Locust

As a practical matter it seems unlikely that the company would forfeit employees' benefits under the Plan, and just as unlikely that the IRS would retroactively disqualify the plan. I don't think the IRS is working on the determination letter at all - I beleive the IRS still has a suspension on the issuance of any determination letters for cash balance plans. As I see it, the IRS decision to suspend the issuance of determination letters for cash balance plans isn't as a result of concerns about their qualification; it's more political - a way to discourage employers from implementing them until the various issues are worked out. You do have the rate of accrual issue, but since the IRS didn't initially think there was anything wrong and hasn't formally taken a position, I would think it will be give some sort of transitional relief if it decides that the rate of accrual issue is a concern. I think the greater danger for a company that has a cash balance plan is the age discrimination issue, because it is a claim that resides with older employees (not the IRS) and would be expensive to correct. IMHO, the practical issue the company has is whether to suspend further accruals.

If the exercise price is determined by some event, such as a financing that comes through or a sale, could the arrangement be structured so that the grant is not considered made until the event? For example, we agree to grant you X options at the date of the financing at the price established by the financing. This might work if the employee was required to be in service at the date of the financing - arguably the financing event would be considered a service condition such that the options were not earned (or granted) until the financing event. On the other hand if the determinatin of the exercise price is being delayed for administrative reasons I don't think that would work, and the arrangement might have to provide that the exercise price will be no less than the FMV at the date of grant.

I have some prior experience with Vanguard and its 403(b) documents (3 or 4 years ago). At that time their administration for smaller nonprofits was different for plans that had employer contributions because a nonprofit (other than a church) that puts employer money into the plan is an ERISA plan, requiring more employer involvement and a more extensive document. At that time they wouldn't do a document with employer contributions unless it was a significant account. This may have changed. You've got an unusual situation because the rules, including the nondiscrimination rules, for churches are different, and you probably would do well to get a specialist in 403(b) plans involved. You might want to check to see if you have someone like that in your congregation - an attorney, CPA, or noninterested investment advisor.

I think your issues are the expenses and the advisors. Good luck on getting the hospital administrators to do anything about it. Problems you might find: 1. the advisors are getting paid a lot and may have used their compensation to develop personal relationships with the administrators - in the worst case scenario you may find that the administrators are receiving benefits from the relationship such as golf, and "seminar" outings, and in the worst worst case you may find that the advisors are relatives or close friends of the administrators; 2. under the current arrangement, the advisors are taking care of everything from enrollment to payment, and this is not something the hospital will want to mess with because it adds to its responsibilities; 3. the advisors control all the data - does the hospital even have an accounting of the assets; and 4. can you imagine the mess and cost of trying to move the money from a hundred funds, many of which probably have back end loads, to a few reasonable funds and consolidated administration? Who would pay for that?

The issue all of these posts skirt around is what do you do when you know that the client is doing something "technically" wrong, but you don't think the client would ever get caught by the IRS. If you're a lawyer, a CPA, an actuary, or an enrolled agent, you'd better be very careful. You can't tell your client - "it's a technical problem, but the IRS will never catch you," or "it's probably wrong but the chances of your being audited on it are low." That would be an ethical lapse that could land you - the adviser - in hot water with the IRS. The IRS might consider this to be aiding the client to evade taxes. All of the rules that we deal with are "technical." Do we tell our clients to ignore some rules because they are too technical, but to comply with all the rest? I believe our role is to help the client work through the rules and to do it right, not to assist the client in evading taxes.

As a practical matter, the judge will want to have both parties sign off on the order before he or she will sign it. The alternative is to have some sort of adversarial review, which is a waste when all that is required is that the order conform with the terms of the divorce decree - there shouldn't be anything new in the order - and this should be something that the parties can agree to before it gets to the judge. In other words, your best bet is to work cooperatively with the other side to get the order drafted and approved. So that you don't have problems with the plan, you should also get the plan to sign off on it. BTW - I expect your lawyer was glad to be fired.

Co-employer means a PEO. This is a big step. In my experience ADP sales is ahead of its capabilities.

Wouldn't payment of a note be a loan from the participant to the plan - a prohibited transaction?

There are rulings that say a public employer can have a dual status - governmental under ERISA and the the Code, and also 501©(3) organization [of course 501©(3) status requires an IRS letter - I always ask to see a copy of it, and sometimes it doesn't exist - lots of confusion about 501©(3) status], and that as a 501©(3) organization it can have a 403(b) plan.

Governmental employers are exempt from ERISA but may have to meet funding requirements established by the state (ex. the State of NJ might require all NJ governmental employers to meet certain funding requirements).

The easiest approach would be to terminate the NQDC in 2005 and pay it all out in 2005 before the sale of assets. If you don't do this in 2005, I suppose you might be able to terminate in 2006 under some change of control rule, but it would be more straightforward to do it in 2005 under the 409A transitional rule [that allows termination of NQDC in 2005 without penalty].

You definitely need expert legal help with this. You probably have a prohibited transaction unless a class exemption is available. Also prohibited transactions are possible within the hedge fund as the hedge fund assets may be considered plan assets. You need somebody who can look at the specifics of your transaction, determine if it would be prohibited, and if so, determine whether the transaction can be fit into a class exemption.

That's a good idea, Harry O. It's wouldn't be exactly what the client wants, but maybe there is something to work with. The client wants the obligation to make the payment, but it also wants to be able to negotiate the timing of the payments as part of the sale negotiation. In other words if the buyer balks at paying out a big cash payment at the sale, it could negotiate payment in installments over a 5 or 10 year period.

A client has an arrangement with executives to pay them a bonus if the client goes public or is sold (liquidation event). The client wants some flexibility on when to pay the bonus after the liquidation event - if there is enough cash available at the time it would pay out the entire bonus immediately, otherwise it would pay it out over time (ex. over a 5 year period). There would be a period before the actual liquidation event in which the parties could work out the payment details, which would be in place before the liquidation event. Can you do this under the new 409A rules? I don't think you can, at least under the proposed regulations. The proposed regulations seem to say that you either have to make an election 1. before the compensation was earned (I suppose this means before the original agreement), or 2. 12 months before the liquidation event and the payment date has to be at least 5 years from the liquidation event - the liquidation date is treated as the original payment date that can be delayed only under the 1 year/5year rule. Neither would work here - there's no way to know when payment should be made until shortly before the liquidation event. This is impractical for my client and puts it in a big bind. Am I reading the proposed regulations correctly? Any suggestions would be appreciated.

[Assuming the LLC is taxed as a partnership] there is no reason that the partnership could not impose a service condition on payment of a bonus. As a partner, the compensation will be considered partnership (self employment) income. [Any compensation received by a partner, whether for services or capital interests, is partnership income and not income as an employee.] The bonus won't be considered a deferral at all if the bonus is paid by 3/15 of the year following vesting. If it is not paid by 3/15 it might have to meet the 409A rules, which can be tricky when there is a risk of forfeiture.

Another issue that hasn't been mentioned [presumably because it isn't an issue], but I'll point it out anyway. If the general partners of the LLC have connections with the fiduciary of the plan that directs the investment, you could have a prohibited transaction. I run into situations in which a sole proprietor with a pension plan wishes to invest plan assets in related entities, such as an LLC in which the sole proprietor is the general partner or a corporation in which the sole proprietor is a director or owner. Generally not allowed because of the conflict of interest.

I would say that the person who has has the responsibility for implementing investment instructions is a fiduciary for that limited purpose, whether the person is labeled a fiduciary in some document and whether or not the person explicitly recognizes that he or she is a fiduciary. Under this analysis, the mutual fund that takes responsibility for receiving and implementing investment instructions is a fiduciary for that purpose, the documentation for the arrangement recognizes this, and the mutual fund is identified as being the person with this responsibility - so in an arrangement in which a mutual fund receives and implements investment instructions, I would think that the 404© requirement is met. On the other hand when you have a TPA implementing the instructions, I would think the documentation given to participants would have to identify the TPA and the TPA's responsibilities. Those responsibilities, if accepted by deed or document, would make the TPA a fiduciary. If the TPA doesn't want that fiduciary responsibility, it could structure the arrangement so that it was acting as a nondiscretionary agent of the fiduciary, with the TPA responsible for administrative chores only, but this would require some other fiduciary to be ultimately responsible and identified. Perhaps the CFO or HR Director could be the fiduciary for this purpose; this of course would require the CFO or HR Director to be involved in the process at some level.

Investment consultants have to eat too. At least you have some idea what you're paying. Is it worth it? If not, try to get it changed or drop it.

katieinny - If you're a lawyer, the participant is with the right person, as this is a judgment call requiring good legal judgment. There's not a good and definite answer. In a similar situation with which I am familiar, the company didn't require the retirees to return the money. It was a big plan and it would have put the retirees (who were not at all wealthy) into dire straits, so the company absorbed the loss rather than endure the bad publicity of going after destitute former employees. Obviously, it depends on the facts - how big was the payment and what effect will not getting it back have on the plan's funding, as well as the situation of your participant (is he rich or will his life be ruined?). Sometimes these letters are sent out asking for refunds because of a belief that it is a fiduciary duty to do so, or in order to meet some insurance requirement. Also, it is possible that the actuary or consultant made the mistake and has agreed to cover the loss, but won't pay off until the plan asks for the participant to give the refund. You have to gauge all of this in deciding how to react. Sometimes s simple response ("no") is the best reaction.

Seems sort of risky to me. Maybe the attorney had a conversation with an IRS rep who gave this advice. What about an amendment to take care of the problem on a prospective basis?

Innovation is not rewarded - HSAs are another example. Recordkeepers/investment companies do not want to incur the costs or take the risk of adding new messy features, while the software vendors are still trying to recoup their original investments. Roth is a good idea, and one that appeals to the company's decisionmakers, but [at least this year] no one is going to lose any business because they don't offer Roth.

You might want to look at the requirement that all employees be allowed to make elective deferrals to a 403(b) plan. Issues: 1. Are the two hospitals in a controlled group? 2. Does the contribution to the MPP eliminate the requirement to allow the MPP participants to make elective deferrals under the 403(b) plan? [Related: what do you do about ees who are not eligible for the MPP plan contribution?]. I think you could find guidance for this in the proposed 403(b) regulations. Since the groups covered by the 2 plans do not overlap, you wouldn't have an issue of coordinating the variou contribution limits.

I think the purpose of the these provisions in some states' wage and hour laws is to eliminate all doubt that the employee knows about the payroll deduction and agreed to it. You have the issue of whether ERISA preempts state law. You also have the issue of remedies. Maybe the worst that can happen to the company is that the company has to refund the deferrals if requested by the employee?

What was the answer? Doesn't NC require a "writing" to reduce pay?

The way I'm reading your post, the Plan is considering purchasing qualifying real property subject to a mortgage? This would be incredibly complex and I think only the largest plans in the world would qualify - look at the definition of "qualifying real property" (this is the 7-11 exemption), and the mortgage raises issues too.