I am looking for some guidance on the following:

I have a client who will be implementing a FSA plan 9/1/02. They know that they will be laying off several hundred employees sometime after the implementation of the plan and want to be able to allow participants who are laid off to be able to continue to be "active" and submit claims for expenses incurred after the layoff date. This period may last one month, two months or until the end of the plan year - we are still trying to work the details out. My question is two-fold and really encompasses the health care FSA:

1) Can laid off employees be treated separately from terminated employees? Obviously, the employer knows the risk in allowing participants to continue to submit health care claims incurred during the layoff period, but does not want to open this risk for truly terminated employees.

2) Can the employer choose to allow an extended eligibility period for the laid off employees as long as it is specifically outlined in the PD/SPD? Does it matter that the participant is no longer contributing?

Thanks!

Must a VEBA plan that holds funds used to pay service providers always be invested and always earn interest similar to the way an ERISA trust fund must be invested at all times?

or, can you allow VEBA funds to sit idle pending payments to service providers??

I have an OR business considering the purchase of a CA company w/ 20 ee's currently insured w/ PacifiCare. Apparantly the CA law AB1672 will not allow a group to be written in CA if they are domiciled in another state... The business will be domiciled in OR - Human Resources, payroll, and taxes will run out of OR - PacifiCare states they can not continue to provide the benefit if no longer domiciled in OR and OR providers not wanting to write a group w/ no ee's in OR... Has anyone run into this and how have you written and with whom?

Thank you!

In a leveraged ESOP, can participants' cash accounts, resulting from prior years' cash contributions in excess of the contributions required to make the loan repayments, be used to pay down the ESOP loan?

I have a situation that an employee's spouse changed from a manager position to a non-manager position. With that change, she had a decrease in salary, but did not change from full-time to part-time. However, the spouse's employer does not pay for health insurance premiums for non-managers whereas they did pay for managers' premiums. Does that qualify as a change of status that would allow the spouse to drop her coverage and the employee to add his spouse to the health insurance of his employer?

Facts: ABC Co. is a calendar year plan. For 2001 plan year, the top heavy percentage is 43.16%. The determination date was 12/31/00. End of April 2001, the 401(k) plan was frozen. For 2002 plan year, the top heavy percentage is 60.69%. Do you have to make a top heavy contribution?

I have been bouncing back and forth on this issue. My first answer is "Yes" they have to make a top heavy contribution because when the determination for top heavy was made in 2001 for 2002 plan year, the key employees were still contributing (January 1, 2001 through Arpril 30, 2001).

My second answer is to say "No". The plan does not have to make top heavy contribution for 2002 plan year since the plan was frozen and no contributions were made by any key employee in 2002.

Which reasoning is correct? Any input will be highly appreciated.

:confused:

Client is being pursued by Medicare for liability under the Medicare Secondary Payer rules. We believe we have meritorious defenses to the claim. We also are considering whether we can present a statute of limitations defense because of Medicare's delay in asserting its claim, but I haven't been able to find any statute of limitations or similar provisions in the Medicare statutes.

Has anyone looked at this issue? Any cites to statutes, regs, cases, etc. are most welcome.

Thanks.

During 1999 the owner of an S-corp withdrew money from his profit sharing account. Thus a prohibitive transaction. He also returned the money by the end of 1999. The plan is now under IRS audit for 1999. The agent told us that Form 5330 would need to be completed to pay the penalty tax and also Form 1099-R for the deemed distribution, which is fine. He also implied that the employer would have to re-do his 1999 Form 1040 to include the distributed amount as income. If he is paying taxes on the deemed distribution from the 1099, does it seem right that he would have to re-do his 1040 and pay as taxable income again??

Have met with a prospective client that implemented paired profit sharing/money purchase plans in 1994. The money purchase contributions were made for 1994 through 1996. The prospect has had a net losses since 1996, and the client's CPA advised them that since they had net losses, they were not required to make their money purchase plan contributions. The prospect took their CPA's advice.

The prospect would like to fix their plan's defects. I have reviewed the requirements of Rev Proc 2001-17 and the instructions for Form 5330, but am concerned that 5 years of minimum funding deficiencies would be hard to justify.

Does anyone have any thoughts on this situation? Thanks for your assistance.

What is the process for distributing funds for clients that you can't locate.

I'm working on a 5500 for a health and welfare plan. The plan is fully insured and the employer makes all premium payments. I don't think any witholdings are made from employees' paychecks to fund the plan.

The question was raised, how do we know this is not a VEBA? Well I don't know how to determine this.

Could anyone out there help? I appreciate your input.

I have a plan that allows for in-service distributions once the participant hits normal retirement age. How do you calculate the accrued benefit for the year following the first year of distributions?

Example:

Plan Year = 3/1 - 2/28

Normal Retirement Date = 3/1/2000

Accrued Benefit as of 3/1/2000 = $2,500

Accrued Benefit as of 3/1/2001 = $3,000

Distributions of $3000 per month begin on 3/1/2001

What is the procedure for calculating his accrued benefit as of 3/1/2002 ???

I'm trying to learn how a basic self funded plan operates. Any help, comments, feedback would be greatly appreciated. So an employer collects premiums from employees (the employer may also pay a part of this cost). Do these premiums go into a bank account that the employer will use to pay claims? If claims exceed the value of premiums collected then are claims paid from the employer's general assets?

If so, what happens to this money if the value of premiums collected is larger than claims incurred? Does the employer keep this money? Do they use it for the following year? Are these premiums considered plan assets? If so do they have to be held in a trust?

Sorry for all the questions but I'm just trying to gain some background information on how this stuff operates. Thank you.

IRC section 411(e) requires governmental plans to satisfy the vesting requirements of pre-ERISA 401(a)(4)(4) and 401(a)(7). Pre-ERISA 401(a)(4) imposes non-discrimination requirements (which are substantially similar to current 401(a)(4)). As applied in the context of vesting, pre-ERISA 401(a)(4) would require that the vesting provided in the plan does not favor the highly compensated. In the case of the plan we work with, all participants are fully vested upon admission to the plan (a local government, DC Plan). Although the plan covers only the highly compensated (in the pre-ERISA sense), our interpretation of Section 411(e) and pre-ERISA 401(a)(4) is that out structure does not violate pre-ERISA 401(a)(4) because they are no non-highly compensated and all participants are 100% vested at all times.

Does anyone know whether this is the correct application of pre-ERISA 401(a)(4) to government plans? To apply pre-ERISA 401(a)(4) to anything beyond vesting would result in IRC Section 411(e) imposing pre-ERISA non-discrimination requirements generally. This does not seem consistent with the fact that local government plans are not subject to the discrimination requirements of the current 401(a)(4).

Any thoughts?

I would be interested in knowing how long it takes to obtain a ruling request from the IRS re obtaining "church plan" status for a retirement plan? Has anyone submitted a ruling request on this issue? Thanks.

Employer sponsors an ESOP. Client wants to know if the ESOP can loan money to an unrelated 3rd party.

We have a client who adopted a volume plan in December 12/31/01. The employer assumed that the volume plan was pre-approved for GUST (pre-99 and post 98). Turns out, this volume plan was only approved for GUST I at the time of adoption. The advisory letter for full GUST was issued for this volume plan on in January 2002. Employer did not submit the first plan for a d.l. The Employer also has not executed any 2002-20 certification. Is this employer okay at this point to simply adopt the same volume submitter's plan? I'm a little confused as to why the volume sponsor didn't provide more information to the employer--i.e., inform him of the certification, etc.

Company A, an S-corp, is the general partner in several limited partnerships. As a 1% owner, a traditional controlled group situation does not exist. However, as general partner Company A controls the business activity of each limited partnership since the limited partners traditionally have little control. Questions: Do we have have a controlled group since A has more than 80% of the voting power of the limited partnerships? Also, could there possibly be a management affiliated service group here? ? Thanks.

Employer X maintains a 401(k) plan with a discretionary ps contribution. Their document excludes from eligible compensation "bonuses". Due to a change in payroll systems during 2001, employer inadvertantly did not exclude the bonus amounts from their calculation of employer match and ps contribution. Also deferrals were withheld from the bonuses.

I have read through Rev Proc 2001-17 and while I don't see anything specific to this example, I would gather from the other examples that this would be an "insignificant operational error" and that the employer should utilize the self correction program.

If I'm totally off base, where can I go to determine what the employer should do?

Any assistance would be greatly appreciated.

Has anyone out there had experience with a statutory merger of companies? I have 3 companies (unrelated) that are forming a new company on 8/1/02. All have existing plans that will be terminated on 7/31 prior to the merger. It is my understanding that terminating the plans prior to the merger will eliminate any successor plan issues (one was a 401(k)).

An attorney is saying that because it is a statutory merger, the new company is just a continuation of the old ones and not a new ER. Which (according to him) means we can't set up a new SH 401(k) plan for the new entity because of successor plan problems nor distribute assets of the k plan (no actual separation from service).

My take: the old companies will no longer exist and all employees will be working for the new company that is formed. Plus we are terminating the other plans prior to the merger. Seems to me that I don't have a successor plan problem.

What do you think?