Kirk Maldonado

Beth: The model trust is only relevant if you want a PLR on a nonqualified deferred compensation plan. The IRS can be as conservative as it wants in imposing conditions upon when it will issue a PLR. That does not mean that the IRS would take that position in litigation or that a court would uphold that position. It's just a price you have to pay if you want a PLR. That's why extremely few employers request PLRs on deferred compensation plans.

The DOL has issued at least one Advisory Opinion that state laws re payroll withholding are preempted. [This message has been edited by Kirk Maldonado (edited 01-31-2000).]

PLR 9332028.

Section 411 requires full vesting upon the cessation of contributions to a profit sharing plan, but not to a money purchase pension plan.

Are you sure that the employer can be the trustee? I don't know about other states, but I know that a (regular) corporation in California cannot be a trustee. Also, I've never heard of a corporation, other than a bank (in any state), serving as the trustee of its plan.

I disagree strongly with LRichey. As long as the assets of the Rabbi Trust are subject to the claims of the employer's creditors, the plan is not funded, regardless of who has the investment discretion. The IRS dropped that argument many years ago. There are PLRs right on point saying that participants can direct the investment of the assets of the Rabbi Trust.

What does the contract say about this?

There was a thread on this topic last week. You might want to check it out.

Go ahead and sue and see how fast that they will terminate the match. I'd rather a match in a poor investment than no match at all.

I disagree with GBurns. Anybody can give investment advice and become a fiduciary. Now the plan sponsor might be stupid for relying upon the advice of a unqualified person, but that does not preclude the unqualified person from becoming a fiduciary.

You are right. It's in the Section 125 plan regulations.

Why do you conclude that it makes a difference who provides the advice?

401(k) Top Hat Plan is a contradiction in terms. They are mutually inconsistent types of plans.

I would rely on Publication 503 instead of the oral statements of an IRS attorney.

If you borrow from the policy, wouldn't some or all of the income attributable to the borrowed funds be taxable income as unrelated debt-financed income?

Robin: What the rate of return under the plan is does not affect whether or not the plan is funded. They are completely unrelated concepts.

This may trigger full vesting, or disqualification if there isn't full vesting.

Kip: I was simply trying to inject a bit of levity into the situation.

The IRS has long ago dropped the issue that Robin Davis mentioned.

In my practice (based in California), insurance funding of nonqualified plans is off about 90%, principally due to the debacel with Executive Life. However, I'm glad of it, for the reasons listed by KKirk (no relation) above and many others.

Phil: Why don't you delete this thread?

To amplify the commments by IRC401, if it isn't a valid top hat plan, you would also be liable for the penalities for failing to file a form 5500 for all of the prior years. Also, the absence of a secular trust would probably be a violation of the exclusive benefit rule. Thus, if the employer goes bankrupt and everybody loses their benefits under the plan, the fiduciaries could be personally liable to all of the particpants for the amount of their benefits. I certainly wouldn't want anything to do with such a plan.

Kip: Did they pay you for that advice?

To amplify the remark by MWeddell, the percentage of the total employee population that is covered isn't determinative; you must also look at the dollar amount of compensation. Few knowledgeable ERISA professionals feel comfortable covering individuals whose base salary is less than $100,000. Inasmuch as that amount has been used for many years (without any informal indexing), I have some doubts whether it should still be used.

Hopefully, nobody else is doing that. It is very clear that this does not work. You can't put people only making $85,000 in a top hat plan. That is very agressive.