KJohnson

The IRS confirmed MWeddell's understanding at the 1998 ASPA conference (Q&A 53).

I'm with Moe (Does that make me Larry, Curly or Shep). Also any pass-through income from the S Corp. can't be considered.

There is nothing I know of in federal benefits law that would prevent this if the plan is fully insured and not being run through a 125 Plan. It is possible that state insurance law may have some provision regarding certain mandated coverages.

I recall a case three to five years ago out of the 4th Circuit called Hopkins v. AT&T. I believe the 4th Circuit ruled that the current spouse becomes "vested" in the J&S benefit upon the participant's retirement and the former spouse cannot, after the participant's retirement, obtain a QDRO that infringes on the current spouse's right to the J&S benefit. I haven't gone back and looked at this, but you might want to pull it just to make sure.

I thought that authority to issue interpretations regarding Code Section 4975 was transferred from Treasury to the DOL pursuant to Reorganization Plan No. 4 of 1978 and Treasury is bound by DOL's interpretations of what is a p.t. Therefore, I am not sure that the DOL/IRS distinction is viable.

I think that if you are holding yourself out to give legal advice to clients there may be trouble. If, however, you maintain that you are providing consulting services and the lawyers merely assist the consultants then you have less of a problem. I believe the applicable model rule of professional conduct states: Rule 5.4 PROFESSIONAL INDEPENDENCE OF A LAWYER (a) A lawyer or law firm shall not share legal fees with a nonlawyer. . . (with narrow exceptions). (B) A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law. © A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer’s professional judgment in rendering such legal services. (d) A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if: (1) a nonlawyer owns any interest therein, except that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration; (2) a nonlawyer is a corporate director or officer thereof; or (3) a nonlawyer has the right to direct or control the professional judgment of a lawyer.”

I think multidisciplinary practice is inevitable, but I don't believe that it is here yet. That is why the Big 6 is hiring more lawyers than anyone but still calling them consultants. Your firm may have looked into this already, but this issue has caused a heated debate within the ABA.

I think MWeddell hit it on the head. Using a group annuity product does add another level of fees. The fees are usually based as a percentage of assets held in the plan. Also, with a group annuity product, fees regarding the administration of the plan are much more likely to be "charged back" to participants accounts where in other contexts the employer may pick up these fees. Where I have seen these products used most often is with "start up" plans where an employer does not want to bear much in the way of inital costs for establishing and administering a plan. In this situation, since fees are based on a percentage of assets and since assets for a start up plan tend to be smaller in the first few years, the actual dollars paid for establishing and maintaining the plan may be competitive in comparison with other alternatives available to the employer. However, as MWeddell mentioned, the "kicker" is the surrender charges, market value adjustmets etc. Often the surrender charge is simply a method for the insurance company to recoup any commission it has paid if you decide to leave the annuity arrangment "early." You should pay careful attention to these charges because once the $$ of a plan rise to a level where other administrative/investment vehicles may be more attractive, the surrender charges may still be a major roadblock. Obviously, the adoption agreement for the plan itself is an important document that needs to be gone over carefully. However, when you go with an group annuity contract to "fund" the plan, you need to pay just as much attention to the terms of that GAC and all of the various levels of charges. You may see things like "net investment factor", "general expense charge", "annual administration fee" "plan services fee", "surrender charge" "direct expense charge" "market value adjustment" etc. in the document. It is often not easy to understand what each of these charges are and when they will be levied.

I am not sure that you are defining "participants" in the right fashion. Under. 2510.3-3 of the DOL regs an individual becomes a partipant in a welfare plan on "the date which the individual becomes eligible under the plan for a benefit subject only to occurrence of the contingency for which the benefit is provided..." I am not completely clear on your factual situation, but it appears that all of your employees may be participants because they are capable of receiving benefits subject only to the contingency of being terminated.

I don't believe that right to work laws have anything to do with it. I think that if you track through the regulations, you will end up at 1.410(B)-6(d)(2) which states that as long as the employee is in a unit of employees covered by a collective bargaining agreement, the employee is considered a collectively bargained employee. As you point out, you don't have to be a union member to be in the collective bargaining unit. Therefore, I think that they must be considered with your other "union" employees and you are stuck with mandatory disaggregation for purposes of 410(B) as well as your ADP test. I don't believe you even have the option to aggregate.

Alf, if you are referring to my example, I think that is right. However, the test is whether the level is "currently available" or "effectively available." It is "availability" that is tested. Thus, if everyone is allowed to defer to receive the various levels of match, there should be no current availability problem. Also, this is not the type of situtaion raised in the examples in the regs that would raise an effective availability issue. However, "effective availability" is a facts and circumstances test and there maybe scenarios where "effective availability" could be a problem even though all participants are allowed to defer to reach the various levels of match. Your ACP test, however, is probably a pretty good "hedge" against there being a effective availability problem. If only HCEs are receiving an increased level of match based on increased deferrals then you are going to have a tough time passing ACP.

I looked at this question regarding a plan that "offset" the amount of match against the profit sharing contribution made by the employer. The plan provided a 3% of comp profit sharing contribution and then matched 100% of deferrals minus the profit sharing contribution made for the employees. The upshot was that you didn't get a match until after you had deferred 3% of comp. I wondered whether factoring in the profit sharing contribution would conflict with the "on account of" language. I came to the conclusion that since only individuals deferring were receiving the match, it was still o.k. and "on account of" the deferral. (I also looked at effective availabiity issues as well as, of course, the ACP test rammfications--they did pass).

The requirement is that the matching contribution be "on account of" an employee contribution or "on account of" an elective deferral. If you have a reg book, look at 1.401(m).1(f)(12).

John A, I assume it is a multiemployer plan (rather than a multiple). You would have to aggregate your single employer plan with the common participants in the multi for purposes of 415 to the extent of benefits or contributions provided by the employer to the multi on behalf of those common participants See 1.415-8(e) and 1.415-1(e). In other words, you would add together the employer's "additions" for the employee under you single employer plan to the employer's "additions" for the employee under the multiemployer plan. However, if the employee worked for another employer under the multiemployer plan during the limitation year (e.g. working as a part-time employee for the union or working for another employer), these additions are not required to be counted. However, there is a discretionary rule where such additions would be counted--- 1.415-1(e)(2)(ii)--- as they would be if this was a multiple instead of a multi. Clear as mud right? The ADP testing can become even more interesting if you are in an industry where union employees can be HCEs. Do you have to aggregate the deferrals for both plans in your ADP testing for each plan pursuant to 1.401(k)-1(g)(1)(ii)(B). Are the plans mandatorily disaggregated for this purpose? ?

I understand the distinction that is being made between a "rollover" and "inheriting" an IRA (or a spouse electing to treat an IRA as his or her own). If it were not for the language in the proposed regs, this would seem to be a "distinction without a difference" in many instances. In fact the PLRs seem to treat the process of a rollover as one of the ways a spouse can treat an IRA as his or her own. Is there a difference if the distribution is from a qualified plan? 1.408-8 Q&A 7 seems to indicate that a distribution from a qualified plan is analyzed as a rollover to an IRA followed by the spouse then treating the IRA as his or her own? If an estate is the sole beneficiary for a participant in a qualified plan and the spouse is the sole beneficiary of the estate (and executrix of the estate) can the spouse still roll over the amount from the Plan? Finally, I have a much more basic question. Assuming that a rollover is still possible by the spouse, who receives the 1099? My reading of the PLRs is that it appears that the IRS is treating the spouse as having "acquired" the IRA from the decedent rather than the estate and so the 1099 should go to the spouse. This would seem to avoid any questions regarding the assets of the estate for fiduciary tax purposes. Does anyone have experience with this?

The method Phil L. described is what I have used for calculating the excise tax. You simply treat the failure to make the contribution in a timely fashion as a "loan" and follow the guidance in 5330 regarding loans. Therefore, if the "loan" is not repaid until the following year, you would have two prohibited transactions to report for that year as described in Phil L.'s example. Because of related issues in the DFVC program, I have always used the Section 6621 rate as the "reasonable" interest rate but I don't think this is required. Of course you also most restore participants accounts with lost earnings. I believe that DOL specifically addresses this in the DFVC material and my recollection is that their position is that you should credit the participant with the greater of what the actual return would have been on the untimely contributions or interest at the 6621 rate. If the earnings are not deposited at the same time as the contribution itself, there are also "earnings on earnings" issues. If you want to follow through with full DFVC correction there are both notice requirements to participants and filing requirements with the DOL.

Tom. Of course you are right. Thanks for the clarification. I was just trying to explain the IRS's comments regarding dual entry dates and did not explain the "new rule" as fully as I should have.

I was thrown off by your statement "If a defined contribution VEBA offers a choice of welfare benefits including a vacation benefit..." and assumed that the vacation benefit was being run through the VEBA.

I believe that at the 1999 ASPA conference, Q&A 76, the IRS took the position that you could use dual entry dates if you continued testing under the "old rule" (i.e. you would run separate testing on the statutorily excludable employees) but you could not use dual entry dates and must use the Plan's entry dates if you were testing under the "new rule" (i.e. simply disregarding the statutorily excludable employees). I think there are prior discussions on this. Here is one: http://benefitslink.com/boards/index.php?showtopic=7297

Any thoughts on this? Can a corporation adopt a predecessor sole proprietorship's SIMPLE mid-year without running afoul of the "full year" rule regarding SIMPLE Plans in 97-6?

Vebaguru--In example No. 2 don't you run the risk of constructive receipt if the employee has the option of receiving the entire amount as vacation. I though the IRS looked at this in PLR 8644004. I know the whole vacation benefit area is a little murky because of Rev. Rul. 67-351 and 57-316 but this seems like an area that you have to be VERY careful.

A sole proprietorship wants to incorporate mid-year and continue to maintain its SIMPLE plan. In other qualified plans I simply have the corporation adopt the sole proprietorship's plan. However, is there a a "successor plan" issue under Notice 97-6 in having the corporation adopt the SIMPLE mid-year as opposed to January 1?

John A. What guidance are you referring to. I know there was a correction to the model amendment, but is there something else?

I agree it must be in the document. Also, you need to watch out for cutback issues. Distribution options in the two plans should be identicial. If they are not then all optional forms of benefits must "come over" with the transfer. You might want to look at these prior discussions: http://benefitslink.com/boards/index.p...=...=ST&f=20&t=4857 http://benefitslink.com/boards/index.p...=...=ST&f=20&t=3881

Andy H. Is it your opinion that a repayment has to be with post-tax dollars even if the original distribuiton or "cash out" was taken as a rollover? Also whose responsibility is it to "designate" money as a repayment? Finally, how does the "away" Plan or conduit IRA know that a portion of the money being transferred back to the original Plan is actually going to be used as a repayment for pupposes of its 1099 reporting (and presumably withholding). I would think the typical situation would be that a partially vested participant terminates employment and takes a distribution from the Plan sponsored by Employer A. The employee rolls this over into the Plan sponsored by Employer B. Employer B probably has no idea that the employee was only partially vested in Employer A's Plan. After a few years the employee goes back to work for Employer A and rolls his money back to Employer A's Plan from Employer B's Plan. Once again, Employer B is probably unaware that this is anything other than a typical rollover. Plan A on the other hand has simply received a rollover from Plan B with no specific designation that part of this money is to be used as a repayment and no specific plan provision requiring the first dollars received to be used towards repayment. 1) If part of this money is going to be used as a repayment, whose responsibility is it to designate it as such? Is it automatic? Is it up to the participant? Is it up to Employer A's Plan Administrator? 2) Does the treatment of part of this money as a repayment change what would otherwise be a series of non-taxable rollovers into a taxable event for the participant? If so, how is Employer B to know for purposes of 1099's (and presumably withholding)?