mbozek

If the obligation to contribute the gains to participants' accounts is imposed upon the employer then it would be a prohibited transaction for plan assets to be used to discharge such an obligation since plan assets can not be used to benefit the employer.

Since each participant in a mppp must have an individual account under IRC 414(i) and benefits can be paid only from such account, I do not understand what this thread is about. Under ERISA 206 the normal form of benefit for a participant is a J & S annuity. The annuity is purchased from the participants account. The cost of the annuity is part of the overall amount paid to the ins co and is not paid separately. If the participant has an account balance of $100,000 then the amount used to purchase the will be $100,000 and the mo annuity benefit will be the amount provided in the annuity table which is part of the annuity contract. I dont understand what the cost of an annuity for one person has to do with the obligation to puchase an annuity benefit under ERISA. The cost is built in to the amount of the purchase price -- it is not a separate expense. If the Particpant does not want to incure a hefty load charge then he/she can elect to receive a lump sum distribution and rollover the proceeds to an IRA.

Under ERISA section 4021(B) all govermental plans are exempt from PBGC. There is no provision for govt plans to waive the exemption as there is for church plans.

No assets are removed from a 403(B) annuity plan because no assets are held in trust. Amounts in a custodial account are considered to be invested in an annuity under IRC 72 owned by the participant. The account balances are held by a custodian for the participant who is the owner, similar to an IRA account. Upon termination of the plan the participant can either find another financial institution who will act as custodian or transfer the funds to a 403(B) annuity contract under the provisions of Rev. Rul 90-24. A participant cannot require a financial institution to continue as custodian after the plan is terminated by the sponsor and no further fees will be paid to the custodian.

E: account balances of terminated participants can be rolled over to an IRA. Also 403(B) plans with custodial accounts provide that upon termination of the plan, account balances will be transferred / "rolled over" to an annuity contract via a 90-24 exchange.

Perhaps the person you spoke to was referring to the 3 yr s/l for disallowing deductions if a plan is disqualified. Under the IRC employer deductions can be disallowed for the last 3 yrs tax returns (6 yrs if the deduction exceeds 25% of gross income) if a plan loses its qualified status, e.g., for failure to amend. However, deductions taken on tax returns beyond the S/l can not be disallowed on account of plan disqualification. However, filing for a determination letter is not the filing of a tax return and the IRS can disqualfiy a plan back to inception. .

RTK: My reading of reg 1.417(e)-1(B)(1) indicates that a plan must offer both an immediate as well as a deferred annuity to a participant as well as a lump sum option. Isnt limiting distribution option to an immediate annuity create a disqualfiying provision in all of your plans?

Is the participant the guardian of a child? If so the court may haved ordered payment to the participant for child support as the custodial parent. Courts sometime make DROs payable to a custodial parent for the benefit of a minor child or other dependent. You need to read the divorce decree and talk to the attorney who drafted the DRO.

This matter is governed under state law, not ERISA. You need to look at the application of an estoppel defense by the employee- e.g., the employee retired 10 years ago in reliance on the amount of the pension that he was promised by PERS. Therefore PERS cannot reduce his pension because of its own mistake. However, there may be a state law requiring that overpayments be collected from the employee.( Erisa permits a reduction in pension benefits to recover overpayments.) The employee could claim that the state S/l limited recoupment to the last 6 or so years of excess benefits not all excess payments. The reduction in payments may also be limited by state garnishment laws. As far as the estate claim, a claim for excess benefits by PERS would have to valid under state contract law which would survive the death of the employee. If the excess payment claim is equitable in nature it may be extinguished when the employee dies because it could only be recouped against the pension payments. I think the retiree needs a lawyer.

Jason: Arent the arguments you raise against investing in value funds which own stock in old economy companies because of unfunded liabilities also a reason for investing in these co-- since there is a perception the retirement plans are underfunded and additional contributions will be required which will reduce the E & p of the sponsors, an investor can buy these companies at a discount. When the economy recovers and the plan assets increase in value the sponsor will be able to cease the additonal contributions and the E & p of such companies will rise along with the stock market. The share price of the value fund will rise to reflect such increased valuations. Also the impact of unfunded pension liabilities will be minimal in the future because over 200 large corporations have established cash balance plans which do not not have unfunded pension liabilities-- indeed CB plans are established to cancel unfunded future liabilities for those employees who are not grandfathered under the old final ave pay formula in order to fatten up the balance sheet. Investors do not take unfunded health care liabilities seriously because most retiree health care is not guaranteed and can be changed/reduced/eliminated by the employer. The steel industry is not a good example of old economy cos with pension plans because it is not competitive in the global market place, not because of its pension plan liabilities. US steel cos cannot compete with foreign steel cos which have newer plants which produce steel cheaper, cheap foreign labor, govt subsidies and a lack of interest in controlling pollution. The US auto industry will survive to fund its pension plan liabilities but the airline industry will shrink and many more carriers will go the way of pan am, eastern and TWA regardless of their pension liabilities because high labor/capital costs and prolonged low cash flow are bad for any business. Pension liabilities are the tail of the dog.

There was more than one exec life co. Exec Life of NY paid out almost all of the annuity liabilities because it was subject to NY law. I dont remember what the settlment was for exec. life of Cal. You are correct in that there are limits on the state guarantees similar to maximum benfit guarantees of the PBGC.

The proposal to allow direct charitable transfers are not doable because of the risk of tax evasion- Under current law the maximum charitable income tax deduction is limited to 50% of AGI. Allowing taxpayer to transfer the value of the entire IRA directly to a charity would prevent the IRS from policing the 50% requirement unless the charity was required to submit a burdensome notice to the IRS of the receipt of the amount of the IRA from the taxpayer and many charities would be reluctant to give such info to the IRS.

I would suggest that you increase the amount of your ERISA fiduciary coverage if you want to follow this course. Your request is similar to to the do it yourself approach to drafting a will. People think they can buy generic software that will give them a valid will and avoid estate taxes without having to hire an attorney. The problem is none of these programs guarantees that the document produced is valid under the applicable laws in the state where the individual lives. While I am not an actuary, I have been involved in several disputes involving the valuation of benfits under DB plans and I am amazed at all the variation / discretion in how benefits are determined. In every case no two actuaries came up with the same value of a DB benefit for the same employee--It makes GAAP look simple.

Two Questions: 1.What kind of support for all of the admin/legal/tax issues will be provided by employees at this off shore facility. Will non us personnel be able to cope with comlex, constantly changing US laws on a day to day basis and provide competent administration recordkeeping/ data processing for plan sponsors. Given the issues discussed at this site I dont think you will get competent advice/answers from off shore personnel. This type of back office admin is much different that the data processing (eg. software programming) which is being shifted to places like Canda, Ireland and India which have much lower labor costs. Are plan sponsors willing to trust plan admin/fiduciary liability/ tax liability to an off shore vendor that is not subject to US law or personnel who do not understand the US regulatory system for benefit plans? 2. While the trust may be subject to us law, most of the vendors operating off shore place restrictions on the rights of customers to sue, e.g. all disputes are to be settled by arbitration in the country where vendor does business and liability is limited to maximum permitteed under domicile of vendor. e.g., no malpractice liability, punitative damages, compensatory damages, etc. Off shore vendors cost of doing business is lower because their liability risk is lower.

All states except LA have some form of guarantee fund to pay annuity benefits in the event of the insolvency of an insurer although the strength of the guarantees varies -- for example NY has a very good law requiring all life insurers to contribute to restoring the guaranteed annuity benefits promised by a insolvent carrier. It not clear that there would be no recourse against the PBGC. While the PBGC claimed that it had no liability to provide benefits to participants in terminated plans after Executive life and Mutual benefit life went under, neither the statute or the legislative history of ERISA confirms such a position. (Title IV of ERISA requires that that all vested retirement benefits guaranteed by a DB plan are to be covered to the extent of the insurance limitations for benefits. There is no statutory exclusion from title IV for DB benefits provided under terminated plans. Also PBGC premiums were paid for benefits accrued under terminated plans and no refund is given when the plan terminates.) The issue was never tested because the participants who received annuities from insolvent insurers eventually were paid the benefits under either the gurantee funds or the insurer came out of insolvency.

why does the plan sponsor need to incure any cost in maintaining this illiquid asset for an indefinite period? It could be years before any funds are recovered. Just distribute the shares to the participants. As record owners they will be notified of any further developments in the stock and if it has 0 value at distribtion there will not be any income taxation. Any other action is a waste of funds for the plan sponsor.

jpod: If the asset is not publicly traded or has been delisted from an exchange it will be very difficult to find a buyer. There is no requirement that an illiquid asset be sold in order to distribute the participants' interest on account of a plan termination. Terminating plans which have an interest in illiquid real estate can transfer the RE to a taxable trust and distribute certificates of interest in the trust to participants. The participants can rollover the certificates of ownership to an IRA. There is no reason why the trustee cannot divide up the 4000 shares of the LP among the plan participants and transfer the interest to each participant. If the FMV of the interest is 0 the participants do not have to rollover the interest to an IRA. The problem may be getting an accountant to certify the the FMV of the shares . It may be an admin hassle to transfer the ownership to the shares but from a legal standpoint it is doable.

Thanks for the math tutorial but I thought TH status is determined by account balances not amount of contributions. A plan with a single owner can become TH because of a divergence in investment returns between the owner and non owners. I have represented several plan sponsors who were surprised to discover several years after establishing a 401(k) plan that they had granted 3% raises to all non owners under the plan and that the only way to avoid future raises was to have a steep decline in the net worth of the owners accounts.

Jason: arent you ignoring a more fundimental question : Should a serious/ informed/ astute investor even take into account a company's pension assets when making an investment decision? since pensions are long term liability with a pepetual maturity like some 100 year bonds issued by Boeing and Disney does it really matter whether plans are over or underfunded at any time prior to liquidation of the plan sponsor since the surplus cannot accrue to the shareholders and the liabilities are smoothed out over the long term? There are exceptions of course in certain industries such as steel where bankruptcies partially result from long ago negotiated pension obligations under union contracts, e.g. Bethelem Steel has 5 retirees for each worker, but does it really matter if IBM has a 3, 4 or 5 billion surplus in its DB plan? Or that IBM expects an 8, 10,or 12 % return on its plan assets? IBM cannot unlock the plan value to benefit its shareholders. GM may have pension and health benefit funding issues but they can be solved by reductions in force as was done in the 80's. Fewer workers are more productive workers. Maybe the joke is on the analysts and investors who see this pension funding issue as a significant indicator of the worth of a corporation in making investment decisions. Is it more important the Phillip Morris's has no funding liability for its pension plan or that it has singificant risk from cigarette litigation? Maybe you should ask why did Merrill Lynch choose to release this report now?

Fact that LP has 0 value now does not mean that LP will always be worth 0. Assets may be recovered in future through collection/ court enforcement which would then accure to the shareholders of the LP. Sometimes the crooks are caught and agree to return assets to reduce their sentence. Also if the LP is a viable corporation then the LP must have some business operations that will create value in the future even if it has 0 value today. I dont know why you are holding the shares of the LP if the plan is terminated. Check the plan document to see what is to be done upon termination-- I think that all plan assets are to be distributed. Divide the shares among the participants in the same proportion that their account bears to all plan assets and issue them certificates of ownership along with a 1099R, if required.

Contact the CBOE- Chicago Board Options Exchange for materials on trading options in an IRA. There should be a web site.,

You need to file a final 5500 and provide a summary of material modifications and a 204(h) notice if the plan is a money purchase type plan. I dont know what happens to participant's custodial accounts after the termination - check the custodial agreement. I presume if the plan is being termined and no fees are being paid to the custodian there will be some type of distribution which can be rolled over. The annuity contracts have been distribtuted to participants.

Distributions from an IRA are subject to income taxation even if made to a charity.The taxpayer receives a charitable deducton if deductions are itemized. But charitable deductions of cash are limited to 50% of AGI. Excess is carried over to future years. Taxayers whose AGI exceeds a threshold amount are subject to 3% reduction in itemized deductions. Transfer to charity is a non taxable gift under the gift tax law. Transfer of IRA assets to charity at death is exempt from estate taxation. I would ask how she knows now that she will not need the IRA assets she is willing to give away in future years. Inflation increases about 3% a year which means in 12 years the purchasing power of a $1 declines by about 1/3rd. Also there may be a need for assisted living or nursing home care which in the northeast can cost $7000 a month. She should take the min distributions, pay tax on it and invest the funds as a savings account. Best option is to make the charity a beneficary of her IRA at death or bequeath her estate to the charity.

The answer is that there is 0% chances of recapture becuase of the 50%/20% tax on pension reversions plus federal income and state income taxes. However, investors only focus on earnings of companies and under the accounting rules earnings from pension plans that are overfunded count as corporate earnings. E.g., IBM and GM stock are down this year because the earnings of the pension plans have declined. Also companies adopt cash balance plans to give a one shot boost to earning by creative financial adjustments. A few years ago Bank of America rolled out a cash balance plan with a self directed account feature. The purpose was to encourage employees to transfer 401(k) funds to the CB plan because the self directed funds were counted as plan assets with no offsetting liabilities under the CB plan because they were not regarded as benefit accruals. The quarterly earnings of B of A increased by several hundred million $ as a result of this transfer. The bottom line is that investors do not understand how companies can adjust the balance sheet for employee benefits (e.g., ignoring the value of stock options).

Codi: Somewhere in the materials you recieved from Truststar is a reference to top heavy plan contributions. Under the TH plan rules an employer is required to make a minimum contribution of up to 3% of compensation for all non owners if more than 60% of the assets of the plan are allocated to the account of the owner (you). Owner contributions by salary reduction to a 401(k) plan count toward this threshold. For example, if your account balance as of the end of 2002 is more than 60% of all the assets in the plan then the employer is required to make a contribution of up to 3% of compensation to the accounts of eligible emplyees in 2003. This is a separeate requirement from the ADP testing and I have had several clients who were not aware of the TH requirement at the time the plan was adopted. If you are aware of the TH reqirement then disregard my comments.