Locust

It's sort of a philosophy question - what is an amendment? It's better to have a separate document that is labeled an amendment because that's what people expect to see. No philosophical questions then. But I would say that any writing that is adopted by the Board and that would include a resolution that acts upon the Plan is an amendment to the Plan.

Stockholders are required to terminate health plan immediately before they sell their stock to a purchaser that is part of a controlled group. There are no other health plans with the sold company (or any member of its controlled group) after the termination. The terminated health plan had COBRA participants. The purchaser will provide health coverage to the employees of the sold company once the stock purchase is completed - these employees will have no gap in coverage because immediately after the health plan is terminated, they will be covered by the purchaser's health plan. Q: Will the COBRA participants of the terminated plan be cut off and not have COBRA coverage under the purchaser's plan? Suppose there is a gap in coverage of a full day, or a week, or a month? Does that make a difference?

Is the coverage of the union employees in the plans required by the collective bargaining agreement? If so, I believe the union employees can be disregarded in testing for coverage and in running the nondiscrimination tests. I think the plans also get a pass on top heavy for union employees in this situation. If the plans have the same plan years, they can be permissively aggregated and tested for coverage and nondiscrimination together. You would aggregate the plans, and see what the results of the tests are. You'd also have to aggregate for top heavy if you permissively aggregate. If the tests aren't met, you have to do some sort of correction. If you're outside the period for correction under the regular correction rules (such as distributions for excess contributions, or amendment for coverage), you might have to go through VCP. A VCP filed with the IRS might be more favorable for the company than a correction according to the regular rules; for example, you might convince the IRS to allow a reallocation of profit sharing contributions already allocated to highly compensated employees rather than making additional contributions to all of the nonhighly compensated employees. If the plan years are not the same, it's more complicated. I've got a situation like that. I think we'll have to mash everything together and work out something that seems favorable to the nonghighly compensated employees - the top heavy contribution will somehow have to be made, and the 401(k) tests too - maybe reallocate contributions and fully vest them, and put in additional money to make it work - and hope the IRS will accept that. If you have any ideas on this situation, I'd appreciate them.

Don't know about the 60 days (may be too long?) but the only 2 payment events,- change in control and separation from service, are permissible payment events. The concern with 60 days is that it would allow the executive to time the compensation - could delay into the next tax year - and this does not meet the short term deferral exception because vesting occurs when the options are granted. Maybe it should be the earlier of 60 days or the end of the calendar year in which he change in control or separation occurs?

The rules seem clear that when a highly compensated employee is eligible to participate in 2 plans of an employer that the elective contributions are aggregated in determining the actual deferral rate for the employee in both plans. This rule is in both plan documents. OK - so if a corrective distribution is required from plan but the elective contributions in plan 1 are NOT sufficient to correct, can payment be made from the 2d plan? Neither plan document contemplates this possibility. It's really complicated because the plans have different plan years.

A client wants to allow participants who have attained age 59 1/2 to withdraw elective contribution and matching accounts on request. Didn't there used to be an IRS restriction on that - to prevent participants from withdrawing their contributions as soon as they were credited to their accounts? Was all this replaced by 401(k) and 401(m) (I'm showing my age)? In your experience, what is a normal restriction for age 59 1/2 withdrawals - once a year?

Some bank/trustees, when the check is cut, transfer the funds to a payment account that the trustee does not consider part of plan assets, and when the check is cashed, the payment comes from this account. For escheat purposes the bank now holds the funds. When a plan is terminated, this can be a helpful distinction.

Steelerfan and chaz - yes, the reference should have been to service recipient. Also - I went to an IRS meeting in D.C. on Friday (ABA Tax Section) and this issue came up, and the IRS (Stephen ? and Bill Schmidt - drafters of regs I think) said no 409A problem with service recipient (got it right this time) accelerating vesting (and payment) for an agreement that was already a short term deferral. Also, Steelerfan - I think you were the one with whom I had the discussion about short term deferrals and severance agreements. I talked to IRS Stephen (see above) who confirmed your position - ok to designate part of severance as a st deferral to fit within the severance exception - for example, to the extent that payments would exceed 2 * pay, it will be paid within st deferral period. He said the rationale was that it would only be paid on an involuntary termination of service (the vesting requirement), so the IRS wasn't as concerned with the possibility of abuse.

Does an agreement that says that vesting occurs only after 3 years of service, that payment occurs as soon as the service provider is vested, and that the service recipient has the authority to accelerate, meet 409A? I would think it would be ok (would not violate 409A), because the agreement is never subject to 409A because it's always excepted under the short term deferral rule, so that there's no prohibition against the service provider accelerating vesting and payment. On the other hand I have this nagging thought that maybe it is a problem, because the service recipient has the discretion to determine the timing of payment and taxation.

A Cash balance plan would really be problematic as a hybrid; it would be hard to tell when to apply the "entire plan" theory or the individual account theory. Likely the answer would depend on the nature of the breach, the approprate remedy and whether the behavior affects the "individual account" aspects of the plan or the "defined benefit" nature of the plan Steelerfan - Regarding your comment above, I think this gets to the issue. Can you treat a cash balance plan as a hybrid, using db funding rules and dc accrual rules? As a old ERISA person, I know that ERISA never contemplated such a vehicle and that the rules were not set up that way - it's either a db plan or a dc plan. So if you're of the "original intention" school, I'd think you'd have to say that a cash balance plan is a db plan and has to meet all of the rules applicable to db plans. On the other hand if you are a "realist" or wish to take into account "current trends" or are just an old-fashioned "judicial activist," you might want to allow and construct some sort of hybrid structure, applying db plan rules when "appropriate" (such as funding), and dc plan rules when "appropriate" (such as benefit accrual) because that's what a lot of people want. That's certainly what the 6th Circuit did in my view.

Roberts opinion doesn't make a lot of sense to me. On the one hand he affirms the majority decision that there is a claim somewhere, but then he says that if the court had considered 502(a)(1) maybe he didn't really have a claim. Not very helpful - it seems like he thinks that in this instance the participant was harmed and ought to have a remedy, but he doesn't want to say that out loud because he doesn't want to give too much away to plaintiffs, so he just says yeah he can sue but I'm not saying why. The whole discussion of whether to consider the "landscape" of employee benefit plans is interesting. In one way Thomas' opinion saying that you shouldn't take into account "trends in the pension plan market" and you should just say that it's ok to sue a fiduciary for harm to a participant's individual account because that is harm to the plan is appealing, but I think it unrealistic and would result in convoluted interpretations because the landscape has in fact changed so much since 1974. Interpretation by "original intention" is ok in some contexts, but here? Finally, I wonder what this opinion bodes for the cash balance cases where participants claim that the accrual rate rules for defined benefit plans are violated by the cash balance formula. There seems to be a recognition in the majority opinion that db plan rules are different, and Thomas talks about what ERISA originally said (without regard to the trends in the pension plan market). This would seem to favor the cash balance participants - unless the majority takes into account the changing landscape and concludes that the original understanding of the accrual rate rules shouldn't apply to cash balance plans. On the other hand favoring participants in these cases is not what Roberts and Thomas like to do - they are more free market types it seems to me - so would they take into account current trends in looking at cash balance plans?

The issue is "permanence" - a condition of qualification is that the plan must be intended to be permanent when established and if it is terminated shortly after it is established, this indicates you didn't have that intent, so if you do that you'd better have a good reason to do so (other than wanting to get the money). The idea is that you can't set up a plan to get a deduction for a profitable year and then terminate it in the next plan year (or so) - of course this rule dates to a period before the 10% penalty on early distributions. You probably don't need a good reason if the plan has been in existence for a while. With that said, it's a bad idea to terminate the plan just because your new TPA doesn't want to go to the effort of adding 401(k) features.

That money is yours once it is in the Roth IRA. You can transfer from that Roth IRA to a Roth IRA with a brokerage company you choose.

The concept is that anyone who is in the position to embezzle the money has to be bonded. So trustees, a committee that authorizes payment, or an investment person who can actually direct investments would have to be bonded.

The big boss of a major client recently divorced, and as part of the divorce he agreed to name his children as the beneficiary of his death benefits under a qualified plan and 457 arrangement, and for most of his death benefits under various life insurance arrangements provided by the client. The former spouse wants assurance that the beneficiary designations have been made, that they will remain in place, and that they will be honored by the plans; and the boss wants assurance that there will be no further claims against his benefits (other than those rights granted under the agreement). They want to do all this without going back to the judge. One of the qualified plans is a defined benefit plan that provides that the death benefit will go to the spouse unless the spouse has approved another beneficiary. I know that can't be changed except with a domestic relations order. So my question really relates to beneficiary designations that the plans say are entirely within the discretion of the employee - can the employee direct the plans not to recognize any changes except with the spouse's consent. Do you have any suggestions of what might work to meet these goals. I would think this was a fairly common scenario - how do companies handle it? Happy new year, and thanks for your help.