Locust

Oops - sorry I see that you are talking about 457(e)(11) plans, which are not deferred compensation plans subject to ss 457(g).

You might want to look at Code ss 457(g). A rabbi trust does not work for a plan maintained by an "eligible employer" - that is a governmental employer. The assets must be separated from the government (that is they can't be owned by the government) and held by a trust or a particular type of custodial agreement "for the exclusive benefit of participants and their beneficiaries."

It's a mess. For current arrangements, I think we should wait. For new ones I suppose you could structure it as proposed by jpod, with the expectation that you would be able to refine it once a decision is made (whether 457 applies). If 457 doesn't apply, would you be able to remove the vesting? Probably ok under 409A. If 457 does apply, would you be able to condition vesting on non-competes or have rolling vesting? Maybe. - but that's another issue.

Seems messy, but it might work if it is really important to have the VEBA pay something. The VEBA can't pay for or subsidize the fiduciary's insurance benefit. If the rider is fairly priced (that is, it can be clearly verified by the VEBA that there is no subsidy from the VEBA), and if the fiduciary pays for the rider directly out of its own funds, it might be ok. The safest approach would for an independent fiduciary to authorize the VEBA's contract and the expenditure for the VEBA (because it could be seen as indirectly benefiting the fiduciary, so that the fiduciary shouldn't make that decision). It shouldn't be a reimbursement deal. I tend to take a fairly conservative approach to fiduciary issues (and most things). I wouldn't handle it the way you describe, because it raises fiduciary issues. I would structure it to keep the VEBA out of it, by having the company just purchase the insurance as a separate policy for the fiduciary outright.

If there's recource against the fiduciary, it's not what I would consider fiduciary insurance (that is insurance that protects the fiduciary), but insurance to protect the plan from harm caused by the fidicuary's action. If the idea is to protect the fiduciary, that insurance should be bought with corporate or the individual fiduciary's funds.

mjb - A court may enforce its orders. A court's contempt power extends beyond the immediate parties - for example, what if a witness refuses to testify, what if a corporation refuses to turn over documents, what if an employer refuses to withhold wages, what if a bank refuses to hand over the contents of safe deposit box? A QDRO is no different - it's an order of a domestic relations court directed to a plan administrator. You can argue that the state court has no jurisdiction over you while you're in the back of the squad car on the way to your local jail.

QDROphile - Q: How does a domestic relations court enforce its orders (such as a QDRO)? A: By threatening the plan administrator with contempt of court - fines at first and then ultimately jail. Would it come to this? Only in very rare circumstances - but it is the contempt power which is the basis for the court's authority to enforce its orders.

You've got the "correct" answer and the practical one. The plan administrator is supposed to comply with a QDRO, no matter how loony it may read. But if the plan administrator rejects a QDRO, saying that it is more likely to accept an order that uses its model, what are the alternate payee's choices: go back to the judge to ask for a contempt citation, or use the model? Any rational alternate payee is going to use the model. That's why anyone drafting an order ought to check with the plan administrator first to see if it has a model.

Military pensions are subject to an entirely different set of rules from the "qualified domestic relations order" rules that apply to most pensions. You need to get help from an expert in military divorces.

Call the Human Resources Department of his Company. If your brother had an account with a retirement plan with the Company, a Plan Committee or some committee or individual at the Company makes the decision of who is entitled to payment, not Fidelity. There may be a beneficiary designation form on file with the Company. Get the name and title of the person you talk to, take notes, and send a letter to that person confirming what you heard (certified mail/return receipt requested is a good way to mail). Create a file and keep copies of all of your correspondence.

I'd send the HR rep an e-mail stating the facts in a nonaccusatory way. It may be a miscommunication or a temporary thing. What I would be most interested in is how they respond. Do they respond quickly and give a good and thorough explanation, or do they procrastinate (or not respond) or give a lousy answer or one that shows annoyance? If the latter, you might want to consider another job - I would think that the type of employer you have is a more significant issue than a few months contributions. If you really think you're getting the shaft on the contributions, contact the EBSA of the DOL.

Your assumption is that the Plan passes testing. For some of the coverage rules the classification must be a reasonable business classification. See this excerpt from Reg. ss 1.410(b)-4(b) applicable to the "nondiscriminatory classification test." (a) In general. --A plan satisfies the nondiscriminatory classification test of this section for a plan year if and only if, for the plan year, the plan benefits the employees who qualify under a classification established by the employer in accordance with paragraph (b) of this section, and the classification of employees is nondiscriminatory under paragraph © of this section. (b) Reasonable classification established by the employer. --A classification is established by the employer in accordance with this paragraph (b) if and only if, based on all the facts and circumstances, the classification is reasonable and is established under objective business criteria that identify the category of employees who benefit under the plan. Reasonable classifications generally include specified job categories, nature of compensation (i.e., salaried or hourly), geographic location, and similar bona fide business criteria. An enumeration of employees by name or other specific criteria having substantially the same effect as an enumeration by name is not considered a reasonable classification.

You can exclude them on some classification other than "seasonal" if there is such a class. For example, maybe they are field workers that are employed only in season - you could exclude all field workers. This works only if the Plan meets the coverage rules with the exclusions.

I'm not an actuary, but since the benefit is expressed as a lifetime annuity (not as an accumulation), so that the life expectancy determines the term of payment, don't you have to take into account the mortality factor to determine the value of the benefit, whether payment occurs before or after retirement. Maybe the plan already takes that into account in how the lifetime benefit is expressed. Under common factors, there is a 1/15th reduction in the benefit for each year that payment begins before 65 (to 60) - another way to express that is that there is a 1/15th increase for every year between 60 and 65. That 1/15th increase primarily reflects the fact that the number of payments is decreased by one year (rather than the increased earnings) so the remaining payments should be greater to get to the same value.

How about this example. Partnership plan has 3 partners. They get together at the end of the year to decide on contributions. Partner A wants 25% of pay, partner B wants 5% of pay, and partner C wants 1% of pay. The partners decide to create 3 groups of participants who will receive different levels of contributions (group 1 25%, group 2 5% and group 3 1%) and lo and behold!! each partner gets into the group that coincides with the level of contribution he/she wants to pay. Is that ok? I think it depends on how it is done. First, is it done with a plan amendment or some fuzzy administrative document? Second, is it done before the end of the Plan Year. Third, what are the criteria for setting up the 3 groups? Is it just to accommodate the 3 partners' desired contributions? The approach that causes the least conceptual difficulty would be to adopt an amendment before the end of the year that establishes consistent understandable groups, such as senior partners, equity partners, junior partners, managers, secretaries, etc. I'm not sure if this is really an issue with the IRS. I can understand the IRS wanting to limit the use of volume submitter plans and protoypes, which receive the benefit of being ok without additional IRS review. If you allowed these types of plans to just have a fill-in-the blank where the groups are designated, you've given free rein to every type of group and every type of designation procedure (ex. "group 1 consists of those persons designated as highest benefit % participants by the managing partner", or worse, "group 1 consists of those employees designated by the managing partners and partners who elect group 1"), and you've basically eliminated the rule that says that allocations have to be determined by the plan document. Personally, I have difficulty understanding how the IRS allows designations of groups that do not have a normal business meaning (such as "Joe and Jill") but it does. With the addition of the 5% gateway contribution, it appears that the IRS has given up on this issue, with the deal being that if you put in 5% for everyone, you can do whatever you want for your control group of employees/partners. Comparability plans are a great deal for owners, and they deserve it for being such great guys and for sacrificing so much for our great economic system! Get em while you can. However. if owners and their advisors get too greedy, these plans may go away. We'll know when they start writing about them in the NY Times.

My statement was clearly unclear (and perhaps controversial). What I think is unclear and controversial is whether you can extend a vesting period in order to further defer taxation. This is the "rolling vesting" concept which has been common for 457(f) arrangements, but has been brought into question by the IRS proposed 409A regulations. namein... - I agree that converting the restricted stock to an unfunded promise to pay in the future (a SERP) doesn't work - what I'm not sure about is whether the rolling vesting concept would work for restricted stock.

The facts are still a little muddled (imho), but it appears that the stock has been transferred to the employee subject to the condition that he remain in service for a certain period of time. This is a standard restricted stock arrangement. If this is accurate, I don't think that you can say that the employee has already performed the services that "the services for which the stock grant were made already occurred." Under the facts above, you would have taxation when the vesting condition is met (unless a ss 83(b) election was made on transfer). I do not think 409A would apply. If your question is whether the employee could further defer taxation beyond the initial vesting date by adding a new vesting condition, I think that's unclear and controversial. It's like "rolling vesting" under the 457(f) rules. You might want to review what the IRS says about 457(f) plans - there are discussions of rolling vesting and whether it works with the enactment of 409A in the 457 message boards.

Restricted stock is property that is actually transferred subject to the risk of forfeiture for failure to perform services. It can't be subject to anything but 83. (In no case would a property transfer be governed by 409A.) Are you saying that the individual is willing to extend the vesting period - instead of being vested after 4 years, vest after 6 years? I don't know if that works; I don't think so; but I haven't gone through the analysis. Also what is "passage of time" vesting? No such thing under 83. It's not a vesting condition if it doesn't require the performance of services (or the forbearance). Unless you're talking about a promise to transfer stock sometime in the future - if so, it would be subject to 409A and you'd run into problems changing the payment date.

goldtpa - Your CPA has no idea what he's talking about. If you wrote the IRS, it would get you nowhere and worse you come off as foolish. It's probably unethical (if you're governed by professional standards). Do you want the word to get around that you report clients, even deadbeats, to the IRS? Locust

mjb - Wouldn't the plan document say that the participant is entitled to his entire account - where in the plan does it say that the plan administrator may withhold part of the payment until the appraisal comes in? Your point is that the plan literally requires payment (usually "as soon as practicable") after termination of employment, but your solution to my scenario shows that the literal terms of the plan can't always be followed. mjb and HarryO - I disagree. Sometimes following the rules of the plan exactly can cause more trouble than adjusting it to fit circumstances. This is a dangerous sounding statement, but that's the fiduciary's role that is judged by its prudence.

mjb - It is not as cut and dry as you say. There has to be some flexibility - that's part of the fiduciary's role to decide what is best for the plan. You can't always follow the terms of the plan exactly. An extreme example (for illustration): suppose a plan has real estate that is grossly overvalued, either because of a reduction in value because of some event or because of negligence by the trustee; a participant entitled to payment says pay me based on the full value - I think the plan administrator would be justified in saying "whoa," let's determine the actual value of your account before we pay you, it's going to take some time, but I want to be sure you get only what you're entitled to get (no more and no less). There may be a duty to follow the payment rules, but there is also a duty to protect plan assets for the remaining participants, and the latter would prevail in this situation. There's not going to be evidence or authority for whether a fiduciary act of this sort - one where a fiduciary has to exercise discretion to delay payments for the benefit of all participants - except in egregious situations. Can you give me "evidence or authority" for the proposition that the decision of a fiduciary to delay payment for reasons the fiduciary reasonably thinks are legitimate (the prudence standard) results in fiduciary liability? With that said, I don't think there is anything wrong with the advice to pay out, assuming there is no compelling reason to think that the payment amounts are wrong.

mjb - I don't know that the IRS or the DOL have said anything on the issue one way or the other. I think it is a fiduciary decision. There are many events that occur that require the fiduciary to decide what to do that may not be covered by the 4 corners of the plan documents. For example, suppose that assets are missing or have been overvalued or have had significant reductions in value, or data is lost or ambiguous or wrong, or contributions haven't been made - these are instances where it might be prudent to delay payments until everything is resolved. I think a legitimate argument can be made that it is within a fiduciary's discretion to temporarily suspend payments when a plan is terminated because it protects the interests of all plan participants not just those who have terminated employment. Gburns - I was addressing RTK's question of suspensions when a plan is terminated.

The justifications are that 1. Termination is an extraordinary plan event that is sometimes related to an extraordinary event for the plan sponsor (such as a takeover) that takes the plan out of its regular administrative routine. You may have numerous (or all) employees who are terminating employment. Everyone will be 100% vested and entitled to payment. Investments have to be liquidated; final account balances have to be determined. All of this leads to confusion and the possibility of making mistakes. To keep things under control (and to state in a fiduciary context, to ensure that everyone gets what he or she is entitled to, no more and no less), the fiduciary makes a decision to temporarily suspend payments for everyone until assets are liquidated, data is collected, and everything is right. 2. A significant issue in the IRS review is vesting and allocation of contributions (partial termination, discontinuance of contributions, top heavy). It is possible that the IRS would require a reallocation of contributions or forfeitures as a result of its review. Payments are delayed in the event that such a reallocation would be required. Suppose everyone terminated employment so that everyone was paid before the IRS finished it review, and then the IRS said the allocations were all wrong? Once payments are made, they can't be taken back. In the fiduciary context, payments are suspended until the IRS confirms that the allocations are correct. It comes down to a decision that a suspension is prudent in order to get everything right, which can be confirmed by IRS approval.

The distinction between a stock acquisition and an asset acquisition is that with the former an employee doesn't terminate employment just because of the acquisition - only if he or she actually loses his or her job. [mm - I wasn't sure from your posts if you actually lost your job.] If it is a stock acquistion, an employee who has not lost his or her job can get paid only if the plan is terminated, and in that case payments would not be made until the plan sponsor was ready, generally after the IRS reviews and approves the terminatioin. Also, some plan sponsors freeze all benefit payments, even those for terminated employees, when a plan is terminated. There are administrative and fiduciary justifications for this.

Each situation is different, but it is not unusual for a plan to take 18 months to be terminated, and sometimes payments are delayed until the completion of the termination. Here's a possible schedule: 1. 2 - 3 months - get the plan ready for IRS filing (sometimes the plan will be filed with the IRS for review) 2. 10-14 months before the IRS responds 3. 1 to 2 months to resolve issues with IRS 4. 2 to 3 months to communicate with participants and process payments Each of these steps can take more or less time. Notwithstanding the fact that some plan terminations may take a long time, it is something you should look into. At the least you'll add some pressure on the persons handling the termination and your payment to move it along - sometimes this sort of thing gets put on the back burner. Or, you may find that there are problems. If you find a problem, or if you are stonewalled on your inquiries, I would call the Department of Labor, the investment company, the recordkeeper, the new owners and everyone else who had anything to do with it. I'd also call my friends who also have accounts to share information. Also, so far as getting the SPD, the best bet is the company. Call and follow up with a letter. If you don't get a response, contact the Department of Labor.