Kirk Maldonado

vebaguru: Thanks for your insight on this point.

Both. It gets confusing. For example, a partner is self-employed with respect to his or her income from the partnership, but is not an independent contractor with respect to the partnership.

rcline46: If you only double your fee for a QSLOB, you are very, very cheap, assuming that you will make the determnation of whether there is a QSLOB. I've only had one client in over twenty years that would fit into the QSLOB definition, and they didn't need to qualify as a QSLOB. The IRS said that they only expected 750 companies in the country to qualify as QSLOBs.

I thought (but didn't verify) that the DOL has said that you can't use plan assets to pay DFVC fees. If you can't use plan assets to pay the fees, isn't using plan assets to pay for preparing the filings circumventing that rule? On the other hand, if the filing was done on a timely basis, the plan could pay for the preparation of the fiilngs, so why should it matter when the filings are prepared? As usual, I have more questions than answers.

The best article I've ever seen on this topic was a recent one written by Alden Bianchi and published in Compensation Planning Journal (a BNA publication). He gives you a good roadmap through the history of deferred compensation before he launches into a discussion of the section 409A rules. It is valuable reading whether you are a neophyte or an expert.

taylorjeff: In the clients that I've had look at the Exec-U-Care Policy, there was no way possible that the insurance company could lose a penny. There is always a theoretical risk that it could happen, but it is a lot less than the risk of the executive being hit by a meteor in the next twelve months. You wouldn't by any chance be affiliated with one of the insurance companies or help them market that product by any chance, would you? Your arguments are a bit too impassioned for somebody who doesn't have a financial interest in the marketing of these products. I have no financial interest in whether my clients buy those policies. I just don't want them to get involved in something that may not produce the tax results that they proffer. Also, I'd like to see a current opinion from a major accounting firm or law firm. I'll bet that the new restrictions in Circular 230 will effectively preclude any favorable opinions on these contracts. Furthermore, if it was clear that these contracts work, why would somebody pay $50,000 to $100,000 to get an opinion on them if you could get a private letter ruling on them for one-tenth the price? (Assuming that is a topic on which the IRS would rule.)

To restate what I think QDROphile said in slightly different terms: While a request for a distribution or a rollover isn't enough, by itself, to trigger alarms, if the TPA knows that the employer may be trying to circumvent the anti-alienation rules by "encouraging" the participant to take a distribution, the TPA should seek the advice of ERISA counsel.

Isn't that a cafeteria plan if you give people the choice of cash or dependent coverage?

I also think (but didn't verify) that the rule is contained in Notice 88-56.

I would wager that there is some bad blood between the employer and the distributee. If that is true, they are probaby out to make the distributee's life as miserable as possible. He shouldn't expect a lot of cooperation from them. My prediction is that they will stonewall him and force him to incur significant legal fees. Even if the case goes to trial and he wins, the company will undoubtedly appeal it, forcing him to pay even more in attorney's fees. I've seen companies be extremely vindictive towards former employees. Whether their actions were justified or not depends on whose side of the story you believe.

vebaguru: I have a question regarding this general topic. A bit off the topic but not too much. My impression is that these limits are so stringent that you don't get much of an advantage out of pre-funding using an arrangement subject to these rules. I'm not saying you don't get any advantage, just that it isn't enough to be a big deal. Stated in a different way, these limits restrict the deduction so much that these vehicles aren't attractive tax shelters to small businesses that are looking to shelter a lot of money. I'm interested in your thoughts as to whether my perception is correct or not.

E as in ERISA: Thanks for plugging my portfolio. If anybody wants to find it, it is BNA Tax Management Portfolio #362, Securities Laws Aspects of Employee Benefit Plans. But I want to point out that I don't get a royalty for sales and it can't be purchased separately; it is part of a series of them that must be bought as a group. Thus, while this paragraph may be viewed as shamesless self-promotion, there is not even any indirect monetary benefit to me of people using my portfolio. I'm plugging it as a public service. I wrote it because everything else I found on securities laws was written by and for securities lawyers. As an ERISA attorney, I found those materials to be bordering on useless. So my portfolio was written by an ERISA attorney for ERISA attorneys. (Correspondingly, it would not be as helpful to securities lawyers as materials written by and for securities lawyers.) If somebody else has found an extensive discussion of the application of securities laws to emloyee benefit plans written from the perspective of a benefits professional, please post the name of the book, article, etc. her so that others can use it as another resource. I'm not trying to hog all the credit, I'm just trying to let people know of a source of information on a very specialized topic. I'm genuinely trying to be helpful; I'm not an egomanic. You are confusing the standards for determining (1) whether an employer has to register its stock under the Securities Exchange Act of 1934 (1934 Act) with (2) whether the plan has to register the offer of employer stock to participants under the Securities Act of 1933 (1933 Act). Unfortunately, registration under the 1933 Act doesn't relieve you of the registration requirements under the 1934 Act and vice versa. If the plan is required to register the offer of employer stock to participants under the 1933 Act, it is required to file a Form 11-K each year. The Form 11-K is basically the financial statements of the plan.

Maybe I'm mistaken, but I thought that a plan that only covers independent contractors isn't subject to ERISA. Before anybody posts a protest to my post, please think about the fact that the term "self-employed individual" is not synonymous with "independent contractor." Also, please focus upon the fact that I am only talking about plans that only cover independent contractors, not plans that cover both employees and independent contractors.

or is barefoot.

Belgarath: I agree with your analysis of the provisions of the regulation. The dichotomy between ongoing payments and lump sums seems counter-intuitive to me; why should you be able to assign 100% of a lump sum but only 10% of a monthly payment? Anybody have any theories as to why the disparate treatment exists?

But isn't the amount that can be voluntarily assigned limited to 10% of the benefit payment?

I actually wrote an article about fidelity bonds: ERISA's Bonding Requirements for Benefit Programs, 6 Benefits Law Journal 207 (1993). Sorry, but I don't have any reprints of it. I'm posting that because I'm sure that I will be inundated with requests for copies of it, bcause the bonding requirements are such a hot topic right now (and always have been).

I prefer the appellation "Decidedly Disingenuous." (My motto is "I eschew obfuscation.")

Don't you have a constructive receipt problem?

mbozek: I agree with your statement that the test is whether risk has been shifted to the insurance company. My point is that there is no risk to the insurance company if there is no possibility of loss. For example, if the premium per person was $10,000, but the OOPs limit was $7,000, how could the insurance company lose money? Even if every participant incurred the maximum amount of claims, the insurance company would still make at least $3,000 per participant. Stated in a different fashion, there is no shifting of risk in that arrangement because the insurance company has no risk; there's no way that they could lose money, even in the worst case scenario they make money.

taylorjeff: I don't think that their risk exposure is anywhere near the level that people would assume with the $30,000/$100,000 amounts you mentioned. Basically, all that the insurance is going to cover in most cases is the deductible and the co-payments. That's because the employer's Out Of Pocket Limit ("OOPs Limit") will kick in at some point and in most cases cover everything that the executive incurs. Also, executives tend to be healthier than the general public, as evidenced by the favorable rates available to them for life insurance policies. I would be very skeptical that any of the insurance companies ever lose any money on those products. By that, I mean if you treat all of the policies issued by that insurance company to all of the different employers that purchased policies from it.

Is there a partial temination issue here?

mbozek: It's been years since I was involved in a transaction that involved a subscription agreement and none of those transactions involved a hedge fund, so I may be way off base in this post. With that caveat, I thought that the subscription agreement was evidence of the person's intent to buy, rather than evidence that the person actually owned it. My recollection was that the subscription agreement was analogous to a stock option, which gives you the right to buy the underlying stock. A stock option agreement, even if executed, does not constitute "indicia of ownership." In the stock option context, the indicia of ownership would be the stock certificate. Was my memory correct or incorrect? Independent of that, is my analogy to a stock option agreement a fair comparison?

QDROphile: You are right in the vast majority of cases. But I've see participants elect to receive installments after a fixed number of years (even if they are still employed). It doesn't happen often, but it does occur from time to time.

BeckyMiller: You've had better luck than I have. Where my client failed to offer annuities to departed employees that took lump sum distributions, the IRS has always requested that we offer to the former employees the right for them to repay the lump sum distribution and receive an annuity in exchange. Not one person has accepted the offer of an annuity, but we were still required to make the offer to all of the former employees who already had received lump sums. (The IRS didn't require us to make offers, though, to people whose distributions were less than $25.)