Kirk Maldonado

Jeff Kropp: Isn't there a good argument that those state laws are preempted by ERISA, based on some DOL Advisory Opinions?

bzorc: Is it your standard practice to require that the participant re-execute loan documents evidencing the fact that the new plan is the plan to which the funds are owed?

I believe the answer is no. Section 401(k) plans provide for contributions by employees. Deceased persons, by definition, are not employees. However, that position is not universal (although it is the IRS position). Check prior threads for discussion on this. I think that there was one last week about making Section 401(k) contributions after termination of employment.

Christine: I think it is an IRC Section 411(d)(6) issue; not an ERISA Section 510 issue. That leads you to a different analysis.

QDROphile brings up a good point. The plan's procedures for these matters should be set forth in writing and followed in a uniform manner.

I think that the plan has absolutely no duty to ask any questions. The obligation is on the attorney for the non-employee spouse to notify the plan that a QDRO wiil be forthcoming. Also, I believe that even if the plan had knowledge of a forthcoming QDRO, it probably would not be found liable; the recourse for the non-employee spouse should be to sue his or her attorney for malpractice. Nevertheless, because my role is to keep my clients out of litigation, even if they would probably prevail, I recommend plans stopping all loans or distributions if they have notice that a QDRO may be forthcoming.

Some plans even place restrictions on investments (after learing that a QDRO may be forthcoming). However, I think that is risky. Probably less risky is placing a moratorium on loans.

Have you checked out the instructions for the Form 5500? They are pretty helpful on matters like this.

I disagree (slightly) with Earl. It is not a "hardball" technique to tell the former employee that you will issue an amended 1099-R if they don't repay the "excess" amounts. I think that the plan is legally obligated to do so.

Dan: I think that your idea is a good one, but what do you think about expanding it to cover all aspects of self-funded medical plans? It seems to me that there are many nuances that are peculiar to of self-funded plans, so that a place where people could share ideas and experiences would be worthwhile.

I seem to recall that there are UBTI issues implicated in securities lending transactions.

RLL: I thought that because you brought up the issue (about the prohibition on shameless self-promotion), I thought you were going to fund the user fee. I wasn't going to bill you for my fees, though. Isn't that offer per se reasonable?

RLL: The way that I analyze the Rule 701 issue is that it is treated as if the shareholder sold the stock to the employer, and then the employer sold it to the plan. That is the SEC's analysis as to why the stock sold under a section 401(k) plan must be registered, even though the shares (1) are publicly traded and (2) are purchased on the open market. The intrastate exemption is very difficult to satisfy and very easy to blow. I only tend to rely on it when absolutely necessary. Also, remember that is only a federal exemption, it is not a state exemption. I thought that there was an exemption from BenefitsLink's prohibition on "shameless self-promotion" in the case of (i) a guide (ii) who discloses it and (iii) does not receive any remuneration as a result of it. Maybe I need to get a ruling from Dave Baker on it. Anyway, if I was the type of person that needlessly engaged in "shameless self-promotion" then I probably would have mentioned in my prior message that the current edition of the Compensation Planning Journal has an article that I wrote on Rule 701.

Not to put words into Jon's mouth, but I would guess that his PT concern is about who is going to make good if the loss is greater than the account value. I'm guessing that is where his concern arises. If I'm wrong, Jon, please correct me.

By the way, to engage is a bit of shameless self-promotion, you might want to review my Tax Management Portfolio, #362, Securities Laws Aspects of Employee Benefit Plans. It addresses many of your concerns. By way of mitigation, I want to add that I do not receive any royalties from the sales of the portfolios. You will find that it is written from the perspective of an ERISA attorney, not from the perspective of a securities lawyer, so that it may be more useful to an ERISA attorney than it would be for a securities lawyer.

The first hurdle is whether the employer will willing to give all of the disclosures that it would have to give if the employer went public. If they aren't, I wouldn't allow any participants to purchase the stock. Thus, if you don't pass this first hurdle, everything else is relevant. As I mentioned before, I am very skeptical that the employer would be willing to give that level of detail to its employees. One reason for that is that many employers are concerned that this disclosure could end up in the hands of their competitors, should a disgruntled employee leave and go to a competitor.

I agree with Jon Chambers. I don't think that the DOL would look favorably upon such waivers, to say the very least.

I've had a number of clients rave about PeopleSoft's product, but I must admit that they were large companies. You might want to check with them to see if they offer something for smaller companies.

I don't disagree with RLL. However, I have never seen a single case where my client was willing to give sufficient disclosure (even in the one case where the employer did permit the investment election). To satisfy the dislosure requirements, I believe that you would have to give basically all of the disclosure that you would give if the employer went public. I must confess that some companies that already sponsor ESOPs tend to be more open about their finances, salaries paid to executives, etc. However, none of my ESOP clients have been interested in allowing employees to invest, and I have never encountered an non-ESOP company that was willing to give full disclosure. However, as RLL posits, I could easily imagine a company that already sponsors an ESOP that subscribes to the "open book" philosophy, being willing to make an adequate amount of disclosure.

That's a very major point that you neglected to mention before. Allowing participants to buy privately held employer stock is very, very risky. I've only had one client do that in my career, and they did that only because that was their only alternative other than bankruptcy (which was imminent). They are now being audited by the DOL on that issue. If I were you, I'd stay as far away from that deal as possible. I've had literally dozens of clients suggest it, but when I explained all of the risks everyone but that one decided not to risk it.

Tom Moses. Read IRC Section 423. Beth N. Read Rev. Rul. 73-223, 1973-1 C.B. 206 [This message has been edited by Kirk Maldonado (edited 06-13-2000).]

The sale is to the plan, not to the participants. Most (but not all) state securities laws have an exemption for sales to a tax-qualified retirement plan.

If you are not counting hours of service (but rather, measuring the period of service), you need to use the "elapsed time" method of crediting service.

PJK: Thanks for sharing that information with us. I'm sure a lot of use will be contacted by our clients about those techniques, and it's much better to have some idea about what's going on than being hit "cold."

Read 29 C.F.R. Section 2560.503-1.