Kirk Maldonado

My guess that the couple is not "legally separated." For that to occur, they need a court decree. Thus, they have to spend almost as much as to get a divorce, but they are still married after they get the court order. My friends who are domestic relations attorneys say it is incredibly rare to find a couple that is legally separated. In fact, some divorce attorneys have never seen one in their entire career.

VebaGuru: While it is true that governmental plans aren't subject to Section 411, my recollection is that they are subject to the pre-ERISA rules of Section 401(a)(7). I vaguely seem to recall that those rules called for full vesting upon plan termination, but it has been so many years since I looked at that question that I'm not sure.

I agree with Katherine.

Katherine: If properly documented in the cafeteria plan document, you can achieve your desired results.

You may want to look at Treasury Regulation Section 1.410(a)-3(e)(2), Example (3).

I hate to be skeptical, but it could also be that they don't want to go through the hassle of setting one up, so that the easiest way to avoid the situation is to tell you that it is illegal.

VEBAGuru: I thought that the DOL held, In DOL Advisory Opinion 96-12A, that a premium only plan is not subject to ERISA.

b2kates: What is the "qualifying event" (as that term is defined in COBRA) that permits the dependent to elect COBRA?

I disagree; I think it should be included in the employee's W-2.

Bud: You would refuse to honor an IRS levy simply because the participant doesn't want to lose the money? Have you ever had an employee that was ecstatic about paying taxes? I'd much rather have a deadbeat employee unhappy with me than face the IRS and the court for refusing to honor an IRS levy where the benefits are currently available to the participant.

Rachel: A plan merger is not the same thing as a plan termination.

Mike Preston: WHAT SIDE WAS I ON? Don't you know I'm an attorney? I'm always on the side of my client! Fortunately for me, my clients are almost always corporations or partnerships

Bud: For what it's worth, my analysis is: 1. The 10% penalty does not apply so there is no withholding with respect to it. 2. If the distribution could have been rolled over, it is subject to the 20% withholding rules. 3. If the participant is entitled to receive a current distribution, the plan would not be disqualified for paying out the money. 4. If the participant is not entitled to a distribution, then the IRS cannot force distribution. 5. I don't think that the participant should have any say whatsoever with respect to whether the levy is honored.

I think that Mike raises a good point. I've seen the same issue surface where an employer tried to take credit for contributions to a flexible spending account. Because the amounts could be forfeited if the employee did not incur sufficient expenses during the year, the arrangement was challenged. Unfortunately, I no longer represent the client, so I don't know how the issue was ultimately resolved.

Mike: I agree; if the QNECS only go to the non-highly compensated employees, there is no problem under Section 410(B).

I thought that the IRS takes the position that you can't satisfy Section 410(B) (at least for purposes of the Average Benefits Percentage Test?) if the plan "names names."

My guess is that the plan does not permit participants to write checks to the plan, so that accepting the funds might (in the view of the IRS) jeopardize the tax-qualified status of the plan.

My guess is that if you look into the facts more, you would find other reasons that would pose problems. For example, they might want to lease the property back to the corporations (raising prohibited transaction issues) or it might be raw land that they want to develop (raising UBTI and UDFI issues). Every deal that I've seen like that had some additional problems. You just need to dig more to find out what they are. I'd be surprised if some other problems wouldn't surface if you dug deeper. My (standard) recommendation would be for the client to get independent legal advice in writing from a competent ERISA attorney as to the propriety of the investment. Believe me, that would be much cheaper than later having a fight with the DOL.

Mike Preston: Do you believe that the plan to make a QNEC on behalf of named individuals A and D, but not on behalf of B and C? For this purpose, I'm assuming that the decision to make the contribution on behalf of those two individuals was completely arbitrary; there was no way to objectively designate a class that only contains those two individuals.

You could start your search with IRC Section 5000.

The only guidance is that the DOL once said that the "primarily invested" test is applied over the lifetime of the plan; it is not a "snapshot" test.

My interpretation is that the operative word is "designed" not "primarily." Specifically, that the test is not that the plan assets "must" be invested primarily in employer stock; rather that the plan be "designed" to be primarily invested in employer stock.

What do the regulations say?

You should ask her if her circumstances have changed, which is why she is experiencing the financial hardship. It is possible that her circumstances have changed in way that would permit her to make a new election (if that is permitted under your plan document).

Mal: Your advice is accurate as it applies to personal trusts, but unfortunately, these are subject to ERISA. Completely different standards apply here.