Kirk Maldonado

Although the logical conclusion should be that rollover money can be freely withdrawn at any time, I believe that the IRS has issued PLRs holding that the amounts must be held in the plan for at least two years before they can be withdrawn (absent another event occuring that permits distributions).

There are two very good sources of information regarding ESOPs. The first is The ESOP Association, which is based in Washington, D.C. The second is the National Center for Employee Ownership, which is based in Northern California. I'm fairly certain that there are hotlinks to both them (in BenefitsLink) under the topic of ESOPs. I strongly urge you to retain your own counsel to represent you with respect to ESOP transactions. Find someone who specializes in them. It is very arcane area, with only a few dozen attorneys in the entire country do them on a regular basis. Also, representing the trustee is a very different role than representing the selling shareholders or the employer sponsoring the ESOP. I know that because I represent a major California-based bank on the ESOP transactions in which it serves as the trustee. Similarly, you should have your own financial advisor (i.e, an appraisal company). Again, make sure that they do ESOPs on a regular basis. If you have competent advisors, ESOPs are not unduly risky. Many banks avoid them as a policy matter, so that you may find that doing ESOPs can be a very effective marketing tool. ------------------ Kirk Maldonado

I published an article on the taxation of distributions of employer stock, which covers the issue of the special treatment accorded net unrealized appreciation. It is entitled "Basis Issues Complicate Qualified Plan Distributions of Employer Securities," 77 Journal of Taxation 334 (1992). Alternatively, it is also contained in a chapter I wrote on ESOPs, which is Chapter 50 of the Employee Benefits Handbook, published by Warren, Gorham & Lamont.

The IRS takes the position that participants cannot defer amounts out of severance pay, because they are no longer employees. I think that this situation is comparable, and the IRS would similarly disallow contributions after the plan termination date.

There was a request for an Advisory Opinion from the DOL on this topic, but I haven't heard anything for years. The DOL originally said that you couldn't charge participants for distributions, but I bet they backed off because that position makes no sense in a shrinking plan because it shifts the costs from the leaving participants to the remaining participants. I don't see a policy reason to punish long-term participants to benefit short-term participants.

Church plans aren't even required to file Form 5500s. IRS Announcement 82-146.

There are a number of private letter rulings holding that this does not violate Section 411(d)(6), provided that the amendment is adopted prior to the last day of the year.

The problem is that you don't satisfy the nondiscrimination test. The highly compensated employees are eligible for, and actually do, contribute more to the plan than the other employees. I've encountered this problem before where employers wished to reduce or eliminate the subsidy for the highly compensated employees. It's an absurd and counterintutive result, but I think it is the legally correct one.

California law generally requires that employees accrue vacation benefits on a daily basis, and that the benefits are fully vested when earned.

I don't think that you can legally combine them. The SPD is supposed to be in plain English. Health plans are anything but plain English. In that regard, I'd like to point out that the Ninth Circuit has refused to enforce an exclusion that it considered to be "buried" in a plan document. My feeling is that unless the limitations and exclusions are clearly specified in a relatively short SPD, courts will be reluctant to enforce them. Also, I have a conceptual difficulty with a combined doucment. I would like somebody to explain to me how a document can be a summary of itself. (Remember that the SPD is required to be a summary of the material provisions of the plan document; not the plan document.) I realize that combined documents are routinely done. However, that does not mean that they comply with ERISA; it just means that there is massive noncompliance.

My personal belief is that state laws that would preclude negative elections are preempted by ERISA. ERISA's preemption language is very strong and clear. Fred Reish (of Reish & Luftman) has apparently requested an Advisory Opinion from the DOL that the laws of several states (including California, I believe) that would preclude negative elections are preempted. My prediction is that DOL will hold that the laws are preempted.

Contact The ESOP Association in Washingon, D.C. I'm sure that they could give you the names of employers that maintain ESOPs in your vicinity.

Please defined what you mean by sub T/A fees.

I believe the case is Doe v. Southeastern Pennsylvania Transportation Authority, 72 F.3d 1133 (3rd Cir. 1995).

If the employer is a corporation, you need to make sure that it has the power to act as a trustee under applicable state law. For example, a corporation cannot act as trustee under California law (unless it is a financial institution).

Other than a leveraged ESOP, or to hold excess annual additons, a tax-qualified retirement plan may not have a suspense account. Revenue Ruling 80-155.