KJohnson

PJK--I think the liquidated damages, once paid, are definitely plan assets. Whether they are "contributions" I guess is open to debate. While you can't always mix "ERISA and Code" speak, Section 502(g)(2) of ERISA provides for the recovery of contributions, interest, liquidated damages and attorneys fees. The rationale for the liquidated damages is to recover the administrative costs to the plan for colleciton (which is borne by all participants). Thus, I can see multi allocating the recovery of contributions and interest to the applicable participant for a delinquent employer but providing that the recovery of liquidated damages and attorneys fees offsets expenses in general. That said, I don't think it really matters whether you treat it as a contribution. I think your point about being specific on the allocation formula is very important. The allocation formula could contain something like; 1) allocation of contribuitons actually made to participants; 2) allocation of liquidated damages collected to the accounts of those participants employed by delinquent employers-- but only to the extent of contributions that should have been made. I think this would get you past the need for a definite formula (Of course you probably then must have a third step that if the plan subsequently collects the delinquent contribuitons providing that those contribuitons go into the "liquidated damages" subaccount.) Where I get concerned is the "carry over" from Plan Year to Plan Year. In essence, if you do not allocate the amount in the liquidated damages account your plan assets are going to be in excess of your participant balances at the end of the year. Also as previously mentioned you would have to think long and hard about a method of getting liquidated damages based on DB contributions over to the DC Plan. I suppose that you could say in your CBA that your formula for profit sharing contribuitons is $X per hour worked plus an additional amount based on any delinquency to the db plan. (This then would undoubtedly be a contribution). You can base your contribuiton in the CBA on anything you want (the UMWA Funds used to use tons of coal mined). Then, however, if you are in court on a db delinquency, how do you deal with the mandatory language of 502(g)(2)? Would the employer owe "double" liquidated damages? (i.e. the statutory damages to the DB plan and the contractual contribution to the DC Plan?)

This is old, but you may want to look at this link: http://www.benefitslink.com/reish/bankrupt...port_02.94.html My recollection is that a pension plan (at least a db plan) cannot be rejected in an 11 like an ordinary executory contract but must terminated according to Title IV of ERISA. Contribuitons coming due after bankruptcy but priro to termination should receive administrative expense priority. You should check 507 of the Bankruptcy Code for priorirties of pre-petition contribuiton claims. I believe that you have a priority (507(a)(4)?) for contributions that accrue during 180 days priror to the filing of bankrutpcy.

All I can say is that I see your problem. I believe that the IRS frowns on having unallocated subaccounts at the end of the plan year in a dc plan (absent a specific code provision such as 415.) I don't think you could set it up as a VEBA because I think I recall that a transfer to a qualified retirement plan is not a VEBA provided benefit and you risk triggering the 100% excise tax because of the transfer (assuming it could otherwise be accomplished). I also seek some tricky drafntig issues in both the CBA and the Plans where you are taking liquidated damages attrributable to one plan and "assigning" them to another plan. This would especially be troubling in taking the DB damages and "giving them" to the DC plan. Although these problems may not be insurmountable the idea gives me that "queazy" feeling under both the Code and the Act regarding PT's, definitiely determinable, sole and exclusive benefit etc. Also Taft Hartley issues might spring up and you may want to be sure that such a fund would fall under one of the 302© categories. Since moving "down South" I don't do nearly as much multi work so maybe someone else would have an idea.

First Solution: Convert your MPP Plan to a Profit Sharing Plan with a stated contribution obligation in the CBA and the Code problems for delinquencies go away. I don't think you lose anything by doing this . Look at the following from the multiemployer audit guidelines: Service with Employer Who Fails to Make Required Contributions 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. 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.) If you stick with an MPP I think the second solution is to not make it a separate fund but to simply make it a subaccount or suspense account of your dc plan and then look to rules on allocations and valuations. I would wait until the end of the year and "wipe out" this sub account by applying any amounts to delinquencies and treating the rest as basic earnings (assuming you are currently treating liquidated damages as earnings rather than allocating them to particular participants). If you draft your plan correctly and make sure that all money is allocated by the end of the Plan Year it may be the best solution ot a difficult problem. Several years ago I asked Wickersham the question how you get around this in a multi MPP and his response was "its a problem and thats why you get paid the big bucks"

If you are referring to section (e) of Q&A 2 I think it is because you would not be making an "otherwise identical" lump sum available. For example, you could have a plan that has an in-service installment and in-service lump sum distribution provisions. You could eliminate the installment because the lump sum would be "otherwise identical". However, while you can change the form of the benefit to a lump sum, you generally cannot change the timing of the commencement of a benefit under the 411.(d)(4) regs. Of course there are exceptions to this rule which include 401(k) hardships, 70 1/2 distributions for non-5% owners and certain deminimus changes. In other words, to eliminate an optional form under section (e) of Q&A 2 it is my understanding that you have to have a lump sum available on the same date that the eliminated optional form would have commenced.

If the Plan is setting the limit then it is a BRF and must be tested. The IRS has informally stated at an ASPA conference that if the account balance "floor" is set by a brokerage firm or an outside money manager there probably would not be a BRF issue. Frankly I don't understand the IRS's reasoning. Its either a BRF or its not and its either discrminatorily available or its not. It seems that this could be easily manipulated. What if an insurance company selected by a Plan to provide annuities only wanted to write those annuities for balances of over $50,000. Do you think that you could offer an annuity distribution option on this basis without testing the BRF because it was a condition imposed by the insurance company rather than the Plan sponsor? (admittedly there may be some distinction between BRF's and optional forms of benefits).

I don't understand this sentence it seems contraditory. Looking at it from the IRA "investment" perspective. Is it better to sell it for loss or to keep making money on it by the IRA owner paying rent? Also my hypo involved paying rent where the IRA owned the house. It did not involve the IRA holding the mortgage I agree with you about the cost of the PTE. I know there are at least two situations where vacation rental property was purchased as an investment and then a PTE was granted to sell the property back to the IRA owner for his own personal vacation home. I guess I don't see that much difference between the sale back and the rental situation except that the rental invovles the additional complexity of an ongoing valuation. As to tax consequences I know that some practitioners advise that if 1) a plan has a participant loan provision and 2) if the plan, instead of using the participant's account balance, uses a mortgage on the property as collateral, then you may have a situation where a participant can pay deductible interest to "himself".

As you can see from my prior post, I don't disagree with you that it would be a tough sell. My point was that IRS and DOL precedents in litigation are irrelevant. When you seek a PTE, you are acknowledging that the transaction is prohibited and that, without an exemption, you would be subject to litigaiton 4975 excise taxes and the like. In essence, the fact that a transaction would be found by DOL or the IRS to be prohibited is a condition precedent to getting an exemption. I am personally aware of analagous (I guess) situations in the qualified plan area involving sales and lease backs of employer office buildings, parking lots and the like. Perhaps the IRA case is more compelling because the only one who gets "hurt" if the investment is not a good one is the "fiduciary" (i.e. the IRA own.er.) I guess I could envision a scenario where DOL might buy off on this. Suppose a house was purchased legitmately as a rental property and was rented to unrelated third parties for a number of years. Then, the rental market goes south and the house sits vacant for a year with no renters. I suppose in that situation DOL might condone this if you had an independent appraisal as to the rental value; put in a rental escalator that mirrored the CPI; and had the house reappraised for rental value every three years or so. (I think this is the typical requirements in sale lease back situations).

http://www.dol.gov/dol/pwba/public/program...ed/oednew20.htm Go to this website and I think you will find more than 1/2 dozen regarding real estate transacitons where an IRA is the subject of the exemption or an IRA is listed in the "substantially similar" category. This listing represents just a few of the IRA real estate PTEs, In the last six months I have been involved in two expedited PTE's where real property held by an IRA was sold to an IRA owner.

I am not sure I understand. The whole reason for getting a PTE is because unless you receive an individual exemption it is violative of 406 of ERISA and 4975. However, I think that you are right that the DOL may not "buy off" on such a transaction but real property transactions between an IRA and an IRA's owner is one of the more frequent PTEs given.

I agree with Pax--but the mandate for mutiemployer plans to switch to the standard" TRA -86 vesting schedules was not effective until SPJPA (or it might have been TRA '97) and, depending on the date of expiration of collective bargaining agreements, a mutli might still have permissibly had ten year cliff vesting until as late as January 1999.

I guess it helps to read the posts on the linked thread. A PTE does give cover under 4975 See DOL Reg. 2570.30(a)(ii)--Also see this from the preamble Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978, effective on December 31,1978), transferred the authority of the Secretary of the Treasury to issue exemptions under section 4975 of the Code, with certain enumerated exceptions, to the Secretary of Labor. As a result, the Secretary of Labor now possesses authority under section 4975©(2) of the Code, as well as under section 408(a) of ERISA, to issue individual and class exemption from the prohibited transaction rules of ERISA and the Code. The Secretary has delegated this authority, along with most of his other responsibilities under ERISA, to the Assistant Secretary for Pension and Welfare Benefits. See Secretary of Labor's Order 1-87, 52 FR 13139 (April 21, 1987). My recollection that the decision in Arden Bowl referenced in the prior thread invovled the interaction of ERISA 404© with 4975 and did not involve a specific PTE issued by DOL. I think there are distinctions--settling a fiduciary breach or other case with the DOL will not give you a "pass" settling an ERISA 502(i) penalty with DOL will not give you a pass, saying you are not a disqualified person because of operation of ERISA 404© will not give you a "pass" but getting a PTE will.

mbozek--I thought that a PT exemption does give you cover under 4975. I thought that IRS delegated authority under 4975©(2) to grant exemptions to DOL. So if you get a PT aren't you covered under 4975 and since 408 incorproates 4975 aren't you covered under 408 as well?

PJK--Your point is well taken. In most multis the Trustees are actually designated as the Plan Administrator as well. However, I think from an funcitonal analysis you have to get back to whether the obligation to make a contribuiton is a "settlor" obligation or a fiduciary obligation. Without some mechanism to make the "unmade" contributions a plan asset, it would appear to remain a settlor function. Where the employer is the trustee this is probably just a matter of semantics and pelading. Your cause of aciton would not be the failure of the employer as employer to make the contribution, the cause of action may be against the employer as trustee for failing to enforce the contractaul obligation "with itself" as settlor to make a contribuiton. Whether the cause of action would be viable against an employer who was the Plan Administrator but not the trustee would probably require an analysis of the document. Also, your prior point about where the money would come from is valid from a qualification standpoint as well. For multiemployer money purchase pension plans the IRS takes the position that, because of defintiely deteminable contribuiton/benefit requirements, the money has to be in the participant's accounts even with the employer is delinquent. Obvous that presents a big problem. I asked Wickersham whether he had an answer to how you fund the account of partcipants of a delinquent employer and I mentioned taking it "off the top" with the earnings on all accounts. His opininon was that that was unacceptable. I asked him what the other alternatives were and he responded : "That's for people who get paid the big bucks to figure out." Ultimately I think that many multi MPP plans converted to profit sharing plans with a mandated contribuiton formula in the CBA to get around this issue. (I think some others actually negotiated a separate contribution to fund delinquencies).

PJK--I wonder about the fiduciary liabiilty issue. Absent "employee contributions" in the DOL sense which automatically become plan assets as soon as it is administratively feasible to segregate them, and absent a contractual provision that makes "due and owing" contributions assets of the plan whether paid or not, I am not sure that failure to fund the plan for a top heavy contribution is a fiduciary breach. This would seem to be similar for the failure to fund a money purchase pension plan. In both isntances the contribution is required by the Plan document. I know there is one case out your way called J.D. Refigeration (or something like that) which provided in a multi context that the failure to fund is a fiduciary breach based on a plan asset analysis, but I don't believe that has been widely accepted. Thus if the "unmade" contributions are not plan assets, it would seem that there would not be a fiducairy breach on that grounds. Suing the Trustee for its failure to collect from the employer may be viable. The "in accordance with plan documents" argument is intriguing. The result is far reaching in the multi context. If you have a money purchase plan that has a stated contribution obligation, and if an employer is delinquent in making contributions, could the Plan's Trustees sue the employer for fiduciary breach? Also, could they sue the officers of the company personally since they were "acting" on behalf of the corporation? (I know we've had this debate before). In essence, you are making almost a per se personal liablity argument for delinquent contributions. I've always thought that this seemed like the return of the 3(f5) "economic reality" test for identifying the employer that was rejected in the mid 80's. However, I know of a number of multis that would like to run with such a theory. KJ

If you have over 100 participants in your GHP and FSA, I am not sure if your filing was actually correct before. If you had your 125 Plan, GHP and FSA "wrapped" into one plan with one plan number then you only had one 5500 requirement previously and that is still the case. On the other hand, if your GHP and FSA have separate plan numbers, you have proably always had a mutliple plan 5500 requirement even before the change regarding 125 Plan reporting. Doe a search on the Boards for "Wrap Plan" and you will probalby come up with some good suggestions about how to get your filings down to one 5500.

You might want to look at this link http://www.ebia.com/weekly/questions/2002/.../Caf020411.html

I always thought that Notice 90-24 just got 105 plans out of an IRS filing, but since it is a plan offering welfare benefits you still needed a title I DOL filing.

Carolynn, If your FSA has over 100 participants you still need a "Title I" 5500 for that plan as well as any insured medical plan offered that has over 100 participants. There are ways to "wrap" various benefits into one plan. However, if you have a health fsa and are allowing partiipants to pay insurance premiums through the cafeteria plan it appears that you have at least one and probably two "Title I" plans. Your filing obligations wil proablby then turn on the number of participants in those plans.

It looks like the final regs fixed this glitch. Do people agree?

What kind of benefits are being funded by the 125 plan?

I don't know if your owner is collectively bargained in the first place. Even if your owner does bargaining unit work pursuant to a union contract (and contributions are owed on this work) I am not sure that he is "collectively bargained" as that term is used in the Code. Under the Code, to be collectively bargained you must be in the "unit" covered by the collective bargaing agreement. Under labor law, performing collective bargaining work does not mean that you are in the collective bargaiining unit. Owners almost always do not have the "community of interest" with other employees to be included in the unit. There are, however, certain bargaining unit alumni rules. Where an employer has collectively and non-collectively bargained employees, and lets a highly comped employee (such as an owner) into a collectively bargained plan while not letting secretaries, estimators etc. in --thiscan be a real problem. The collectively bargained and non-collectively bargained are tested separately for 410(B) and you are going to fail if the only noncollectively bargained employee is an owner.

I got the names confused. It was mwyatt.

This is from the 1999 ASPA conference. I am not sure whether the IRS has changed its tune or not. 60. Informal comments have been made by IRS representatives regarding the timing of an amendment to change the testing method used for the ADP or ACP test. Specifically, the issue is whether the method (e.g., current year method) must be specified in the plan before the plan year begins or whether the amendment can be made after the plan year has begun (or even made after the plan year has ended). Is this still the "informal" opinion of the IRS and if so, what is the rationale for this interpretation? This is still our conclusion. This will be discussed from the podium. MWeddell, I think you said that your boss threw out the 1999 Q&As. You can still find them on line in an ASPA archive file. Try this link http://www.aspa.org/archivepages/gac/1999/99irsq&a.htm

Andy H I agree the 5% would not be applicable to this situation. I was just responding to your statement that "Top Heavy minimums are limited to 3% " which seemed like an absolute.