mbozek

The treasury will not issue cash balance regs without guidance from Congress. See Annoucement 2004-57 withdrawing proposed CB regs which were DOA because Congress has prohibited the treasury from issuing CB regs. There is nothing in the legislative history of ERISA that would allow the treasury to interpret IRC 411(b)(1)(G) to define the interest credit portion of the accrued benefit as not being part of the accrued benefit which will provide a lower benefit accrual for an older ee at NRA. Under the Mead case there needs to be some basis in the law or legislative history for a regulatory interpretation to be given deference by the courts. Note: IRC 411(b)(1)(H) which was added in 1986, only applies to accruals after NRA. Whatever the reason, Onan chose to pay after it won in lower ct. Also IBM agreed to pay 350M to settle the PEP plan liability rather than appeal and Xerox agreed to pay 238M to settle its liability for determing the pv of the CB benefits instead of appealing to the Sup Ct. The track record for employers who sponsor CB plans in litigation is quite dismal. Publicly held co do not want footnotes on their securites filings showing potential exposure for CB plans.

Austin: The er can always reduce the level of future benefit accruals. However, the employer cannot set up successor plans to evade the vesting requirements of ERISA for those employees with 3 yrs of service any more than an er can set up successive DB plans to evade the 415 limits. Ducks: You need to look at the plan document to see which participants are protected from changes in vesting schedule. Some plans protect all participants who are vested not just those who have 3 yrs of service.

Its not stupid- the reg prevents ers from evading the protection granted to employees to use the vesting schedule in effect when the plan was adopted by creating new plans before employees had attained 3yrs (formerly 5) of service.

See reg 1.411(a)-5(b)(3)-er cannot disregard yrs of svc for which the er did not maintain the plan for any period in which er maintained a predecessor plan.

Reg. 1.411(a)-8T(b) provides that if the vesting schedule is amended, those employees with 3 yrs of service can elect to apply the former vesting schedule to the accrued benefit derived from employer contributions. The vested benefit % of employees with less than 3 years of service can be reduced by a plan amendment.

Why not think outside of the box? Since these are nhces make the minimum contribution required by custodian, e.g. $100, in order to meet the regulatory requirements. If the problem is that the ee need to be active ee then make them ee for a day pay them their salary and make the min. contribution on that day. If the problem is getting the ee to sign an IRA application offer them a payment of $100 if they will send back a signed IRA application. There is no reason to have the SEP contribution invalidated because of termination during the year. The s/l for disqualfiying the contributions is only 3 years.

State law can include an IRA in determining the elective share due the spouse. NY law includes certain non probate assets. Last time I looked NJ law did not clearly indicate whether an IRA was included or excluded as part of the spouse's elective share. The more complicated question is whether an individual can designate an IRA beneficary in a will which supercedes the bene designation in the IRA. There is a NY case which has allowed such a designation. I dont know about NJ law. You need to consult with counsel.

Harry: The problem with CB plans is structural as defined by the Fed ct in the IBM case which considers the interest component of the CB plan accrual to discriminate against participants on age disrimination grounds. Treasury regs would have no effect on the fed cts interpretation of ERISA's age discrimination provision. Onan is not a good example because the plan sponsor agreed to pay 20M to settle the case even after the dist. ct ruled against the employees. This tells me that the plan sponsor had little confidence of the decision being upheld on appeal. Only Congress can resolve the problem by amending ERISA to exempt the interest component from being considered to discriminate against older employees because of the time value of money. But Congress is not inclined to amend ERISA in a way that will offend this constitutency which is part of the political process. Also Congress has exercised veto power over treasury regs by refusing to provide appropriations for the issue of cash balance regulations. SoCal: IBM will still be paying pbgc premiums for current participants so there will be no reduction in premiums because of the closing of the CB plan to new participants. The PC computer business is a very small part of IBMs operations and will have no effect on its revenue. IBM will continue to attract employees with a competitive salary and stock options, not a retirement plan.

Yo SoCal- You talkin' to me? I did not mention the WSJ article on the CIGNA case or include the link. I noted the NYTimes article on IBM closing participation in its CB plan because of the liability risk for age discrimination. The CIGNA case has no signficiance because it applies to only one person who had split service under the plan.

Legal is a rather odd term in the context of a 125 plan because even after 25 years the IRS has never issued final regs on whether cafeteria plans are required to adhere to the rules for insured plans in order for the payments to be exempt from income under 105(b). Prop. reg 1.125-1 A-17 states that "medical care reimbursements must be provided pursuant to an an employer provided accident and health plan as defined in 105(e) and 1.105-5. This means that the reimbursements must be provided under a benefit that exhibits the risk shifting and risk distribution characteristics of insurance. A benefit will not exhibit these characteristics if the ordinary actuarial risk of the insurer is negated either under the terms of the benefit or by any related benefit or arrangement, including arrangements outside of the 125 plan." Logically a 125 plan that requires participants to reimburse the employer for benefits previously paid would be treated as a self funded plan under 105h and not an insured plan. But since this is not a final reg an employer is not required to follow it. There is a separate question of whether requiring repayment would violate state labor laws if there was no consent by the employee since such a payment would not be permitted under a plan subject to ERISA.

two things: check state law to see if IRA assets are protected from creditors under same rules for Q plans (NJ protects IRA assets.) Second docs could form joint business venture with 50% ownership each which sponsors 0% money purchase plan for rollovers. Need to see if 50% ownership avoids controlled group rules with 401k plan.

There is a PLR which allowed salary deferrals by partners to be made by the pship from the partners draws up to the date of the filing of the pship tax return with extensions. Most pships do not make salary reduction contributions for partners before the date for filing the tax return because of the complexities in determining each partner's draw. The PLR is cited in a prior thread.

Todays NY times (page C1) carries an article on IBM closing its cash balance plan to new participants after 04 and substituting a 401k plan. According to the article fixing up CB plans to eliminate the age discrimination aspects is very costly. It may be that CB plans will be a speciality type of plan like 412(i) plans for small employers not subject to ERISA.

The answer to your question is "Do you feel lucky today?" There is a PLR from the 90s which held that a plan could not offer investment options to HCEs which are not offered to NHCEs. I think the IRS would hold that the rollover amounts are subject to the BRF requirements as a plan asset. I dont know if the IRS would agree that rollover amounts are a separate class of plan assets that could have different investment rules which would not have to be extended to other plan assets.

and thanks for leading this discussing A.

I think the book needs to be revised. The sup ct held this year that state laws could not impose liability on health plans that denied treatment which was not allowed under the terms of the plan. And a few years ago the ct held that state law revoking a spouse as bene under an ERISA plan upon divorce was preempted. The Ct has been consistent in preempting state laws that affect plan operation.

Some employers claim Cal law is preempted by ERISA because it effects the funding of the plan. DOL has ruled that NY and PR laws statutes requiring employee consent to salary reduction are preempted. The US Sup ct in Ingersoll-Rand v. McClendon, 111 S.Ct 478, held that state laws holding employer liable for violating employee's rights were preempted when employer action relates to operation of an ERISA plan.

GB: Testing of Qual plans under 410b eligiblity, discriminaton of benefits in favor of HCEs, ADP, etc are matters which are subject to IRS audit for qualified plans not the DOL under ERISA, which only covers the age and service requirements, vesting and J&S. I dont see the revalance of reviewing an individual tax return to the protection of employee rights under a plan subject to title I of ERISA. To determine if a contribution has been made the DOL will ask for the cancelled check. If the DOL is asking for the owner's tax returns its because they suspect some criminal action such as the owner pocketing salary reduction contributions for which the DOL will have to produce a subpoena. The client needs criminal counsel.

Pub 590, P30 states that if an IRA owner dies after attaining age 70 1/2 but before April 1 of the following year no mrd is required because death occurred before the required beginning date.

It has been my experence that missing participants (those who have left no current address and do not respond after being contacted through the IRS) very rarely come back to claim their benefits. Many missing participants are running away from spouses, creditors, the IRS or are illegal residents. Most of the accounts are small so there is little financial risk to paying off the claims if they return. Employers would care if they knew that the funds did not have to fill state coffers or that escheat meant the state was enriched with their money. I am only pointing out the there are better use for accounts of missing participants then to give them to the state under mandatory IRA cashouts. I also dont think the Dol can or should care about forfeiting accrued bendfits of missing participants because the amounts must be restored if the ee or bene show up in the future and forfeiture is expressly permitted under IRS regs which are the basis for applying the vesting rules of ERISA.

I thought the requirement for the participant to take an initial MRD only applies if the ee is alive on April 1 of the year following the year for which the MRD must be taken. E.g. if IRA owner dies in year age 70 1/2 is attained no MRD is required on his behalf for that year. If the ee died in yr of retirement but before taking MRD then spouse should be able to rollover the entire acount balance. The requirement that a MRD be taken for year of ee's death only applies if ee has commenced MRD after passing the 4/1 date because under IRC 401(a)(9)© MRDs are not required prior to 4/1 of the year following the later of the year of retirement or age 70 1/2 is attained. (401(a)((9)(B) provides the distribution rules where the ee dies before the required beginning date.)

You need to get a opinion of the meaning of per stirpes in the state where the decedent lived. In most states it means that all members of a class will receive an equal share of the beneficary's interest in a decedent's estate. E.g., if the son who has 2 children was to receve a share of his father's IRA and the son predeceases the father, each child recieves 1/2 of the son's share in the IRA. There may be other issues such as whether adopted children are included for per stirpes. If there is any uncertainty about who is to receive the interest the executor will have to bring the matter to the local probate court.

How about a missing participant is one who has not given a current address to the Plan admin? If a missing part cannot be located through the IRS why not forfeit the benefit until he appears instead of spending uncompensated time worrying about a mandatory transfer to an IRA where the account will only escheat to the state after a period of 3 years or so. I would think that given the options plan sponsors will prefer to keep the money in the plan.

Austin: What fid wants to take on the liability risk of determining each participant's retirement date since no one know when they will retire? Also why does a fid want to be liable for the inevitable mistakes which will result when some participants are put in the wrong lifestyle fund? Like any other investments there are good and bad lifestyle funds. Despite what you may read there is very little interest by the litigation bar in suing plan fids under ERISA because there are no punative, compensatory or consequential damages payable which is what makes litigation so rewarding. (Also no jury trials.) If a fid of a 404c plan is so worried about participants suing under ERISA there are two cheap options: adopt a SEP or simple plan which use IRAs or adopt a directed brokerage option where the participants can make any investment choice and for which there is no fidiciary liability for participant investment decisions.

If an employee calls in sick why are they automaticly on sick leave instead of being marked absent or some other status? Sick leave is only available if employer provides for sick leave. And what if ee has exceeded number of days for sick leave at year end? Plan can provide that no allocations will be made to all persons not activley employed at year end, e.g. on any leave of absence, but include employees who are absent from work for another reason, eg. vacation, holiday, day off, illness, etc without violating discrimination provisions. Actively employed does not mean that employee must be on the job on the last day of the year to receive an allocation.