Compliance November 29, 2007

West Virginia Adviser Barred from ERISA Work

An investment adviser from Charleston, West Virginia accused of misusing $600,000 from a 401(k) plan he trusteed has agreed that he will no longer work with Employee Retirement Income Security Act (ERISA) plans.
Reported by

Chief U.S. District Judge Joseph R. Goodwin of the U.S. District Court for the Southern District of West Virginia approved a consent order with Knox Fuqua, the owner of the Charleston investment firm KHF Advisors LLC settling the matter. According to a U.S. Department of Labor (DoL) news release, Goodwin’s order provides that KHF won’t serve in a fiduciary capacity or as a consultant for compensation to any ERISA plan.

Fuqua worked with the Community Health Systems 401(k) Plan, sponsored by a Beckley, West Virginia health care provider, according to court documents.

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He was accused of using plan assets to acquire certificates of deposit in June 2005 in the name of his private investment fund, the Fixed Income Fund. He then used the CDs as security for a loan from the bank to the Fixed Income Fund, the DoL alleged.

After Fuqua didn’t pay his interest due on the loan, the bank threatened to liquidate the CDs as payment for the loan. The DoL also alleged the bank participated in the improper actions of Fuqua because it knew that the assets in the plan account belonged to the 401(k) plan.

In 2006, the DoL a temporary restraining court order requiring that two certificates of deposit representing the plan assets be held until the case was resolved.

“Our legal action bars this defendant from holding a position of authority that presents an opportunity to misuse the assets of employee benefit plans in the future,’ said Mabel Capolongo, director of the Philadelphia Regional Office of the Employee Benefits Security Administration (EBSA).

Goodwin’s order in Chao v. Fuqua Civil Action No. 2:06-cv-0137 is here.

Compliance November 29, 2007

IRS Issues 2007 Cumulative List of Changes for Plan Qualification

The Internal Revenue Service has issued Notice 2007-94 describing the 2007 Cumulative List of changes for plan qualification requirements.
Reported by

According to the notice, the 2007 Cumulative List reflects law changes under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA); the Pension Funding Equity Act of 2004; the American Jobs Creation Act of 2004 (AJCA); the Gulf Opportunity Zone Act of 2005,; and the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act.

The list includes, among other things:

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  • Final Regulations under § 401(a) of the Code regarding permissible normal retirement ages;
  • Section 401(a)(17) of the Code as amended by § 611(c) of EGTRRA to increase the compensation limit to $200,000;
  • Section 401(a)(31) as amended by § 643(b) of EGTRRA to allow employees’ after-tax contributions to be rolled over under certain circumstances;
  • Section 401(a)(31)(B) as amended by § 657(a) of EGTRRA (as amended by § 411(t) of JCWAA) to provide for the automatic rollover of certain mandatory distributions (effective date March 28, 2005);
  • EGTRRA modification of the definition of eligible rollover distribution to exclude hardship distributions;
  • Section 401(k)(2) and § 401(k)(10) of the Code as amended by § 646(a)(1) of EGTRRA to permit distributions of elective deferrals from a § 401(k) plan upon severance from employment;
  • Revision of the regulations relating to safe harbor hardship distributions of elective deferrals from § 401(k) plans so that the time the employee is prohibited from making elective and employee contributions is reduced from one year to six months after a hardship distribution;
  • Section 401(k)(11) of the Code as amended by § 611(f) of EGTRRA to increase the maximum amount of qualified salary reduction contributions that can be made to SIMPLE 401(k) plans;
  • Section 401(m)(9) of the Code as amended by § 666 of EGTRRA to eliminate the multiple use test;
  • Section 402A of the Code as added by § 617 of EGTRRA to offer optional treatment of elective deferrals as designated Roth contributions to defined contribution plans, effective for taxable years beginning after December 31, 2005;
  • Section 409(p) of the Code as added § 656 of EGTRRA relating to restrictions on the allocation of employer securities in an ESOP maintained by an S corporation;
  • Final Regulations permitting some employees of tax-exempt organizations to be excluded when determining whether a § 401(k) plan meets the § 410(b) minimum coverage requirements, and
  • Section 411(a) of the Code as amended by § 633 of EGTRRA (as amended by § 411(o) of JCWAA) to provide for faster vesting of matching contributions.

In addition, the list includes changes made to Section 415 of the code and other miscellaneous law changes.

Plans submitted for qualification to the IRS must include changes from the 2007 list as well as changes in prior lists previously published by the IRS (See IRS Adds EGTRRA and PPA Provisions to Qualification Requirements).

Notice 2007-94 is here.

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