1975, February, Pg. 249. Pension Reform: Recent Developments.

4 Colo.Law. 249

Colorado Lawyer

1975.

1975, February, Pg. 249.

Pension Reform: Recent Developments

249Vol. 4, No. 2, Pg. 249Pension Reform: Recent DevelopmentsOn December 31, 1974, TIR-1329 released by the I.R.S. and ERISA IB 75-1 released by the Office of Employee Benefits Security attempted to clarify § 414(c)(4) of the Act. That section postpones the applicability of §§ 406 and 407(a) of the Act to certain services before June 30, 1977, if three requirements are met:

(a) such services must be provided either (1) under a binding contract in effect on July 1, 1974 (or pursuant to renewals of such contract), or (2) by a party in interest who ordinarily and customarily furnished such services on June 30, 1974,

(b) the services must be provided on terms at least as favorable to the plan as would be terms newly negotiated in a current arm's length transaction with an unrelated party, and

(c) the services must not be or have been, at the time of such provision, a prohibited transaction within the meaning of I.R.C. § 503(b).

The most helpful decision in this release is that it applies to new customers as well as those to whom services were being provided on June 30, 1974. However, the release is fraught with uncertainties, especially in determining to whom it applies. Read literally, the first requirement is that the person rendering services must have been ordinarily and customarily furnishing such services on June 30, 1974. Apparently this forecloses the availability of this extension to persons who were not in the business on June 30, 1974 (i.e., new insurance salesmen). In other words, there is a grandfather clause for the then existing organizations which "ordinarily and customarily furnish such services" but not for new organizations. Once this limitation is recognized then the problems and permutations are numerous. Does a new entity employing persons who individually furnished such services ordinarily and customarily for another entity qualify for the exception? May an old agency which ordinarily and customarily furnished such services continue to perform the services with new associates actually rendering them? What does "ordinarily and customarily" mean? Overall, these releases are a step in the right...