Kirk Maldonado

Isn't there a problem with complying with the terms of the plan document if the employer just makes the contribution? I've never seen a plan that authorized such a contribution.

dubya: If you have never seen non-owners get bonuses, your client base is pretty limited. I've had a client that gave bonuses to more than 500 employees at one time.

I agree with the prior comments that retaining counsel is important. The trick is finding one that is experienced with the special issues that arise in a distress termination, because that is a pretty limited group of people.

Representatives of the IRS has stated that it is their position that GCM 39310 only applies to defined contribution plans.

MBozek: Your point is well-taken; there is additional cost asscociated with having a mailbox. Maybe I'm reading to much into JanetM's response, but I got the impression that the subtext message was that if the AP is worried about the ex-spouse finding out where the AP resides, then the AP is safer if all mail is sent to a post office box. Given the ability to get information legally and illegally online, I think that getting a post office box is sound advice (meaning that it is money well-spent) if the AP is concerned about his or her spouse discovering the new address.

I would like to re-open the process and nominate: 401 chaos.

Becky: Could you tell us what are some of the issues relating to stock certificates that are of concernt to the DOL? I am curious because I've never seen them raise any issues relating to stock certificates when they audited any of my ESOP clients in the past.

While the prior postings are correct as far as they go, in some cases determining exactly when Medicare entitlement does occur can require the analysis of some pretty technical rules and yield some surprising results. However, 99% of the time the only thing that you need to know for COBRA purposes is that mere eligibility to enroll in Medicare is not the same thing as Medicare entitlement. (Which is the message of the prior postings.)

jfp: You are certainly right that the odds of getting caught on this issue are extremely remote, to say the very least. My comment was more aimed at what is the likelihood that this arrangement would pass any degree of scrutiny if any competent person at the IRS discovered it. Your comment was more practical, mine was more theoretical. In that regard, I think that the client needs to be appraised of both; that the risk of getting caught is very slim, but if it does come to the attention of the IRS, then the client will almost certainly have a full-fledged fight with the IRS about it. If that happens, the client will spend a lot of money fighting the IRS and may ultimately lose. It all boils down to the risk tolerance level of the client.

jfp: The point I was trying to convey in my prior message was that I think that the IRS has grounds to attack the participant for the non-payment of the Section 72(t) tax. I will admit that I did not expressly limit the comments in my prior message to the participant. That was because I thought it was unnecesary to state that point because there is no basis on which the IRS could assert that the step transaction doctrine applies to anybody else involved in the transaction.

This is my last attempt to explain a concept that is widely know and universally accepted in the employee benefits community. A nonqualified deferred compensation plan is not the same thing as a split dollar life insurance policy. They are completely different arrangements and the terms for the two cannot be used interchangeably. The topic of this thread relates to nonqualified deferred compensatio plans. Any references to split dollar life insurance are off the point and only serve to confuse the less-sophisticated readers. If people want to change the topic of discussion to something that more suits their interests, they start a new thread, and not try to commandeer the discussion for their purposes.

Aren't there some DOL Advisory Opinions on this point? I could be wrong, but I seem to recall seeing some addressing this point a number of years ago.

Mbozek: You have been more fortunate than I have in situations like the one in this thead. The vast majority of times when I got involved after the fact, the acquistion agreement will not provide any light on issues like this. Of course, the opposite would be true if the acquisition had been a very sizeable transaction, say in excess of $300,000,000. In deals of that size, typically both sides will be represented by competent ERISA counsel, so you often find a great deal of detail in the acquisition agreement on these types of issues, because those points were vigorously negotiated by the ERISA attoneys.

jfp: I am interested in knowing why you concluded that the IRS couldn't at least argue that the step transaction doctrine applies here.

SMM: 4064 does not apply if all of the employers are part of a controlled group while their employees are participating in the plan.

The IRS takes the position that this language precludes the plan from using forfeitures to fund QNECs, because those amounts were not fully vested when those amounts were originally contributed to the plan. I believe that the IRS position is justified based upon the literal wording of the regulation. However, I don't think that position makes any sense from an overall policy perspective. Specifically, I don't see any potential for abuse. I believe that the right result should be that, as long as the amounts are vested when they are reallocated as forfeitures, it should be permissible. But it takes some pretty creative reasoning to get to that result reading the wording of the regulation in the abstract. This situation exemplifies why it is so important to carefully read the applicable wording of the plan document, statute, regulation, or whatever other language is pertinent to the issue at hand. That language may not have been drafted with your particular situation in mind, and even though it makes perfect sense in all other situations, it may produce an absurd result in your situation.

I agree with Katherine. I've probably seen the issue about deferrals not being withheld form bonuses come up more often than any other issue. In one case, the amount of deferrals that weren't withheld was very substantial because it involved a situation where very sustantial bonuses ($10,000 to $100,000) were paid to over 500 employees shortly after the beginning of the calendar year, yet no deferrals were withheld from any of the bonuses, in contravention of the plan document.

Bud: Are you troubled at all by the language in 1.4101(k)1-(g)(13)(iii) which provides (in relevant part): nonelective contributions must satisfy the vesting requirements of paragraph © of this section * * * when they are contributed to the plan. Literally interpreted, this language would seem to prohibit the use of forfeitures as QNECs because, by definition, forfeitures weren't fully vested when they were contributed to the plan.

My experience has been consistent with that of the prior posters.

Don't you also have to be concerned about ERISA's record retention requirements?

Thanks for sharing your thoughts on this point.

AndyH: First, let me say that I'm not an actuary. Furthermore, I'm not particularly knowledgeable about the valuation methodologies for this purpose. With those caveats in mind, doesn't the recent Section 412(i) guidance limit your ability to rely upon the value assigned by the insurance policy, or would that guidance be limited to the types of policies involved in those arrangments?

lvegas: The last time I checked, you can't use a master or prototype plan for a multiple employer plan. Trying to amend one to use for a multiple employer plan would probably be more work that reconfiguring an individually designed plan. While there aren't that many obvious changes to make the plan work in a multliple employer plan arrangement, there are a lot of subtle changes that often get overlooked.

AndyH: Wouldn't it be more accurate to say the guy USED to sell section 412(i) plans full time? My guess is that he is now unemployed.

BenefitsLawyer: I don't disagree that the imposition of the liability under 4064 is triggered by the termination of the plan. But it can be imposed in certain circumstances upon employers that withdrew from the plan within the five years preceding the date of termination. Thus, in those circumstances, it functions roughly the same as withdrawal liability. Nevertheless, I will concede that it is not exactly the same as withdrawal liabilty. I was reacting to the language in your prior post that seemed imply that withdrawal liability can only be imposed by contractual obligations. I wanted to point out that in some, albeit limited, circumstances employers could have statutory liability relating to multiple employer plans. Also, I don't think that the concept of employers having potential liablity upon the termination of a multiple employer plan is terribly widely known, so I wanted to bring it to people's attention.