mbozek

I am not sure what you mean by purchased in NP context. Generally np dont have stock. Did B buy A as an asset purchase from some other entity like a government? Is it possible that A merged with B or B became the sucessor employer to A and continued A's operations. There are some old rulings that permitted the acquiror to be the sucessor employer for a 403(B) -plan. I am not sure of the significance of your question-- The employee's have rights to their annuities after the merger- the only open issue would be if there are some benefits under A's plan which were not vested when B acquired A. Vesting would only apply to employer contributions since all employee conributions are 100% vested.

dmb: Remember this rule does not apply to CB plans for public or religious employers who can have a vesting schedule in excess of the ERISA limits.

However, There are other changes that affect both types of employers, e.g., all 457 plans of both TXOs and govt employers can be divided by QDROs.

RIA 2001 edition, Pension and Benefits Law P. 2084 ERISA section 407

Several years ago I advised a client on how to set up accounts which would be used toward the purchase of individual health insurance selected by the retirees and the contributions would be excluded from employees taxation as an employer contribution for health care. As I recollect there are some tricky tax issues. Another concept if there is an over funded retirement plan is to increase the retirement benefits so as to provide the funds for the retirees to pay for individual health insurance policies. Both of these cases involved non union employees. Of course under the bankruptcy laws the health benfits can be curtailed under certain conditions with the approval of the court- but you need to talk to bankruptcy counsel about that. If you are interested in discussing the above ideas further contact me by email.

As discussed in the threads under the post cited by Shelton the IRS is not bound by a DOL PT if the transaction would violate the IRS PT rules. See Baizer v. IRS, 204 F3d 1231 for precedent that IRS is not bound by DOL agreement. I dont think the IRS would uphold a Dol PT which permits an IRA to invest in the owners house because the precedent in Harris v. IRS mandates the taxation of the IRA. Also I thought that ERISA does not preempt other federal laws such as the IRC.

MGB: I dont know here u got that implication because i always noted that the funds would remain after tax dollars. My analogy pointed out that it took $1.5 AT dollars to equal $1 pre tax dollar since taxes had to be paid. The reason I diskile AT money in a retirement plan is because it has to be paid out pro rata as part of the retirement distribution and making such a determination with multiple IRA involves complex calcuations. Since the AT money can be removed from the plan with no tax consequence upon distributon and invested in tax managed funds which minimize income tax there is little financial advantage into tying up AT money in a retirement plan. Also the appreciation on AT dollars invested outside of a IRA in a capital asset are eligible for stepped up basis at the death of the owner. Appreciation on AT money held in an IRA or retirement plan are taxed as ordinary income after owner dies. I would appreciate a demonstration of the math that makes AT money a more valuable asset when it is tied up in an IRA or qualfied plan than invested in a capital asset subject to the 10/20% cg rates.

If the TH benefit accrued as of 12/31/01 then I think the reduction would be a cutback. The only way around it would be if the plan was amended to permit HCE to waive an accrued TH benefit but I have never advised such a move. U need to review the Gust restatement to see if TH minimums are provided only to nHCEs and whether it would be retroactive to 1/1/01.

Shelton: I though that IRAs were already subject to back up withholding like dividends and interest payments since IRA payments are not subject to mandatory withholding. It is my recollection that W-9s were given out when IRA distributions commenced but I may be wrong.

I am assuming that the employer is a private entity since it is a utility. There is no such thing as pro rata vesting under ERISA. As Mike said the employees are vested either under 1000 hour rule for actual service performed or under the elapsed time rule for the period in which service is performed. On more thing. Under the vesting rules an employee must be credited with vesting service for all years of service after the plan is established even if the employee was not eligible to participate in the plan. Therefore part time employees will have vesting service for each prior year in which they performed 1000 or more hours of service/elapsed time and some employees may be 100% vested when they join the plan. The service will be subject to the plans break in service rules and service for years prior to a 5 year year break will not have to be credited for vesting. Government plans are not subject to the above rules and can have any vesting schedule permitted under state law.

PJ: isnt the enforcement of a DRO against an ERISA trustee/participant a matter that could be removed to Fed court under ERISA 502(a)(3)? After all Met life did remove several DRO cases involving LI proceeds to Fed ct. for decisions that the proceeds could be divided under a qdro. Also doesnt cal joinder require notice of divorce action be provided to a benefit plan trustee? Also, since the division of the account would result in a taxable assignment of income by the participant it is more likely that the parties will agree on a transfer of other non pension assets to the spouse avoid the tax issue.

rather than enduring the expense and delay of a untried theory why not just adopt a simple 401(k) for the union employees?

KJ- are you referring to the threads in a previous post that there is no date for making a th contributon in a discretionary ps/401(k) plan because there is no requirement that the contribution be contributed within 8 1/2 months after the end of the plan year as ther is in a mp/db plan under IRC 412?

There is a decison in the US tax court, Harris v. IRS, where the TC held that the ownership of a home by an IRA in which the owner resided is a PT under IRC 4975 because it was the use of IRA funds for direct benefit of a disqualified person. PT exemptions issued by DOL do not bar IRS from disqualfiying the IRA under IRC 4975 as discussed in previous posts. The persons who promulgate these bogus pt theories are counting on the fact the the IRS does not review IRA investments except on a random audit basis.

Isnt CA a community property state in which 50% of all property acquired during the marriage is CP? Second ERISA preempts state CP laws so the transfer of 50% of the health care account to the spouse upon divorce would be a taxable assignment of interest by the employee. There have been cases where courts have issued QDROS on LI proceeds under an ERISA plan.

If and only if the after tax funds could be separately transferred to an Roth IRA (and this appears unlikely based upon another post) then the investment makes sense because the taxpayer has the best of all worlds- tax free compounding of interest and ability to withdraw the funds after the minimum deposit period. Otherwise investing AT money in an IRA is a poor investment because the taxpayer has to compute the pro rata amt that must be withdrawn each year under the MDR and loses the liquidity of the funds in a regular account. But this does raise a further Q as to why an employee would invest AT money in a plan since it costs so much more, e.g. $1.5 for each $1 invested for some one in the 33% fed/st tax bracket. Economically the employee will never be able to equal the tax free compounding of tax deferred contributions with AT contributons.

Isnt the common sense reason for the DOL reg that a CPA firm which performs an audit for a plan in which it acts as a recordkeeper cannot be impartial because of the danger of the loss of fees for recordkeeping. What I dont understand is why in the post Enron/AA era tha the AICPA still allows such dual relationship. Can you please describe your firm's exit strategy if it decides to continue to represent the plan in the audit? e.g., negotiate with the DOL and what about the effect this representation would have on the plan that the DOL will review?

PJ: the original inquiry on this thread was what is the employer's remedy against tpa for failure to determine that TH contributions had to be made. It is amazing that U added the spin of potential liability to employees for TH contributions which has never been mentioned as an issue. Nothing in the facts indicates that the employees will not be made whole. U really need to get away from treating every inquiry involving plan administration as a breach of fid duty for which there must be a lawsuit to vanquish the guilty parties and focus on how to resolve these matters in the most expeditous and most economical manner possible.

I am not aware that the ERISA legislative history is on any dol WEB site. I got this from hard copy RIA ERISA book

PJ before making a federal case out this matter the employer can make the TH contributions to the NHCE along with an interest component ( if it has not already done so) and then bring a action against the TPA in state ct. I also question whether this would be a fiduciary matter since TH provisions are exclusively an IRC matter. According to a reported case the employee would have a claim for TH benefits under ERISA 502(a) from the plan since the top heavy contributions are a part of the plan. The failure of the tpa to notify the employer of the need to make the contribution is separate claim under state law which does not affect employees right to recover benefits from the plan.

ERISA conf. Rpt on 407: " For example, if a PS plan is to be able to invest half of its assets in qualifying employer securities, the plan must provide that up to 50% of the plan assets may be so invested. In this way the persons responsible for asset management as well as participants and beneficaries will clearly know the extent to which the plan can acquire and hold these assets."

Why would an employee want to rollover after tax money which is available without any taxation and lock it up in a qualified plan or IRA where the a/t funds will be paid out pro rata over the expected payout period? From a financial standpoint it is not sound. The a/t funds can be invested in a municipal bond fund which will churn out tax free interest or an index fund which generates little capital gains and are available w/out any restriction.

in electronic and voice mail enrollments employee must make investment election in order to complete application.

I dont think the the states are going to offer any credit for establishing a pension plan in these tough economic times when revenues are down. Some states may not allow rollovers permitted by EGTRRA so the particpants will have to consult with a tax advisor before dong someting exotic such as a rollover from a 403(B) plan to a qualified plan. Someone has posted a web site devoted to the state law issues under EGTRRA.

T:There is something wrong with your facts and your logic. In a DB plan the participant is entitled to the present value of the accrued benefit upon distribution... A fid does not invest funds for a participant in a DB plan. What u may be thinking of was a practice by certain DB plan administrators in cash balance plans who would transfer employee account balances to a mm fund if the employee quit and did not take a distribution. The IRS said it violated the 401(a)(11) requirement that an employee with a benefit in excess of $5000 could not be forced to withdraw the funds because of adverse employer action. I do not think there is any basis for comparing the DB case with a 404© plan where the participant has the right to direct an investment but refuses to act. Since the participant knows how the funds will be invested if no choice is made the participant could be said to have chosen the default fund by not making another election.