Kirk Maldonado

lynne wakefield: Is the employer eliminating dependent coverage, or just eliminating its subsidy of the cost of providing dependent coverage?

mbozek: In the case of a former employee who didn't receive any other income from the empoyee in a subsequent year, would you also issue that person a Form W-2? That seems inconsistent with the position asserted in Revenue Ruling 71-52, but I don't know whether the IRS has formally abandoned the position taken way back then.

mbozek: Do you feel that it is clear that state escheat laws would not be pre-empted by ERISA? I've not looked at this issue for a long, long time, but I thought that the DOL had issued two Advisory Opinions saying that those laws are pre-empted. Furthermore, I could have sworn that there were at least some court decisions that have held that the state escheat laws are preempted.

Section 4069 of ERISA provides that to have liability: 1. the transaction must have been entered into in an attempt to avoid or evade liability; 2. that intent was a principal purpose of the transaction; and 3. the plan must be terminated within five years of the date of the suspect transaction. If all of those conditions are met, then the employer's liability is determined as if the transaction hadn't occurred. In this case, the plan was terminated within the time period. Accordingly, the only issue is whether the transaction was undertaken with a principal purpose to avoid or evade liability. Assuming that can be proven, then Company B would be treated as if it were still part of the controlled group that includes Company A at the time the pension plan was terminated. (This can get a bit messy if Company B is no longer a separate entity because it has been assimilated into Company C.) Unfortunately, the application of this provision requires a very fact-specific analysis, and the facts are usually susceptible to more than one interpretation. I know of a situation where the employer entered into a very sizeable settlement because of those risks in facts strikingly similar to yours. While the employer paid a fortune to settle the case, that amount was only a small fraction of its potential liability. The ultimate disposition of the case will likely depend on the risk tolerance level of the employer. Few employers are willing to subject themselves to the risk of being on the hook for the full amount, so they settle. That is particularly true if the maximum amount of exposure is in the millions or tens of millions of dollars. Another factor that shouldn't be discounted is the potential visbility of the case. Being sued for trying to "avoid or evade" liability to the PBGC doesn't make for particularly favorable press, particularly given the PBGC's current financial woes. This is especially true in light of all of the recent corporate scandals like Enron. I could easily imagine an article on such a lawsuit appearing on the front page of the Wall Street Journal. The portion of the total liability that the employer will have to pay to settle depends on how good are their facts, determined from the perspective of the PBGC, not from the perspective of the employer.

If the service provider is identified on the EOB, I think that there might be a privacy issue if it is a clinic that specializes in treating AIDS patients.

I'm working on a situation where the employer has advised an employee that the next open enrollment period won't occur for 24 months. I've never heard of that long of a cycle, and the brokers I've talked had the same experience. (There are very good reasons to be skeptical of this advice that was dispensed by the employer.) In any event, has anybody ever encountered a plan with one? Are there any regulatory prohibitions on having one?

mbozek: Please don't misunderstand me; I'm not saying you should advise your clients to "rollover" on this issue. All that I'm saying is that the client needs to know that to vindicate that position, it is very likely (but not guaranteed) that they will have to fight first with the IRS, go to Tax Court (where they will lose again), and so that their only hope of winning is upon the Circuit Court level. Thus, the client needs to be aware that the costs could easily run $50,000 at the low end and up to $100,000 to $200,000 on the high end. If you have clients that are willing to spend that amount of money over an issue like this, they are certainly more litigious than mine. But if they ever need counsel to represent them before the IRS or the Tax Court, I'd love to do it. That's the type of attitude that you dream about finding for a tax controversy practice. My clients tend to avoid fights with the IRS, particularly my clients that are publicly traded. I represent a couple of companies that are listed on the New York Stock Exchange and believe me, they do not take a lot of aggressive tax positions with respect to their employee benefits matters. In all sincerity, I wish I had clients that would do that and were willing to pay the litigation costs. It would make for a more interesting practice. Also, if a lot of those issues were litigated and resolved, there would be a lot less uncertainty in our area.

MBozek: You quite correctly stated that Treasury Regulation Section 1.404(a)-9(b)(1) does not require that the person must actually receive an allocation for their compensation to be taken into account. However, that regulation was last updated in 1961. Thus, the IRS would argue that Revenue Ruling 65-295 "clarified" the regulation. Also, in effect, the position in Revenue Ruling 65-295 was upheld in Dallas Dental Lab, Inc., 72 TC 117 (1979). Thus, taxpayers taking a contrary position should expect not only a fight with the IRS, but to lose if they got to Tax Court. I don't want to be seen as discouraging people from taking a position contrary to Revenue Ruling 65-295. On the contrary, I'd like to see this issue resolved, which would require that either the IRS rewrite the regulation or a court decision rejecting the IRS position. I just think that clients need to be aware that it is an aggressive position to flout that ancient ruling.

An article on the advantages of a coporate trustee can be found at: http://www.advisorsquare.com/advisors/schu...ns/82713136.pdf

The statutory language says that an ESOP is DESIGNED to be invested primarily in employer stock. It does NOT say the assets of the ESOP must actually be primarily invested in employer stock.

Last time I checked, you can't use a prototype for a multiple employer plan.

Grabitquick: While other motives may have come into play, remember that complying with the terms of a court order that does not satisfy all of the applicable QDRO rules would cause the plan to be disqualified. While the risk of that having occurred to the plan are pretty small (to say the least), the most prudent thing was to seek the governmental approval of the situation, rather than risk jeopardizing the tax-qualified status of the plan. While some may say that the plan's position was overly conservative, I can't say that it is completely without merit.

Grabitquick: There was a legitimate issue, based upon the wording of the statute, if you read it in excruciating detail. I seem to recall that the statute says the order must create an interest, and in the QDRO in question, the second order lowered the level of benefits to be provided. (At least, that is my recollection.)

wmyer: Do you feel that your answer is consistent with Revenue Ruling 65-295, 1965-2 C.B. 148?

alanm: Thanks for explaining how that works.

pax: Thanks for posting those URLs.

I believe that the DOL has provided some advice on this general topic. Has anybody looked to see if it provides any illumination on this specific issue?

Lori Friedman: Please clarify. Are you stating that whether a plan or IRA can accept a rollover from a UK pension scheme would be governed by the terms of the treaty, rather than, for example, by section 402? By the way, I am very impressed that you could cite the treaty.

Lori Friedman: Some people that have claims against HMOs might disagree with your assertion.

There are a lot of complex rules that govern UBTI, particularly where real estate is involved. This area doesn't lend itself well to blanket statements; any answers should be very fact-specific.

alanm: You stated: We have a policy of allocating this revenue on a cash basis to participants who actually own the fund at the time of receipt, as a fair an equitable way of distributing earnings back to the plan in excess of plan costs. Are you saying that you pay those amounts to the participant in his or her individual capacity outside of the plan? Please clarify this point.

I wouldn't accept a fax from the "deceased" individual.

ljr: Be careful what you ask for -- you may just get it. The guidance we get could be so restrictive that everybody wishes that they never issued it.

mwyatt: Thanks for the URL.

MWyatt: Would you share with us what effect, if any, SP2 had on the operations of your other Microsoft products, such as Word, Excel, and Powerpoint? Even Microsoft admits that SP2 causes problems with its other products.