mbozek

pj: Last time I looked plan participants did not have a right to any particular investment options in a plan under IRS cutback rules or ERISA Fiduciary rules. Fiduciaries are not liable for changes in the value of an investment due to market conditions which occur during a blackout period since fiducaries are not guarantors of investment performance.

If the plan permits, a participant can transfer the funds to another 403(B) contract or custodian under Rev Rul 90-24 without terminating employment. Transfers are also permitted after attainment of age 59 1/2. However, this may not be available if contract is non cashable.

If the company is not publicaly traded there is no market for the stock so you will have to accept whatever price is offered by the ESOP/ seller. Don't know why u would want to hold stock as a minority shareholder in a foreign corp unless u will be able to exchange your stock for NASDQ listed stock.

I thought that Boggs is limited to ERISA plans- benefits in a non ERISA plans including nonqualified deferred com and IRAs can be transferred in accordance with the st cp. rules.

Personal financial planning / advice is routinely provided to senior executives. As long as it is not limited to retirement planning there is no nondiscrimination requirment - Only a question of taxation of the value of the services as income under IRC 61 for which employer will receive a corresponding deduction.

Mike: I concur with your assessment. I have advised clients on sales of surplus assets and there have been no reactons from the IRS. But u are right - it is only for risk oriented clients given the uncertainties. I have never heard of the IRS enforcing the step transaction doctrine against any of these transactions.

How about when they are due, e.g., 8 1/2 months after end of plan year for IRC 412 funding requirements. The failuare to remit a plan contribution by its due date is a prohibited transaction, because it is an extension of credit from the plan to the employer. Therefore the contribution is an asset as of the due date subject to collection by the fiduciary.

ERead-- There are cash balance plans that allow employees to select investments - Bank of America adopted such a plan in 1998. The employees can chose from 9 investments (the same as the 401(k) plan). ASPA is a little behind the curve-- they are proposing something called a DB-k plan but it won't go anywhere because of (1) revenue loss concerns and (2) policy issues because it would be utilized by closely held businesses to benefit the owners by paying them more comp to deduct as a pension contribution. If it is made revenue neutral, i.e., contributions to a DB-k and 401(K) can't exceed the 402(g) limits, why bother. A participant can always buy an annuity with a lump sum distribution. Last time I looked salary reduction in retirement plans is only available under 414(h)(2) for public employees.

I dont under stand what u mean by financial planning programs And what is pre tax contributions? I think that payment in the form of services is taxable income to an employee under IRC 61. Under the new tax law an employer can provide retirement planning as a tax free fringe benefit provided that it covers non high compensated persons.

I would like to the cite. But remember negative response by the IRS isnt enough. They need a statutory basis.

There are financial intermediaries who have purchase surplus assets of terminated plans for years. I have received their sales literature and are they subsidaries of investment banks. The plan sponsor usually sells the shell corp with plan surplus as the only asset to the financial intermedary who resells the plan assets to a underfunded plan after collecting a finders fee. The plan sponsor is paid for the sale of stock of the corp which is taxed as a capital gian. These type of transactions have been done for years in a gray market, i.e, no specific prohibition but concern that the IRS would subject the sale to the step transaction doctrine, but I am not aware of any taxation of such sales. Clients use counsel to negotiate such sales and are aware of the uncertainties. This is a new twist with the transaction being used to transfer assets of an ongoing plan which I have never seen. The real question is does the employer really want to give up the surplus assets if fmv of plan assets declines-- and the er has to make additonal contributions.

The legislation proposed by the President would require 30 days advance notice before initiating a black out period. This legisation is winding its way through Congress and is expected to pass some time later this year. Employer could follow such guidance before implimenting a blackout period.

Mike: Are you thinking of a LI policy owned by the plan on the life of the employee where the plan is the beneficiary as key man insurance? I though all LI used to fund DB plans was subject to the 100 to 1 rule. I have seen DB plans that use such ins to fund benefits under the plan (retirement life policies?) but DC plans usually let the participant name the beneficiary. I have not seen a dc plan that owns LI on the participant which is also the benficiary of the death proceeds because it would be a very poor investment decision if the insured does't die. By the way using LI to fund a DB plan is also a very poor funding mechanism because the rate of return on the cash value of the LI is lower than the rate assumed by the actuary under the minimum funding standards.

Phil: Reg 1.401-6 is a pre ERISA reg that applies only to public and church plans exempt from ERISA. The termination regs for ERISA plans are under 1.411(d)-2. The concept of comparable plans does not exist for termination of an ERISA plan which is subject to the rules of IRC 401(k) regarding sucessor plans.

As Mike stated this is about apples and oranges. IRC 264 limits the deduction that an employer can take for interest on loans used to fund key man life insurance and death benefit only type plans which are not qualified plans. IRC 264 presumes that the plan is invested in LI on the key employee's life. The incidential rules for qualfied DC plans refers to limits on the amount of the annual contributon that can be used to purchase LI on an employee's life that is an part of the employees account. The incidential rules are stated in varous IRS rulings which restrict the amount of the payments for LI to no more than 50% of the contributions. The specifics can be found in Tax Facts on LI published by the National Underwriter Co.

A qualified plan must incorporate all amendments required for the year in which the plan terminates. If the plan terminated in 2001 then it would be required to have all the gust amendments incorporated. If the plan is submitted to the IRS it will be required to make such amendments. I do not understand what u mean by document restatement. EGTRRA amendments should not be required if the plan terminated in 2001.

yup- It seems that the non ee spouse needs to own $1 m in separate property to fund bypass trust.

B2: 1. I dont understand your reasoning-- where is it required that a fiduciary has a fiduciary responsibility to keep track of participants. It is the opposite- participants have a responsibility to notify the Plan admin of a change in address. There is no vicarious responsibility of a plan adm to keep track of participants who may not want to be found. Plan communications should remind participants to notify plan admin. of c/a. 2. You seem to be putting too much of a burden on the Plan Admin. Try the flip side-- A plan must dispose of all assets in order to terminate. Termination is expensive enough without having to pay for a search to find missing participants-- ( who pays for the cost of a search? the ER or the Plan?) If a participant cant be located through ss then forfeit the assets to other participants. 3. If the corporation has dissolved and plan has disposed of all assets what recourse does a missing participant have to recover benefits? Only possible claim would be against fiduciary but the statute of limitations is 6 years from date of distribution. Participant would have to pay for the cost of representation.

There is a way that the plan can contact missing participants through Social Security- You should check the SS web site. But it takes time. Most of the private searches require payment of a fee by the plan for each search. If a participant does not reply you can use 100% withholding, forfeiture of accounts or escheat of plan benefits to state where employee resides. I am not sure that 100% withholding is a breach of fid duty since the withholding is deposited to the individual's benefit on a tax return and employee can apply for a refund. This is a good reason for employers to pay out involuntary cashouts when employees terminate employment.

This looks like a matter which arises under UK securities laws-- self direction is only available to investors subject to UK securities laws, i.e., UK citizens. Since US citizens are not parties to whom self direction is available under UK law the plan sponsor wll require direction from the trustee. The 5% requirement may also be a provision under the UK securities laws - if more than 5% of the investors are US/Can citizens, the plan is a foreign plan not subject to UK securites law-- therefore self direction would not be available for any participant. You need to talk to fidelity (since their attys have reviewed the applicable laws) or consult with a securities atty knowledgeable in UK law.

Pax I am not aware of your issues- I only see the dros that are filed with a plan. However, it is my understanding that further ct orders after divorce is final can be issued only if the ct retains jurisdiction over the case. Also there may be statute of limitation issues under st. law which would preclude such a petition. What if the parties voluntarily consented to a property division which was incorporated into the divorce decree? Finally only benefits which accrued as of the date the divorce commenced are subject to division under marital property laws. What I have seen are spouses trying to claim benefits 10 yrs after the divorce was issued by requesting that benefits be paid pursuant to a divorce decree without a dro (because they cant pay an attorney) or an atty for the spouse comes back 10 yrs after the divorce was final to request payment because a dro was never issued by the ct and the atty does not want to go back to the ct.

I have reviewed Ch 7 bankruptcy petitions which list a plan loan as a scheduled unsecured debt. The debtor ( ee)' s atty sends a notice of the filing of the petition to all creditors along with a direction that the creditors are to cease collection of the dept until the bkcy ct hears the case and decides on the settlement of the estate as required under th bkcy law. When the Plan admin gets such a notice I advise suspension of payroll withholding of the loan and notify the ee of the fact the loan default will result in taxation of the outstanding balance. The ee doesn't care about default because he/she no longer has to make payment. Failure to comply with bankrupcty notice to cease collection could be deemed a contempt of ct. Bkcy law is not preempted by ERISA. I would like to hear explanation of why the loan is not a debt subject to bkcy law since it is an obligation that the emplyee must pay back. Jpod: in order for the debt to be subject to discharge and ct jurisdiction it must be listed on the schedule of unsecured creditors. The languae of the notice to creditors requires a suspension of the collection of the debt under bkcy law. Mike I have no list of citations- -- the language of the notice to creditors which is issued in the name of the bkcy ct is enough for me. Remember bkcy law is not premepted by ERISA. Also I have conferred with bkcy attys who concur. Also only loans listed on the schedule of unsecured creditors are suspended. I once had an employee take out a second loan after filing the bkcy petition. Only the withholding on the first loan was suspended because the second loan was not on the schedule. Was that ee suprised. I would like to know what other advicie is given to plan admin.

Ask the CPA for citation. The hce can be kicked out if he/she has reached a date that is generally three years before the normal retirement age under the plan.

In Boggs the Supremes held that st cp laws were preempted in allowing the non employee spouse to transfer benefit rights to an ERISA qualfied plan under laws of inheritance, eg. if spouse owned 50% of benefits then spouse could convey that 50% via a will. In a non erisa 403(B) plan the spouse has a right to 50% of the account balance under the cp laws and presumably can assign it to his/her heirs. Therefore the bypass (B) trust for benefit of spouse could only be funded with the 50% of the 403(B) account that is owned by the employee. I dont know why funding the benefits through an IRA would be different under cp laws because the spouse will own 50% of the IRA. It appears that in a cp state spousal rights to 50% of marital property can limit the ability of an employee to utilize the $1m estate tax credit for transfering assets to a B trust It means that ee should fund the b trust with separate property to make the $1M credit. Example : ee has 500k in separate property and $1m in cp. Ee can transfer the 500k of separate property and and 500k in his cp interest to a b trust to use up the 1m unified credit for estate. If the plan is subject to ERISA then the entire 1m can be transferred to a b trust because there is no spousal interest. But remember retirement benefits can only be transferred at death. Final Q: Why does the ee want to transfer ret benefits to a B trust. They are income assets not capital assets and there is no step up in basis at death to the trust as there would be for stocks. Only reason to fund b trust with pension benefits is that there are not enough capital assets to transfer to b trust to use up $1m unified credit. Caveat: I do not practice law in a cp state so this just represents my understanding of how cp laws work. Also can spouse in cp state waive cp rights?

Because the plan loan is a debt that is owed by the employee to the plan as a creditor under the bankruptcy law and is subject to discharge by the Bkcy ct. Bkcy law is not preempted by ERISA. It is not a question of attachment of the assets which remain in the plan- under the bkcy law the employee can be discharged from having to pay back the loan to the plan. If the employee stops paying off the loan the outstanding balance is subject to taxation.