Larry Starr

100% Agreement.

I agree with Luke; the equity kicker itself is not what produces UBTI.

Yea, what he said. Except that he left out that "there is no such thing as a solo k plan" as you noted when you talked about other employees (non HCEs) who would be eligible, making it clearly not a "solo" plan of any kind!

You are right that it should not be counted in your current value of your retirement account. However, that doesn't mean that the judge won't give the spouse more than you think he/she should get. But it shouldn't be in the starting numbers which are then subject to division.

I would prefer caning (of the participants; that's not a personal preference!).

If a company bought stock in an unrelated operating business (like, say, Disney!) and receives a percentage of profits (called a dividend), would that trigger UBTI? Hopefully the answer is obvious. Just in case, the answer is NO, no UBTI in that situation. The key is the definition of UBTI: The IRS defines the income generated from unrelated business activities as income from a trade or business regularly carried on, that is not substantially related to the purpose that is the basis of the organization's exemption from tax. The retirement plan is NOT carrying on a trade or business (the business is doing that). The retirement plan is just investing its money, which is exactly what it is supposed to be doing.

I just don't see how the failure to select a investment could ever rise to the level of an affirmative, one time election to permanently opt out of all the employer plans. That's a big stretch to me, and not one that I would want to have to justify.

Payable in full at termination means that there will no longer be payroll deductions to make loan payments nor will the plan continue to accept regular payments (even directly from the participant). I would suggest the participant does have until the end of the cure period to come up with the cash to pay it off, and THEN it defaults.

Did you prepare the document? What form of FIS document is being used? Is the language you quoted from a plan that already has auto escalation in it? We do only volume submitter (FIS) docs (no adoption agreement) but there is an option in the checklist (see item 55 if you use checklist to produce docs) that deals with Escalation of Affirmative Election and gives a bunch of options, including the first one that say participant affirmative deferral election will NOT be subject to automatic escalation. You need to go back to look at what your document CAN DO when you add automatic escalation (not what is already in the document if the document does not currently have that language).

I would love to see the notification that they sent explaining this; could you post (redact if you must, but I still think you should feel free to say who it is since they have taken a public position on this).

Did you look at your documents? Always start with RTFD! I bet the language you would add (assume you are using a known document) has language that specifically says the increases are subject to participant's ability to prevent them. Let us know.

Start by telling us who this unnamed financial institution is. And explain how they have the ability to even do that? It's a plan sponsor decision to move money; you need to explain the relationship that even allows the "unnamed" institution to do this? From there we start pulling them apart..... ?

Well, it's all well and good that the employer "doesn't want a participant to escape responsibility for directing an investment" but I just don't think they have that option! I don't believe a participant can be forced to make investment choices; that's why I think a default is REQUIRED and then has to meet the fiduciary rules. I don't believe a sponsor can decide otherwise. And I think they have it wrong when they say "the sponsor prefers that the administrator not be burdened with a responsibility to choose the investment mix for a participant’s individual account (even if that could be done simply through an asset-allocation fund such as a balanced fund or a target-year fund)" because that assumes they have that option; I don't think they do. If they have a plan and a participant doesn't choose, then the default (which has already been chosen) applies and there is no "burden" because it is automatic. The "burden" (if there is one) is only when establishing what the default is, and a good advisor will walk them through that, and it should be no more burden than the choice they had to make as to what would be provided in the option menu. I'm hoping that I will have time to find the specifics that mandate a default election.

The most significant savings in these situations is in the avoidance of worker's comp payments on the compensation that otherwise goes into the PW plan. Payroll taxes tend to be a small part (but still welcome) but it is the worker's comp savings that tend to drive these plans.

Just an FYI, in NY state PW plans, annualization is ALWAYS required (they do not recognize the exception that other states allow) which makes almost all PW plans not realistic UNLESS the employer ONLY does PW work. If they have a mix of both PW and non PW work, it almost is never a good idea.

1) Absolutely not; it is a provision of the prevailing wage (states) or Davis Bacon (Federal) rules that ALLOWS (but does not require) that contributions properly set up for a retirement plan can count toward the prevailing wage amounts required by the government contracts. A prevailing wage provision can be part of an existing 401(k) / profit sharing plan and can be used when and if desired. We do lots of these and I have presented the PW rules at national ASPPA conferences. 2) Not applicable. If you don't want a plan, you just have to pay the total required between cash wages and any other acceptable benefits the client has. 3) A number of our PW plans pay the administrative cost out of the plan; it is a " no net cost" to the employer, and with the savings in worker's comp (and some SS tax savings), it is usually a profitable endeavor.. It is clear that you don't have a PW plan knowledgeable consultant working with you, and that's what you really need.

Since this is a governmental plan, it is not subject to the ERISA rules for QDROs, but probably has its own rules. For an ERISA plan, the agreement of the parties is not ever required for a QDRO to be legitimate. It is the COURT's order (the judge's order) and he/she is the only one that has to sign it. If the judge has decided how the property is to be divided, and even if both parties are unhappy with the decision (which probably means it is fair), if the order is drafted and signed by the judge, no other signatures are necessary. Now, that question should be raised with the PA pension people: is the signature of the involved individual(s) necessary as a condition of approval or is it just enough to have the judge's signature?".

Peter, someone needs to take a firm stance with the client and tell them that what they are doing is just plain stupid; yes, I think there is a problem with not having a default but I'm between business trips (heading out to Cincinnati for the ASPPA Regional to speak Monday and just returned from 5 day in FL a few hours ago) so I just don't have time to find the chapter and verse that says you have a problem with no default. I believe the failure of the fiduciary to select a default investment (when they have already selected the menu of choices otherwise available) is a fiduciary violation and if a participant made an election but did not choose an investment, I think he will have an enforceable claim against the fiduciary. What exactly is the language the says the deferral election is invalid if no choice of investment is made? Is it in the actual plan document (I don't think you answered that question). And by the way, a favorable determination letter does not make this language OK: it is a fiduciary issue which is not in the purview of the IRS.

Of course it does; but that's because you took on that role. My advice to anyone is to avoid that role. If this was our client, we would have sent a sign off letter and had no further responsibility. My concern is, if someone takes on that responsibility, does your client (who is paying you) understand that you are now a policeman who will turn him in to the authorities if he does wrong? That's the discussion that needs to be had with clients, and I would venture small business clients will NOT appreciate that, especially since being a fiduciary is something that is NOT really all that difficult and really does little to make the client's life easier (at least in my VHO!).

Bird responded first, asked you a question, and you did not answer him. He asked you whether the plan even allows in kind distributions. My plan DO NOT; it is much too complicated if you have participants because you have to allow those for everyone. So, find out if the plan even allows them. And if it does, amend it so it doesn't! ?

You have done well; anyone who sets up a "ROBS" program should have their head examined; I would not take on a client who goes this route and any client who does it after having been warned deserves all the bad results they will get. You have accurately determined that you should not do this; congratulations. Now, find a competent consulting firm to guide you; this stuff is NOT "do it yourself" by surfing the interweb!!!!

The correct answer IS no. You cannot pay off the three loans without instituting a fourth loan (which theoretically gives cash to the participant that he turns around and used to pay off his three existing loans). So, amend the plan if you must to allow 4 loans. But I would be out of character to not suggest that this is an absurd situation and I can't imagine a good reason to allow 3 loans (or frankly, for most of my clients, ANY loans), yet alone 4 of them. If they want to borrow money, go to the bank! Oh, and the INVESTMENT PROVIDER told them they could? WHY? Why not ask the UPS delivery guy; he/she knows as much as the investment provider about our business!!!!!!! Ask the investment provider to put that in writing and see how fast they back away from their advice!

Agreed, but I think the better route is a direct transfer from the IRA custodian to the prior employer plan. That will avoid having to deal with the IRS at all. It transferred to the IRA tax free; it an "rollover" back to a plan tax free too.

Exactly; I wonder if the client understood that would be your role. Do you think the client was happy with that result? At least I can fire the client and don't have to call the Calvary, and I think if I did do that once or twice, our reputation in the advisor industry would quickly blow up on us!

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