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J Simmons

Sep 12 2009, 10:33 PM

If an ER establishes a profit sharing plan without 401k and 401m features, has no vesting requirement, and allows in-service withdrawals of amounts that have 'seasoned' in the plan for just two years, is the plan subject to ERISA Title I?

After all, ERISA § 3(2)(A) defines

QUOTE

the terms "employee pension benefit plan" and "pension plan" mean any plan, fund, or program ..., to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program—

(i) provides retirement income to employees, or

(ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond,

regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan. A distribution from a plan, fund, or program shall not be treated as made in a form other than retirement income or as a distribution prior to termination of covered employment solely because such distribution is made to an employee who has attained age 62 and who is not separated from employment at the time of such distribution.

Since withdrawals may be made under a plan as I described before retirement or termination of employment, is the plan subject to ERISA Title I?

Sieve

Sep 14 2009, 10:30 AM

I don't know if the fact that the arrangement allows such in-service withdrawals is a germane issue. It is, nonetheless, intended as retirement income--the in-service withdrawals are not mandated, so that the account balances can/will remain in the plan until retirement or termination of employment. I'd say, based on your description, that it is an ERISA plan.

J Simmons

Sep 14 2009, 10:48 AM

Thanks, Larry.

Following up on your comments, from where does that intent to provide retirement income come where the employer has chosen to include a 2 year, in-service withdrawal provision?

Sieve

Sep 14 2009, 01:01 PM

What kind of arrangement is it--i.e., if the funds are not voluntarily withdrawn after being in the plan for 2 years, then when will/must they be withdrawn pursuant to the terms of the plan? I allways assume that an arrangement where accounts are not required to be distributed at certain times must be an ERISA plan since someone is bound to wait, in operation, until termination of employment and thus the arrangmeent will fall, due to "surroundign circumstances", into ERISA Section 3(2)(A)(ii).

four01kman

Sep 14 2009, 01:20 PM

If a retirement plan is adopted pursuant to Internal Revenue Code Section 401(a), it is automatically covered by ERISA unless specifically exempted.

J Simmons

Sep 14 2009, 01:26 PM

Thanks, four01kman.

Do you have a citation for that proposition?

Again, thanks, Larry.

The arrangement is a profit sharing one. My understanding of the reason in-service distributions are allowed (albeit after two years of the profit sharing contribution in the plan) is that, unlike a DB or money purchase pension plan, the profit sharing plan is just that--a plan for the sharing of the profits of the company with its employees. So in-service withdrawal is allowed so that employees have relatively current access to their share of those profits.

I like your assumptions that someone is bound to wait until post-employment before withdrawing his profit sharing benefits, and that 'surrounding circumstances' would include such, but do you know of any citation for the notion?

Jim Chad

Sep 14 2009, 02:07 PM

This is not an "owner only" Plan. Right?

J Simmons

Sep 14 2009, 02:15 PM

Right, Jim, it is not an owner-only plan.

J Simmons

Sep 15 2009, 09:27 AM

For those interested in this topic, an interesting federal court opinion addressing the ERISA § 3(2)(A) definition of an ERISA 'pension plan' as possibly applicable to a nonqualified stock plan is Serio v Wachovia Securities, D NJ (8/27/2007). While that case did not involve a profit sharing plan that qualifies for favorable tax treatment under IRC § 401(a)--something not mentioned in ERISA § 3(2)(A)'s definition of ERISA 'pension plan'--it seems the same judicial approach and rationale could be applied to a profit sharing plan without a 401k or 401m feature and that allows withdrawals after two years. If so, such a profit sharing plan would appear to be exempt from ERISA.

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