Locust

I see a few of issues. First, the plan with the forfeitures may have required that they be allocated in prior periods - these would be accrued benefits and to take them away would be prohibited. Also, there may be an obligation in the plan with the forfeitures to allocate current assets - for example a provision that amounts fofeited in the year will be allocated to all participants who have 501 hours that year. Second, I've always thought that you couldn't transfer unallocated assets in a plan merger - there used to be (maybe still is) a rule that says that the assets of the plan that are merged must equal the value of "participant" accounts after the merger. Forfeiture accounts are not participant accounts so if you didn't allocate forfeitures (and other suspense accounts) before the merger, you wouldn't meet this rule. I'm not sure where this rule comes from - perhaps the instructions for the Form 5310 (are these still filed?) Maybe this is not the rule anymore. Finally, I just think it is better practice to allocate before the merger - the expectation (reasonable I think) of the participants in the plan being merged is that they are entitled to the forfeitures.

Pres. Bush is touting HSAs as a solution to our health insurance problems, and it is expected that legislation will be proposed that will increase the limits on contributions. What do you think? Personally the whole thing bothers me. It seems to be another political band aid that the politicians put together to avoid having to make hard decisions. I admit that what also bothers me are the "true believers" out there who think that the free market will cure everything if it is just allowed to function. An article recently in the Washington Post gave described an HSA participant who said he couldn't and didn't try to bargain with health care providers when his son had to go to the hospital - something to the effect that you can't bargain when a loved one is in an emergency situation. Doesn't this illustrate the fallacy of HSAs? Will anyone ever bargain on life or death decisions? Aren't the major costs of the system in serious illnesses, end of life, coverage of the uninsured, and the adminstrative costs of the system (the costs of paperwork and administration by providers and insurance companies). Do HSAs do anything about these costs?

Can't you test the plans separately for coverage through the end of the 2006 year (end of plan year ending after plan year of acquisition). It's a transitional rule for acquisitions that should still apply. Also, if it's permissive aggregation, you'd have to meet all of the rules of permissive aggregation, wouldn't you? If a condition of permissive aggregation is that you use the same testing methods, that is what you'd have to do.

1. Yes they have the right to defer if that is what the plan says. Rule # 1: Do what the plan says. Rule #2: Be sure the plan says what it should. However, nonresident aliens are always excluded in running the coverage tests, even if they are covered by the plan. See Code ss 410(b)(3)©. 2. See Janet M's comment. 3. Nonresident aliens are always excluded in runnng the coverage tests - they don't help and they don't hurt. With all this, it may not be a big deal that the plan doesn't not exclude.

MJB - Thanks. It's possible that the value of the annual increases do fall within the 457(b) limits, and I'll look into that. One of the things that would have to change would be the addition of the 457(b) limits to the plan document - 457(b) doesn't apply unless the limits are stated in the plan document. Any comments on the ascertainable amount rule and 457(f)?

I'm reviewing an actuary's draft of a SERP that has been proposed for the boss of a governmental hospital. It provides for 100% vesting of the benefit immediately, but the formula is a defined benefit formula based on final pay at normal retirement with an offset for a qualified plan benefit and Social Security. Payment is made in a lump sum (actuarial equivalent of benefit) right after retirement. The assumption I think is that the executive won't be taxed for income tax or FICA until he retires, because the amount payable to him won't be "ascertainable" until then. I know that the FICA rules do not require taxation until the benefit is ascertainable, and that won't occur until the boss terminates employment. [However, I believe that the rules allow the employer to include in FICA when earned, even though not ascertainable.] But what about for income tax purposes? There's an IRS Technical Advice Memo (Ltr 199903032) that says that the rules are different and that in this situation, the executive is income taxed when he is vested - which would mean in this situation that he's taxed every year that he accrues benefits. You'd have an unusual situation - income tax in one year and FICA taxes later. Question: What is the practice out there for defined benefit 457(f) arrangements? Would you feel comfortable with delaying income tax until the benefit is "ascertainable"?

MJB - Your argument that a failure to make elective contributions is not an operational failure because the mised contributions never became plan assets is a new to me, and I don't agree. What about top heavy contributions? Wouldn't it be a qualification (and operational) defect if top heavy contributions weren't made - the defect being that the employer didn't follow the terms of the plan requiring the contribution? Also, isn't the plan administrator always the employer, either because it is the plan administrator directly, or the plan administrator is working as its agent?

414(s) is used for testing, and in a 401(k) plan, you don't necessarily have to have a 414(s) definition in determining elective and matching contributions. I think a good approach is to use total w-2 compensation with elective contributions added back in - this is an acceptable 414(s) definition because it is safe harbor - in determining the ADP and ACP percetnages. If the test passes, it doesn't matter what your definition is for elective and matching contributions. If the definition for elective and matching contributions excludes bonuses and only highly compensated employees get bonuses, this approach results in lower ADP/ACP percentage. Review the boilerplate plan language - it probably allows the use of any 414(s) definition of compensation in determining the ADP/ACP percentages.

Kirk - The facts stated in the opinion are a little fuzzy, but it appears to me that the assets were held in a single trust and constituted a single pool of assets: Contributions by Participating Employers and by employees are held in a trust maintained in connection with these profit sharing programs (the Trust). The language that you quote does seem to emphasize the fact that the participating employers were related and benefits were provided under a single set of plan provisions, but I think that was to emphasize the point that the assets were available to provide benefits across company lines for all participants - another indicator besides the single trust that the assets were a single pool of assets. To extend these facts to a situation where you would have separate trusts covering different sets of benefits is I think a stretch. This opinion might be relevant to the situation at hand if it covered several trusts, but it seems to be dealing with just one, so the point I take from this opinion is that a plan is a single pool of assets available to provide benefits to specified participants.

That's the deal, but it sounds suspicious that no hnce would defer, but I'm the suspicious sort.

Kirk - I'm not familiar with that opinion. I took a quick look at it, and it appears consistent with the idea that each pool of assets is a separate plan. Here's language from the Opinion: "Further, the Plan provides that if the profits of a Participating Employer should be insufficient to make a contribution which such Employer is required to make to the Plan, other Participating Employers may make such contribution. Because the Plan provides for the pooling of all the assets in the Trust, and for allocation to each participant's account of a proportionate share of the gains and losses on such pooled assets, the financial information with respect to which an accountant's opinion would be required under section 103(a)(3)(A) of ERISA is relevant to all the participants." If the plans are set up so that each has its own trust, so that participants for a particular plan may look to only one of the trusts for payment of their benefits, that would be a separate pool of assets, and therefore a separate plan, and the audit requirements would apply to that "plan" independently of the company's other plans.

As a matter of practice, why not give a memo to rehired participants saying here is the SPD and you may have repayment rights as described on p. __ of the SPD. This type of notice would avoid hard feelings and perhaps a mess later on if the employee misses the deadline.

You have a funded plan and will have to file a 5500 and the schedules applicable to assets (H or I) - may also have to be audited if you have more than 100 participants.

A 5500 has to be filed for each "plan," which is defined as each separate pool of plan assets. There's no aggregation of plans within an employer in determining the 100 participant limit - each plan stands on its own. You could split the single plan into muliple plans by spinning off assets to new plans, but the whole situation would be much more complex. How expensive is it to audit this plan (rhetorical question)? Spinning the plans off is a lot of effort and additional expense to avoid an audit.

The doctors had to sign the contract - that was voluntary and could be considered a waiver. The way to interpret the plan consistently with the contract is to consider the contract a waiver. Anyone challenging that interpretation would have an uphill battle as the plan administrator is entitled to interpret the plan. Of course, it could be clearer.

Lots of bells ringing on this one. I'd be concerned about the confidentiality agreement. That indicates a strained interpretation of the rules. The hearsay (the attorney for the other potential client that can't give you the details) about it's being ok under ERISA and the Code is suspicious. Businesses often will do something aggressive if they think other businesses are doing it - sales people know this and exploit it. Finally, the payment scheme would bother me - it encourages the agent to put together the most aggressive scheme - but ultimately your company would be on the hook it it didn't work in the end.

It's also possible that the plan document allows otherwise eligible employees to waive participation - the employment contract might be consider a waiver under that clause; that might be a way to find the plan and employment contract consistent.

I don't think individuals can own a nonprofit company. The nonprofit could have a 457 plan but it would have to be restricted to the top hat group (top executives) and it would have to be unfunded. It sounds to me like there might be some confusion over the status of the nonprofit. Is this a foundation controlled by an individual? Is that why it is considered "owned" by the individuals?

I'd want to know the facts - what was actually done and if the SPD had been distributed and whether the plan is top heavy. Also, it may be a no harm no foul situation.

If there are assets other than insurance contracts, you'll need a trust. ERISA 403(b)

Several posters to this thread say in essence that getting an attorney involved for a "simple" DOL inquiry is a waste of money. That is a stupid statement. In my experience most serious problems with plans are caused by TPAs/consultants/investment advisers who think they know it all. A company's lawyer will have a better appreciation and broader perspective of the company's situation than others, and confidentiality protections could be absolutely vital. The attorney knows stuff about the company the plan advisers will never know, and to keep the attorney out of the loop is "penny wise but pound foolish."

Thoughts - sale to an owner would be prohibited; sell it to a unrelated third party; distribute it to an owner who is due payment in an in-kind distribution; set up the lp in a separate trust with an owner as the trustee; get an exemption from the DOL if nothing else works; consider a new recordkeeper/trustee/bundled person.

2 things to consider: the buyer in an asset sale can assume the plan by formally agreeing to be the plan sponsor; review the plan document to see how it defines "severance from employment". You want to make sure that the transaction is structured so it is not considered a severance from employment of the employees in the sold company, as severance from employment would entitle them to be paid. [i get confused trying to remember how the severance from employment rules work in this situation - but the plan document should say - if it's a prototype there's probably a section where this definition is established.]

Getting back to the original question, can't the TPA just reduce its fees by the amount of 12b1 payments it receives?

I would put it a little differently. If the NQDC was earned for services as an employee, use the W-2. If the NQDC was earned for services as an independent contractor, file a 1099-Misc.