RTK

A couple of plans I work with have stated in QDRO procedures that because of participant directed investments, daily valuation, periodic contributions and periodic distributions, the plan cannot readily provide or determine past earnings and allocations for a participant's account. The QDRO procedures also state that the plan is not required to make the calcuation and will not approve a QDRO requiring the calculation. So far no challenges.

Q: Is this an individually designed plan? If so, without GUST certification, the remedial amendment period has closed.

Don't overlook IRC 105(h) nondiscrimination requirements if a self-insured health plan. Also HIPAA nondiscrimination based on health related factors can be an issue.

If I recall, there are a couple of circuit court cases that hold no forfeiture arises for delayed payment for continuing employment after normal retirement age in any case, contrary to DOL/IRS's position. One interesting thing about the notice provision is that the DOL specifically noted in the final reg preambles that the notice provision only affects the plan's right to begin suspension of payments, it does not affect plan's right to ultimately suspend or recover all payments the plan is entitled to suspend under 203(a)(3)(B) regs. Intended application to reemployed participant is fairly clear (offset at later re-retirement), but not so clear for participant continuing in employment.

I still do not understand the link between contributions and (full or partial) credited service under the plan. Nonetheless, I do not believe that a plan can determine the number of hours of service credited (used for year of service credit for vesting and year of participation credit for benefit accrual) by the amount of contribution paid for an hour (or for that matter the rate of pay for an hour) without violating vesting and benefit accrual requirements. This is different than the actual amount of benefits accrued for a given level of contributions.

I asked about 404©, because there is language in the 404© regulations that provides prohibited transaction relief for ERISA purposes. The relief may be available even if the particpant is otherwise a fiduciary. See DOL advisory opinion letter 75-24. Although 404© does not provide relief from IRC prohibited transaction, it does remove ERISA from the equation. I still am not sure how the ER's investment is held. Is the ER's 60% interest held as a self-directed investment under the plan? If so, does that mean that only the ER may self-direct? In any case, regarding fiduciary and prohibited transaction issues, the case that comes to mind is Leigh v Engle I (727 F2d 113), where the Circuit Court found violations of 404, 406(a)(1)(D), and 406(b)(1) where plan assets were used to as part of the fiduciary's investment and acquisition program.

You mention that the plan is self directed. Does this mean that the plan's interest was purchased pursuant to a participant's direction? Also, is the plan a 404© plan?

Regarding the waiver, I got involved specifically in an IRS audit where the Service took the position that waiver provisions are required in a document in order to have a valid waiver by an otherwise eligible employee. There is an ERISA to the contrary though - Laniok v. Advisory Committee of Brainerd Mfg. Co. Pension Plan, 935 F.2d 1360 (2d Cir. N.Y. 1991). Personally, I like the document to specifically state the an employee can waive or cannot waive.

Yes. Take a look at 404(a)(6) and Rev. Rul. 76-28. (I assume employer tax year is calendar year as well. Deductions relate to employer's tax year)

Given the purpose of the one-time election provisions (defining when an employee has a choice between cash and employer plan contributions so as to give rise to a cash or deferred election), I think the reg should be interpreted as requiring the waiver by the July 1 entry date. (Note that under the regs, the plan at issue must be the first plan of the employer for which the employee is eligible to participate in order to fall within the reg exception.)

I am confused. The DOL's FAQs specifically reference a determination under the employer's LTD plan as an example of an other party determination that permits a pension plan to apply pension claims rules, instead of disability rules. Also, I was not aware that the SSA period was a specific exeption in the regulation for the nonapplication of disability claims rules.

I think the plan can require repayment of entire distribution (401(k), match and profit sharing) for restoration of the forfeited match and profit sharing, or can permit participant to repay just match or just profit sharing and have respective forfeiture restored. Thus, you need to review the plan document. I can't recall ever seeing a document, though, that permitted repayment by source or type of contribution.

jhinkle, Q-A9 of the DOL's Frequently Asked Questions and Answers on the Claims Procedure Regulations sets forth DOL's position on what is a disability benefit, including its statement that the special disability rules do not apply when the disability determination is made by another party. The FAQs are available on the DOL's website.

My 2 cents - if it is in fact a sham termination, no matter what steps are taken to make the termination look bona fide (or in other words the steps are taken to conceal the sham termination), there will be ongoing exposure on both the Code and ERISA side.

I agree that it is poor practice to incorporate spd wholesale into plan document. The plan document and summary plan description are separate instruments with different purposes and requirements, and hence, different writing styles. To me sounds like an economy move so the plan document does not to be modified at all for different employers.

Let me throw my two cents in. The plan document is the key. Assuming as stated that this is a new plan with short plan year in 1999, with vesting service credited for employment before the effective date, the plan should specify the computation period(s) used to credit vesting service. Using calendar computation periods only to credit service in this case would comply with DOL and IRS reguirements. BTW, DOL regs for amendments to change vesting computation period require only that vesting % be no lower any time after change than vesting % would have been absent the change. Unlike for a change in the accrual computation period, there is no specific requirement for a short computation period and prorated credit. Instead the DOL Regs provide that requirements for a changed vesting computation period are deemed satisfied by overlapping 12 month computation periods (which seems to be a fairly typical method).

The Code and ERISA permit an under $5,000 distribution to be made before a one year break in service. The Code and ERISA also permit a plan to delay an under $5,000 distribution until a one year break in service. Thus, it is a matter of plan terms as to when the distribution is to be made. BTW, in most cases, the one year break in service requirement is a vestige of the pre-REA provision permitting a dc plan to disregard service completed after a one year break in service in determining pre-break vesting. By waiting for the one year break, the plan could avoid the special vesting rules for distributions made to less than 100% vested participants at a time when their vesting percentage could increase.

IRS reg 1.417(e)-1(b) states that a qualified joint and survivor annuity is an annuity that commences immediately. The same reg proceeds to state that thus, for example, you cannot offer a separated participant a choice between an immediate single sum payment at separation and a J&S that commences at normal retirement age (rather than immediately). (Of course, some here debate whether this portion of the reg is invalid ala BBS Associates.) A qualified preretirement survivor annuity is defined by IRS reg 1.401(a)-20, Q&A 18 as an immediate annuity for the life of the surviving spouse. However, unlike for the QJSA, there is no "thus, for example," a plan cannot offer the spouse a choice between an immediate single sum and a deferred annuity. Does this mean that following a participant's death, the spouse eligible for a QPSA can be provided with a choice between an immediate single sum or a deferred QPSA? Or not? This has come up under a db plan where the plan sponsor want to offer a non-QPSA death benefit payable in single sum immediately upon the death of a vested participant. However, the plan sponsor does not want to pay a spouse both a QPSA and the non-QPSA death benefit. This means that the QPSA would have to be reduced by the value of the non-QPSA death benefit, which is awkward and likely a single sum distribution of part of the QPSA in any case. Thus, the desired alternative is to provide the spouse with a choice between an immediate single sum distribution or a deferred QPSA. The single sum distribution would be the higher of the non-QPSA death benefit or the present value of the QPSA.

To your specific question, benefits under non-qualified plan can be forfeited for violation of noncompete or nondisclosure (of course, forfeiture language would have to be included in doc).

I agree that there is not much clear guidance. That said, my two cents: I do not believe 414(l) reg. requires the forfeitures with respect to the participants of one employer be allocated to the participants of all employers, but instead requires all plan assets be available to pay all benfits (assuming want single employer plan status). Since (non collective bargained) multiple employer plan is tested for discrimination on employer by employer basis, and since forfeitures are included with employer contributions for testing purposes, I actually think it makes more sense to allocate the forfeitures on an employer by employer basis, rather than plan wide. Also, this would faciliates different contribution levels for each employer.

WDIK: I should have been clearer in my post. In the plan language I had in mind, the compensation in the match formula is the same compensation used to determine the amount of elective deferrals. I just didn't tell anybody. Thus, the match in that case was 100% of the elective deferrals made with respect to the first 5% of compensation used to determine the elective deferrals. For elective deferrals, that plan uses regular payroll comp, but excludes bonus comp otherwise included in W-2. Thus, if participant elects 7% elective deferral, and has $20,000 regular comp and $5,000 bonus comp, the participant's elective deferrals would equal $1,400 ($20,000 x 7%). The match would equal 100% of the elective deferrals contributed with respect to the first 5% of the regular compensation (used to determine the elective deferrals). (Essentially, match is one dollar for each dollar of elective deferrals contributed from the first 5 of the regular compensation). Thus, the elective deferrals contributed from the first 5% of pay would equal $1,000 ($20,000 x .05), and the plan would match 100% of those elective deferrals, or $1,000. The point I was making is that a review of plan lanquage is always warranted in a takeover, since I have seen a variety of match language the meaning of which was not always evident at first glance.

Don't forget to review the plan language. I have seen a variety of provisions. For example consider plan language that provides that the match is 100% of the elective deferrals made with respect to the 1st 5% of compensation. In that case, the match would be 49.97 (i.e., 100% of the first 5% of comp contributed).

For what it's worth, I think there is a potential discrimination issue with what I view as one plan termination valuation date for all of the NHCEs and a second plan termination valuation date for the sole HCE.

I believe that most plans do not actually allocate an employer delinquency to the individual participants' accounts. Instead, I think that in most cases, nothing is allocated to the participants' accounts until the delinquent contributions are collected, at which time the collected deliquent contributions would be allocated to the applicable accounts.

No, unlike mp plan, IRS will permit employer deliquency to be allocated to individual participant if ps plan. I believe this is addressed in IRS audit guidelines.