Kirk Maldonado

ERISA Section 3002(b) provides in part as follows: IRS Revenue Procedue 81-44 deals with the waiver of the 100% penalty of section 4971(b), but there is no mention of waiving the 10% penalty of section 4971(a). If you are going to pursue a waiver, my recommendation is that you get your fee paid upfront.

However, it may be significant that the 414(l) regs were issued before the Advisory Opinion, yet they weren't cited in the Advisory Opinion. I'm not exactly sure what to make of that fact.

I agree with vebaguru. No matter the type of investment vehicle used, it is an investment. It may be a stupid investment, it may generate UBTI, or lose its value, but it is still an investment.

Read the relevant Revenue Procedure. I think it is 2003-44, but I'm stating that from memory, so I could be wrong.

mjb: I have a vague recollection that the IRS has indicated that unless there is a legitimate claim of a breach of fiduciary duty, this payment wouldn't be a "make-whole" contribution, raising a whole host of questions, including the ones you raised.

mal: I agree that your approach is the only practical solution, but isn't it risky, given the extent to which the Title IV rules are slanted in favor of the plan?

mjb: Aren't there rules in the IRC about disclaiming benefits, and don't they apply to waivers of benefts under qualified plans? I'm not disagreeing with your recommendation that the person needs an attorney, I'm just interested in more information for my own benefit.

I couldn't possibly agree more with QDROphile. In addition, it would say something about the lack of ethics of the attorney that allowed his client to bring such an action. It would seem that would violate some ethical canon to bring what would probably the least meritorious case ever filed.

GBurns: You have made some of the most outrageously erroneous statements I've ever heard, but this one was a record even for you.

Jim: I discovered your article on Roth 401(k)s just a few days after I advised our mutual client on that topic. Fortunately, our opinions were consistent. In fact, I sent your article to them. The fact pattern described in that Advisory Opinion is unusual, so switching the discussion to a more common situation like the one you posit will make our discussion more relevant. I wish that the test could be whether the two plans must be aggregated for qualification purposes. But you could have drastically different plans that could be aggregated, so that won't work. Maybe the test should be whether you have one plan for purposes of section 414(l). Is there any guidance in the instructions to the Form 5500?

Locust: That is a rather, ahem, "creative" way of reading the opinion. I think that the operative language is the sentence that immediately follows the one that you provided: Given the provisions of the Plan, which contemplate that the profit sharing programs of the Participating Employers and the Company were meant to be treated as a single entity for corporate purposes, it is our opinion that the participants of each of the profit sharing programs should be aggregated for purposes of §2520.104-46. So that the rest of the readers can make their own decision as to which interpretation is correct, here is the entire opinion: ERISA Opinion Letter 79-87A , 12/13/1979 Reference(s): ERISA §103 , ERISA §103(a) , ERISA §103(a)(3) Mr. James F. Carey Kindel & Anderson Twenty-Sixty Floor 555 South Flower Street Los Angeles, California 90071 Dear Mr. Carey: This is in response to your request for an advisory opinion regarding the interpretation of 29 CFR 2520.104-46 , under which the requirement set forth in section 103(a)(3)(A) of the Employee Retirement Income Security Act of 1974 (ERISA) that an accountant's opinion be included in the annual report is waived for plans with less than 100 participants. We regret the delay in responding to your request. The following is a summary of the representations contained in your letter and material provisions of the documents submitted therewith. A document encaptioned “1976 Amendment and Restatement of Metal Surfaces, Inc. Employee Profit Sharing Plan” (the Plan) was adopted by Metal Surfaces, Inc. (the Company) and one of four of its subsidiary corporations. The Plan provides that any corporation which is or may become an 80% or more owned subsidiary of the Company may become a “Participating Employer”. The other three subsidiaries of the Company thereafter adopted the Plan and became Participating Employers. Contributions by Participating Employers and by employees are held in a trust maintained in connection with these profit sharing programs (the Trust). Under the Plan document, the board of directors of each Participating Employer determines the amount, if any, to be contributed by that Participating Employer on behalf of its employees. A separate account is maintained for each employee who is a participant in one of the profit sharing programs maintained pursuant to the Plan document, and the participant's share of Participating Employer contributions, forfeitures, and gains and losses on assets held in the Trust are credited to the participant's account. Contributions to the Trust by each Participating Employer are generally allocated only to the accounts of that Employer's employees. Under §5.01 of the Plan document, however, it appears that if the profits of one of the Participating Employers are not sufficient to enable that Employer to make contributions, other Participating Employers may make contributions on behalf of that Employer's employees. Forfeitures from the account of a former participant are allocated only among eligible participants employed by the Participating Employer who employed the former participant. For investment purposes, it appears that all the assets in the Trust are pooled. Gains and losses on the pooled assets are allocated among participants' accounts on the basis of the ratio of each participant's account balance to the sum of the account balances of all participants. Only the Company may terminate the Plan. A Participating Employer may withdraw from participation in the Plan only with the approval of the Company's board of directors. The Company may amend the Plan without approval of the Participating Employers. Upon termination of the Plan, each participant becomes fully vested in his or her account. Thus, in the event of termination, the assets contributed by a Participating Employer for its employees will generally not be used to provide benefits for participants employed by another Participating Employer, except to the extent of contributions by a Participating Employer on behalf of the employees of a Participating Employer with insufficient profits, as described above. On the basis of these facts, your letter raises the question whether, in determining the number of participants for purposes of 29 CFR §2520.104-46 , the profit sharing program maintained by each Participating Employer should be treated as a plan separate from the programs maintained by the other Participating Employers, or whether all the programs should be treated as a single plan. In our view, under the circumstances described in your letter, and in the materials that accompanied it, the profit sharing programs maintained by the five Participating Employers under the Plan should be treated as a single plan in applying 29 CFR §2520.104-46 . The provisions of the Plan, taken as a whole, contemplate that the profit sharing programs of the Participating Employers would form part of a single plan for the purposes of the Company. The Company reserved to itself the sole right to amend and terminate the Plan, and to approve withdrawals of Participating Employers from the Plan. Further, the Plan provides that if the profits of a Participating Employer should be insufficient to make a contribution which such Employer is required to make to the Plan, other Participating Employers may make such contribution. Because the Plan provides for the pooling of all the assets in the Trust, and for allocation to each participant's account of a proportionate share of the gains and losses on such pooled assets, the financial information with respect to which an accountant's opinion would be required under section 103(a)(3)(A) of ERISA is relevant to all the participants. Given the provisions of the Plan, which contemplate that the profit sharing programs of the Participating Employers and the Company were meant to be treated as a single entity for corporate purposes, it is our opinion that the participants of each of the profit sharing programs should be aggregated for purposes of §2520.104-46. This letter constitutes an advisory opinion under ERISA Procedure 76-1 . Accordingly, this letter is issued subject to the provisions of the procedure, including section 10 thereunder relating to the effect of advisory opinions. We have considered your request for a conference under section 8 of the procedure and have decided that a conference is not necessary in providing this advisory opinion. Sincerely, Ian D. Lanoff Administrator of Pension and Welfare Benefit Programs

Nini: Are you seriously concerned that he would elect COBRA coverage?

Locust: Do you feel your position is consistent with that of the DOL contained in ERISA Opinion Letter 79-87A?

How else would you characterize it?

Have you called calling them to get an informal reaction? I've found them to be very helpful in situations like this.

The rules are both in ERISA (for the notice requirements) and in the IRC for all other rules. The ERISA provisions are in section 606 and the IRC provision is 4980B. There are also three or four treatises on COBRA which are quite good but very lengthy. One is over 1,000 pages.

The more warped you are, the less time it takes to come up with a response. Or so I've been told. I wouldn't know from personal experience. HONEST!

JanetM: I am "stumped" as to why you think we have too much time on our hands. (My apologies to AndyH for recycling his joke.)

While everything that JanetM said is correct, there is an even bigger problem. Every QDRO that I've seen has to be signed by both parties, their attorneys, and the judge. The plan obviously got a document that wasn't signed, unless the other side forged some signatures. The plan made have exposure if it approved a QDRO that wasn't signed by all of the requisite parties. But I echo JanetM's comment that you need competent counsel.

There are some interesting ways in which you could "fire" a person with a wooden leg.

Penman 2006: Thanks for the cite. Your explanation makes sense to me as a non-actuary. Perhaps the description given by AndyH is technically correct, but it doesn't have the same connotation to me. In any event, here is the relevant language from the regulations: M-12 Q. What minimum contribution or benefit must be received by a non-key employee who participates in a top-heavy plan? A. In the case of an employer maintaining only one plan, if such plan is a defined benefit plan, each non-key employee covered by that plan must receive the defined benefit minimum. If such plan is a defined contribution plan (including a target benefit plan), each non-key employee covered by the plan must receive the defined contribution minimum. In the case of an employer who maintains more than one plan, employees covered under only the defined benefit plan must receive the defined benefit minimum. Employees covered under only the defined contribution plan must receive the defined contribution minimum. In the case of employees covered under both defined benefit and defined contribution plans, the rules are more complicated. Section 416(f) precludes, in the case of employees covered under both defined benefit and defined contribution plans, either required duplication or inappropriate omission. Therefore, such employees need not receive both the defined benefit and the defined contribution minimums. There are four safe harbor rules a plan may use in determining which minimum must be provided to a non-key employee who is covered by both defined benefit and defined contribution plans. Since the defined benefit minimums are generally more valuable, if each employee covered under both a top-heavy defined benefit plan and a top-heavy defined contribution plan receives the defined benefit minimum, the defined benefit and defined contribution minimums will be satisfied. Another approach that may be used is a floor offset approach (see Rev. Rul. 76-259, 1976-2 C.B. 111) under which the defined benefit minimum is provided in the defined benefit plan and is offset by the benefits provided under the defined contribution plan. Another approach that may be used in the case of employees covered under both defined benefit and defined contribution plans is to prove, using a comparability analysis (see Rev. Rul. 81-202, 1981-2 C.B. 93) that the plans are providing benefits at least equal to the defined benefit minimum. Finally, in order to preclude the cost of providing the defined benefit minimum alone, the complexity of a floor offset plan and the annual fluctuation of a comparability analysis, a safe haven minimum defined contribution is being provided. If the contributions and forfeitures under the defined contribution plan equal 5% of compensation for each plan year the plan is top-heavy, such minimum will be presumed to satisfy the section 416 minimums.

Based on both the quality and the originality of your response, we should give you a waiver of the deadline.

I seem to recall that Congress didn't exempt governmental plans from the nondiscrimination rules of the IRC; that was done by IRS fiat.

What does the plan say?

Doing this from memory, here is my attempt to explain this situation in a comprehesible manner. 1. The POP is not a plan that is governed by ERISA, which position was taken in one or more DOL Advisory Opinions. That is because it is just a means of paying the premiums with pre-tax dollars; it does not provide any medical benefits by itself. Thus, there is no 5500 filing requirement for the POP under ERISA. 2. The IRS has ruled that POPs do not have to file a Form 5500. Thus, there is no 5500 filing requirement under the IRC. 3. It is true that there is at least one other plan, such as a medical plan. (There may also be a dental and/or a vision plan.) There must be another plan or you wouldn't need a POP to pay the premiums with pre-tax dollars. But the original post didn't ask about the filing obligations for the underlying plan or plans. The question is just about whether there is a Form 5500 filing obligation with respect to the POP.