Kirk Maldonado

I seem to recall that the CCH Pension Guide had a very detailed discussion of appropriate expenses. That report is considerably more detailed than Publication 502.

What does the plan say regarding subsequent contributions?

An in-depth discussion of the taxation of distribution of employer securities can be found in my article entitled: Basis Issues Complicate Qualified Plan Distributions of Employer Securities, 77 Journal of Taxation 334 (1992).

Under some state laws, a corporation cannot serve as a trustee.

For what it's worth, GCM 39616 and PLR 8702063 provide that tax-exempt organizations that are not organized on a stock basis may be considered to be a controlled group using the rules in Reg. Section 1.512(B)-1(l)(4)(i)(B).

RLL: You are right about that.

If I were that employee, I'd demand an indemnification agreement from the employer and that the employer purchase (and maintain until the statute of limitations expires) liability insurance protection for me.

I think that it would cost a fortune to have such a plan audited for Form 5500 purposes. Also, I don't see how, as a practical matter, all of the substantive rules could be applied uniformly (e.g., the distribution options, loans, etc.) In short, I am very skeptical that it could actually be operated both in accordance with applicable law and in a cost-effective manner.

Kip: What would you think if the plan was revised to allow active employees to surrender their accrued but unused sick pay?

SEC registration is also required if rollover contributions are used to purchase employer stock.

What is the specific concern of the consultant?

I posed that specific question to the DOL via the ABA a couple of years ago, and the answer is no.

My recommendation is to obtain the services who specialize in self-funded plans. There are many issues that only affect self-funded plans that need to be taken into account, and persons that primarily work on fully insured plans would not necessarily be aware of them.

Federal and state courts have concurrent jurisdiction over claims for benefits and QMCSOs. Federal courts have exclusive jurisdiction over all other claims arising under ERISA. ERISA Section 502(e).

IRC401: Significant is a relative term. For somebody that only has $100 in his or her account in the plan, a $25 annual fee would be a significant detriment.

I don't think that the hare-brained solution even works. If the persons who lost the lottery aren't eligible to make deferrals, my recollection is that they can't be taken into account in apply the ADP test. Thus, keeping them from deferrals results in them being completely ignored for the nondiscrimination test, which isn't the result that the employer was trying to achieve. Accordingly, I don't think that this lame-brained idea achieves any good, and certainly alienates the employees. If my analysis is right, whoever recommended this approach to the employer better may sure his or her malpractice insurance premiums are up to date.

IRC401: You may disagree with me, but the IRS doesn't. This specific question was posed to the IRS via the ABA a number of years ago, and that was the response we received. Now the IRS may not prevail in court, should you decide to litigate the issue, but you are virtually guaranteed that the IRS will fight you on this issue.

Have you considered whether you have an affiliated service group?

I wholeheartedly concur in the sage advice given by ActuarySmith. If you have any "bad feelings" about a client, fire them immediately. If you don't, you may really be sorry in the long run (pun intended).

I wrote an article on wrap plans many years ago. The citation is Why An Insured Health Plan Requires a Wrap-Around Document, 3 Journal of Compensation and Benefits, 147 (1987).

pdahlen: How do you square your answer with the terms of ERISA Section 412(a)(2)?

My visceral reaction is that you automatically flunk 105(h).

I think that, unless you want to get into a fight with the HCFA, you should prohibit such payments to persons over age 65 (otherwise it is an impermissible incentive to opt out of the health plan and to take Medicare).

Thanks for the plug, rcline46. However, I seem to recall that there is DoL guidance that is even more on point; expressly dealing with termination of (defined benefit) plans. I'm pretty sure that it is the DoL Information Letter to John Erlenborn, dated March 13, 1986.

I think that arrangement violates the Section 411(a)(11) regulations.