In face of a bad year in terms of stop loss experience due to an ongong renal transplant failure, a self funded (with stop loss) medical plan sponsor is considering the imposition of severe limits on expensive dialysis treatments for all plan participants and their dependents effective at the next stop loss contract year renewal.

What are some of the legal, ethical, financial, moral and communciations issues that need to be considered (if there are none which can't be resolved, could this technique be extended to cancer, heart disease, HIV/AIDS and other high cost diagnoses)??

Has anyone run into the situation where an NON US employee is working in the US and participates in the 401k plan. When they return back to their home country, how is their 401k handled?

Company A and Company B are part of a controlled group, owned by 3 individuals. All 3 individuals have compensation from Company A and B. Both companies are part of Company A's 401k plan. There is also a management group (Company C) that has no employees, but consists only of the 3 owners. They have compensation from this entity as well.

#1 Is it correct that all 3 company's are part of the controlled group?

#2 Because Company C contains only HCEs, we would not necessarily have to include it for plan purposes (i.e, no chance of discrimination since they are all HCEs)?

#3 If Company C is part of the CG, but is not part of the plan, would we omit compensation from Company C for plan purposes?

#4 Is Company C compensation omitted for 415 compensation purposes?

I believe the answers to the above are:

Yes, Yes, Yes, I'm not sure. Thanks for any replys

I'd like to pose something to those of you who frequently work with medical FSAs (either with or without cafeteria plans).

It's my understanding that an employer doesn't become the "Benefits Police" when it sponsors a medical FSA. The plan sponsor merely has to make a reasonable effort to determine that an employee has submitted an eligible expense claim. Usually, "reasonable" means:

(1) providing information and guidelines to participants

(2) obtaining documentation of a claim, and

(3) having each participant attest, when he/she signs and dates a reimbursement claim form, that the claim is for an eligible medical expense paid or incurred for the benefit of the participant, spouse, or dependents.

The employer's not held to the lofty standard of scrutinizing and investigating every request for reimbursement. Also, the employer probably doesn't want to take on the role of researching, analyzing, and applying federal tax law.

Any thoughts out there?

Not knowing much about HSA's, I pose the following question: Can an employer discriminate against his or her employees in setting up an HSA plan? That is, can the owners set up HSA's for themselves under a company HDHP and not offer the HSA to the employees?

Thanks for any replies.

I am trying to understand the practical value of 404(a)(1)(D)(ii).

If a plan has less than 100 participants, the unfunded current liability for HCEs does not apply the liability due to benefit increases (presumably includes entire CL for new plans) for two years.

The only explanation for this is that the IRS does not want an excessive plan deduction for a given year, because if the plan were to terminate then the plan sponsor could fund all liabilities at that time anyway.

The first question is does this apply to new plans, since they do not explicitly reference new plans?

The next question is provided by means of an example.

Say a plan is implemented 1/1/2005 with only one HCE participant.

Say we use the aggregate funding method and we only recognize the 100% of CL and not 150% CL for purposes of this example.

Year 1

minimum = 100,000

full funding limit = 200,000

unfunded current liability = 200,000

Say company contributes 200,000.

They are left with a credit balance of 100,000 a deduction of 100,000 and no excise tax on contribution above the minimum since contribution is less than FFL.

Year 2

minimum =100,000 before credit balance

minimum = 100,000 - 100,000 =0 after reflecting credit balance (ignore interest for the example)

FFL = 200,000

CL = 350,000

UCL = 250,000 (based on plan assets of 100,000 from prior year deductible contribution)

We now assume that the two year period is complete and the entire CCL can be reflected for the HCE.

It appears that if they contribute 150,000, they can deduct the full 250,000 from the 100,000 caryover and the 150,000 cash contribution.

So after two years they can fully deduct the entire CL of 350,000, by means of 100,000 and 250,000.

Without the two year wait the deductions could have been 200,000 and 150,000 for the same total of 350,000.

Are we in agreement with that analysis and ultiimately what was the point of the two year wait?

Thanks

Here is an interesting one that I have not seen any guidance on:

Employer's cafeteria plan provides for $X credit to FSA feature if employee opts out of medical coverage. Say employee uses all of the $X on day 1 of the plan year. Then, at some point, a qualified status change occurs (e.g., the employee's spouse loses coverage) allowing the employee to make an election change. The employee elects medical coverage under the employers plan (which if the employee had done so during open enrollment would have disqualified him from receiving the credit to the FSA). Is the employer out of luck with respect to the $X reimbursed? What if the employee only used a portion of the $X? Is the employee entitled to use the balance over the remainder of the Plan Year?

Any thoughts would be appreciated. . . .

Company A had a 401(k) plan that was top heavy and discontinued contributions to the plan last year. Owners of Company A are also 66% owners of Company B. Company B now wants to start a 401(k) plan. The employees of Company A started to work for Company B right away.

Would Company A and Company B's plans have to be aggregated for top heavy? Are the balances of Company A even considered in the top heavy ratio? Also, both companies plans would be in the same multiple employer plan.

In which year does the company report the contribution? The corporate tax year is a calendar year and the plan year is 10/1 through 9/30. For example, the 2005 py is 10/1/05 through 9/30/06. The corporation will pay the contribution before filing the corporate return (I assume by April 15, 2007). Would they include the contribution on the 2006 tax return? Thank you.

Comapny A Plan is merging into Company B Plan. Company A allows participants to withdraw rollover contribs any time. Company B requires distributable event. Can the right to the in-service withdrawal of rollover contribs be eliminated upon merger?

I've got a client that wants to prefund their profit sharing monies. However, the principals want to be able to immediately direct their contributions while the staff's contributions are put in a trustee directed profit sharing account. The staff will never able to direct the profit sharing money so I see this as a huge no-no.

If we go ahead and prefund the staff into individual accounts, we remove that as an issue but what do we do about the participants who term prior to year end? Can we call their contributions an excess and remove it from the accounts prior to distribution?

Principals are pretty unbending when it comes to this prefunding issue so I'm trying to find a solution here.

If an EE who is 55 yrs old and has had 10 yrs of service decides to diversify his/her ESOP account and takes a diversification distribution of

1) stock; and/or

2) shares

and does NOT roll it over into an IRA, i am assuming that the distribution would be treated as a non-qualified distribution and would be taxed accordingly.

Any thoughts?

Although I've worked with qualified plans for many years, I know little or nothing about SIMPLEs. Recently I was asked if Roth provisions can be added to SIMPLE IRAs. Is it possible under current rules? And if not, is it something that is being considered for addition in the near future?

Can a US citizen that will be back in the US some day, with no US Earned Income in 2006 or 2007 Put money in a Roth IRA for 2006 or 2007?

Participant is over 71 years old and still actively employed in the company.

Participant wants a full distribution from her 401(k) account (distribution would be in excess of RMD).

Participant does not claim hardship - participant (knock wood) merely wants to enjoy her life.

Plan does not permit loans and is very restrictive on when distributions are available (retirement, termination, death, disability).

We understand that participant may begin withdrawing from 401(k), but can she withdraw more than her RMD (EVERYTHING at once)?

I have been scouring secondary materials looking for a list (exhaustive or not) of permissible uses by an S-corp ESOP of corporate distributions.

I have found some (e.g., funding repurchase obligation, repurchasing stock distributed to an IRA, buying additional stock, paying down ESOP loan and plan expenses) but i can't find the statutory authority for these things. is there a code section or IRS materials explicitly permitting these uses of corporate distributions?

Owner is wrapping up a businiss and is the only one left, so there is no payroll department. He took out a $50,000 loan in April and only made 2 payments last year.

The payments from 3rd quarter were not put in by the end of the 4th quarter so it should be "deemed"

Questions:

Is there any option to correct in EPCRS or any other voluntary correction program?

Is it taxable in 2006 or 2007?

We have a DB/DC combo where the documents were designed to provide the top-heavy minimum, in cases where someone participates in both, in the form of a 5% DC allocation.

Two people who are vested participants in both plans terminated during the plan year. Both worked 1000 hours. The DB document says that the TH min need not be provided in both, and may provide it in the form of a 5% allocation in the DC plan. The DC document also says that the TH min need not be provided in both, and may provide it by increasing the 3% minimum DC allocation to 5%. However, the DC document contains a last-day requirement, which is referred to where it mentions the basic 3% minimum.

Because of other provisions in the DC plan, all participants, whether active or not, are receiving a 7.5% DC allocation. So in the case of the two terminated participants referred to, they will certainly receive a DC allocation that is good enough to satisfy the TH requirement. But my concern is, since the DC document says that those who are not employed on the last day of the plan year do not get a TH allocation, are we allowed to consider the allocation they did receive as applying to the TH min? Or do we have to give them a 2% minimum DB accrual?

An active employee is about to vest in, and receive an immediate distribution from, his employer's 457(f) plan. He wants to know if he can elect to have the distribution contributed to his 403(b) or 457(b) plan account, like any other compensation. No different than electing to contribute from a bonus that would otherwise show up in Box 1 of the W-2? Or a 409A nightmare? What do you think?

I have a plan document that uses "Code Section 415 Safe-Harbor Compensation" definition which reads like (but does not reference) the general definition under 1.415-2(d). The company does not calculate deferrals on imputed income amounts for group term life and personal car usage. The plan document does say that Compensation shall include amounts received: “… for personal services actually rendered in the course of Employment…” and at the end it says “… Compensation shall include only that Compensation which is actually paid or made available in gross income during the Limitation year”. Do either of these provide a reasonalbe basis for not including these amounts in calculating contributions?

PAL