mbozek

SEPs are employer contributions to an IRA owned by the employee. See Pub 590, P 63. Since a SEP is not a qualified plan under IRC 401(a) the assets cannot be held as an asset in a ps plan. I never heard of an IRA issued to a qualified plan. There is something called an employer sponsored IRA Trust under IRC 408© but it is used mainly by unions. The assets in the IRA would be limited to an indivudal annuity not a group annuity becuase the IRA must be owned by the individual. However it is unusual/cumbersome for a custodial account to own an annuuity contract because the IRA is tax deferred in an annuity.

No - the cashout limit can be raised retroactrively in either an ERISA or non ERISa plan.

Before running off to research bankruptcy law the plan reprentatives should get a copy of the bankruptcy filing to see if the plan is listed as general creditor of the employer for for the amount of the outstanding contributions. If the outsanding contributions were listed on the schedule then it is the responsibility of the plan representative to file a claim with the bkcy ct.

Cal. recently enacted a law which requires that employees in insured health plans who exhaust their 18 months of cobra coverage under fed law must be offerred the opportunity to extend their cobra benefits for an additional 18 months. The law was effective for employees terminating 1/1/03 which means that employees will be eligible beginning 7/1/04. Has this law been challenged by employers or trade associations because it imposes administrative burdens on plan administrators to provide notice to employees by amending their cobra notices and directing them to the appropriate HMO or insurer?

Veba: I am confused by your response.I thought under Patterson v. Schumate, 112 s.ct 2242, the interest of a common law ( non owner's) interest in a qualified plan was protected from the employee's creditors in a bankruptcy proceeding. Or are you referring to the owner's interest in a qualified plan in a bankruptcy filing?

Yes there are a lot of unhappy campers. The Dol will contact all the fiduciaries to make them pay for the missing contributions and earnings but I dont know how many cases they pursue in court since the DOl has limited resources. Many fids resist paying for missing funds because they were not involved in the removal of the funds or had no oversight over remittances. In some cases will be referred to the Justice Dept for criminal prosecution.

Where does the IRS note this change as a basis for limiting offsets? Under reg. 1.401(a)4-(8)(d)(1), a net DB plan benefit can pass discrimination testing under either a contributions or benefit basis. How is an offset for benefits paid under another program a different event from a reduction in retirement benefits due to a reduction in final average pay, e.g. employee goes out on strike prior to retirement? Finally I dont think that conditoning a DB benefit on payments from another source is is a right which would be subject to forfeiture within the meaning of the regulation. The temporary reg only eliminated the language for offsets with regard to benefits payable under fed or state law. Prior to the temp reg. IRS routinely approved plans with offsets for other non govt income sources including commissons paid, termination payments under foreign law and severance payments.

I dont understand how Treg 1.411(a)-1 can limit non SS offsets since many qualified plans with determinaton letters permit offsets for for WC, severance, ESOP benefits and other forms of payments. Futher Fed cts have upheld offsets from qualfied plans for severance payments, life insurance commissions and mandatory termination payments required under foreign law as not being a reduction of a vested benefit. Since the IRC does not define the benefit formula that can be adopted by an employer why should certain offsets be prohibited? In practice the offset is part of the benefit formula.

IRS pub 571, P3 limits 403(b) eligiblilty to employees of public schools who are involved in day to day operations of a school, 501©(3) organizations and special interest groups who have been deemed eligible employees for 403(b) annuities by Congress e.g., employees of public school systems in indian tribal governments. Employees of govt entities which are separately organized and perform the functions of eligible organizations (e.g., a public hospital) are deemed eligible to sponsor 403(b) plan under IRS rules. However employees of a municipal govt or govt employees not involved in school operations are not eligible for a 403(b) plan. There is no s/l for filing a claim for benefits under ERISA other than the general rules of equity. The s/l for suing on a denial of a benefit under erisa is determined by the applicable state law governing such claims or the time prescribed in the plan. In a non ERISA plan s/l for filing a claim is determined by state law.

In kind distributions are not suitable for plan interests in RE or privately held investments such as LPs, mortgages and non publicaly traded securities because few IRA custodians will hold such interests and most plan trustees will not permit such investments because of fiduciary issues ( e.g., the asset must be prudent). The RE interest can only be distributed as a certificate which has no current marketability and will have to be redeemed. Also privately held interests must be valued once a year by the issuer. From an administrative point of view, in kind distributions are much more work because the administrator must procure the indicia of ownership from each security to be distributed instead of giving instructions to the custodian to cash out shares and issue a check after taking out withholding.

I though that compliance with 401(l) is only required if the plan complies with the safe harbor non dscrimination rules under 410(a)(4). A plan that uses an integration formula that does not comply with 401(l) need only comply with general testing under 401(a)(4), e.g., cash balance plans that use dc integration. Reg. 1.401(l)-1(a).

GB: According to the post H excluded the spouse from receiving benefits under the plan. Since benefit plans are a condition of employment and a spouse's rights are derived from the rights of the employee there is no need to ask for a lot of documents and information which may be difficult to get from a govt entity which is not subject to disclosure rules under ERISA without retaining counsel. The question is whether the employee could receive benefits in a single life form without spousal consent. Any other rights the ex spouse may have to a pension would be in the divorce decree or property settlement which she should review. Referring her to other pension plans to which a govt employee was not eligible to participate in (403(b) plans are only available to public school teachers and 501©(3) employees) is not helpful. Also the staute of limitations for making a claim for pension benefits may have expired.

Q: Was the former employee a member of the eligible class of personswho could participate? If the employee was not a member of the eligible group there is no basis for a claim.

Common law marriage is allowed in some jurisdictions (e.g., Texas, SC) as legal marriage. Since the state where the parties reside determines whether they are married for benefit purposes (There is no regulation on how to determine if parties are married under ERISA) the law of the state where the plan is administered is irrevalent. The Federal Defense of Marriage Act permits a state to disregard a marriage ceremony between two persons of the same sex which is performed in another state that recognizes same sex marriages.

Before you spend a lot of time following burns advice you need the answer to two simple questions: 1. Did your husband need your consent to take a benefit which would cease at his death. Most govt pension plans do not require that a spouse must consent to the employee's election to receive benefits only while the employee is alive. The pension administrator for the city can answer that question. 2. Did your divorce decree require that his benefit be paid to you after his death? You need to review the divorce decree or call the lawyer who represented you in the divorce. If the answer to both questions is no then you dont have any basis for collecting his pension.

Under IRC 402©(9) the surviving spouse can roll over the distribution to her own account in the qualified plan or to an IRA. However, why roll it over if she doesnt have to? If the deceased spouse's account can be continued in the qualified plan, a surviving spouse under 59 1/2 can make withdrawals from the account without paying the 10% penalty because the distributions are on account of the death of the participant.

I think you need to check to see if the plan still exists and check the plan document. Under IRS rules a plan is deemed terminated when the final assets are distributed and the plan admin may not be able to take any further action other than file the final 5500.

What are the terms under which the plan is entitiled to receive fees from the mutual fund? Who determines the amount of the refund?

There are two separate agreements with different legal relationships which need to be reviewed. The IRA account is a contract between the custodian of the IRA and the IRA owner. The owner has all rights including the right to designate the beneficary of the IRA and make investments. When the owner dies the IRA beneficiary suceeds to all the rights of the owner, including investment decisions. After the owner's death the minimum distributions will be paid by the IRA to the trust. Naming the trust as beneficiary will result in the trustee suceeding to the rights of the owner of the IRA. The second agreement is the trust agrement between the owner and the trustee to administer the trust for the benefit of the benficiaries of the IRA. The trustee's rights and duties are spelled out in the trust agreement. The agreement can give the trustee complete discretion over the distribution of the assets of the trust as well as investment of the assets of the trust. The trust could permit distributions to a beneficiary for health, education, maintence or other bona fide reasons if the trust permits discretionary distributions. The terms of the trust can provide that the trust will terminate upon a specific event, such as the attainment of a specific age of the beneficary or the death of the beneficiary. It is up to the creator of the the trust (the IRA owner) to determine the terms of the trust. The trust is taxed at trust tax rates for any distributions paid from the IRA (38.6 % for income over 9200). The trust is also taxed on any earnings on trust investments which are not paid to the beneficaries. The beneficaries will be taxed on distributions paid from the trust depending on the character of the income paid from the trust under the tier system. The beneficaries only remedy would be to bring an actoin against the trustee under state trust law but the bene would have the burden of proving that the trustee was acting imprudently in investing IRA assets. The court would enforce the terms of the trust which could prevent a lump sum payment to the beneficiary if the trustee had the right to determine the amount of money to be paid to the beneficiary each year. If the owner wanted the beneficary to withdraw funds at will the owner could leave the IRA to the beneficiary outright instead of making the trust the IRA beneficiary.

If done as a plan admendment it is a settlor decision, not a fiduciary decision.

The maximum deferral in a qualfied DC plan is the lesser of 40k or 100% of comp and the max deferral in a 457 plan is 14k for an over 50 employee. The total deferral is 54 k in 2003. The plan generally requires that the employee cannot elect to receive "excess" vacation pay in cash upon termination- but must elect between a forefeiture and a transfer to a 401(k) plan or 457 plan. Setting up a plan may require changes in municipal law so you wll need to consult counsel.

I would not assume that the new sponsor will do anything voluntarily which will increase the costs. The new sponsor could claim that it was not a signatory to the CBA. You really need to have labor counsel review the CBA and the precedents because this is a matter under both labor law and bankruptcy law (a bkcy ct can abrogate labor contracts of an employer that files for bkcy). Resolving this issue will involve big bucks for legal advice.

The answer is in the cite to pub 590 P13, col 2.

According to the DOL MEWA booklet the operators of a MEWA which is not an ERISA plan may nevertheless be considered fiduciaries under ERISA if such persons are responsible for or exercise control over the assets of ERISA plans, in addition to any state insurance laws that apply. (A MEWA which is an ERISA plan is required to conform to ERISA.) Under ERISA 514(b)(6)© a welfare plan subject to ERISA which uses a MEWA to fund benefits will be subject to regulation under ERISA and not state insurance law. I think the issue of employer liability is not dependent on the VEBA's compliance with state or DOL regulations but on the default risk if the VEBA cannot pay benefits. Employer liability under ERISA would depend on the statements made to employees regarding liability for payment in the SPD and other material, similar to employer liability for a health insurer's refusal to pay a claim which is not covered under the insurance contract. Query- Would there be any employer liability under ERISA for providing benefits under a MEWA that did not comply with state insurance laws if the VEBA paid benefits to participants?

Its not eligibility but whether he was an active participant, e.g, any contribution or forfeiture is contributed to his 401(k) account for 2003. See IRS pub 590, P13.