KJohnson

Keith N. I agree with you. When this issue came up before on this Board, I commented that the PLR seemed an open invitation to "double up" on 415 limits through corporate machinations. That said, the controlled group rules are based on "timing" and the P.A.s in the PLR were able to convince the IRS that a controlled group can only be present if the etities have a period of "concurrent existence." However, this is only a PLR and if the IRS saw an abusive situation I sure it would not hesitate to change its mind.

Generally, you cannot establish another 401(k) Plan (or any defined contribution plan) until 12 months after you distribute the last asset of the former 401(k) Plan.

I think the 50% is just parent/sub and not brother/sister for 415 purposes. Also if the old partnership ceased to exist, I think you may be safe on a controlled group analysis in any event. If this is an issue you might want to look at PLR ,9541041, where 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. Also, again it may not be an issue, but I believe that past service credit for benefit accruals with a non-predecessor employer must be tested for discrimination under 401(a)(4). I recall that there may be a safe harbor of five years of credit.

Employer with several hundred employees has group term life with one insurer and has been filing its 5500s. The employer is adding optional 100% employee paid group term life with another insurer. What is the general practice: 1) Take the position that the OGTL is not a Plan and simply ignore it for 5500 purposes. 2) Assign the same Plan number for the OGTL as you do for the GTL (even though they are through separate insurance companies) and treat it all as one Plan and simply include two Schedule A's. 3) Get a separate plan number for the OGTL and file a separate 5500. 4) Other?

Employer with several hundred employees has group term life with one insurer and has been filing its 5500s. The employer is adding optional 100% employee paid group term life with another insurer. What is the general practice: 1) Take the position that the OGTL is not a Plan and simply ignore it for 5500 purposes. 2) Assign the same Plan number for the OGTL as you do for the GTL (even though they are through separate insurance companies) and treat it all as one Plan and simply include two Schedule A's. 3) Get a separate plan number for the OGTL and file a separate 5500. 4) Other?

Fred, my thoughts were the same as yours. The only time I have seen anything other than a discretionary formula is in the collectively bargained context. However, bargaining issues aside, it would seem that even in that case the only possible statutory notice requirement would be a duty to provide an SMM within 210 days after the Plan Year. It would seem to me that the "serious consideration" early retirement window disclosure cases would be inapplicable where there is no "choice" to be made by the Participant. Also, it would seem that any attempted state court action could not survive preemption.

It is my understanding that you have until the end of the remedial amendment period to restate your document so that timely notice is all that is required to use the safe harbor method at this point.

Assuming it is an insured plan, NC does have coverage similar to COBRA for small employers. However, the employers obligation to notify you of these rights is limited and the time in which you must elect the NC mandated continuation coverage is not nearly as liberal as contained in COBRA. Under NC law, I believe that your state law right to continuation coverage should be explained in the individual certificate of coverage that your employer should have given you. I agree with the prior post, contact the insurance department SOON.

I agree that it is risky. But, for example, you might have an argument in the case of a small company where employees are only paid monthly and participants can change the amount they elect to defer at any time. Since amounts for any pay in January would not be "currently available" until the end of the month, the employee would actually have all of January to make a decision to change the amount of his or her elective deferrals in order to take advantage of the safe harbor match for the whole year. If the employer actually has a meeting with all employees, hands out new elective deferral forms and explains to them the rammificatons of the safe harbor match you might have more "facts and circumstance" on your side.

lkpittman I thought that the 30/90 day notice period was considered a "deemed satisfaction" of the timing requirement, but that notice could still be timely outside of this period under a "facts and cicumstances" test. Doesn't this apply to both the match and the nonelective methods under 98-52? I realize that short notice might be less reasonable for a match than nonelective because the availability of the match is dependent upon elective deferrals, but is the 30 day notice requirement "hard coded" anywhere for the matching method?

ALSO, WATCH OUT FOR PLAN DOCUMENT ISSUES. I BELIEVE THE LRMs USE THE 30/90 PERIOD. IF YOU ARE USING A PROTOTYPE YOU RUN THE RISK OF ENGAGING IN PRACTICE THAT MIGHT NOT BE CONSISTENT WITH YOUR DOCUMENT ONCE IT IS RESTATED.

I got into this argument with counsel for the sponsor of a prototype plan. They sent me the following where they were advised that changing a discretionary match mid-year is actually not a 411(d)(6) or 401(a)(4) rights and features problem but a 1.401-1(B)(1)(ii) problem. I am not sure I agree, but here is what they sent: Two IRS agents from the Cincinnati Key District Office verified that a "discretionary" match CANNOT be changed during the plan year. The reason is because changing a discretionary match violates Treasury Regulation 1.401-1(B)(1)(ii) that states a profit sharing plan must provide a definite "predetermined" formula for allocating the contributions made to the plan. Thus, a "discretionary" match must be the same percentage for the WHOLE plan year. They made it very clear that if the employer intends to change his matching percentage during a plan year, the matching formulas MUST be stated in the plan and the plan amended each time the formula is changed

I think that the preamble to the proposed regulations supports your position. This preamble stated that if a plan was not amended to significantly reduce the rate of future benefit accruals prior to termination, a 204(h) notice was not required. However, the final regs contain the provision cited in my prior post and the preamble to the final regs is silent on this issue. Because of this language, I have always given a 204(h) notice with a termination of a money purchase plan. However, like you I also always have a plan amendment ceasing all contributions and accruals at the date of termination and therefore I think the 204(h) notice would be required without regard to whether the termination was contained in a corporate resolution/minutes as opposed to a plan amendment.

Joe, It seems like the final regs are all written in a permissive form and not a mandatory form ("a cafeteria plan may permt...."). Obviously, the final regs incorporate a good deal of flexibiltiy regarding changes in status that most employers will adopt. But what in the reg is mandatory?

I agree. I think that the termination of a dc plan would trigger a 204(h) notice obligation. The 204(h) notice would appear to be a specific regulatory obligation rather than just a question of prudenc. 1.411(d)-6 Q&A 16 states that "An amendment providing for the cessation of benefit accruals on a specified future date and for the termination of a plan is subject to section 204(h)" Of course, this would only apply to a money purchase pension plan and not a profit sharing plan.

THE DOCUMENT DOES NOT CONTAIN A PROVISION FOR THE OPT-OUT. MY QUESTION IS, IN ABSENCE OF A PLAN PROVISION, CAN AN EXECUTED ELECTION THAT MEETS ALL OF THE REQUIREMENTS OF 1.401(k)-1(a)(3)(iv)BE EFFECTIVE WITHOUT SPECIFIC "OPT-OUT" LANGUAGE IN THE DOCUMENT ITSELF? THE REG ITSELF DOES NOT SEEM TO REQUIRE A PROVISION IN THE DOCUMENT. ALSO, I BELIEVE THAT COURTS HAVE HELD THAT A "PLAN DOCUMENT" CAN CONSIST OF MORE THAN ONE WRITING. THEREFORE, ASSUMING YOU NEED PLAN LANGUAGE, COULD EACH "OPT OUT" ELECTION BE CONSIDERED PART OF THE PLAN DOCUMENT?

MUST A PLAN CONTAIN AN EXPLICIT PROVISION ALLOWING A ONE TIME IRREVOCABLE ELECTION NOT TO PARTICIPATE OR IS THE FACT THAT AN EMPLOYEE EXECUTED THE ELECTION ENOUGH? ANY CITES?

I thought Guidry had worked out a "deal" to repay the Plans. Was the Plan's right to an offset ever an issue above the District Court level? Also, you might want to look at a couple of other cases like PBGC v. Solmsen a District Court case out of N.Y. sometime in the late 80's or early 90's and a case called Coates (sp.?) v. Kazmir out of the Third Circuit and Parker v. Bain out of the Ninth. In think both of these decisions were in the '93-'96 time period. I believe that Coates distinguished Guidry on the Plan/Union issue. However, my recollection is that all of these were fiduciary breach cases. The right to offset for a fiduciary breach is now statutory. I agree that the statutory 401(a)(13) theory probably would not work unless you had a judgment for fiduciary breach. However, as I noted in my prior post, a number of multiemployer funds are using fiduciary breach theories to impose personal liability for failure to make contributions to the plan. A number of the cases hinge on a Trust or a collective bargaining agreement containing language that make "due and owing" contributions plan assets (and therefore whoever controls those plan assets a fiduciary) but I think there was a case out of a California District Court in the last year that did not even require such langauge to hold that a corporate officer breached his fiduciary duty by failing to make contributions to a multi. Finally, I know some large multiemployer funds now "require" direct deposit of pension checks. If that is the case, the Plan could simply garnish the bank account every time after payment. Of course I am not sure that this requirement of direct deposit has ever been tested.

As I recall, in Guidry, the Union obtained the judgment for amounts embezzled from it and the Plan did not have a judgment. The Supreme Court stated that ERISA's anti-alienation provisions did not allow the Union to reach amounts payable from the Plan to satisfy a judgment for the Union. I think it is a much closer call when the Plan has the judgment. For example, a Plan can offset past benefit overpayments against future benefit payments. Also, a number of multiemployer plan trust agreements (as well as collective bargaining agreements) are being written so that delinquent contributions become plan assets as soon as they are "due and owing". Obviously, for employee contributions DOL already takes the position that these are Plan assets after, at the latest, the 15th business day following the month that the employee would otherwise receive those amounts. Some plans are therefore suing delinquent corporate owners, personally, as fiduciaries for failure to remit plan assets. I believe that Congress specifcially amended 401(a)(13) to allow offset in the case of a judgment for fiduciary breach. That said, someone could argue that the amendment to 401(a)(13) is specific so that Congress meant to disallow an offset for anything other than a judgment for fiduciary breach (such as a failure to make contribuitons pursuant to ERISA Section 515). Finally, unless the Plan used the fiduciary theory, I assume the employer was unincorporated and that is why the Plan was able to obtain a personal judgment. I am not sure your owner would even be entitled to benefits from a multiemployer plan based on periods of service where he was unincorproated because of Section 302©(5) of Taft-Hartley 29 U.S.C 186©(5). DOL issued an opinion letter on this several years ago but only adressed the ERISA aspects and specifically refused to reach the Taft-Hartley issue.

Mr. X I think you are right, I misundstood what A. Rostosky was getting at. It is simply the cash or deferred election that cannot be retoractive. As to use of the first year rule, I think the "first year" was defined as the first year the plan provides for elective contributions. Accordingly I don't see any reason why you couldn't use first year rule. What if for the first year you only allow deferrals out of bonuses and only HCEs get bonuses. Could HCEs, in effect, defer 5% of the whole year's comp and you would have no ADP problems? Would this be a 401(a)(4) BRF problem?

A CODA cannot be adopted retroactively. In other words, while the "profit sharing" portion of the Plan could be retroactive to 1/1/00 the cash or deferral portion of the plan cannot be.

To the extent that your Plan is/will be using the LRMs--they specifically incorporate the 30/90 day time period.

Q&A 1 adopts the notice requirement of Section V.C. of 98-52 but simply changes the content requirement of the notice and adds a supplemental notice requirement. Q&A 1 did not change the timing requirement contained in 98-52 V.C. 2. This still requires the notice be sent at a "reasonable time" before the beginning of the plan year. (with the 30-90 day "deemed satisfaction")

I think you would probably have a PT-- look at ERISA 408(B)(1). I suppose that if 1) the employee wanting the loan is also a participant in the plan 2) The owner is willing to make similar amounts availabe from his account to other participants in a like amount and 3) the loan bears an adequate rate of interest and is adequately secured and 3)the plan provides for such loans, then you may be able to meet the technical requirements of 408(B)(1). However, I haven't looked at 2550.408(B)(1) which has some pretty detailed requirements on when a loan will meet the statutory PT exemption.

Section 415 limitations "ratchet down" the ownership requirement to more than 50% in a parent/sub situation but I don't believe that this applies to brother/sister so you should not have a problem with 415. Also certain additional attribution rules "kick in" over the 50% thresshold (children over 21 etc.), but again it doesn't seem like you have a problem in this case.