Kirk Maldonado

That PLR involved contributions by Top-Hat Employees to a nonqualified deferred compensation plan that were later transferred to the 401(k) plan. Very different facts.

All of the loan must be repaid by the original end of the loan period. Reamortizing the outstanding balance when the individual returns to work is the easiest way. Remember that the leave of absence cannot extend beyond the original end of the loan period.

There is a truly outstanding looseleaf publication on COBRA written by Paul Hamburger, published by Thompson Publishing Group, entitled "Mandated Health Benefits, The COBRA Guide." It contains many very useful forms. I can't recommend that publication highly enough. It is far better than everything else I've ever seen in any aspect of benefits, and I've been doing benefits for over 20 years.

The plan can suspend loan payments for up to a year (without causing a taxable default) while the individual is on a leave of absence, if the plan so provides.

This exact topic was covered in a recent Reish & Luftman newsletter that I think is available here on BenefitsLink. If my recollection is correct, the title of the article included something like "One Man's Boilerplate" in it.

My recollection is that the DOL has stated that you can't use plan assets for this purpose, but I can't remember the forum in which they mentioned it.

I spent a fair amount of time investigating an nsurance product that provides protection in this area, and I spoke with both the attorney that obtained the IRS PLR approving such an arrangement and the IRS attorney that issued the ruling. After reading the policy, I determined that it didn't make any sense to buy that product.

I would expand somewhat your remark about the obligations arising under securities laws as a result of the use of the participant contributions to repay the loan. You need to determine whether the use of employee contributions under those circumstances complies with both federal and state securities laws. If there isn't an applicable exemption, compliance with the securities laws can be costly, often prohibitively so.

I agree with Richard; you shouldn't reduce the interest rate. In fact, my understanding is that commercial banks typically increase the interest rate after default (to encourage borrowers to correct the problems. My concern is that if the DOL ever focused on this problem, they might mandate the use of a higher interest rate after default.

Your dependent care costs must be a lot lower than where I live (in California). It's not hard to go through $5,000 in a whole lot less than 12 months. My feeling is that employees should be allowed to put in the maximum that the law allows, if they have that much in expenses. I don't understand why you would force your employees to pay costs with after-tax dollars when they could pay them with pre-tax dollars. Remember that the employer also saves money too, because the employer does not have to pay employment taxes on the amounts that the employees contribute to the cafeteria plan. I'm perplexed as to why people would want to voluntarily pay more taxes than they have to.

Under federal securities laws, the prospectus needs to be updated in a "timely fashion" each time there is a "material" change in the plan. Unfortunately, there isn't a lot of guidance as to the precise meaning of these nebulous terms. Don't forget that the table of the investment returns (earned on each of the investment alternatives available under the plan) needs to be updated annually, so you need to provide an update of at least that portion of the prospectus annually.

The $5,000 limit is not pro-rated if the plan is not in effect for the full year. Thus, you could prorate it, if you want to punish your employees, but not many do. Of course, you need to warn the employees that the $5,000 is the total for the entire year, even if they were employed by more than one employer during the year. But I see absolutely no reason to prorate the $5,000 if the person has not been covered by another dependent care assistance plan during the year.

I suggest you read Revenue Ruling 90-29. Also, you might want to consider whether such an arrangement could present an impermissible forfeiture of vacation benefits under applicable state law. For example, California has very strict laws in that regard.

My understanding is that very few HMOs are federally qualified; virtually all are state qualified. Try contacting your HMO.

Regarding the settlor/fiduciary character of the various duties regarding the termination of a plan, see the DOL letter to John Erlenborn, which I think was issued in 1986.

Are people generally aware that if employees can purchase employer stock through their Section 401(k) plans with their own contributions, the sale of those shares to them must be registered with the SEC? I've had a number of clients over the years that offered (publicly traded) employer stock as an investment alternative, without any consideration as to the impact that would have under federal securities laws. While compliance with federal securities laws is not too burdensome, it must be done.

You cannot have a "use it or lose it" policy in California, unless you vacation benefits are funded through a trust subject to ERISA.

Oddino v. Oddino, California Supreme Court in 1997.

Oddino v. Oddino, California Supreme Court in 1997.

I concur in RLL's admonition. ESOPs are not for novices. In addition to all of the esoteri ESOP rules, you also have a multitude of interdiscplinary issues, such as valuation, securities laws, and accounting rules. This is one of the few reasons why there are so few ESOPs; there are so many special rules for ESOPs that it makes no sense to learn them unless you are going to do them all the time. For example, there is a very same cadre of attorneys that do them on a regular basis. If you are masochistic enough to still want to do an ESOP, you might want to read two of my publications -- Tax Management Portfolio, #362, Securities Laws Aspects of Employee Benefit Plans and Employee Stock Ownership Plans, Chapter 50 of the Employee Benefits Handbookd (Warren, Gorham & Lamont). In any event, I would not recommend you implementing an ESOP without retaining the services of a competent securities lawyer that is knowledgeable about the laws of the state in which the employer is located.

Check out www.BTABTA.com. They help companies do this. P.S. I don't work for them, but I am vaguely familar with their product.

The alternate payee cannot get the benefit of the early retirement subsidy unless the employee actually retires. Even though this point is expressly mentioned in the legislative history, it was recently litigated in California.

The position of the IRS is based on the precise wording of the statute, so it would be very difficult to challenge.

I doubt that this information exists. You don't have to apply to be exempt. In fact, you don't even have to file a form 5500 for a church plan. I don't think that this number could be generated even if you tried.

There is a sample ESOP plan document in Tax Management Portfolio 354 (ESOPs). I seem to recall that there is a sample one in the CCH Pension Plan Guide. There might also be one in the RIA Pension Coordinator. You could also check with The ESOP Association (in Washington, D.C.) and with the National Center for Employee Ownership (in Northern California).