Kirk Maldonado

Make the company purchase a fiduciary liability insurance policy on your behalf.

I agree completely with the audit of the subrogation and coordination of benefits. In that regard, the relevant provisions of the plan should be reviewed by competent ERISA counsel to verify that they contain language that comports with the recent decisions regarding subrogation (which generally have been unfavorable to the plan).

I seem to recall that there is "ancient" (shortly after ERISA was enacted) formal advice to this effect from the IRS.

The plan that does not cover the doctors would qualify. The plan that only covers the doctors would not qualify.

Exclude the doctors.

If you are not subject to ERISA, then you are subject to state laws. Believe me, it is much better (from the employer's perspective) to be subject to ERISA than the laws of California.

Hire an ERISA attorney to give you an opinion as to what to do with the surplus and pay his fees out of the plan. That should eliminate any surplus.

If you want to be creative, I suggest that you effectuate the correction via VCR or CAP; to get the IRS blessing of your methodology.

Al Burkhart: I think that it would be hard to justify your position not to pursue employees who received benefits that they shouldn't have received under ERISA's fiduciary responsibility rules.

I've been through this thicket many times and my advice to you is to retain competent ERISA counsel ASAP.

Unitizing wasn't my idea. The recordkeeper wants to use it so as to permit daily valuation of all investment vehicles under the plan.

MoJo: While I agree with your concerns, it seems that they many of them relate to the fact that the stock is thinly traded, rather than the fact that the investments are unitzed. I can't effect the volume of trading in the stock; only whether or not the investment is unitized. I am looking to specific problems caused by unitizing the investment, rather than the general problems caused by investing in thinly traded stock. Also, it seems that a lot of your concerns can be minimized by alerting the participant that, because the stock is so thinly traded, transactions may not occur immediately, so that there may be fluctuations in the price.

Are there any hidden problems when investments in employer stock are done on a unitized basis? The third party administrator is pushing for it, so that it can use daily valuation for all of the investment vehicles available under the plan. While I am not overly enamored with unitizing investments in employer stock, it seems to be particularly appropriate where the stock is thinly traded, so that purchases and sales could not be always effected as soon as possible after the plan receives the investment directions without having a significant impact on the stock price. It does seem that it is vital that the plan clearly communicate to employees that: 1. the value of their units will directly correspond to the value of the stock (e.g., because of the cash that will also be held in the fund); and 2. sales and purchases will not be made at the trading price on the day on which their investment directions are given to the plan. Does anybody have any thoughts on this topic that they would like to share?

My recollection is that the regulations say that this arrangement does not work.

There was an IRS ruling involving almost identical facts a number of years ago, except it involved a law firm. My recollection was that the IRS concluded it was a prohibited transaction.

What about ERISA's records retension rules?

If all else fails, read the regulations. I'm pretty sure that the regs say that this arrangement works.

I seem to recall that there are some ancient revenue rulings on this point.

The plan may purchase the bond on its behalf. DOL Reg. Section 2509.75-5, FR-9.

My recollection is that you cannot use a Master or Prototype plan for a multiple employer plan.

Steve72: You are legally correct, but as a practical matter, if someone sues the corporation, the directors will also get individually sued. The rule of thumb among litigators is sue everybody in sight, because if you don't name them and somebody else prevails in a lawsuit on similar grounds, the attorney could be charged with malpractice. My experience is that outside directors find it abhorrent to get individually named in lawsuits involving benefit matters. Accordingly, I subscribe to QDROPhile's viewpoint.

I concur in the last post by RLL. I asked him in my last post about filing the Form 5310 simply because I had (fortunately) never encountered the situation where I was terminating only a portion of a plan before and wanted the benefit of his insight on the issue.

RLL: 1. The SEC's position is that stock is required to be registered (assuming that there is no exemption from registration) only if employee contributions can be invested in employer stock. I do not believe that dividends should be treated as employee contributions, even if the employee had the right to direct the investment of the dividends. 2. It becomes a lot more difficult where the plan has a in-service distribution feature. The only authority that I'm aware of states that if employees have the right to receive a cash distribution (in lieu of the amounts being invested in employer stock) at the time a profit sharing plan is converted into an ESOP, then the registration requirements would apply. Thus, the rules can be summarized as follows: If the money is attributable to employer contributions, then investing those amounts in employer stock in the same plan doesn't trigger the registration requirements. However, if those amounts are transferred from one plan to another at the election of the employee (e.g., by means of a rollover contribution), then the registration requirements would apply if the amounts are invested in employer stock in the second plan. Unfortunately, where there is an in-service distribution feature present, there is no authority. Because the employee has the right to get a distribution of those funds, the employee could be deemed to have contributed those amounts to that plan. However, I think that is a stretch. Consequently, I do not believe that the registration requirements would apply here. Even if they did, though, you would probably be able to use Rule 701.

RLL: Would you recommend filing a Form 5310 with respect to such "partial termination" of a plan?

But aren't you subject to state law, which could be much worse than ERISA (e.g., punitive damages in California)?