mbozek

pbd: Suggest you read the custodial agreement between shwab and plan sponsor-these agreements provide that Schwab can rely on instructions from plan fids as to where the funds are to be directed. There is also a hold harmless agreement that provides that if Schwab is liable for making an incorrect payment at the direction of the fids, then the fids/ plan sponsor are liable to Schwab. Also the Plan Sponsor's agreement with the bnak permits the seizure of assets in the checking account to pay debts owed to the bank. The tax problem was the result of the failure of the plan sponsor to maintain a separate checking account for payment of distributions from the plan. The bank is not liable for the withholding taxes because it did not agree to act as agent to withhold taxes as required under IRC 3405. Under the IRC certain officers/fids can be held liable for taxes owed to the IRS. The fids should consult a tax advisor. Of course if a 1099 is never filed with the IRS there will be no record that a distribution ever occurred or that taxes were withheld.

Try IRS Pub 590 or the reg 1. 219-2

With all due respect to your posts, you have not given any thoughtful response to to question of how the plan sponsor can comply with the BRF testing in the face of a volitile investment climate where account balances will go over and under fixed amounts because of the economic climate. Also I seed no authority for incorporating the terms of the investment options as plan terms. If this were true a lot of plans could be subject to disqualification under the BRF rules for the conditions/fees imposed by funds. If the IRS has no problem with these restrictions then is no reason to construct hypothetical arguments as to why they apply. I dont think that selection of funds is to be determined on the basis of lowest minimum amounts any more than they should be determined by lowest mgt fees. If low fees/ minimums were the criteria for selection of funds then the only index funds would be appropirate investments for plans and a lot of investment advisors would be out of business.

IRS reg 1.125-2T Q/A-1 states that a cafeteria plan may offer participation in a CODA as an option under the plan. Every 125 plan that allows for contributions to a 401(k) plan provides for such option under the terms of the plan. The 401(k) contribution is usually a default option meaning that any amounts not used for other 125 benefits will be remitted to the 401(k) plan. This arrangement is used when the er dedicates a specific contribution to the 125 plan, e.g., 3% of each ee's pay. If the 125 plan document does not contain an option to contribute to a 401(k) plan then the participant could not remit the contributions to the 401(k) plan.

I think the practical problem of being able to test current availability and effective availablity on an annual basis in a volitile investment environment where account balances go up or down by 20-50% a year prevents any application of the BRF rules to minimum account requirements, even if such minimums of the fund sponsor are considered part of the plan. Plans could pass or fail the BRF test soley because of investment performance of participants' accounts in the year. Enforcing the rule would require that plans liquidate investment options solely to prevent failing the BRF test. Since the minimums are usually disclosed in the prospectus it would be difficult for the IRS to track such restrictions without a lengthy audit. If there was a real problem the IRS would issue a ruling as it did with cash balance plans that violated the voluntary consent provisions of IRC 411(a)(11) for terminated participants. See Rev. Rul 96-47. A minimum which is equal to the minimums for non plan investors is not a problem.

Does anyone have the cite to the RI law that mandates coverage for the expouse?

How about liability? Under this arrangement what would prevent the participants in plan from A claiming assets in the brokerage account which may belong to plan B. If the funds are comingled who wants to pay for the cost of lawyers and accountants to decide whose assets belong to which plan. Also there ccould be disputes on how gains, losses, contributions and withdrawals are credited in this comingled fund. Plans can comingle funds in a master trust but there are additional admin costs. Its cheaper to keep the plans assets in separate accounts of the broker.

Since immediate vesting was required only under the exclusion allowance which was repealed after 12/31/01, there is no prohibition in having deferrred vesting requirement in either an ERISA or non ERISA plan. Deferred vesting is permitted under IRC 415©.

There are two types of age discrimination under Fed law: Disparate treatment which forbids discrimination on account of an age requirement, e.g. plan cannot exclude employees over a certain age and disparate impact- plan cannot use an age neutral classification that impacts adversly on employees age 40 or older, e.g., plan cannot exclude employees based on a classification that impacts only on ee over 40. Excluding exec. associates could result in disparate treatment if they are all over 50. The Fed ADEA is not preempted by ERISA or the IRC and applies to all employers with 20 or more employees. You should consult with employment counsel to determine if the ADEA is an issue.

Under IRC 3405 the plan administrator is responsible for withholding and reporting of distributions. In small plans the plan sponsor usually does not pay to provide a separate checking account for the plan trustee. Paying the withholding taxes to the employer was a violation of the tax law because the plan assets cannot be transferred to the employer. The plan admin has a responsibility to provide the 1099-R. I think the plan admin should pony up a check for 9000 for withholding plus penalites. The investment co cannot be liable if it followed the directions of the trustees to issue the check. The broker should know better than to rely on a TPA for tax advice.

I dont think there is any authority for requiring an investment option to be available to all participants if the investment is offerred as an option under the plan but is not part of the plan. Financial providers can enforce minimum asset requirements under the plan the same as any mutual fund can require that a minimum investment be required as long as it is consistent with the fund requirements for individual investors. Requiring a minimum amt is not discriminatory because it is not based on compensation of the participant.

He can be as mad as he wants but that is not going result in any recovery from the plan because there is no recovery for pain and suffering under ERISA. I think this discussion has reached its end.

S: Could u explain what is the pound of flesh that the participant is seeking and under what provision of ERISA is he/she entitled to such retribution.

A sep is trated as a DC plan. An employer can maintain a SEP in the same year as a 401(k) plan but must aggregate the contributions under the 415 limit of 40,000 and the limit on deductions to 25% of covered compensation with the 401(k) plan.

What does counsel say? Generally payments on outstanding loans are required to cease when the bkcy ct issues an order notifiying all creditors that the empoyee has filed a petition in bankruptcy. Refunding loan payments my conflict with the terms of the plan. Why did the ct order a retroactive refund?

If the client is a non profit then it can elect to be subject to ERISA by filing 5500s, providing SPDs and and having a written plan. Many NP elect to have ERISA apply to sal reduction plan just to avoid being subject to state laws.

Who has agreed to pay for this loss? The ER, the Plan admin? I dont see a 2 month delay in paying the distributions as being actionable-anyway check the plan document.

I am not aware of any state laws on this issue other than state labor laws that relate to remitting employee contributions to a carrier or provider. It would be very difficult to construct a theory of liability against the employer if the employee has control over the investment choice and the employer is not recieving any payment from the provider because the employee has complete control over the decision to invest and the employer is not a fiduciary with regard to the employee's decision to make an investment. Imposing fiduciary liability on the employer because the funds permform poorly would result in the elimination of this option since there is no reason for the er to maintain a benefit program which will create liability risk or require monitoring of performance. There once was a federal case, Otto v. VALIC, which discussed the exemption of state 403(B) plans from ERISA but I think the decision has been erased from the official reports because the court revoked its opinion.

k: I dont think 10 yr prepayment would be permitted under State ins. laws and further who could afford to make 10 yrs of premium payments in one year to a 125 plan.

P: Michigan also has a similar law. Under the precedents, the state laws are preempted if they apply to a self funded plan but are valid if the employee is covered under an insured plan since coverage for the ex-spouse is deemed a part of the insurance contract. Self funded plan case is Bergin v. Wausau ins. Co., 863 FSupp 34. The Insurance co case is Cellilli v. Cellilli, 939 F Supp 72. Both cases involved Mass Law.

For those of us who are quantatively challenged, it might be good to know just what is the difference in fees that are paid in these accounts, e.g., traditional mgt fees are 1% of assets, separate account fees are about 2%, etc ,and performance results of the options. Several clients have been approached by investment advisors to manage their pension and personal accounts and I have never been able to figure out what is a good or bad asset management approach. For example, one client was approached by a brokerage unit of a major financial institution which would manage all his accounts by investing in mutual funds for a 2% fee. The manager would determine the proper asset mix of the portfolio and invest accordingly. Since this client was retired, a large portion of the assets would be in fixed investments such as bond funds which have fees of 35-40 basis points so why should the client pay another 160 basis points to select a bond fund?

In conversions of mutual savings banks to stock corporations the bank may limit the the subscription of initial shares to individuals and not allow the bank as custodian to purchase shares for a IRA or HR-10 plan. An individual cannot purchase the shares and make a contribution to an IRA because all IRA contributions must be made in cash. I think the case is Lemishow v. CIR 110 TC 110 & 110 TC 346 ( 1998)

I dont see it as deferred comp- more likely it is a dividend on the premium- check the terms of the policy. The insurer may be required to return the policy as a condition of state approval. Anyway it is only a problem if the policy is in the 125 plan for 10 yrs. If the ee leaves can the policy be continued on an AT basis by the ee? If so then there is no harm to the plan because no cash value will accrue if the ee leaves before 10 years. This may be irrevalent but why would an er allow a cancer only policy in a 125 plan? There are better uses for the funds unless it is assumed that the ee will remove the policy from the plan before 10 yrs are up allowing the ee to bag the cv without paying taxes. By the way how doe insurer enforce the 10 year premium payment requirement?

The PT rules of IRC 4975 are extremely complex and subject to many exceptions. The owner of an IRA is a fiduciary if he has discretion to choose the investments. Generally under the PT rules a disqualified person (fiduciary) cannot enter into the sale, exchange or leasing of any property with the IRA. Thus a fiduciary cannot buy or sell an IRA asset to his personal account even if the purchase or sales price is the FMV of the asset. There are a number of exceptions to the above rule. For example, the PT rules do not apply if the IRA owner directs the IRA custodian to purchase a subscription of an initial offering of a company in which the owner is the initial director. There are also many regulatory and statutory PT exceptions. Any analysis of the PT rules is intensely fact driven and requires expert counsel who should be retained before entering into the transaction. Also counsel must review the transaction under the rules for permissible assets prescribed by the IRA custodian. Some custodians do not accept odd assets such as privately held stock, offshore corporations or limited partnerships. IRA custodians require the issuer of the security to provide a year end valuation by January 15 as a condition to allowing the asset to be held in the IRA. Although it may be hard to believe there are some exceptions that allow taxpayers to convert taxable income into a non taxable income by establishing a Roth IRA which owns an interest in a corporation in which the taxpayer is a director or employee under applicable precedents. This is why expert counsel must be retained. I would be glad to review any proposals by a client who retains me. Otherwise you can read IRS Pub 590 for a brief summary of the PT rules.

See IRC 403(B)(7)(A).