KJohnson

Just so I am clear, I thought there was one exception that would require 5% where "ordinarily" you would contribute 3% for top heavy. 1) Using the 5% gateway in a plan with 1000 Hours requirement for an allocation. 2) Participant who does not work 1000 hours but who is there on the last day gets 5% allocation rather than 3%. I guess this is really a gateway issue rather than a top heavy issue although top heavy is the only reason the individual is getting a contribution in the first instance.

There are a number of higher skiilled trades where union members make over $85K. One of the primary reasons that multiemployer plans were so late to going to a 401(k) arrangement is they knew that obtaining compensation and other data from employers to perform teh ADP test was going to be a big headache. Actually how the regs got to the ADP test requrement is interesting. The preamble to the (k) regs acknowledges that since a collectively bargained plan gets an automatic 401(a)(4) pass then there should be no need for a corresponding ADP test for discrimination purposes. However, they then turn around and say that passing ADP is a prerequisite for being a CODA and if you do not pass ADP then you have a non-qualfied CODA and the deferrals are taxable to the employee.

You still need to do ADP testing. You get a "pass" on most other testing issues 410(B), 401(a)(4), ACP.

Jon, I guess that was my point. That you can seek all the indemnifications that you want and be as "passive" as you want, but if you are a trustee and a participant sues you because you acted on improper instructions, or instructions that were inconsistent with the plan, or instruction that were inconsistent with the Act then you may still be liable. You are then stuck with impleading the employer on the indemnification grounds. See e.g. First Tier Bank, N.A. v. Zeller 16 F.3d 907 (8th Cir.) cert. denied 513 U.S. 871 (19994), Maniace v. First Commerce Bank N.A., 40 F.3d 264 (8th Cir. 1994). As to arbitration, how is a participant bound by an agreement to arbitrate. Also, the arbitration point could put you in an interesting position--participant can sue trustee but trustee cannot implead employer because of arbitration clause?

Jon, Just wondering, it would seem under the Act that if you take the role as a trustee and sign the scheduel P, then it appears that you would have to take the duties assigned to you under ERISA as a trustee. Under 403(a)(1)--that means that you would still have the olbigation to determine that your instructions from the named fiduciary are 1) proper, 2) in accordance with the terms of the Plan and are not contrary to ERISA. Thus, I am not sure your descritipion of a fully passive trustee would actually meet ERISA's definition of a trustee. And ,generally a plan must have a trustee. In your fully passive situation is there another person or entity that acknowledges that he or she is a trustee? Do you just call yourself a custodian?

PJK I don't disagree with anything you have said. Of course you have the burden of persuason for affirmative defenses. I can't imagine that you would disagree that a plaintiff has the burden of persuasion in establishing a fiduciary breach. I think the interesting aspects of fiduciary litigaiton is burden shifting where it would ordinarily not occur in "typical" civil litigation. The example I gave in my prior post is one such instance. Another example that I beleive has been adopted in all Circuits is the burden shifting on calcualation of damages. Put in your terms, once a Plaintiff has met its burden of production regarding calcualtion of damages, not only does the Defendant have a burden of production, but the actual burden of persuasion switches to the Defendant to disprove the plaintiff's estimatin of damages. On the blackout issue, it may turn out that Plaintiffs need only establish that a blackout was a fiduciary breach and that the plans lost money (which is self-evident). Then the burden of persuasion would shift to the Defendants to prove that the blackout was not a causal link to the loss and that the plaintiffs calculation of damages is unreasonable. Thus, defendants bear the burden of persuasio in two areas ordinarily borne by plaintiffs--the causal link between the breach and the damages and the amount of damages.

Obviously the burdens at summary judgment and the burdens at trial are quite different. Where I think there is a split in the Circuits is the issue of where plaintiffs have established a fiduciary breach and where plaintiffs have established a loss to the plan, it becomes the defendant's burden to prove that his breach did not cause the loss. I think the 5th and 8th Circuits have adopted this. McDonald v. Provident Indem. Life Ins. Co., 60 F.3d 234 (5th Cir. 1995), cert. denied 516 U.S. 1174 (1996); Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915, 919-920 (8th Cir. 1994) citing Martin v. Feilen, 965 F.2d 660, 671 (8th Cir. 1992). My recolleciton is the Second has rejected it but I don't have a cite handy.

Here is what the regs state: Plan Administrator--"business address" Trustee--"address of the principal place of bunsiness" Agent for Service--"the address at which process may be served". I have always put in the street address. However, my read on the regs is that for the Plan Administrator you can probably get by with the P.O. Box; for Trustee it is more doubtful since the P.O. Box is nto the principal place of business; and for the Agent for Process, I think you would need a street address because you cannot personally serve papers at a P.O. Box.

http://www.benefitslink.com/IRS/notice2002-24.pdf

Here is a recent D.C. District Court case where the Court acknowledged the different treatment in the Circuits. It then adopts an "I'll know it when I see it" standard. http://www.dcd.uscourts.gov/01-236.pdf

I know that many multis have provisions that the hours you earn one quarter entitles you to benefits in the subsequent quarter. I think these multis have accepted HCFA's position that if a Medicare eligible active earns eligiblity in one quarter, retires, and that coverage then carries on for the following quarter that the multi plan remains primary and Medicare secondary until the end of the quarter of coverage "earned" while the employee was active. I guess the same thing could apply to an hours bank. Thus, it is a quesiton of when the elibility was earned rather than when the coverage is provided. Of course, what happens with multis that only provide retiree coverage for individuals with, for example, 20 year of service. As far as I know, HCFA has not stated that the Plan remains primary for this type of retiree coverage.

I'll have to go back and reread it, but my recollection is that Freuhauff actually followed Confer (and wasn't it a Delaware District Court decision), I think there was another district court case out of N.C. (my home state) called Atwood in the mid 1990s that went the same way as Confer. And I believe that there was also a case out of Alabama called Professional Helicopter Pilots v. Denison that also went the same way. I guess I am just not convinced that this is a completely resolved issue although I am sure that DOL would wholeheartedly agree with you. Of course, I haven't gone back and reread these cases and it is almost 9:00 p.m. eastern time-- so I guess I won't.

PJK, I believe that there is a line of cases stemming from a case called Confer v. Custom Engineering out of the Third Circuit in 1991 or 1992 that states that if a corporation is the named fiduciary, there is not automatic personal fiduciary liability of the Board of Directors if they are acting "qua" corporation and not as individuals when they make their fiduciary decision. My recollection is that DOL had fits on this and I remember them succesfully litigationg your position in a case called Pacific Lumber in the Ninth a few years later. I haven't updated this research in a while, but I think that the Confer line of cases is still "good law" in some Circuits.

Please forgive the typing, I only have this in hard copy so I could not cut and paste. 69. At ALI-ABA last fall, Jim Holland stated that the IRS position on wavers of db plan benefits by a >50% owner in order to termnate an underfudned plan, is that it creates taxable income to the owner under the assignment of income doctrine (at best) and should disqualify the plan because it violates 401(a)(13). I have never been questioned by IRS when we've used this device in the past, nor has anyone else that we're aware of. Nor have administrators issued 1099's for the full, unreduced benefit. To the best of our knowledge, he has never taken this position before. He has said (in the ASPA Q&A, maybe in 1996 or 1995) that the IRS does not consider the waiver a reduction in the accrued beneftit, just a change in the allociation of assets of the plan. The impact of that was primarily that you still had to count the full accrued benefit for future 415 issues (including 415(e). But they never said anything about taxation. I'm not sure how income could be taxed since there is no contstructive receipt doctrine anymore for retirement plans, and without constructive receipt, how could be be taxed for giving it up. Jim apparently bases this on a 1986 Tax Court case, preceded by a TAM. Can we get a current reading from the Service on this? The case referenced is Arthur Gallade vs. Commissioner. The Service does not recognize waiver of benefits. If it is an allocation for sufficiency, the Service will not object because it is just an asset allocation procedure. Any such "waiver" is not recognized for minimum funding purposes. If this is not being done for sufficiency purposes, the Service will not recognize it and it will be taxable to the participant as in the referenced case.

If you have it, look at Question 69 at that 1998 ASPA conference. I

We had the same game, but our name for the game was less kind than Socratic....

The union/non-union distinction is really a misnomer. The real disctinction is collectively bargained vs. non-collectively bargained. In a number of "right to work" states, individuals who do not join the union are still covered by the collective bargaining agreement and are still collectively bargained employees. There are also certain "bargaining unit alumni" rules that allow formerly collectively bargained employees to continue to participate as if they were collectively bargained. Finally a number of multiemployer plans let certain categories of non-collectively bargained members into the Plan. Since they are not covered by the CBA, there is typically a separate participation agreement for these employees. However, for this group of employees the multiemployer plan does not get the "pass" that it would ordinarily have for 410(B) and 401(a)(4) testing.

I agree with Chamelnix that is clearly allowed. However, if you have a loan offset immeditately upon termination then there is no loan "note" to rollover and I would agree with ckolodziej that then you could only rollover the loan offset amount (assuming the Participant could find the $$). Therefore I think Powers is on the right track. You have to look at the distributing plan to see if it allows the distribution of the loan note in a rollover and to make sure that you don't have an offset automtatically upon termination of employment. You would have to look at the receiving plan to see if they accept particpant notes as rollovers.

It is kind of amazing (I know that some would say sad) that there is a group of people that find this stuff interesting-- but I no longer shy away from the admission that I do like it.

Also, I think your prior cite to the reg is inapplicable because you would be giving coverage for the entire year after you take the second installment regardless of whether they terminate employment. Accodingly, there could never be a "revocation" after the second payment which is the condition precedent to a refund.

By the way, I just glanced at the BNA Cafeteria Plan portfolio and they give the exact same example. They do not raise risk-shifting questions but do raise some COBRA issues and the obvious state law questions regarding whether you can actually "attach" the last paycheck.

I completely agree that coverage would have to be provided for the entire year. The risk shifting aspect of the regs has always bothered me. The regs specifically contemplate that you could have a semi annual payment schedule. Say you agree to do this and deduct amounts from paychecks only on January 1, and July 1. Wouldn't you have eliminated all risk for the rest of the year on July 1 (because in addition to the refund issue the regs also say that you can cut off future coverage for anyone who does not make the July 1 installment). Also, just so you know, it was not my example it was the one given in the 125 Q&A column on Benefits Link Lowering Employer Risks Under Medical Expense Reimbursement Accounts (Posted April 7, 1997) Question 7: How can a company sponsoring a Section 125 plan lower its risk when designing a medical reimbursement account as part of the plan? Answer: It won't be easy. Treasury Regulations §1.125-2, Q&A-7(a) states that, "A health FSA [flexible spending account, also called a medical expense reimbursement account] will not qualify for tax-favored treatment ... if the effect of the reimbursement arrangement eliminates all, or substantially all, risk of loss to the employer maintaining the plan or other insurer." Some plans require all participants to pay the annual election amount - even if such a participant terminates. This provision must be applied uniformly, however. In other words, a company may not collect from the last pay check of only those participants who have a "negative" balance. In such a plan design, they would collect the remaining annual contribution from any terminating employee -- regardless of claims to date. Other plans limit the amount that may be contributed to a medical FSA. Generally, such a limit ranges from $1,200 per year to $5,000 per year. The regulations allow for a company to take the participant contribution in larger installments. The example given in the regulations is semi-annual. (See §1.125-2, Q&A-7(B)(2), Example 2.) This plan design is probably not often used. It would allow, however, for the company to receive 1/2 of the annual contribution "up-front," and the remaining amount for the year at the beginning of the seventh month. According to the regulations, if a participant terminates under such a plan, the plan might owe back to the participant amount paid for coverage after the participant's termination date, assuming no COBRA continuation. See §1.125-1, Q&A-7(B)(2). The method of reducing risk that is not allowed is for a company to require from the last pay of a participant, a payment that equals the amount that was paid out in claims in excess of that participant's contribution to-date to the medical reimbursement account. This is also described at §1.125-2, Q&A-7(B)(2). -------------------------------------------------------------------------------- Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. The laws, regulations and court decisions in this area change frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the laws, regulations or court decisions that occur after the date on which that Q&A is posted. -------------------------------------------------------------------------------- Copyright 2001, 2002 R. C. Morris, Incorporated

Yes, but just wait till next year when you put it back up to 50%. Prior year testing + a discretionary match that varies from year to year=trouble sometime down the road.

As to your first point, the uniform coverage requirement is that the maximum benefit cannot relate to the amount paid and the payment schedule cannot relate to the claims incurred. In the above example you have neither of these problems. Everyone must pay 100% of their annual election regardless of claims incurred. As the example in the regulation states, the plan cannot provide acceleration because of incurred claims and reimubrsements. In the example above, everyone is being accelerated regardless of their claim status. As to your second point--why bother-- I couldn't agree more.

On the old 125 Q&A column, this Plan design was suggested. I think this could work but it may be more trouble than it is worth. Some plans require all participants to pay the annual election amount - even if such a participant terminates. This provision must be applied uniformly, however. In other words, a company may not collect from the last pay check of only those participants who have a "negative" balance. In such a plan design, they would collect the remaining annual contribution from any terminating employee -- regardless of claims to date.