mbozek

An employee can participate in both a 403(B) and 401(k) plan but the max deferral is 11k or 12 k if over 50. Since a 403(B) plan has no assets there is no formal termination procedure. All the assets are held in annuities or mutual funds owned by the participants. The er usually will adopt a resolution terminating the plan and file a final 5500 for the plan. Assets cannot be transferred to a qualified plan on account of the termination of the 403(B) plan. In effect terminating the plan is freezing the plan.

see reg. 35.3405-1T E-1 - Its the PA's responsibility to prepare returns and reports required under IRC 6047.

If several participants have sufferred losses then there is more reason for the acquiring employers plan not to permit the option to minimize risk - leave it with the acquired plan and go on without such an option after the merger is the best way to minimize risk. There are many risky funds out there that have lost 60- 70-80% of their value in the last two years and they will not come back. Allowing a risky fund into a plan which has more stable investments increases the risk to the plan fids because all participants in the acquiriors plan must be allowed to choose this risky investment option and will increase the pool of potential litigants. Keeping a risky investment out of the acquiror's plan is the least risky strategy. I will represent a plan sponsor any day on this issue against a disgruntled participant on these facts who weill have to retain and pay for counsel. I still dont know what the cause of action would be by the disgruntled participant. By the way if the money was contributed via a rollover then the participant can do a tax free rollover of the account to an IRA and continue investing in this risky fund outside the plan.

well then the participant will pay for plan admin costs until there are no assets in her account. I hope she is aware of this.

well then the participant will pay for plan admin costs until there are no assets in her account. I hope she is aware of this.

MGB: the only aggregate limit is the salary reduction limit for the employee which wuld be reduced by any contributions to a 401(K) or simple plan. The overall 415 limits for a 403(B) plan (41,000) are separate from the limits for a qualfied plan maintained by the same np employer.

Any serp swap that involves an extension of credit between the employer and the employee/director after the effective date of S-O would be subject to the restrictions of S-O for an executive of a publicly held co who is subject to S-O.

Early retirement window programs always include a provision that prevents the employee from applying for re employment for a period of 12 to 24 months after accepting early retirement to prevent side deals between the employee and his/her manager to circumvent the requirement that the employee terminate employment. Also any attempt by a manager to change an employees mind after the employee has decided to accept the offer for erw could be looked upon as coercion which violates the ADEA for employees 40 and older. Managers should be instructed not to talk to employees who are eligible for the window to avoid any implication that they attempted to influence the employee's decision in violation of applicable law. Otherwise the employee could claim that the mgr promised additional benefits if the employee agreed to stay.

The over 50 catch up allowance is in addition to the limitations permitted under the tax law. Thus the max contribution for an over 50 employee would be 41k in 2002 (40 k max under IRC 415 +1k catch up ) of which 12 or 15k is sal reduction and either a max of 29 or 26 k for the employer contributions. In 2003 the max contribution for an over 50 employee is 42k (14k or 17k sal reduction and the rest from employer contributions). The catch up contribution will increase by 1k a year from 04 through 06 until it reaches 5k over the 415 limit.

MGB: Since IRS rev rule 72-275 permits withdrawal of voluntary employee contributions at any time from a ps plan, a plan sponsor should be able to spin off the after tax contributions into a separate plan. Also it dont think the annuity rule of IRC 72(e) applies for lump sums not recieved as as annuity. See IRC 72(d)(1)(D). Again this option is complicated and expensive and it would be cheaper if the employer offerred the participants a cash payment for withdrawing their AT funds The real question is why bother tring to devise ways to kick out the AT money if the participant does not want to take a distribution. Just freeze the AT money in the plan.

Two comments: Eliminating a risky investment option that benefits only one employee in a plan that is merged into the acquring employer's plan is not imprudent under any defintion of ERISA since the plan is not required to take any investment risk for the benefit of a single participant. The investment policy statement for the acquiring plan should reflect this position. Two: Eliminating a risky investment by a plan amendment takes the decision out of the realm of fid responsibility and makes it a settlor decison which eliminates fid responsibility. The point behind making the elimination a settlor decision is to eliminate the need to make fid decisions and incur expenses to the sponsor. Do you really believe that a sponsor should incure additional cost in doing due dilligence review a risky investment that benefits one employee for the purpose of confirming that the investment can be eliminated in the unlikely event the participant sues the plan?

I dont know if the participant's account can be charged with the admin expense of the plan. The way to distribute the benefit is to make the participant an offer she cant refuse-- offer additional comp to induce her to take a LS distribution. Its cheaper than contining the plan indefinitely. The other idea is to see if the er can purchase a group annuity contract which does not require the participant's signature since it is the er who purchases the contract.

Union members usually work for an employer and the union represents the union members in negotiating for benefits and other terms and conditions of employment. While union members can participate in a cafeteria plan the same as other employees, an employer cannot offer any benefits program such as a 125 plan to union members without negotiating first with the union that represents them. Private employers who have union employees are subject to the NLRB rules regarding negotiation of benefits for union members.

The procedure is for the plan administrator / fiduciary to file a complaint of interpleader in federal ct and serve the contending parties with a copy of the complaint requesting the ct to decide the rights to plan benefits. The Plan admin will then petition the ct to pay the benefits into the ct and be removed from the case. Upon payment of the funds into the ct the plan is dismissed as a party. The ct will decide who is entitled to the benefits. By the way the parties may be induced to settle the claims by the threat of filing the interpleader action.

Requiring that a fid observe prudence rules after the er has amended the plan could put the fid on a collision course with the plan sponsor who took steps to remove the investment option from the fid's responsibility by an amendment. I dont think I would want to be the fid. Second remember all we are discussing is the elimination of one investment option which is described as risky to which only one employee objects to the elmiminatoin upon the merger of the plans. The fid for the acquiring plan can eliminate the investment option as incompatable with the acquiror's investment policy or because it does not benefit enough employees to make it an an economical invesmtment option to a with enough number of employees. Regarding the artilce, what are standards for imprudence in this case? Surely not extending an risky investment option to employees of the acquiror's plan cannot be viewed as imprudent. Othersiwe why bother reviewing investment options-- just go to directed brokerage accounts for all participants.

There is one expensive alternative : spin off the after tax contributions and earnings to a separate clone plan which can be terminated. The assets can be distributed in a lump sum without the participants consent. Why is spousal consent required because the participants are married?

Steve: I would be interested in the cite to ps/ ESOP conversion as a fid decision. Would the answer be different if the er terminated the ps plan and then adopts the ESOP? K: I dont think the er needs to spend money on due dilligence which could be paid for by the participants in the plan as an admin expense if the plan is going to be amended to eliminate an odd investment option after a merger that benefits only one person. The ER could rely on the investment policy in the plan, adequate number of investment options or just the inherent right to limit investments which the plan permits. I dont think there is any merit to the employee's claim to gains after the invesmtent is eliminated because plans terminate investment options all the time which later increase in value because of a change in investment climate. In the only case regarding fiduciary liability for performance of investment options under ERISA the court held that a fid is not required to be precient, just prudent in making decisions. There is less risk to an employer which can eliminate investment options as permitted under provisions for amending the plan since the terms of the plan are a condition of employment which can changed at any time without the consent of the employee.

You need to talk to counsel for the buyer to find out how the purchase agreement treated service with the predecessor employer for vesting ,eligibility, etc. These terms are negotiated between the buyer and seller.

Lockeed v. Spink built upon an earlier Sup ct. case, involving the curtailment of welfare benefits by curtis wright corp. which held that plan participants do not have any right to prevent curtailment of plan benefits by an employer. I am not aware of any case that has held that a settlor decsion to amend a plan becomes a fid decison. I believe that one of the above cases reversed a lower ct decison that held that amending a plan can be a fid act. Similarily an employee has no right to a particular investment option under a plan any more than an employee has a right to a prospective benefit. If an employer can terminate a plan at any time as a settlor decision not subject to ERISA it can amend a plan to eliminate an investment option without violating ERISA. Fiduciary liability is determined by ERISA for persons who act as fiduciaries and trustees and I dont think that it can be extended to the selection of a fid without an amendment to ERISA. Your argument against terminating a risky invesment option because its value is low and the particpant should be allowed to ride it out to recoup losses reflects a lack of understanding of vicarious liability under ERISA. If the risky investment declines further in value then the employee could sue the fid for the failure to curtail the investment because it was risky and it was imprudent to continue it. (I am not stating that the employee would prevail.) Many investment options which were down last year and were supposed to rebound by now (lucent, Cisco, intel come to mind) have only gone further into the hole. By not cutting off the investment option at the earliest opportunity, e.g., when it first becomes an option under the plan, the plan fid risks second guessing if the risky investment goes even further downhill. To paraphrase a supreme ct justice in a more important decision, a retirement plan is not a sucide pact.

K- The fid liability issues arise when the fids exercise discretion. I think Spink v. lockeed answered the question of what are the settlor obligations with regard to plan amendments. I dont know what kind of due dilligence needs to be done if the investments are risky or in unusal media. A plan sponsor is not required to oblige a single participant who prefers " off the wall investments". In the case of mergers it is common for the participants in the merged plan to switch investments to the media available in the acquiror's plan. The cutback rule of 411(d) (6) does not apply to investment availablity.

I am curious as to what application Sarbaines -Oxley would have to a 125 plan. Secondly why would you want to run a 125 plan by a committee? A 125 plan needs a plan admin and a TPA to process the data, administer the plan and follow the participants elections. I dont see the need for a separate committee to act as a PA. Most clients either rely on a PA to make decisions or operate the 125 plan under an overall benefits committee. Having a separate committee to administer a 125 plan is just another layer of unnessary oversight and will slow down the operation of tahe plan since it will require the collective decision making of several people. Secondly wouldn't this committee duplicate the work of the TPA? Most operational decisons in a 125 plan do not require such a cumbersome process. I also am wondering what is the legal application of of a "charter" under ERISA. The reason you cant find any information on a charter is that 125 plans are not operated by a committee.

Rev rule 2002-22 permits nonqual benefits to be transferred to a non spouse participant pursuant to a divorce or separation agreement as a non taxable transfer of property under IRC 1041. However IRC 1041 transfers are not QDROS and there is no employer approval in a 1041 transfer. 1041 transfers are subject to the terms of the deferred comp agreement and applicable restrictions on the transfer of stock options.

Participants rarely win fid law suits if the plan admin follow ERISA and terms of the plan. An employer can eliminate odd or off the wall investment options by amending the plan to delete such options after plan A is merged with plan B. This is a settlor decision and does not involve any risk to a fiduciary because the decision to eliminate the option is made by the employer. Your client needs to get counsel involved-- you will not get a reliable answer on this message board.

V: My concern with taxability upon vesting derives from Section 83 -transfer of property for the performance of services: Reg. 1.83-3(e)- Section 83 property includes a benefical interest in assets which are set aside or transferred from the claims of the creditors of the transferor e.g, in a trust or escrow account.

Since the IRS does not explicitly exclude kindergarden/kinder care as a benefit under a DCAP and there is authority that such care is not an educational benefit if it is minimal or insignificant to other services there is no reason not to to allow the benefit under a DCAP until the IRS clarifies its position. Taxpayers cannot be expected to read the IRSs mind on what is or is not a permissible benefit under a DCAP nor decipher the meaning of the vacuious terms such as "insignificant". Since an IRS challenge of the inclusion of this benefit in a plan would be found on audit of a DCAP the IRS would be required to provide authority as to why kinder care is not deductible under applicable regs/ rulings other than irs publIcations as well as the meaning of the term minimal and insignificant.