Kirk Maldonado

Jilliandiz: Here's a link to the recent letter on this topic: http://benefitslink.com/links/20040408-027996.html

lindamichals: Would whatever triggered the amendment to the Form 5500 possibly affect the results of the audit?

four01kman is right: "Plans don't kill people; people kill people."

I think that there is an issue as to whether the plan has an "insurable interest" under state law in the employee so that the plan can even procure the policy on the individual.

Both. I don't think that the DOL will buy your theory and I think that the DOL position is right. What might or might not have happened (to the premium cost) is irrelevant. All that counts is what really happened, which is the portion of the total premium dollars that were contributed by each of the respective parties. I'll bet that (1) the DOL would love to litigate this issue (because of the great precedential value it will create for them) and (2) the court will agree with the DOL position. If you have a client that is willing to pay the litigation costs, that's great. I just wouldn't be very optimistic that you will prevail.

DWL: If I were you, I wouldn't waste my time trying to raise that argument with the DOL.

I think that the effectiveness of a governmental plan electing to be subject to ERISA will be about as effective as the individuals that elect that they are no longer subject to income taxes.

You could always play it safe and apply for an IRS determination letter.

That is not completely true that no benefits need be provided if there wasn't a plan document. There are a number of cases on this point. But it definitely makes it a lot harder for the "participant" to prove entitlement to benefits in the absence of any documents.

You might want to look at: http://www.dol.gov/ebsa/newsroom/fsorphanplans.html.

The bank needs to hire a competent ESOP attorney. The client shold not attempt to resolve issues of this magnitude on this forum.

mbozek: My guess is that the consultant is extrapolating from the ability of church plans to elect to be subject to ERISA. But that may be giving the consultant too much credit.

My recommendation is to get competent ESOP counsel involved in these issues. There are undoubtedly other issues to be considered also.

The trustee could also be concerned about securites laws issues.

What does the plan say?

My experience was less favorable. We had to use the demutualization proceeds for a different type of plan because the employer no longer provided that type of benefit. Another complicating factor was that the client had very high turnover (about 30 or 40% per year). Thus, because of the lag time between when the premiums were paid and when the demutualization proceeds were received, the majority of the participants who had paid the premiums under that plan were no longer employed there. The auditor was very upset. However, because the client had contacted me as to how to use those proceeds, and I had run the potential idea by a senior DOL official prior to my client implementing it, the agent grudgingly accepted that approach. But he made it very clear that if the employer had implemented that approach unilaterally, he would have done his best to make life miserable for my client. It is interesting to note that he didn't offer any suggestions as to how we could have done it in a way that would have been palatable to him. I think that being forced to resurrect a terminated plan for a one-time contribution would be a monumental waste of time. Also, I'm not sure that the client could locate those former employees, even if it tried. Furthermore, there might be a question as to whether those benefits would qualify for favorable income tax treatment. Nevertheless, the DOL auditor didn't let any those practical considerations affect his view on the matter.

There are cases on point, if you do the research, and I'm pretty sure that the recently finalized COBRA regs deal with this issue.

lbell: I tend to agree with you. My guess is that the softening of some of the language indicates that some deals are being made to get the bill enacted.

TC Walker: What is your feeling about the likelihood of this being enacted? I'm getting mixed signals (depending on who you talk to) from my friends in Washington.

Avoiding plan disqualification?

PAX: I think it stands for American Association for Nude Recreation. I am not a card-carrying member; I just searched for AANR on Google. Casual dress day must be very interesting in JanetM's office. That's an novel fringe benefit--Nude Fridays!

Many of my clients have provisions in their plans that deny any subsequent loans to somebody that has defaulted on a prior loan. Making a loan to somebody that you know is not (currently) creditworthy may be a breach of fiduciary responsibility.

The loan (from the plan) may not be available if the person isn't creditworthy.

Is the custodian freezing investment switches as well, or just precluding distributions? I've seen trustees preclude distributions where the plan has clearly violated some qualification requirements, but I've never seen one freeze investment choices.

Becky: Aren't you asssuming that the business is a c corporation? It might be an s corporation.