KJohnson

I'm with JPOD and Kirk. My recollection of Swanson was that the IRS failed to allege that the fiduciary dealt with the assets of the plan for his own benefit under the 406(B)/4975©(1)(E) "self-dealing" aspects of the pt provisions (and there was also a quesiton regarding "when" various assets became plan assets). 406(B) can be a tricky thing because if a self-dealing is established, then there is a per-se prohibitied transaciton no matter how "good" a job the brother-in-law broker does. This is not like a fiduciary breach where there is a general no-harm no-foul rule (other than the possible removal of the fiduciaries). The trnasactions will have to be "unwound" to the extent possible. JPOD is correct I think there are at least three examples where DOL raised the 406(B) flag where there was not a 406(a) technical prohibited transaction. One involved an IRA owner who wanted to lend IRA assets to a corporation of which he owned approximately 1% and was an office. The DOL raised, but did not rule on the self-dealing issues. (Of course there was no 406(a) 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 406(B) self-dealing prohibited transaction was "likely " although, once again there was no 406(a)l 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). In short, I think it is a bad idea. However, you do get beyond the technical 406(a) problems. And, if you have "comparison shopped" with a number of other brokers and found (and documented) that the brother-in-law is more experienced with better execution, performance and cheaper fees--then you might be able to argue that these "objective" critieria were the sole reason for the decision rather than the "influence" of the family relationship.

Reading the finalized regs it seems to me that the estate of a spousal beneficiary could be in a worse position than non-spousal beneficiary in the event that the spouse beneficiary dies prior to the September 30th following the date of the death of the IRA owner. As I read the regs for a non-spouse beneficiary you would simply use the deceased beneficiary's life expectancy(assuming that he or she had not died) for any distributions to the estate. However for spouse beneficiaries you would use the life expectancy of the spouse's beneficiary desgnation. In situations where the spouse's death occured so soon after that of the IRA owner, it is unlikley that the spouse will have designated a beneficiary. Therefore you do not get the spouse's life expecantcy (based on the assumption that he or she did not die) but would be stuck with the 5 year rule. Am I reading this correctly?

Also Corbel has a package (this is copyrighted) that can be found at: http://www.corbel.com/news/docs/Mergerpackage.doc I am not sure whether this has been revised based on the new 204(h) regs.

In ERISA Technical Release 86-2 (issued June 26, 1986), the Department stated that where the spouse’s last known address is the same as the covered employee’s, it would consider that an employer or plan administrator has made a good faith effort at compliance with ERISA § 606(a)(1) if the Initial Notice is given through a single mailing by first class mail addressed to both the covered employee and the covered spouse I believe that there was a DOL opintion letter in 1999 that adopted a modified "single envelope" rule for the qualifying event notice. I remember reading something that IRS did no specifically agree with DOL on this issue.

Offer accepted--I'm heading out the door now.

Sandra and Kirk--I agree but I thought you could still send a single initial notice adressed jointly under the old technical release back in 1986.

In the request for a determination letter I simply give the facts and state that you are requesting a determination that the termination of the plans, distribution of assets and the establishment of a plan in the newly formed entity does not violate the successor plan rule. Is reciting that the old enities ceased to exist sufficent in light of the legal consequences of a staturoy merger under 368? I don't know, but I have gotten favorable determination letters based on these facts. Also, this issue has arisen in the 415 context (i.e. do you get a new 415 limit for the "new plan") and the IRS, at least in a PLR, has indicated that you do "start over" In PLR ,9541041, six P.A's merged into a "new corpororation" The IRS stated that if the prior corporations "ceased to exist" because of the merger then the plans of the prior employers and the plan of the "new" employer would not need to be aggregated for 415. IRS reasoned that corporations must exist at the same time to be under common control. Since "old employer" ceased to exist at the time "new employer" came into existence--no common control and no Section 415 aggregation. Of course this is just a PLR.

This "statutory merger" issue troubled me as well. If the buyer and the "target" remain separate corporations (although in a parent-sub or brother-sister controlled group) then there is no problem because the status of the controlled group is determined on the date of termination (i.e. prior to the transaction when there is no controlled group). However, in a statutory merger situation the new entity, from a legal standpoint, is the same entity as its predecessors. Look at this Q&A: http://www.benefitslink.com/benefits-bin/q...a_distributions My advice has always been 1) merge the plans, or 2)terminate and seek a determination letter flagging the successor plan issue in your cover letter or 3) restucture as an asset deal. I have had success with No. 2 especially when the companies are statutorily merged into a newly formed entity with a separate EIN and corporate existence from any of the"predecessor" companies. The merger agreement usually recites that the predecessor companies "cease to exist" on the date of the merger.

Actually--Carol Gold's comments were made with regard to the Spacek decision. She indicated that the IRS did not agree with the 5th Circuit's positon. Also, although I haven't read it recently, I recall that the 5th Circuit in Spacek focused on benefit reduction issues and not elimination of optional form (which always struck me as kind of missing the mark).

I would be careful in amending the plan to provide for suspension of benefits upon rehire. Several years ago Carol Gold took the position that the labor regs are pre-REA and that REA (at least from a Code standpoint) "trumped" these regs with 411(d)(6). Thus, by adding a suspension provision to an existing plan you are actually eliminating an optional form of benefit (i.e. the ability to receive installment payments while still employed). I don't fully agree with this position and don't know whether this is still the IRS's view. With the subsequent revisions to the 411(d)(6) regs a dc plan can now eliminate installment payments entirely as long as you had a lump sum distribution available at the same time that the installments would begin. Of course you could not apply this to someone already in pay status.

Hey PAX I'm hoping for actuaries.

It just came out today. Rev. Rul. 2002-42 http://www.corbel.com/include/irspdf/rr2002-42.pdf

True and if any non-keys received a match but that match was not 3% of comp they would need an additional contribution to equal 3%.-- Where you have an even more interesting issue is where the employer decides not to make a discretionary profit sharing contribution for the plan year but the provison allowing for a discretionary contribution remains in the plan. Arguably, this employer will also not qualify under the "solely" test.

Of course with a Segal survey you would expect mostly Segal plans (and therefore the Segal method) but there is a note in their appendix where only 6% of the 462 plans surveyed (at least for the 2002 survey) were using the funding assumption: For a small number of plans (28 out of 462, or 6 percent) the ongoing funding assumptions are used as the basis for determining withdrawal liability. For these plans, assets are taken at their actuarial value. I rember back in the mid-1980s there were repeated attacks by employers in withdrawal liability arbitrations challenging a plan's use of funding assumptions and advocating the Segal method. Now, given the way things have turned with regard to interest rates, I believe that the Segal method is being attacked by empoyers in favor of funding assumptions.

This was a 2000 survey, but it has information regarding interest rates. It is a Segal survey and not surprisingly most of the multis used the "Segal Method" of a blended interest rate which I think uses the PBGC rate for the funded portion of the plan and the funding interest rate assumption for the unfunded portion of the plan. http://www.segalco.com/publications/survey...ndingsurvey.pdf

papogi is right. My original post was based on the March 2000 proposed regulations. When the regulations were finalized in January 2001 they added the language quoted by papogi to resolve this issue.

I've tracked through the regs and the arguments several times. On the prior post that I submitted you can find references to some cases where the IRS was unsuccessful in its attack on a 419A arrangement. However the fact that the IRS won't issue PLRs combined with their past litigation practices gives you a good idea what they think about these arrangements. As with most things, if it seems to good to be true, it probably doesn't work (or if it does, it won't work for long.)

For what it is worth, I think the proposed regs will be out this year (at least that is what the IRS said at a recent conference) and your client might want to wait until they are to do anything. You might want to give one of the folks in D.C. in my prior post a call. Here is a link to a fairly heated debate between an attorney who works with these plans and other members of the benefits lilnk community. It also contains some information on the neonatology case which may be what mb is referring to. http://benefitslink.com/boards/index.php?showtopic=6211

According to IRS representatives you should expect some 419A regs sometime in the near future (they emphasized this means near future in IRS terms). Those regs should clarify what is permissbile and what is not under these plans. From their comments it sounds like this guidance may be bad news to some of these plans.Here is the info from the regulatory agenda: 2481. ‡” SECTION 419A GUIDANCE Priority: Substantive, Nonsignificant Legal Authority: 26 USC 7805 CFR Citation: 26 CFR 419A Legal Deadline: None Abstract: This proposed regulation provides special rules concerning employer deductions for contributions to employee welfare benefit funds. Timetable: Action Date FR Cite NPRM 06/00/02 Regulatory Flexibility Analysis Required: Undetermined Small Entities Affected: No Government Levels Affected: None Additional Information: REG-165868-01 Drafting attorney: Betty J. Clary (202) 622-6080 Reviewing attorney: Mark Schwimmer (202) 622-6080 Treasury attorney: Harlan Weller (202) 622-1001 CC:TEGE Agency Contact: Betty J. Clary, Attorney-Advisor, Department of the Treasury, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC 20224 Phone: 202 622-6080 RIN: 1545–BA47

I agree with EAKarno. While not going into detail on the substantial risk of forfeiture, the following is a link to an article I have found helpful on the 3121 regs. http://www.kilstock.com/site/print/detail?...?Article_Id=625

See e(3) of the final regs:3) Substantial risk of forfeiture. For purposes of this section, the determination of whether a substantial risk of forfeiture exists must be made in accordance with the principles of section 83 and the regulations thereunder

I agree that care should be used but I think that the main quesiton is when did the levy/lien attach. I was previously faced with this situation where the levy was not received until after the participant died. Therefore, at the time of the levy no amount was owed to the participant and the only amounts owed by operation of the plan document was to the beneficiary. The beneficiary had no IRS liabilities. The IRS took the position that it had a valid lien on the account and the plan and the beneficiary arged that no amounts under the plan were owed to the participant at the time of the levy. Ultimately the plan filed an interpleader in federal court, paid the distribuiton to the court, and let the participant and the IRS "duke it out". I think that IRS ultmately conceded that since it did not levy until after the participant's death it had no right to the account balance.

There may be more, but the only thing I remember in the regs about someone giving consent for someone else is in the 401(a)(20) regs which mentions a spouse being "incompetent" Q-27: Are there circumstances when spousal consent to a participant's election to waive the QJSA or the QPSA is not required? A-27: Yes. If it is established to the satisfaction of a plan representative that there is no spouse or that the spouse cannot be located, spousal consent to waive the QJSA or the QPSA is not required. If the spouse is legally incompetnent to give consent, the spouse's legal guardian, even if the guardian is the participant, may give consent. Also, if the participant is legally separated or the participant has been abandoned (within the meaning of local law) and the participant has a court order to such effect, spousal consent is not required unless a QDRO provides otherwise. Similar rules apply to a plan subject to the requirements of section 401(a)(11)(B)(iii)(I).

The new Schedule Q was designed to go with the new 5310. However, there is no new 5310. On the new 5300 coverage information (while optional) has been "switched" from the Schedule Q to the 5300 itself. The new 5310, when issued, will contain mandatory quesitons on minimum coverage requirements and the nondiscriminatory amounts requirement. At that time Scheule Q will become optional to cover a determination that not addressed by Form 5310 itself (such as benefits rights and features). However, it is my understanding that 410(B) coverage and 401(a)(4) non-discrimnatory amounts (or a safe harbor) must be demonstrated with a 5310. Threefore until such a time as they revise the form it is my understanding that you should ignore the new Schedule Q for a 5310 filing and use the old Schedule Q.

Your Plan must specify the "bottom up" QNEC indicated by RCK. Also, be aware that the IRS is probably going to put an end to this method because of the increased 415 limits in EGTRRA. Let's say you have a participant making only $2,000 who does not defer. You can now make a $2,000 QNEC for this participant and give him or her a 100% ADR. Obviously one NHCE at 100% goes a long way in satisfying your ADP test. The IRS is well aware of this "trick" and has indicated that you should expect to see some guidance on this issue.