.C. § 1399©(8). As withdrawal is termination at retail rather than wholesale, it is hard to justify different treatment. Moreover, > 29 U.S.C. § 1381(B)(1)(A) cuts down a withdrawing employer's liability via the "de minimis reduction applicable under" > 29 U.S.C. § 1389, an amount determined by reference to the shortfall in the fund as a whole. Considerations of this kind persuaded the first circuit that the eighth circuit was wrong, and that the PBGC had grasped the brass ring on the second try. > Berkshire Hathaway, Inc. v. Textile Workers Pension Fund, 874 F.2d 53 (1st Cir.1989). What the first circuit found persuasive, the fourth circuit found illiteral. > Wise v. Ruffin, 914 F.2d 570 (4th Cir.1990). > Wise reminded the agency that § 4201 refers to § 4211: the "withdrawal liability of an employer ... is the amount determined under > section 1391 of this title [§ 4211 of MPPAA] to be the allocable amount of unfunded vested benefits". > 29 U.S.C. § 1381(B)(1). Funds' net valuation fluctuates with the interest rate. If employers that have contributed less than the value of vested benefits enjoyed by their workers can get out free of charge when the fund's ink is black, the deficit will be all the greater when a future change in interest rates turns the balance sheet red. After reading > Wise, the PBGC concluded once again that it should switch sides. Notice of Interpretation, 56 Fed.Reg. 12288 (Mar. 22, 1991). At least for the moment, then, the PBGC believes that pension trusts may collect from withdrawing employers whose own accounts show a shortfall, even though assets of the fund exceed the value of all vested benefits. Artistic Carton wants us to embrace > Berkshire Hathaway and scorn the agency's latest gyration.

How long has this plan been terminated? You needed to have your USERRA amendment if it terminated at any time after December1994 and most of the provisions of TRA' 86 and SPJPA were applicable at the beginning of the 1997 Plan Year. I would think that the IRS would have required a GUST update at the time of termination. I have always thought that you do not have to update your plan for new law after the termination if the plan was "current" at the date of termination (without respect to the remedial amendment period) and if you distribute assets as soon as adminstatively possible. I believe that there is a rebuttable "presumption" that if you have not distributed assets within a year of termination, you have not distributed as soon as administratively possible. (I believe that there is an "extenson" to this presumption if you go in for a determination letter). If you haven't distributed assets as soon as administratively possible, you will need to update your plan.

I don't know where 59 1/2 would come from with regard to setting NRA for a mppp. What are they giving you to support this? The prohibitiion on in-service distributions under age 59 1/2 is applicable only to elective deferrals under a 401(k) plan (and amounts treated like elective deferrals). Are you dealing with a merger with a 401(k)? In the case of a merger of a merger an mppp an mpp into a 401(k) plan with an in-service dsitribution option at age 59 1/2 this could arise. I have had sponsors that did not want to have to deal with all of the different rules with regard to QJSA's and in-service distribuitons. What we did was to make QJSA/QPSA applicable to all distribuitons, lowered NRA to 59 1/2, and then provided for "in-service" distribuiton of all money types at 59 1/2. However, so there would be no confusion, with the IRS reviewer, I actually broke the "in-service" distirbuiton provisions into two different sections in the plan and labeled the section with regard to the money purchase pension plan assets a "post-normal retirement age" distribuiton rather than an in-service distribuiton.

I don't have a cite handy, but I thought you could begin distributions from any type of pension plan (db or mpp) after normal retirement age. With the changes to 401(a)(9) is clear that the IRS allowed mpp's to keep "forcing" distributions at age 70 1/2 to active participants even if these distributions were no longer required under 401(a)(9). The guidance also allowed mpp's to keep 70 1/2 distributions as an option. In fact 411(d)(6) relief was required to eliminate this "option." If these distributions are no longer required, they would appear to be in-service distributions after normal retirement age.

As to earlier comments made by Andy H and Tom Poje, it looks like Corbel agrees that an amendment is required for its document: http://www.corbel.com/news/technicalupdate....asp?ID=196&T=P

Tom, Just so we are clear, do you agree that a plan that had a "stated age" provision of 45 could allow an in-service distribution (of $ other than elective deferrals--and those $ treated like elective deferrals) even if the $ had been in the plan for less than 2 years?

Under 402(f) a notice becomes "stale" if a distribuiton is not made within 90 days of the notice. I have looked under 401(a)(31) and the regs, and it does not appear that the failure to send a 402(f) notice in a timely fashion is a qualifcation failure under 401(a) (except for certain default election procedures in 1.401(a)(31) Q&A 7 ---and I realize there also might be plan document issues). Has anyone ever looked into whether making a distribution in, say, the 100th day after receipt of a 402(f) noice is a qualfication failure or whether the only penalty is that imposed under 6652(i)?

Yes, they are benefitting for 410(B). However, if you cannot pass 410(B) by treating them as not benefitting then while you don't have a 410(B) issue you will have an issue on whether your integrated formula is actually a safe harbor formula under 401(a)(4) because you have multiple formulas. Under the safe harbor rules for 401(a)(4), there is an exception to the uniformity requirement for contributions, if the plan has multiple contribution formulas and one is the top heavy formula. But this exception to the uniformity requirement is available only if the plan can pass 410(B) coverage by treating an employee as not benefiting if his or her only allocation is the top heavy minimum. If the plan doesn't pass 410(B) by ignoring the top heavy contribution, it has not failed 410(B); it has failed the safe harbor 401(a)(4) rules and you must pass 401(a)(4) on some other basis.

"I see no basis for the application of the 15 day rule to Self employed persons who are not employees under ERISA" I think the confusion here is that self-employed individuals may, iin fact, be emloyees and participants under ERISA. There are two steps in the analysis. First, is there an employee benefit plan? If you have only a self-employed person in the plan and that individual has no common law employees then I would agree with your analysis--because you don't have an employee benefit plan regulated by ERISA. However, if you do have common law employees covered by the plan, then you have an employee benefit plan regulated by ERISA and the quesiton becomes whether the self-employed individual is a participant in the plan. I think that the DOL would say that they are and therefore governed by the plan asset regulations. Also, here is some language from the Madonia decision I mentioned above in this regard: Second, Madonia points to a DOL regulation dealing with the existence of an "employee benefit plan," which provides: For purposes of this section: (1) An individual and his or her spouse shall not be deemed to be employees with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse.... > 29 C.F.R. § 2510.3-3© (emphasis added). Madonia contends that this regulation governs the definition of "employee" throughout ERISA and thereby precludes Dr. Madonia from being deemed an "employee" or a plan "participant." Madonia, however, overlooks the introductory clause of the regulation: "[f]or purposes of this section." "[T]his section" refers to > 29 C.F.R. § 2510.3-3, which deals exclusively with the determination of the existence of an "employee benefit plan." Therefore, by its very terms, the regulation's exclusion of sole business owners from the definition of "employee" is "limited to its self-proclaimed purpose of clarifying when a plan is covered by ERISA and does not modify the statutory definition of employee for all purposes." > Dodd v. John Hancock Mutual Life Ins. Co., 688 F.Supp. 564, 571 (E.D.Cal.1988). The cases on which Madonia relies simply fail to address the import of the introductory language to this regulation. See > Kwatcher, 879 F.2d at 960-62; > Peckham v. Board of Trustees of the Int'l Bhd. of Painters and Allied Trades Union, 653 F.2d 424, 427 (10th Cir.1981). Specifically, the regulation does not govern the issue of whether someone is a "participant" in an ERISA plan, once the existence of that plan has been established. This makes perfect sense: once a plan has been established, it would be anomalous to have those persons benefitting from it governed by two disparate sets of legal obligations.

I think Kirk is referring to the cancellation of past service credit. This is the cancellation of credit for periods before the employer became signatory tbe CBA. If you are referring to post-signatory periods, here is what the IRS' multiemployer audit guidelines provide: Service with Employer Who Fails to Make Required Contributions (1) A pension plan (including a money purchase pension plan) under which service credit or allocation of contributions is conditioned on an employer's making required contributions violates the definitely determinable benefit rule for pension plans of Reg. 1.401-1(B)(1)(i). It does this by allowing an employer's actions, in effect, to determine the amount of benefits accrued by its employees. It also violates the requirement that all years of service with the employers maintaining the plan be taken into account for participation and vesting purposes as well. If the plan trustees are unable to collect the full amount owed, the plan may incur an accumulated funding deficiency. See DOL Reg. 2530.210 and Rev. Rul. 85-130, 1985-2 C.B. 137. (2) In contrast, because the definitely determinable benefit rule does not apply to profit-sharing plans, multiemployer profit-sharing plans may provide that a delinquency in contributions will be allocated only to the delinquent employer's employees. This does not violate the definite allocation formula requirement of Reg. sec. 1.401-1(B)(1)(ii). (Note that IRC 401(a)(27)(B) requires that a plan intended to be either a money purchase pension plan or a profit-sharing plan must be so designated in order to be a qualified plan.)

There is one PLR regarding demutalization proceeds distributed to a terminated DB plan---200214031. Sal Tripodi has an interesting discussion of this in his 2002 ASPA outline (at page 152) that can be found here: http://www.aspa.org/archivepages/conferenc...odi-closing.pdf He goes into such "practical" things as 1099R implications "reactivating" a 5500 obligation etc.

Mbozek--I believe your quote in the prior post was "Also I fail to see how the 15 day rule applies to self employed persons who are not employees covered by the protection of ERISA." As you yourself seem to acknowledge, the 15 day rule is clearly an ERISA issue and not a Code issue. I was in agreement with you on your prior post that if you have a sole proprietor with no other employees you are probably exempt from ERISA and the 15 day rule in the plan asset reg. I just wanted people to be aware that the fact that an individual is a sole proprietor or a partner does not exempt that individual from the 15 day rule if they have additional employees. Moreover, if you take the DOL at its word, the 15 day rule would arguably be applicable to the contributions by the sole proprietor and partners themselves in addition to their common law employees since they would be "participants". The Courts as well have been all over the lot on the issue of whether an "owner" is an employee/participant. Although I haven't researched it lately I recall both the Kwatcher decision out of the 1st Circuit in the late 1980's and the Madonia decision out of the Fourth Circuit in the early 1990's Harmonizing Code and ERISA provisions in this area is difficult. They obvioulsy have different concerns and agendas--beginning with the very nature of an elective deferral (an employee/participant contribution in DOL's eyes and an employer contribution in the IRS' eyes). If ERISA is applicable, for a partner or sole proprietor you are left to determine when their contributions were "received by the employer" or would have been "otherwise payable in cash." I agree that there is no easy answer to this on earned income for a self-employed person.

A similar issue arises with diversification rights under an ESOP. Is notice of the right in the SPD enough? Apparently, the IRS thinks that it is not enough based on a recent Q&A at either the ASPA or ABA conference: Q. §401(a)(28) – ESOP Diversification Rights Notice 88-56 provides that the diversification requirement of §401(a)(28) is satisfied if a plan “has made available” to a qualified participant a distribution of a portion of the participant’s account, without regard to whether a qualified participant actually receives a distribution. By what means may a plan sponsor satisfy the availability requirement? Will a summary plan description suffice, or must the requirement be satisfied annually? Assuming that notification must be provided annually, in what fashion can the failure to provide such notification be corrected? Is a plan sponsor required to assume that a participant would have diversified his account in the most advantageous manner? Proposed response: The availability requirement can be satisfied by any reasonable means of notifying plan participants, and need not be provided annually. If no notice is provided, there is no requirement that the correction methodology must assume a participant would have made the most advantageous transfer of funds. IRS response: The IRS disagrees with the proposed response. A qualified participant must be offered a diversification election annually. The SPD description generally is not sufficient. If notice is not provided and the value of the stock declines, the employer must true up the participant’s account, with earnings, to reflect the lost value of the stock

Going back to whether such plans are covered under ERISA and therefore subject to the 15th business day deadline in DOL's plan asset regulations, I recalled a 1999 DOL opionion letter with regard to "working owners". That opinion letter concluced that such owners were both employees and participants. It can be found here. http://www.dol.gov/pwba/regs/AOs/ao1999-04a.html Significantly, in a footnote, DOL stated: In its regulation at 29 C.F.R. 2510.3-3, the Department clarified that the term “employee benefit plan” as defined in section 3(3) of Title I does not include a plan the only participants of which are “[a]n individual and his or her spouse . . . with respect to a trade of business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse” or “[a] partner in a partnership and his or her spouse.” The regulation further specifies, however, that a plan that covers as participants “one or more common law employees, in addition to the self-employed individuals” will be included in the definition of “employee benefit plan” under section 3(3). The conclusion of this opinion, that such “self-employed individuals” are themselves “participants” in the covered plan, is fully consistent with that regulation. I suppose this could lead to the conclusion that if a sole prop has any other employees other than the sole prop, then EVERONE's money (including that of the sole prop) has to meet the 15 business day deadline in the plan asset regulations.