mbozek

What case are you talking about? Xerox recently settled a case involving valuation of CB benefits of teminated employees for 240 million after losing an appeal in the same circuit ct where IBM is appealing its decision. From a structural viewpoint CB plans are regarded as DB plans in which the interest component accruing on each years allocation creates a lower relative accrued benefit at NRA for any employee when compared to a younger employee earning the same salary. While some can say the difference in benefit accrual results from the time value of money, the lower benefit accrual at any relataive age when compared to an employee 1 year younger can be construed to be age related which violates ERISA. Previous Sup Ct decisions have held that age discrimination in benefit plans are decided under ERISA and not the ADEA, e.g., ERISA protects all employees in a retirement plan not just employees over 40. Under ERISA age discrimination will be juged by the result, e.g., a lower benefit accrual for older employees, not the intent of the employer to increase benefits through use of time value of money in the formula. Given the strict constructionalist majority on the Sup ct and the hostility in Congress to recognizing an exception in the ERISA prohibition against age discrimination for CB plans I dont think IBM would prevail if the case was decided with the present justices in the Sup Ct. IBM has an additional problem in defending the CB formula because it is also defending a complex PEP formula previously used under the plan which reduced the benefit accruals of older employees which was found to be discriminatory by the trial Ct.

But the Federal ct held that ERISA age discrimination is determined with reference to the monthly retirement benefit at normal retirment age which always results in a reduction of the rate of benefit accrual under ERISA 204(b)(1)(H) on account of age because a younger employee will receive a higher allocation of interest from the year of allocation to NRA than an older employee earning the same compensation. As the judge noted this formula would be permissble in a DC plan.

A 457 plan is not subject to nondiscriminaton requirements. Employer can contribute up to 13k for selected employees plus 3k for ees over 50 if the amounts are 100% vested. State law may have additional requirements.

There is no such thing as reverse age discrimination under federal law, in the sense that benefits cannot discriminate against younger employees. In a DB plan age discrimination prevents a lower level of benefits for older employees on account of age, e.g., IBM cash balance plan discriminates against any employee because employee at same salary level who is one year younger would get a larger accrued benefit at NRA for each years accrual due to the additonal interest credited to his account in the CB plan which results in a greater annuity payable at NRA. Age discrimination under ERISA covers all employees, not just those over 40.

I thought that escheat laws were preempted regarding retirement benefits held in a plan subject to ERISA such as assets held in a trust subject state banking law could not be forceable transferred under a state abandoned property law but not funds held in an IRA. If the participants assets are transferred to an IRA are you saying that the IRAs are holding plan assets exempt from escheat laws?

GB: Are u saying that the financial institution does not have to comply with Section 326 of the Patriot Act or the CIP regs if the funds are being transferred to open an IRA under 657 of EGTRRA? Considering that the civil penalty is $100,000 and the criminal penalty is a fine of 250k and up to 5 years in jail for violating Section 326 I dont think that financial institutions will disregard the regs or the CIP requirements. One of the requirements for opening an account under the CIP reg is that the customer must provide a residence address which is not possible if the participant is missing. Additonal comment: Upon further review of the FAQ I agree that the Plan admin is not the customer for whom verification is required at the time of the transfer of the funds to the IRA. However, a plan can retain account balances of $1001-5000 and charge an admin fee instead of rolling over the funds. Also there are issues as to whether the participant's signature and current address in the rollover IRA will still be required under state law and/or rules of regulatory agencies governing custodial accounts and whether state escheat laws apply after the IRA transfer. Upon termination it is better to forfeit the assets of the missing participants and use the funds to pay admin expenses or increase benefits for the remaining participants than to expend effort to comply with the rollover rules which may only benefit the state treasuries.

I thought that in a 404© plan where the fiduciary selects investment mgrs who can chosen by the employee there is no fid liability which results from the part. exercise of control (selecting the investment mgr) and the fid only has a duty to to determine the mgr's suitability to continue to advise part. under the plan. reg. 2550.404c-1f(8).

Note today's thread under under 401K) plans - missing participants. Under USA Patriot Act plan cannot transfer participants account to IRA without employees signature on the IRA application.

The best option is to forfeit the benefits of the missing participants who cannot be located and use the funds to pay termination expenses or increase benefits of plan participants. Plan needs to have provision permitting forfeiture. There is no benefit to putting participants benefits into an IRA where the assets will escheat to state after the s/l expires. Note: If MP benefits are not forfeited, plan sponsor must purchase an J &S annuity upon termination, not transfer funds to IRA.

Outside directors are independent contractors who receive 1099s not w-2 because there is no income or FICA witholding on the payments. NQ plan payments to employees are reported as W-2 income. Reg. 35-3405-1T A-18.

What kind of plan is this? In general distributions from NQ plans are regarded as wages for income tax purposes. Reg. 35.3405-1T A-18. Why would fees be deductible from payments?

But what if you spouse inherited 100% interest in a business from a deceased parent which has 10 employees and no pension and you had a a HR-10 plan for your own business. Wouldnt there be a controlled group on account of the child having a constructive interest in both businesses? As for grandparents my question was whether the separate businesses controlled by each grandparent (a Dr and CPA) would be aggregated as a controlled group if there is a grandchild under 21 under reg 1.414©-4(b)(6), similar to the analysis for the aggregation of the parents interest for which I understand the anwer is no. But then why is there a distinction between parents and grandparents?

Keeping records of bene designation is a fiduciary duty of plan administrator even if delegated to a recordkeeper. Plan admin will become party to lawsuit over missing or out of date beneficary designation. Best way to avoid problems (e.g., failure to remove ex-spouse as bene) is to include a statement of who is bene along with the annual statement of the account balance and note the default bene provisions under the plan. In the present case plan admin should have discretion under plan provisions for paying benefit claims to accept 3rd revision if accompanied by affidavit from atty stating that it was sent to TPA. If another person objects, the PA can file an interpleader acton in fed ct where the contesting parties can dispute the PA decision. The other alternative is to get the disputing parties to settle the claims by written agreement and waive any rights against the plan before benefits are paid.

I have always assumed that the rule prohibiting double attribution of the constructive interest of the child prevented the absurdity of a controlled group consisting of the child and the business interests of each parent for pension plan aggregaton purposes. Such an extension of the family aggregation rules is even more absurd if you consider it would require aggregation of the business interests of grandparents as well as the inherited interests of parents and children so as to create a marriage penalty for all married couples who own separate businesses with a retirement plan and have children or grandchildren.

SoCal: What are the inherent age discrimination issues in DB and DC plans?

ERISA 202(a)(4) permits exclusion of persons who are not members of the eligible group from particpantion in the plan.

Since PS plans are not subject to minimum funding under IRC 412 there is no specific date for making TH contribution and consequently no penalty for a late contribution. IRS doesnt care any more about late TH contributions to a PS plan than it cares about late contributions to a PS plan since only consequence is loss of tax deduction. Check plan document to see if there is a deadline for making TH contributions.

there are a lot of proposed reg. Which ones are you referring to? 411b?

Employer provided financial advice could be considered a taxable benefit to the employee for the fmv of the service. Retirement planning services is a tax free fringe benefit under IRC 132(m) if provided on a nondiscriminatory basis.

Public employers are not subject to the QDRO provisions because the exception under the non alienation provison of the IRC which permit QDROs does not apply to public employers. Under IRC 414(p)(11) a public employer can choose whether to honor a DRO and if the DRO is certified as a QDRO the transfer will receive the same tax benefits as a QDRO under an ERISA plan. A gov plan can reject a DRO which requires payment of a benefit not provided under the plan, e.g, 50% of the accrued benefit.

ERISA does not require that the investment advice produce good results, only that it is prudent. Years ago a noted investment advisor who specialized in contrarian investment strategy was sued by the fids of plans in which he acted as investment adivisor because the investments had under performed the overall stock market for a period of serveral years. The Courts dismissed the cases on the grounds that contrarian investing was a recognized investment strategy and therefore was prudent even though it produced below average results.

Employers obtain hold harmless agreements where the vendor performs calculations such as maximum salary reduction for employees who can defer an extra 3k for 5 years, ACP testing and maximum loan amounts. Vendor will indemnify employer for any liability resulting from miscalculation which causes a failure to withhold taxes. It is not a fiduciary issue per se because it is a tax liability of the employer, not the plan. The liability will exist in a non ERISA plan which provides only for salary reduction. Vendors will not indemnify employer for operational failures, e.g,, employer fails to include eligible employee in plan. Sucess in obtaining one depends on insurers willingness to indemnify client as a condition to get business. Some states require indemnification by a 403(b) provider to a public plan. Check the DOL regs on bonding. I dont believe bonding is required under a plan where the employer remits contributions to an insurance company.

Yes. Long, long ago in an annuity contract far, far away I had a client who maintained a DB plan where employees made pre tax contributions under 403(b). Since the plan was established under 403(b) no determination letter was issued, plan paid DB benefits and filed 5500. This plan was established pre ERISA and client assumed that it was grandfathered under the 403(b) regs which under the now repealed exclusion allowance rule provided for reduction of 403(b) contributions where employee was covered under a DB plan. There is nothing in the in the 403(b) regs that prohibits a DB plan.

Reading the microsoft cases will only make you dizzy and confused. Check the plan document. Some plans cover prior service as a leased employee for vesting and eligibility but not for benefit accrual purposes. If plan is silent then apply general rule that an individual is eligible to participate if he performs service as a common law employee under the Darden case and is a member of the employees who are eligible to particpate in the plan. Never seen a case where a former leased employee sued for vesting service. Plan admin has discretion to credit employee with eligibility/vesting service even if plan does not explicitly provide for such credit.

I would not recommend contacting any govt entity especially the IRS with the above allegations because of the difficulty of proving them and the ramifications that could result such as a law suit for defamation, damage to reputaton, etc from the party you are accusing. Also It will be necessary for this client to retain counsel in dealing with the govt agencies at their own expense to protect thier interest. Another reason not to get the IRS involved is that the client's tax returns for last 3-6 years will be subject to IRS audit which based on what has been alleged and will require the payment of additonal taxes and penalities by the client. Under the tax law the taxpayer is responsible for the accuracy of the tax return, not the advisors, so there is a question of whether the advisor could be liable for inaccuracies on the tax return. Coulnsel will need to review state laws to see if the acts are considered malpractice and what is the s/l for filing a suit as some tax adviors may not be considered persons subject to a suit for malpractice.