Mike Preston

How confident are you that excluding the current liability attributable to the current year is the appropriate metric?

Explain to me again why a contribution to the DC plan on behalf of the individual who is not participating in the DB plan would subject this employer to 404a7?

The two year rule does not apply to benefits accrued in the last two years. Instead, it applies to all liability to HCE's associated with amendments made within the two year period immediately preceding the first day of the plan year. Big difference.

I think a more conservative course is to consider a YOP for 415 purposes to be something that is impossible to credit retroactively. If you can get to your goal with that interpretation, I think that is the route I would go. Other than that, submit, submit, submit.

{sniff}{sniff} Something doesn't smell right. Are there now, or have there ever been, participants in the plan other than the husband and wife? If not, then there is no need for an amendment. Just allocate the excess assets on plan termination to the wife and confirm that the amount being provided doesn't violate 415. Submit. Be happy. If so, then you still don't need an amendment to the formula or accrual years, per se, just an allocation of the excess assets that is not discriminatory. Submit. Be happy. Why go through the effort of amending the plan to hit a target you can't precisely hit anyway? Unless you are going to have them invest all of the money in a fixed income alternative with a specific maturity? My head hurts at the thought.

Without seeing the metrics I think it is impossible to handicap the result. I can envision many circumstances where a $750,000 credit balance would be copacetic. You need to look at the details before making a determination.

Yes, the TAM was issued. It is being redacted and will be posted on the COPA website soon, if all goes according to plan.

Contact the prior firm and ask what the basis of the amounts contributed were. It wouldn't surprise me to see that the deductions were based on the current liability limitation and that the current liability on the Schedule B was determined at a rate that is inconsistent with the rate that was used for maximum deductible purposes. But you won't know unless you ask.

If you get the time, please post a synopsis of your paper and the comments from your professor. I will let you know in advance that professorial comments are typically not experience-based and I am likely to therefore disagree with them. Nonetheless, I'm interested in knowing their tenor.

I only see one fence. It is an 8 year fence or a 10 year fence depending on what side one if viewing it from.

I'm on the opposite side of the fence.

Doesn't make *me* nervous. I can point to the regulation section that says it is ok to do it! Thanks, Jeff, for the vote on amendment timing.

Maybe it was posted by the proverbial internet company?

Actions speak louder than words. Normally, I agree with QDROphile. I can't in this case. The OP is doing the best that can be done in circumstances not fully within the control of the OP. The mere fact that the legal beagles' judgment was questioned is grounds for kudos, not flaggelation. The OP certainly doesn't make policy for the organization and to claim that the inability to make policy renders the tone arrogant is not real world. You would have 90% of the customer service representatives in this country quit. They won't. Not on your word, anyway. They follow company protocol or else. In this case, perhaps the mere fact that the OP posted the question here could be a risk for the OP. To saddle that person with public denouncements of arrogance is, well, a bit on the arrogant side if you ask me. Which you didn't. But that is ok. With me, anyway.

I seem to flip-flop on this every week or two, and with the ASPPA Annual Conference coming up, my opinion next week may be different than what it is today, but for now, I'm recommending that if a plan wishes to take advantage of the 4.99% COLA option that said option be inserted into the plan before the end of the plan year that crosses 12/31/06. I know that the IRS extended the due date for amending to conform to the 401(a)(9) regs to the end of the EGTRRA RAP, but there is just something that is telling me they might (I said MIGHT) take the position this is voluntary amendment requiring good faith adoption before the end of the year that the option is implemented. It is sort of like chicken soup at this point...what can it hurt? (pronounced HOIT). Can you tell my relatives from New York recently visited?

Hmmmmm. Are we having a bad day? The way of the world, I'm afraid. Have you ever dealt with any of the larger organizations on this planet (I'm not talking about pension organizations, I'm talking about any organization: United Airlines comes to mind as one of the worst)? The lower level, first line individuals that one has to deal with are so focused on what they can and can not do that no amount of thinking is allowed. I'm not saying that this is the case with the OP, but I am saying that many larger organizations suffer from the same kind of "efficiency". If one presses hard enough, though, at least in the pension world, there is usually somebody not too far up the food chain that can deal with things as they are, not as the corporate protocols would like them to be. In this case, I agree that the legal beagles failed the OP. The OP, on the other hand, is to be congratulated for coming here and asking the question. I didn't see any arrogance in the original post, just in the legal department's guidance (such that it was).

Yeah, you are probably right. But I'm an incurable romantic.

Didn't they eliminate the requirement for prescription? It would seem to me that if they eliminated the prescription requirement for allergy medicine, that the same thing would apply here. So, did Mrs. Cheney really buy one of these things and Mr. Cheney is looking for reimbursement? I hadn't realized the White House sponsored an FSA for UME.

As I mentioned in my other reply, tax arbitrage is difficult to predict. But if it can be predicted, your point is valid. Most people can't micromanage this issue effectively, however, so the conventional wisdom is to defer taxes today and then be in the catbird seat later.

I do not find your tone to be anything other than genuine. If your paper is similarly expressed, I'm sure you will do fine. Let me briefly address some of the points you raise. The decision to swap out a fund, as has been previously mentioned, is a fiduciary decision. The law (ERISA) recognizes that a fiduciary decision is not to be reviewed (as you have done) based on "results." That would be preposterous, as nobody can predict the future and would leave nobody willing to serve. Instead, the ERISA fiduciary model revolves around what I will loosely characterize as "the process." If a fiduciary goes through an appropriate "process" to determine a course of action that follows another concept generally referred to as the "prudent man rule" (please look that up, as your paper will be much better if it references it), then the action (such as swapping out a fund) is not subject to Monday morning quarterbacking by the courts. The participants, such as yourself, however, aren't bound by such mundane matters as appropriate fiduciary conduct and, instead, as you have done, look to results. In the greater scheme of things, the ERISA fiduciary model has served plans well. Could you be talking about a plan that has snake-bit fiduciaries who seem to consistently make choices which turn out poorly? Certainly. But a single example of bad luck doesn't say anything about the system, as a whole. Yes, those participants aren't happy about what has taken place. But reviewing the decisions on the basis of results is not what the ERISA fiduciary model allows. If you equalize the investment IQ, and the time and ability to apply that IQ, then I would agree with you that a personal investment option would be far better. You may be interested in knowing that some companies provide for just this sort of option from within their company 401(k) plan. It goes by different names, but it is basically a system whereby a brokerage firm establishes a separate account for each participant and their 401(k) monies are allowed to be invested just as if they were in their own IRA. That is, the participant, and not the fiduciary, controls the buying and selling of securities. In such an option, the participant can usually invest in any marketable security and in some, can even invest in options. If an individual was in a position to weigh two job opportunities, where one offered such an account and the other didn't, and they held the belief that self-investment were wise, they would no doubt go to work for the company that provided this as an option. But most companies shy away from this option because of expense (it is certainly a much more expensive way to run a plan) and, to a lesser extent, the ERISA fiduciary model I have already mentioned. The exact reasons would take too long to get into, but maybe somebody else can provide a brief summary for you. The point I'm making is that there are others who agree with you that setting up a plan that maximizes the participant's control over their own investments is a "good thing." Theoretically, whether a company goes BK or not is irrelevant to the 401(k) funds. They are supposed to be kept separate and it is a rare case indeed where monies are stolen without recourse. I don't have the statistics but if you dig, my guess is that the risk is almost (but unfortunately not quite) non-existent. Note that I am separating out the theft of monies from the situation where the plan invests in company stock of the plan sponsor. Many agree with you that investment in company stock of the plan sponsor needs more controls than currently exist. The eggs/basket argument is one of them that makes a lot of sense when an individual's retirement is dependent, in large part, on the performance of that one security. So, no, having much of your money in a company 401(k) is dramatically different from having much of your money invested in a single security, unless that 401(k) invests primarily in, well, a single security (usually the plan sponsor's stock). This is a valid point. I sometimes wonder whether people recognize that they are better off, in the long run, to not contribute to a 401(k) in years where their tax rate would be extremely low. Admittedly, this is sometimes difficult to predict (as in "difficult" = "almost impossible"), but if it could be predicted, you are absolutely right. Keep in mind, though, that the company match makes the tax rate issue evaporate as it will always tip the scales in favor of investing in the 401(k). I invite you to fire up your favorite spreadsheet program and prove it. If I can cut your sentence off here, you again make a valid point. With the exception of investment monitoring overhead (it takes more effort to monitor your 401(k) and your IRA than it would to merely focus on a consolodated 401(k)), diversity is a "good thing" and should be encouraged. Don't understand that subsentence. Taxation of 401(k)'s and IRA's is essentially identical. You pay tax only on monies withdrawn and not on anything left in the account. Agreed as to the basic premise. But I believe you are speaking now to the investment in company stock, not the general ERISA fiduciary model. You need to ensure that you separate the themes in your paper or it will sound like an uninformed rant, which I know you want to avoid. Sorry to hear of your troubles, but this issue is a completely different one. The above were defined benefit plans and, unless my memory is faulty, most of the participants in those plans received 100% of the benefits that had been earned in the plans. Their benefits were paid from the PBGC (a governmental agency that is set up to provide just this sort of protection). And while the PBGC doesn't promise that 100% of everybody's pension will be protected, it does provide that most people will receive 100% of what they are promised. Generally, the folks at risk are those who are high income earners, such as pilots. The pilots at United, Delta, et al. have typically suffered significant reductions in their promised benefits. But the steel companies' employees don't make the kind of money that pilots make. I hope this provides you with some fodder for your continued research.

Trailerpat, this is a fascinating discussion. Your posts bring up many issues and it is very difficult to give short answers without giving short shrift answers. Being foolish, though, I shall try. Q from Trailerpat, as interpreted by me: If an individual has a choice to invest in a company 401(k) or a personal 401(k) wouldn't they be better off to invest in the personal 401(k)? Possible issues that impact on this one question: 1) What is this individual's investor IQ? For every individual you show me with an investor IQ that is "high", I will show you a hundred with investor IQ's that are "very, very low". 2) How much monitoring of investment choices does this individual want to engage in? For every plan that you show me which has made unfortunate, or even disastrous choices as far as investment funds, I can show you hundreds where individual investors have made far poorer choices. 3) Can this investor be trusted not to invest in scams? For every plan that has an unfortunate theft, I can can show you dozens where individuals have lost their IRA's to unscrupulous sales pitches. Each of these issues is a two-edged sword. If you vest the individual with rights, they also get the responsibilities. There is no such thing as a free lunch. Overall, ERISA's fiduciary model provides significant advantages for most participants. Does it absolutely provide that a company president or CFO can't conspire to systematically undermine the plan's investments? No, it doesn't. There are many other issues that tend to favor the employer sponsored plan over the individual model you theorize (even if it could be legislated into existence, which I doubt). Company matching contributions are not going to be made to an individual plan. As most financial advisors will attest, where else can you get a 25% to 100% return on your "new money" guaranteed, year after year. The primary issue that undermined ENRON's plan was the investment in company stock. While the other funds may not have performed spectacularly, they did not suffer a 100% loss. I could take your entire message apart, line by line, and provide fodder for each point, but time is limited. Suffice it to say that if employer 401(k) plans were a bad idea, on balance, they would be abandoned in favor of something else. Since they are growing by leaps and bounds, ERISA's fiduciary model must be doing something right. Have fun.

There is an old pronouncement (83-16 I think, and I'm not sure, but maybe an announcement, but possibly a revenue ruling - I don't have time to look it up) that basically says that with respect to account balances attributed to periods after 1983 the plan has to distribute pre- and post- tax accounts on a pro-rata basis. With respect to pre1984 amounts, the plan can choose any method it likes. The election is a plan level election and therefore applies to all in the plan. If you don't have any balances that old, then I think the general rule is that the distribution is supposed to be pro-rata. If the distribution, however, is from all post-tax monies, there is nothing to tax and therefore nothing to withhold (even voluntarily). Can anybody tell me whether my ancient memory is failing me on this issue?

It is 10/16. One must forgive those in the pension industry for being a bit out of sorts. The answer to the key question is a positive one. That is, when the only participant who is over age 50 is an HCE it is NOT discriminatory to allow for catchup contributions. As long as any other participant, should they come to you and report that their birth date on your records is inaccurate and you find that they are over 50 would be allowed to contribute to the plan such that they, too, could take advantage of the catchup provision. The other issue, as to whether a plan limit of zero is allowed as far as regular deferrals go, the answer is: nobody knows. My suggestion whenever this comes up is to arrange the plan so that it delineates regular from catchup contributions during the year. This is normally ill advised and is not necessary under the catchup regs. But you want it to be that way so you can: 1) set the limit of regular deferrals at a very low amount 2) submit the plan to the IRS for approval so they can confirm or deny (1) as being "ok". fwiw mike

There was a PLR a few years ago that said you not only could roll it over, but that minor differences in payroll processing dates (such as you would see if the prior employer paid its employees weekly, while the new employer pays twice a month) wouldn't cause the loan to fail 72(p). Good news all around, as long as the loan isn't extended. Just calculate a new payment amount based on it being paid off on the prior payoff date or before - not based on it being paid off on any date (even one day) beyond when it was previously scheduled to be paid off. Much more critical with respect to loans that are adhering to the 5 year rule, I would imagine, but then again, maybe just as critical in this case. The PLR was talking about, I think, 5 year loans, and while I suppose it is possible that a 20-year loan would be subject to less flexibility, I doubt it. But as already mentioned, if the new plan won't take it (and administer it), all of this is moot.

It might be helpful to look at the PS document that this provider has. If it has similar language, then it is obvious the drafter meant to include all plans. A secondary option is to go with a document provider that doesn't specify gateway rules in the document at all. What purpose does it serve?