Kirk Maldonado

Full vesting is not required upon the merger of two defined contribution plans, provided the requirements of IRC Section 414(l) are satisfied. Q&A-16 & 18, IRS Technical Information Release 1408, October 30, 1975.

I seem to recall that the elapsed time regulations provide some specific rules as to how to handle this situation.

I agree with Becky Miller, assuming that the participant actually cashes the check. However, if the participant does not cash the check (i.e., the participant cannot be located), I'm not sure that you would get the same result. In such a situation, you would still have assets remaining in the plan, which would trigger the need to file another Form 5500 for the following year (or partial year).

My experience is that if you approach them (before you're caught), they always waive the penalty.

Who is advising the beneficiaries? The creditors of the company can't attach their benefits under the plan. Obviously, somebody is dispensing some really, really bad legal advice.

The alternative approaches are covered in IRS Revenue Procedure 2000-16.

Another source would be: Judy Diamond Associates, Inc. 1900 L Street, NW, Suite 400 Washington, DC 20036 800-231-0669

Doesn't that violate FMLA?

I have a strong suspicion that I know which company you are describing. In fact, if it is the one I'm thinking of, I used to represent it many, many years ago. Unfortunately, few privately held corporations have such an elaborate internal trading market as you have. Otherwise, the stock is pretty illiquid. I do a fair amount of work with ESOPs and have written extensively on both ESOPs and securities laws issues. The securities laws and ERISA fiduciary responsibility issues are not as overwhelming as many portray them, but they do require attention. The bigger problem (for most privately held employers) is the stock's illiquidity.

I disagree with DSilver. I think that you need to make the correction under the plan using one of the IRS approved programs (APRSC, etc.) Otherwise, you are putting the plan's tax-qualified status in jeopardy.

The employer failing to timely remit the participant contributions to the plan is a prohibited transaction because the employer is using the plan assets for its own benefit (e.g., earning interest on those amounts). That's one of the reasons why the DOL shortened the period in which the contributions must be forwarded to the plan.

Then why would you use a broker?

To whom is the employee going to sell the stock?

What I do for many of my clients is prepare a sample QDRO for the plan, and tell them to try to get all of their participants to use it. It is invariably cheaper for me to draft a sample QDRO, than to review and clean up a single QDRO drafted by a domestic relations attorney.

I don't think that some DOL officials making a statement in a speech equates an enforcement position. Is anyone aware of the DOL actually taking any enforcement action on this point? I'm skeptical, because there reportedly was a request for an Advisory Opinion on this point a few years ago, and the DOL never responded to it. If they won't announce the position in an Advisory Opinion, I doubt that they would try to enforce that position in litigation.

I think that the request for an EBS-1 is on an IRS form document. One of my clients got the same request a couple of weeks ago. The seriously need to update their form document.

MWeddell: What about the 411(d)(6) issue? [This message has been edited by Kirk Maldonado (edited 03-13-2000).]

Dowist: How would you handle the situation that you posited (where it costs $5,000 to fix up the QDRO, but the account only had $2,000 in it)?

Chip: Your point about last man standing is well-taken, if there are forfeitures to be reallocated. However, your point wouldn't apply in the case of a Section 401(k) plan that does not provide for any employer contributions. I have many clients with such plans. Also, I've had a number of situations where the last man out was not the employer. Basically, they involved a skeleton crew remaining to wind-up (wind-down?) the business. This typically occurs following a sale of assets. [This message has been edited by Kirk Maldonado (edited 03-12-2000).]

Could someone explain to me the difference between (1) the plan bearing the cost and (2) the amount being specially allocated to the participant's account if there is only one participant in the plan?

I used $72 only because it made the math work out easier.

To hold that participants cannot be charged the costs of making distributions to them (where the plan bears the administrative costs) would produce untoward and unjust results, particularly in the case of a dwindling plan population. Basically, it benefits those who quit early, as opposed to those who stay, as illustrated in the following example, where there are five participants, with one of them leaving at a time, where the cost of issuing the check to the departing participant is $72. ParticipantActual CostNumber of ParticipantsCost Borne by Participant 5 ($72/number of participants) 1$725$14.402$724$183$723$244$722$365$721$72Total Amount Borne by Participant 5$169.40Thus, if the costs must be borne by the plan, participant 5 ends up paying a total of $169.40, yet participant 1 only paid $14.40. This unequal allocation of the costs serves no rational purpose. [This message has been edited by Dave Baker (edited 03-10-2000).]

It would seem to me that the decision by the trustee whether or not to consent to the election of S Corporation status would be a fiduciary act subject to ERISA.

The employer can delay the payments, to the extent that the payments would violate state law. Certain states, such as California, prohibit payments to shareholders if the payments would cause the corporation to fail to meet certain financial tests.

There's an article you should read. It's call "Converting Employees' ESOP Accounts to Non-Stock Investments." Journal of Taxation, November 1999 at page 299.