In a previous post, I discussed how the “elapsed time” regulations were recently challenged and upheld in a Ninth Circuit case. Thanks to Kirk Maldonado (of the well-known 1987 DOL plan expense Information Letter) for providing some helpful background for these regulations:
Express statutory authority for the elapsed time method of crediting service is lacking. The legislative history of the Employee Retirement Income Security Act of 1974 (ERISA) is also void of any reference to the elapsed time method, despite the fact that this method had been used by plans before ERISA (see Ryan School Retirement Trust, 24 TC 127 (1955)).On the other hand, Service 410(a)(3)(C) grants authority to the Secretary of Labor to prescribe Regulations defining “hour of service.” This grant of authority can arguably be extended to promulgate equivalent methods of crediting “hours of service,” such as the elapsed time method.
The validity of the elapsed time Regulation was questioned in Automated Packaging Systems, Inc., 70 TC 214 (1978). In Automated Packaging the plan did not contain the service-spanning rules although it otherwise satisfied the elapsed time requirements. The taxpayer argued that these rules contravene Congressional intent because they required credit for time when the employee was not employed.
The Tax Court, citing the legislative history, held that it was consistent with the Congressional intent to provide for crediting service on a more liberal approach than required by the general method. However, the court explicitly refrained from deciding the validity of the Regulation where the elapsed time method would credit service on a less liberal basis than the general method.
Kirk also writes:
Not many people know that the proposed elapsed time regulations were drafted by the DOL. However, the DOL and the IRS realigned their jurisdictions over different employee benefit plan matters in the Reorganization Plan of 1978. That document explains, for example, why DOL has control over certain issues relating to prohibited transactions, while other issues remain with the IRS. Anyway, the responsibility for the elapsed time regulations was shifted to the IRS in the Reorg.
UPDATE 2: Kirk has posted some good information here regarding the “elapsed time” regulations.
UPDATE 1: For those of you wanting to read the Maldonado Information Letter referred to above, continue reading. It is a DOL Information Letter to Kirk Maldonado, issued on March 2, 1987, and is not posted at the DOL’s website:
March 2, 1987
Mr. Kirk F. Maldonado
Stradling, Yocca, Carlson & Rauth
660 Newport Center Dr., Suite 1600
Newport Beach, CA 92660-6441
Dear Mr. Maldonado:
This is in response to your letter of July 16, 1986, and subsequent letters of August 26, 1986, and October 14, 1986, in which you request an advisory opinion on the application of the Employee Retirement Income Security Act (ERISA) to the payment of certain expenses by the Canoga Park Hospital Retirement Plan (the Plan).
You represent that the Plan specifies that it may pay certain administrative expenses incurred in the operation of the Plan which are explicitly set forth to include:
(1) Attorney’s fees incurred in connection with amending the plan to comply with legislative, case law and regulatory developments;
(2) Annual valuations of the sponsoring employer’s stock held by the Plan;
(3) Annual audit of the Plan performed by a certified public accountant;
(4) The fees of an outside consultant performed in connection with the administration of the Plan (e.g., preparation of benefit statements to participants): and
(5) The fees paid to members of the Committee. (Subject to the rule of ERISA section 408(c)(2), prohibiting payment of compensation by a plan to any individual who is receiving full-time pay from an employer whose employees are participants in the plan.)
You ask whether the above expenses authorized by the plan constitute