KJohnson

Also, see 1.411(d)-4 Q&A 1, (B)(2) Example 5 which idicates that an in-service distribution based on "heavy an immediate financial need" is an optional form of benefit.

I see your distinction between a "right and feature" and an optional form of benefit under the 1.401(a)(4)-(4) regs and the age and service can only be disregarded for an optonal form of benefit. However 1.401(a)(4)-4(B)(2)(ii)(B) regarding a condition based on a specified percentage of an employees accrued benefit being nonforetiable appears to apply to all rights and features. What if they simply specified that an employee must be 100% vested to receive a hardship.

I thought service requirements as well as requiring a certain vesting percentage were disregarded for current availability? 1.401(a)(4)-4(B)(2)(ii)

Could you put the ACP test into the contribution formula for the money purchase plan? It seems like what the IRS is concerned about in a "fixed" contribuiton is absence of employer discretion. If the amount of contibution is subject only to participant discretion based on how much they defer with a "maximum" based on the ACP test, I would think that you would have still fulfilled your 412 funding obligation as well as the "fixed" contribution requirement.

I know of no DOL requirement. The 404© regs have the "volatility rule" regarding the need to allow participants to give investment instructions "with a frequency which is appropriate in light of the market volatility...." but I know of nothing from DOL which specifically states when the particpant investment instructions must be executed. I guess if you follow the "spirit" of the regs when you offer an extremely volatile investment you probably should have very prompt execution... Of course, this is not stated in the 404© regs and employers can, of course, choose not to be 404© compliant.

I take that back--Rev Rul. 74-385

Generally a pension plan must provide "definitely determinable benefits" and contributions to a money purchase pension plan must be "fixed" without being geared to profits 1.401-1(B)1(i). On the other hand, contributions to a profit sharing plan only must have a "definite predetermined formula" 1.401-1(B)(1)(ii). You have a predetermined formula, but I am not sure that you have a "fixed" contribution or definitely determinible benefits.

From the employer/plan perspective, I always attempt to "pin down" this issue in contracts signed with recordkeepers or custodian. For some clients, I have then mirrored this contractual language in the SPD so that the participant is aware of the time it takes to perform certain transactions.

It sounds like an elimination of an optional form to me. I haven't gone back and looked at the regs, but I don't recall an exception.

Just as a note, we only got resistance from the health insurance carrier. Life insurance and STD carriers were more than happy to put SPD language in the certificates/booklets if we gave them the plan number etc.

If you have a profit sharing plan without an annuity option but you do have other types of distribution options, you may also want to look at 1.411(d)-4 Q&A 2(B)(2)(vi) where you can eliminate those other distribution options and force a lump sum (provide the employer maintains no other plans).

I guess my question is whether you can ever offset if the only security you took was a mortgage and not the account balance? I thought that the whole notion of "offset" was based on executing on the security posted (the account balance) when there has been a distributable event. If you haven't foreclosed on the mortgage prior to the time of a distributable event, could you then distribute the mortgage "in kind" which would have the same effect as an offset?

The issue is whether the individual is an employee. The following question and answer are from the IRS Q&A session at the 1998 ASPA Annual Conference..... Q. What is the IRS position on elective deferrals from certain payments following the termination of employment, such as severance pay and accumulated vacation pay? IRS Response: We do not believe that deferrals can be made by someone who is not an active employee. If payments classified as above are paid PRIOR to the termination of employment, the participant can defer from those amounts (assuming the plan otherwise allows such elections). If the participant has separated from service and these amounts are paid at a later time or over a period of time, no deferrals may be made. [This message has been edited by KJohnson (edited 03-20-2000).]

Are there any differences in the "deemed distribution" rules in the event of a default where a participant loan is secured by real property instead of an account balance? Would there still be a "deemed distribution" of the loan amount upon default but never a "loan offset" since the account would still include the defaulted mortgage?

I received the following from one prototype sponsor who was 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: 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 [This message has been edited by KJohnson (edited 03-16-2000).]

If I understand what you are asking, the 3% safe harbor must be "outside" the integrated formula. In other words you cannot use the safe harbor contribution as a "base" for permitted disparity. For most plans, there currently will not be plan language regarding the safe harbor contibution, but these plans must be retroactively amended to include safe harbor contribution allocations before the expiration of the GUST remedial amendment period.

I agree with Linda that it is fairly easy to fix, but I would guess that the majority of employers with 10 to 20 employees do not have benefits counsel and do not know enough to ask about the SPD requirement. I was just wondering if most insurers would give an employer a "heads up" regarding the need for an SPD. In the case of our firm's own fully insured health plan, we needed to go through two "levels" at the insurer to find someone who even knew what we were talking about when we requested that all required SPD information be included in our booklets.

Here is one of DOL's most recent opinion letters on "escheat" statutes. I think DOL took the same position on California's unclaimed property law in Opinion 79-30A, but that opinion is not on the PWBA web site Advisory Opinion December 7, 1994 94-41A ERISA SECTION 514(a) Mr. Thomas R. Giltner Cox & Smith Incorporated 112 East Pecan Street, Suite 2000 San Antonio, Texas 78205 Dear Mr. Giltner: This is in reply to your request for an advisory opinion regarding the applicability of Title I of the Employee Retirement Income Security Act of 1974 (ERISA). Specifically, you ask whether section 514(a) of Title I of ERISA preempts the application of the Texas Unclaimed Property Statutes (Tex. Prop. Code Ann. Title 6 (West 1985)), with the result that the State of Texas may not assume custody over unclaimed benefits of those participants in the Luby's Cafeterias, Inc. Employees Profit-Sharing and Retirement Trust (the Plan) who cannot be located. You advise that Luby's Cafeterias, Inc. (the Company) sponsors the Plan for its eligible employees. You further advise that, in the normal operation of the Plan, the plan administrator has occasionally been unable to locate a participant or beneficiary entitled to a distribution of retirement benefits. You interpret Section 7.10 of the plan document, which provides a procedure in the event a participant or beneficiary fails to claim a distribution, to permit or require your current practice in such circumstances, which you describe as follows. If a distributee fails to claim a distribution under the plan, the amount of the unclaimed benefit is transferred to an account styled "Terminated Employees' Account," which is an account segregated from the Plan's other bank accounts, but is an account of the Plan.<1> The Plan maintains records to indicate the amount of each "lost" participant's or beneficiary's interest in the account. If a lost participant or beneficiary is later located, his or her benefits are paid from the Plan's main account, which is then reimbursed from the Terminated Employees' Account. If a lost participant or beneficiary is not located within four years, you represent that his or her share in the Terminated Employees' Account is then transferred to the Plan's main account. If the lost participant or beneficiary is located at any time after this transfer occurs, you represent that his or her benefits are reinstated and paid by the Plan. In your request, you further assert that Section 7.10 of the Plan, as interpreted above, fully complies with Treasury Regulation section 1.411(a)-4(B)(6), which provides: (B) Special rules. For purposes of paragraph (a) of this section, a right is not treated as forfeitable-- . . . . (6) Lost beneficiary: escheat. In the case of a benefit which is payable, merely because the benefit is forfeitable on account of the inability to find the participant or beneficiary to whom payment is due, provided that the plan provides for reinstatement of the benefit if a claim is made by the participant or beneficiary for the forfeited benefit. In addition, a benefit which is lost by reason of escheat under applicable state law is not treated as a forfeiture. You further advise that § 72.101 of the Texas Unclaimed Property Statutes provides: § 72.101. Personal Property Subject to Escheat Personal property, other than traveler's checks, is presumed abandoned and subject to escheat if, for longer than seven years: (1) the existence and location of the owner of the property is unknown to the holder of the property: (2) according to the knowledge and records of the holder of the property, a claim to the property has not been asserted or an act of ownership of the property has not been exercised: and (3) a will of the owner of the property has not been recorded or probated in the county in which the property is located. Section 514(a) of Title I of ERISA provides: (a) Supersedure; effective date. Except as provided in subsection (B) of this section, the provisions of this title and title IV shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 4(a) and not exempt under section 4(B). Section 514(a) does not merely preempt state laws that conflict with Title I of ERISA, but broadly preempts all state laws related to employee benefit plans. The reasons for the broad preemption of state laws under ERISA were succinctly stated by Senator Javits, a major sponsor and floor manager of the bill that became ERISA, during its final consideration: Both House and Senate bills provided for preemption of State law but -- with one major exception appearing in the House Bill -- defined the perimeters of preemption in relation to the areas regulated by the bill. Such a formulation raised the possibility of endless litigation over the validity of State action that might impinge on Federal regulation, as well as opening the door to multiple and potentially conflicting State laws hastily contrived to deal with some particular aspect of private welfare or pension plans not clearly connected to the Federal scheme. Although the desirability of further regulation -- at either the State or Federal level -- undoubtedly warrants further attention, on balance, the emergence of a comprehensive and pervasive Federal interest and the interests of uniformity with respect to interstate plans required -- but for certain exceptions -- the displacement of State action in the field of private employee benefit programs. (120 Cong. Rec. S15751 (daily ed. Aug 22, 1974)). It is the view of the Department of Labor (the Department) that, if the above-quoted section of the Texas Unclaimed Property Statutes were applied to require the Plan to pay to the State amounts held in the Terminated Employees' Account, or in other accounts of the Plan, pursuant to the procedures described above, then such application of the section would be preempted under section 514(a) of ERISA.<2> Such an application of the State escheat law would directly affect the core functions of the Plan by reducing, through the escheat, the amount of plan assets held in trust for the benefit of all participants and beneficiaries of the Plan.<3> Moreover, because the statute at issue is not a law regulating insurance, banking or securities, it is not saved from preemption under section 514(B)(2).<4> This letter constitutes an advisory opinion under ERISA Procedure 76-1. Accordingly, it is issued subject to the provisions of that procedure, including section 10 thereof relating to the effect of advisory opinions. Sincerely, ROBERT J. DOYLE Director of Regulations and Interpretations <1> You represent that, when a distribution is for benefits valued at less than $3,500, the plan trustee mails a check to the last known address of the unlocated participant. If the check is not cashed after a reasonable period of time (presumably no more than a few months), the trustee cancels the check and transfers the same amount to the Terminated Employees' Account. <2> In Opinion 78-32A (December 22, 1978), the Department concluded that a provision of the Illinois Uniform Disposition of Property Act was preempted as applied to employee benefit plans. In Opinion 79-30A (May 14, 1979) the Department reached the same conclusion with respect to a provision of California's Unclaimed Property Law that expressly referred to employee benefit trust dispositions. In Opinion 83-39A (July 29, 1983), the Department found that a section of the New York Abandoned Property Law, which addressed the escheat of "nclaimed insurance proceeds other than life insurance," was saved from preemption under ERISA § 514(B)(a)(A) as a law regulating insurance. <3> In our view, the decision of the United States Court of Appeals for the Second Circuit in Aetna Life Ins. v. Borges, 869 F.2d 142 (2d Cir. 1989), is clearly distinguishable. In that case, the court considered the application of a state escheat law to amounts held in reserve by an insurance company to cover benefit che

Our Human Resources Department was informed that Blue Cross would not put all required SPD information in the health benefit "booklet" or certificate of insurance unless the employer has over 500 employees. Is this a common response? If so, I would think that there are a number of employers out there who are not meeting SPD requirements for fully insured plans (especially those of under 100 lives who have no 5500 requirement). Do these insurance companies try and inform employers of their SPD requirements?

Based on the facts that you presented, I think that the "restoration payment" would count as an additional contribution under the terms of the Plan and the Code. Absent an amendment, the contribution would have to be allocated based on the Plan's contribution formula. Also the contribution would be included for all testing purposes. You might want to look at the following article: "The Do and Don'ts of Restoration Payments" by Fred Reish. I think it can be found at www.benefitslink.com/reish/articles/doanddonts.html [This message has been edited by KJohnson (edited 03-14-2000).]

I would think that you would purchase an annuity. I know that Section 402(d)(4)(A) states that a distribution of an annuity contract will be treated as a lump sum distribution.

My recollection is that this is one of the area that IRS and DOL disagree. 1.411(a)-4(B))(6) states that a benefit lost by reason of escheat is not a forfeiture, but I believe that DOL takes the position that state escheat laws are preempted.

Good catch by MWeddell--50% test only applies to parent-sub relationship Also, there is also a 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. This is only a PLR and it would appear to be ripe for abuse because it would enable you to "double up" on 415 each time a merger takes place. I think you still do an ownership analysis and, based on the assumptions in M Weddell's, comment I agree that you would not have to aggregate for 415 purposes.

If it is an asset deal between two otherwise unrelated employers and the buyer does not assume the plan, then my understanding is that the seller can terminate the plan and make distributions after the transaction because there is no successor plan. I have always thought of the "same desk rule" as the "barrier" if you are trying to distribute due to a separation from service and the "successor plan rule" as the barrier if you are trying to distribute due to a plan termination.

A D.C. plan incorrectly allowed a participant to take a distribution when the participant was not eligible. The participant has repaid the distribution plus earnings as contemplated by APRSC. The participant is now eligible for a distribution. Does he receive "investment in contract" for his repayment of the previously taxed distribution? If so, the participant now only wants to take a partial distribution-- so how would that "invesment in contract" be allocated between the partial distribution amount and the amount that would remain in the Plan?