Prohibited Transaction

[eilano]

We have a partnership with approximately 20 partners and staff of 100. The company wants to put in a cash balance plan for the partners only (already have a xtested and 401(k) plan) and then loan monies from the plan to the partnership. In reading the definitions of who is a party in interest we believe this is truly a prohibited transaction. Two of the partners are attorneys who argue that the definition is not clear on who are the employees of the employer? Any thoughts regarding this is appreciated.

[david rigby]

Sounds like a PT to me.

BTW, 401(a)(26)?

[QDROphile]

With partners as smart as that, how can they afford a DB plan?

[AndyH]

But, pax, it's a cash balance plan, not a db plan, so 401(a)(26) was repealed!

(Only kidding, but that could be the thought process of these "creative" partners)

What does BTW stand for, anyway?

[david rigby]

BTW = By the Way

[Mike Preston]

Maybe I'm the eternal optimist, but let's not beat them up too badly. They might actually be getting some good advice on the cash balance plan. I think the cash balance plan can be designed in such a way that it covers 40% or 50 bodies, but also provides for an offset of certain benefits from the other plans, such that the partners will receive a large majority, if not all, of the cash balance plan benefits, while the others get a larger piece in one of the DC plans.

Before anybody jumps on the prior benefit structure bandwagon and what is, or what is not, a meaningful benefit, let me say that I think the IRS has a say in that. Therefore if designed in advance and put to the IRS on an LOD application before one implements the program, I think one might be somewhat pleased with the result. Of course, YMMV.

On the PT issue, with 20 partners it is possible that there will be enough assets in the plan that they could get an exemption. I have heard that the DOL will approve up to 25% of the plan's assets if the not insignificant rules with respect to independent fiduciary, etc. are followed.

Andy, if you can believe it, I've seen people ask:

"By the way, what does BTW stand for?"

FWIW

Is there an acronym reference somewhere on here or do we have to start giving a url to some outside page? Such as: http://www.slack.net/~thundt/abbrevs.htm

[AndyH]

Amazing insight.

A EF H p!

Another EF Hutton post!

[actuarysmith]

W E F H S P L

When E F Hutton Speaks People Listen

Haven't seen one of those commercials in years...................

[AndyH]

Weren't those great commercials!

P.S. Great link!

[Guest IWIS]

I like QDROphile's response. LOL!

What's unclear about the definition of employees and employer? If it's an ERISA plan, it's a PT, and the DOL and IRS will slap them for it.

[Kirk Maldonado]

The original post said:

Two of the partners are attorneys who argue that the definition is not clear on who are the employees of the employer?

It is only unclear if you never bother to read the statute.

[KJohnson]

I agree its a pt, but wasn't there a case out of the First Circuit called Kwatcher in about 1989 or 1990 that got the notion of who is an employee under ERISA so terribly wrong. Admittedly it was not a p.t. decision, but I think it might actually support such an argument. I remember the opinion was fairly "witty" but I don't think they had any idea of what the were doing. I think the Supremes in Darden put this to rest, but I don't recall anything that specifically overruled Kwatcher. (Of course this is from recollection and I haven't gone back and read this case or Darden for that matter in a number of years).