Former member of multiple-employer plan

[Brenda Wren]

How do you handle a situation where a large employer (over 100 participants) came out of a multiple-employer plan (PayChex) in 2000 and transferred existing assets to their own trust. Client insisted they utilize their existing plan document with PayChex. Reviewing the document, I couldn't see why they couldn't use it. Plan name was the ABC 401(k), not PayChex 401(k). Then the issue arises on how to handle the 5500 reporting. In 1999, Paychex filed the 5500 and Schedule H based upon ALL participating employers. Only a Schedule T was filed on behalf of my client (as well as all other participating employers of course). So when I prepare Schedule H for my client for 2000, do I show beginning balances even though the assets at that time were in a separate trust inside the multiple-employer plan? Or do I show beginning balances as zero and a transfer of assets from another plan? Does the answer to this question depend upon the document issue above? :confused:

[Guest Bandb]

I must acknowledge that I don't know the answer to your question, although I would think it to be shown as a transfer of assets to a new plan.

I'm also interested in the mechanics of the company disengaging itself from the multiple employer plan.

Was it determined that there was a distributable event (termination of plan, termination of employment)?

Was a trustee to trustee transfer made of all the assets, or were participants allowed to decide for themselves whether to move their money?

Is this a new plan (as my answer to your question presumes) or a continuation of an old plan?

Have you come across other special issues?

Thanks.

[Brenda Wren]

Bandb, thanks for your input. I handled it as an asset transfer, but the auditor has a different opinion. As I recall, it was somewhat difficult to get cooperation from PayChex in transferring the assets....they fussed about the same desk rule, 12-month rule, plan termination, etc. But they finally did transfer the assets when we explained that it was simply an asset transfer. So, no, we did not allow participants to make distribution elections. I think your last question, "Is this a new plan or a continuation of an old plan?" is the question for the day. I DON'T KNOW!?! Perhaps a hybrid! From the document perspective, it looks like it was handled as a continuation. From the reporting perspective, I thought it was more appropriate to show as a transfer, particularly because no Schedule H was filed in the prior year.

I really wish I had a definitive answer here because I hate these situations where the TPA and the auditor are in disagreement.

Also, we wanted the client the engage an ERISA attorney to draft a new document upon our engagement, but client insisted that was unnecessary...."they already had a document".

[Jon Chambers]

I don't have an answer for you, but I have a way to look at the problem. First, if the "new" plan is a continuation of the old plan, then it makes no sense to do independent 5500 reporting. The transfer happened within the corpus of a single trust, albeit to a different account and investment structure. In this event, Pay Chex should still be doing consolidated 5500 reporting that includes the assets you are concerned about.

Second, if the transfer was to a separate trust NOT governed by Pay Chex, then you have a new plan with a transfer in of assets, and contribution activity. Opening balances are zero. Pay Chex has a transfer out from the multi-employer plan. But in this event, you either need to have a plan document and trust agreement for the new company and new trust, or authorization from Pay Chex to use the old document and some language about the relationship between the old trust and the new trust. Frankly, I doubt that this would work, although it's not impossible.

In a nutshell, I believe you either have:

1) No new trust, hence no transfer and no independent reporting, or

2) A new plan and trust, consequently requirements for reporting and documentation.

Hope this helps,

[jpod]

Assuming it was a multiple employer plan, then there is, I believe, a new plan for all purposes under the Code and Title I of ERISA. How could the old document be appropriate after this plan to plan transaction? Maybe it was written as if it was a single employer plan, which calls into question the characterization of the original plan as a multiple employer plan. If I were you I'd advise your client, repeatedly and in writing, that it should seek competent ERISA counsel to sort through all of these issues. Until the client secures ERISA counsel, you should cover yourself by not giving the client any 5500s, reports, or other work product without a reminder that you do not know what problems are lurking due to the potential legal issues.

[Guest Bandb]

The old document would be appropriate if this is still the same plan. You've assumed there was a plan-to-plan transfer, but that is not a given in this situation; it is part of the question that is being asked.

[jpod]

If the original structure was a multiple employer plan, and the employer's portion of the plan assets was transferred to a separate trust for that employer's participants, I think it's a fair assumption that there is a new, single employer plan, at least insofar as the regulations under Code Section 414(l) would be concerned. The only other possibility is that the trust is merely a separate investment medium for the same multiple employer plan, and the assets of that separate trust are available to pay benefits for all other participants in the multiple employer plan. However, wouldn't you agree that this is highly unlikely?

[Jon Chambers]

I agree that these are the possible scenarios, that's a better phrased description of what I was trying to lay out above. And I agree that the separate investment structure in the same trust is unlikely, but theoretically possible.

[GBurns]

To sum up what everyone seems to be saying:

1. Tell the client to get a competent ERISA lawyer.

2. Keep yourself out of rendering advice.

3. Attach a notice and disclaimer to every thing related to this employers "plan".

And I add my own thought.. Do you need this account and its potential problems etc????