mbozek

while an IRA annuity does not have to be placed in a trust there is no prohibition against placing the annuity contaract in a trust . The problem is to find a trustee who will hold the annuity as an aset in the trust or custial account. Or are you referring to a trust established by an IRA owner in which an individual will act as trustee?

My point (although turgidly written) was that a plan fiduciary cannot use the fiduciary provisions of ERISA as authority to take action regarding plan assets which would require the violation of another federal law, e.g., securities law. If the basis for suspending/selling the investments in Co stock is derived from material non public information, the plan fidicuary cannot take action to protect only the plan participants. The fiduciary must either make the information public for all investors or refrain from acting on the information. If the fid is making such a decision based only on public information, e. g. the decline in co stock, future earnings guidance, projected sales, etc., then the fid is risking a lawsuit if the price of the stock increases after the suspension on the grounds that the fid deprived the participants of the right to make their own decisions to continue to invest in the stock as they have a right to do under 404©. Even if the stock goes down the tubes after the fid suspends trading/ sells it based only on public information there will be a lawsuit by participants for not making the decison sooner.

I thought that one of the requirements for a trust to qualify under 81-100 was that it was limited to investments from qualified plans and IRAs. Non qualified plan assets are not permitted in a trust that qualifies under 81-100.

So -- a brief is supposed to be argumantative. The DOL like the IRS is always looking to expand the reach of the law. I think the issue was resolved by the US supreme ct in Spink v. Lockeed-- plan design is a settlor decision not a fiduciary decision. Clearly the exclusive benefit rule does not authorze the plan fids to take any action such as selling off or suspending purchases of the stock because of material non public information because it would violate the securites laws which are not preempted by ERISA. The DOL has some absurd policy issues it litigates such as suing fids if more than 25% plan assets are invested in one type of security. Most of the case are decided for the fids if the fids followed ERISA procedures for selecting plan investments. My understanding of Enron plan administration is that the fids not only did not follow the plan's investment policy, they did not have correct policies in place. I also understand that any fid liability under ERISA will be derivative from violations of the securities laws not from ERISA violations per se. There is still a valid issue of whether enron employees who invested in Co stock are investors entitled to relief under the securities law along with all the other investors.l

Ther are several issues regarding the suitability of er stock in a 401(k) plan. First is the question of whether the stock investment is mandated by the plan document or the stock is an investment selected by the plan fid. In the former case the selection of the stock is a settlor decision and there is no fiduciary responsibiliity to monitor the investment performance since the fiduciary cannot remove the stock as an investment option. Second is the question of what constitutes poor investment performance of a stock. Most publicaly traded companies have suffered declines in stock price over the last 2 years and a mere decline in stock price because of systemic risk in the market does not make the stock a bad investment. Indeed in retirement plans which have a long term outlook, a decline in the stock price is an advantage if the stock dividends/ and contributions are being reinvested because the current shares are being purchased at a cheaper price. When the stock appreciates in the future the shares will have a greater value which will reduce the overall cost of the shares purchased. This is called dollar cost averaging and is a recognized investment technique for long term investors. However in some industries, e.g., telecom and airlines, the stock is unlikely to increase in value and the company may go into bankruptcy resulting in a loss of all equity for shareholders. Third making a decision to suspend purchases of er stock is bad for employee morale -- it is an indication that the company is going down and HR directors are loath to take this option. Fourth, if company stock appreciates after trading is suspended the employees will have a valid claim for a breach of fiduciary duty that they were denied the opportunity to invest in co stock when it was cheap and the fiduciary is personnally liable for the loss. In a 404© plan the employees should be given all pertinent financial information regarding the company. I am not aware of any cases involving fiduciary liability for not terminating er stock as an option in a 401(k) plan although there are many cases on this issue in ESOPS.

Sale of a subsidiary may also be described as as an asset sale even though all of the stock of the sub is being sold. For benefits purposes this transaction is still a stock sale.

Your participation in the plan is subject to the terms of the plan document . If the plan document requires that the information be given then you are required to provide the information. The only other way to get the money is to terminate emplyment.

How is a plan that pegs the premiums at 109% of claims a insurance policy? Reg. 1.105-11(B)(ii) provides that a plan of insurance that does not provide for the shifting of risk to an unrelated third party is deemed self insured. It seems that a premium pegged at 109% of claims does not shift risk to the insurer since the insurer is guaranteed a profit on its exposure. The employer is taking a risk that the benefits will be taxable to the executive. But if the employer is willing to gross up the employee if the benefits are considered taxable payments from discriminatory self insurance plan its ok.

Normally the beneficiary is designated by the participant because in a dc plan the amount of the proceeds minus the cash value of the LI is exempt from income tax. In a DB plan the LI benefit is 100 times the monthly retirement benefit. However, the plan trustee can be the beneficiary of the LI proceeds and the LI can be paid to the benficaries as a taxable distribution from the plan or can be allocated to the remaining participants. In a DB plan the plan is sometimes named as the benefidiary of LI on the life of a key employee or owner to assure that the plan will have sufficient assets to pay benefits in the event of the owner's death or to pass on a tax free asset to the business through the trust (if the plan is terminated and the surplus assets are sold to a buyer of the business)

If you think this thorugh the gust amemndments are applicable only to those provisions of the IRC which were amended between 1994 and 2000 by prior legislation for which the remedial amendment period of IRC 401(B) has been extended. Only those provisons can be retroactively amended in 2002 as of the year the amendment became effective. Adoption of an integrated benefit formula would be effective only as of the year it is adopted because the cut back provision of IRC 411(d)(6) prevents a reduction of accrued benefits for years prior to the date of adoption of the amendment. In some plans the benefits may have already accrued for 2002 and an integrated formula cannot reduce benefits accrued or due before the formula is amended.

Interesting but not dispositive---or revelant to the question. 69-629 pertains to the exclusion allowance which was repealed last year. The language for the catch up provison in 402(g)(8) is worded differently. If the IRS thought that 69-629 was dispositive it would have cited the ruling in the audit guidelines on how to count 15 years of service instead of the language that implies that in theory the service can be with a different employer.

In order to elect LT capital gains on the stock the participant is required to take a distribution of the balance of the credit to his account, e.g., a lump sum. A lump sum distribution at age 70 1/2 meets the requirements for a RMD because the entire amount has been distributed to the participant. There is no separate RMD for any payment of basis. See IRC 401(a)(9)(A)(i).

Since a Supplemental Executive Retirement Plan ( SERP) is not a qualfied plan, its assets cannot be commingled with the funds of qualified plan.

E: This is a matter that needs to be reviewed by labor counsel to determine if the union employees are still part of a collective bargining group under the labor laws after they were transferred. Reg. 1.410(B)-6(d) provides for exclusion of cb employees in a plan that covers both cb and non cb employees. "Thus a cb employee is always an excluded employee with respect to the mandatorily disaggregated portion of any plan that benefits noncollectivley bargained employees." If counsel renders an opinion that the employees are members of a cb group then they can be excluded from the leased ee plan. This more is a labor issue than a benefits issue.

Have you though this through? Collective bargaining agreements are negotiated between the employer and the union. Under the leased employee rules the employees are employees of the leasing organization. Did the union agree to the transfer of its members to the leasing organization? Did the leasing organization sign the collective bargaining agreement with the union? Does the union negotiate the labor contract with the leasing organization? Did the employer have this arrangment reviewed by labor counsel?

The 401(k) plan could be limited to employees of the division. Under reg 1.401(k)-1(B) the group of eligible employees and employees benefiting under the plan must meet the 410(B) ratio % test. However, in a 401(k) plan all employees who are eligible to make contributions are treated as benefitting for the purpose of the 410(B) test. If there are 50 employees in the division who meet the age and service requirements for a 401(k) plan then the plan has 100% participation. See the instructins for the 5300 form

The person whose life is used for determinig the payment of benefits is the designated beneficary. Every plan and IRA provides for the designation of one or more beneficaries. If the spouse is designated as the beneficiary by the participant/IRA owner then the benefits are paid to the spouse. The children would only receive benefits if the spouse predeceased the participant. If the spouse disclaims then the next in line (the children) become the beneficiaries because the spouse is deemed to have predeceased the participant. The life expectancy of the oldest child is used to determine the payment period. Grandchildren who are remaindermen will only take if all other classes of beneficaries with a higher priority are dead. Under the distribution regs the age of the joint beneficary/spouse is used to determine a distribution period. The life expectancies of contingent benficaries are not used.

See Reg. 1.413-2(a)(2): a master or prtotype plan is not a 413© (multiple employer plan) unless such plan is described in this paragraph (presumably a single plan maintained by more than 1 employer).

While a np employer may maintain a 401(k) plan for a seperate group of employees there is a fundimental question of why would an np do so. A 401(k) plan requires qualfication by the IRS, is subject to complex testing and administration rules, annual reporting, frequent amendment and approval of amendments by the IRS, and can be disqualfied for the failure to be operated in accordance with its terms. All of the above factors increase the cost of the plan either to the employer or the employees. A 403(B) plan is not submitted for approval by IRS, has simplified annual reporting, does not have any testing for employee salary reduction contributions, permits a maximum pre tax contribution of $15,000 for certain employees, is not required to be operated in accordance with its terms, cannot be disqualifed for the failure to be amended for changes in the law and does not have a trustee to administer the assets. A 403(B) plan which is limited to salary reduction can be exempt from all the requirements of ERISA. The only differences between the plans is that employees can invest in individual stocks and bonds in a 401(k) plan and a 403(B) plan must permit salary deferrals for all employees who work at least 20 hours a week and are not students exempt from FICA tax. The salary deferral attributable to a 401(k) plan counts toward the maximum deferral in a 403(B) plan. Both 401(k) and 403(B) plans are subject to ACP testing of employer contributions and the nondiscrimination rules for non matching contributions. However a 403(B) plan cannot be disqualified for the failure to comply with the nondiscriminaton rules because it is not a qualified plan. The contributions for the year in which discrimination occurs is included as income of the employee. The NP should consider a 457(B) plan for a select group of management which would permit deferral of up to $11,000 above the amount contributed to a 403(B) plan.

The American Bar Asociation publishes a CLE course book on Employee Benefits in Mergers and Acquistions. But there are few rules on the effect of an asset sale on employee benefits because the plans are not usually assumed by the buyer. Benefit issues are handled on a deal by deal basis without any uniformity. You need to contact benefits counsel who have negotiated benefit issues in asset sales. In a stock sale the buyer becomes the plan sponsor and assumes all liabilities of the plan, eg. underfunding in a DB plan or the risk of noncompliance with applicable laws.

Could some one please reconcile the position of the DOL in the SPD regs that a description of fees and charges which are condition of receipt of benfits be described in the SPD with the DOL position in Opinion ltr 94-32A that a plan may not encumber the exercise of a right mandated by ERISA to recieve a benefit by imposing conditions on the exercise of the right that are not contemplated by the statute. E.g., plan cannot impose fees on a participant's account for the review of a QDRO because the alternate payee has a statutory right to receive a deistribiton under a QDRO. If a particpant has a statutory right to receive benefits payable under a plan how can such a right be encumbered with a charge for the exercise of such a right without violating ERISA?

I dont understand how helping UK employees avoid UK taxation should have priority over the tax deferral for US employees in the plan. As previously noted UK law may require provisions which are inconsistent with provisions under IRC/ ERISA. It would be better to exclude UK employees then make changes in the plan to conform to provisions required under UK law. What are the provisions that would be required under UK law? Second would a US pension plan be eligible to qualify under UK law? For example only a domestic trust established in the US is eligible to be used to fund a plan qualified under the IRC and the plan must maintain the indicia of ownership of all assets within the jurisdiction of the US cts.

Why would the er want to do that? What happens if inland revenue demands prvisions which would disqualfy the plan?

This makes no sense. Why would a sole prop want to defer comp to himself? Sole prop are taxed on net earnings from self employment so anything paid to the SP becomes subject to income tax in year received. Only way for sp to have deferred comp is if SP agrees to defer comp which is due from one of his customers but that plan would be maintained by customer not SP.

Fed tax id no can be applied for over the telephone today. Check the IRS web site. You can file the form by inserting the languge "tax ID applied for" in the the tax id box.