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Building Blocks - FAQs

Top Hat Plan Basics

Top Hat plans are deferred compensation plans designed to benefit top management. They are exempt from most of ERISA’s requirements such as the vesting, funding and fiduciary duty requirements (but not reporting requirements) on the theory that high-level participants are able to protect themselves and so do not need the protections of ERISA.

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What is a MEWA?

“MEWA” stands for “multiple employer welfare arrangement.” A MEWA is formed when a health and welfare plan provides benefits to employees of two or more employers that are not part of the same controlled group of businesses.

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After a Merger, what is a 410(b) Transition Period?

A 410(b) transition period is a period following a transaction in which a company that maintains a qualified plan (the “Buyer”) merges with or acquires another company with a qualified plan (the “Acquired Company”) (the “Transaction”), during which coverage may be tested separately rather than on an aggregated basis (the “Transition Period”). This Transition Period allows time for the plans to be merged or amended to ensure that the plans pass coverage testing on an aggregated basis.

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What is a Voluntary Correction Program?

A VCP is a submission to the IRS through its Voluntary Correction Program offered under the Employee Plans Compliance Resolution System (EPCRS). Under VCP, an employer voluntarily discloses to the IRS one or more qualification failures and proposes corrections for those failures. The IRS may negotiate changes to the proposed corrections, but the end result is generally an IRS-approved correction and a compliance statement setting out the failures and the approved corrections. VCP is a valuable option for plans to maintain their tax-qualified status.

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What is a “Prohibited Transaction” under ERISA?

Section 406(a) of the Employee Retirement Income Security Act of 1974 (“ERISA”) broadly prohibits plan fiduciaries from causing a plan to enter into either a direct or an indirect transaction involving the plan or its assets that have the potential for conflicts of interest.1  Two general types  of transactions are prohibited: transactions with “parties in interest” and “fiduciary self-dealing transactions.” Certain exemptions apply: exemptions can be statutory or granted by the United States Department of Labor either on a class or individual basis.

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