Cosponsored by Northeast Benefit Services and Pension Services of Western New York, on 8/12/03, in Pittsford. Who should attend? Administrators, attorneys, and CPAs (CPE avail.) For more info, contact Jean Smith at 585-787-3010.

In 1997, NYS concluded that ERISA preempted the state tax on UBTI(unrelated business taxable income); in 1998, NYS reversed itself. Now, in McKinsey Master Retirement Trust, the Tax Appeals Tribunal decided that the NYS UBT really is preempted by ERISA, this time because the law specifically references IRC §401(a). Pension Funds that paid NYS tax on UBTI in the last 3 years should consider filing a refund claim for the NYS UBT paid. (The federal tax on UBTI still applies.)

In 1996, DOL adopted a rule required participant monies paid to or withheld by an employer must be transmitted to the Plan at the earliest date on which such funds can reasonably be segregated from the employer’s general assets and, with respect to pension plans, in no event later than the 15^th business day of the month following the month in which such amounts were received (or withheld) by the employer. Some multiemployer plans wondered if their plans should be exempt from this rule because, for them, the rule is a tough target. DOL says, if a multiemployer plan has a reasonable process for expeditious receipt of contributions, it will consider that process in deciding when monies become plan assets (i.e. somewhere between day 1 and the drop-dead date). However, DOL say the 15^th day is still the drop-dead date. Furthermore, even if the CBA does not require contributions that fast, DOL says the plan’s trustees have a fiduciary duty to take steps to collect participant contributions consistent with the regulations.

In Field Assistance Bulletin 2003-3, EBSA examines the allocation of  1) Plan expenses to all participant accounts, and 2) charging specific accounts fees for specific transactions. Key points: the plan document is controlling-- if it describes a method of allocating expenses, then trustees should follow that method. If the plan doc is silent, fiduciaries must act in the best interests of participants. Expenses can be allocated as a % of account balances, or as a flat charge per account ("per capita"). However, the allocation method should bear some relation to the way in which costs are actually incurred. If investment fees, for example, are incurred based on the size of the portfolio, then such costs should not be allocated on a per capita basis.

Regarding expenses charged to a specific participant, the FAB examines several transactions: a) costs of a hardship withdrawal, b) calculation of various benefit options, c) costs of benefit distributions, and d) handling QMCSOs and QDROs; the FAB generally concludes that ERISA does not preclude the allocation to specific individuals of reasonable amounts for these transactions. The DOL also blessed e) charging admin. costs to separated/vested participants, but not to active participants, but the IRS is not so sure about this one. IRS feels it might overly discourage a terminated participant from leaving his money in the plan, which would invalidate the administrator’s involuntary cash-out of accounts under $5,000, which could lead to plan disqualification.

DOL says the lack of clear criteria for distinguishing collectively bargained plans from MEWAs has encouraged unscrupulous operators of sham MEWAs to avoid state regulation by claiming the states lack jurisdiction, because they are excluded from the definition of MEWA by the exception for collectively bargained plans. Thus, DOL recently published two regulations, describing criteria for determining when an employee welfare benefit plan is established or maintained under a CBA for purposes of section 3(40) of ERISA, and adopting procedures for administrative hearings to obtain a determination by the Secretary of Labor if the jurisdiction or law of a state has been asserted against a plan or other arrangement that contends it meets the CBA exception. (FR Doc 03-8113 and FR Doc 03-8114).

Gene Parrs, Esq., writes a monthly Pension Memo exploring pension issues and ideas.

June’s issue- "Investing your IRA in Real Estate", is available at cpaSpan.com, as are 6 months of prior issues.