Plan member is the insured, with full coverage, under both these policies at the same time:

Self-Funded Policy

hired 11-07-98, with full coverage effective immediately.

Fully Insured Policy

hired 10-25-98, with a 60 day waiting period for full coverage to become effective

I always heard in such a case, the policy in effect longer is prime, but this case raises the question of when to start counting: hire date or effective date of coverage? Also, does the fact that one Plan is fully insured vs. the other being self-funded make a difference?

To add a possible further twist, I believe the fully- insured plan is for a non-federal government entity, and the self-funded plan we administer is also a non-federal government entity, although as far as I know they do not opt out of any requirements on that basis.

Any opinions out there?

I am looking for a copy of AICPA Statement of Position (SOP) 92-6, Accounting and Reporting by Health and Welfare Benefit Plans. Can anyone steer me in the right direction? Paper is OK, but online is better.

Thanks.

IF A PARTICIAPNT SIGNS UP TO CONTRIBUTE AN AMOUNT PER PAY PERIOD TO THE MEDICAL REIMBURSEMENT ACCOUNT BUT THE PAYROLL DEPARTMENT AT THIS TIME HAS NOT TAKEN ANY PRE-TAX CONTRIBUTIONS OUT FOR THIS PARTICIANT, CAN THE PARTICIANT CHANGE HIS ELECTION AMOUNT?, JUST CONTRIBUTE FROM HERE ON OUT?, IS THE EMPLOYER LIABLE FOR ANY OF THOSE PREMIUMS THAT NEVER CAME OUT?,.....THANKS

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission (copyright 2000 TRI Pension Services, all rights reserved).

<blockquote>Please feel free to add a reply to this thread (see link towards bottom of this page) if you would like to discuss comments or questions about this article with others!</blockquote>

Automatic enrollment feature is permissible in 403(B) plan/caution on Title I issue (added July 18, 2000).

Rev. Rul. 2000-35 confirms that an automatic enrollment feature is acceptable under a section 403(B) plan. This is true regardless of whether the plan is funded with annuity contracts or custodial accounts. The requirements parallel those prescribed for 401(k) plans under Rev. Rul. 2000-8. If the automatic enrollment feature is properly applied, the contirubtions deducted from an employee's compensation, for transmittal to the 403(B) plan, are treated as salary reduciton contributions that are excludable from income (subject to the §402(g) limit, the maximum exclusion allowance under IRC §403(B), and the section 415 limits).

Caution - Title I issue. If a 403(B) plan is set up solely to receive salary reduction contributions, and no employer contributions will be made to the plan (i.e., no matching contributions and no nonelective contributions), the plan is generally exempt from Title I of ERISA. See DOL Reg. §2510.3-2(f). However, one of the conditions for the Title I exemption is that the employer have limited involvement in the plan. Included in the activities the employer may engage in without creating a Title I plan is the collection of contributions through the salary reduction agreements and transmital of those contributions to the annuity provider or custodian of the custodial account. Is an automatic enrollment program crossing the line, resulting in Title I coverage? This issue is not addressed in Rev. Rul. 2000-35, because the employer makes matching contributions under the plan, resulting in Title I coverage anyway. Perhaps the IRS or DOL will clarify this issue at a later date.

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission (copyright 2000 TRI Pension Services, all rights reserved).

Rollover of non-employer-stock investments to money purchase plan established solely to accept rollovers does not preclude exclusion of NUA on employer stock distributed from KSOP (added July 18, 2000).

In PLR 200027058, Plan X includes a 401(k) arrangement and an ESOP (referred to as a "KSOP" in this discussion). Employer contributions are invested in employer stock. Employes have several investment choices for their 401(k) contributions. Plan Y, a money purchase plan, was established solely for the purpose of accepting rollovers. The employer contribution formula is 0%. The only eligible employees for Plan Y are: 1) employees who have attained age 59-1/2 and have received a lump sum distribution from Plan X, and 2) former employees who receive a lump sum distribution from Plan X. The purpose of Plan Y is to provide a means for these employees and former employees to accomplish two goals: 1) retain the portion of their lump sum distribution that consists of employer securities, in order to take advantage of the gross income exclusion for net unrealized appreciation (NUA), and 2) continue the remaining investment of their account in the same investment options they had under Plan X.

IRC §402(e)(4) provides that, in the case of a lump sum distribution which includes employer securities, NUA on those securities is excluded from the distributee's gross income unless otherwise elected. In several previous private letter rulings, the IRS has ruled that, although a partial rollover precludes income averaging treatment on a lump sum distribution, it does not affect the right to the NUA exclusion for the emploiyer securities that are not rolled over. Thus, when an employee or former employee who is eligible for Plan Y rolls over the non-employer-securities to Plan Y, the remaining distribution from Plan X is eligible for the NUA exclusion. In other words, the combination of the distribution of the employer securities from Plan X and the direct rollover of the remaining investments to Plan Y, constitute a lump sum distribution for §402(e)(4) purposes, allowing the NUA exclusion on the distributed employer securities. By establishing Plan Y, the employer has provided a means for these participants to preserve the current non-stock investments in their accounts, through the rollover to Plan Y, while electing a distribution of the employer securities and taking advantage of the NUA exclusion.

An interesting sidenote with this case is the establishment of Plan Y with no employer contribution formula. Is it significant that Plan Y is a money purchase plan and not a profit sharing plan? It seems so. Questions have been raised at various employee benefit conferences whetehr a profit sharing plan can be established solely for the purpose of accepting rollovers. Treas. Reg. §1.401-1(B)(2) requires an employer to make "substantial" and "recurring" contributions to a profit sharing plan. No parallel requirement exists for money purchase plans. Thus, by establishing Plan Y as a money purchase plan, the fact that the plan is funded solely with rollovers from Plan X does not present a problem.

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission (copyright 2000 TRI Pension Services, all rights reserved).

Interest rate not exceeding 120% of federal mid-term rate is deemed reasonable for calculating "substantially equal" payments under IRC §72(t)(2) exception (added July 18, 2000).

In PLR 200027062, the taxpayer, who is age 53, elected substantially equal payments to be made from his IRA. The payments are intended to be exempt from the premature distribution penalty, pursuant to IRC §72(t)(2)(A)(iv). The monthly payments were calculated on the basis of the taxpayer's IRA account balance as of November 30, 1999, uding A's life expectancy (30.4 years) under Table V in Treas. Reg. §1.72-9, and an interest rate assumption of 6%. This is the amortization method prescibed by Notice 89-25. In past rulings, IRS has said that the interest rate used to calculate substantially equal payments must be reasonabe, but has not established any safe harbor standard. In this ruling, the IRS takes the position that any interest rate which does not exceed 120% of the federal mid-term rate is treated as reasonable.

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission (copyright 2000 TRI Pension Services, all rights reserved).

In applying the same desk rule, it is not relevant whether a transferred employee performs different services and job functions than he performed for former employer if such change occurs after the date the employee is transferred to the new employer (added July 18, 2000).

In PLR 200027059, the IRS specifically address the affect of a later change in a transferred employee's job functions on the determination of whether there has been a separation from service with the prior employer. This case is another one where there is no sale of assets, stock, merger or other business transaction between the former employer and the new employer. However, the transferred employees, at least initially, continue to perform the same job functions that they performed for the former employer. The 342 employees at issue here were performing information services for Corporation A. A determinated that it needed to concentrate on other business operations, so it decided to outsource the information services component of its operations. The outsourcing occurred under a contract with Corporation C, an unrelated company. The contract was effective March 1, 1999. As of that date, the 342 employees were terminated from A's employees and were hired by C. Corporation C determined that the required level of staffing under its contract with A required no more than 300 of these 342 employees. C initially had all 342 employed to carry out the functions of the contract with C, but by October 1, 1999, there had been substantial changes. Only about 100 of the 342 employees will continue to perform services for A on-site. The rest work in other facilities, some performing services for A only part of the time and others no longer providing services for A. A maintains a 401(k) plan. Rulings were requested on whether any of the following employees could be treated as having a separation from service with A, thereby triggering a distribution event from the 401(k) plan: 1) those whose supervisors, benefits, or policies had changed, but who continued to perform services for A under Corporation C's contract with A, 2) employees who, on some date after their initial hire by C, work exclusively on non-A work, 3) employees who, on some date after their initial hire by C, work at least part of the time on non-A work.

The IRS ruled that none of these employees has a separation from service. When there is no business transaction (e.g., sale of assets or stock) that involves the transfer of employees, IRS looks at the job functions of the transferred employes to determine whether the same desk rule applies with respect to the former employer. If, at the time of transfer, the employees continue to perform services for the former employer in substantially the same job capacities, the same desk rule is triggered and there is no separation from service with the former employer. Any later changes to the job functions of the transferred employees are irrelevant in finding a separation from service, so long as the employees continue to work with the company who initially hired them from the former employees. Thus, all three categories of employees described in the prior paragraph do not have a separation from service with A, even if they no longer perform any services under C's contract with A or work only part of the time under such contract. So long as these employees continue to work for C, the A 401(k) plan may not treat them as having a separation from service.

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission (copyright 2000 TRI Pension Services, all rights reserved).

Plan may provide for direct rollover as the default method of making involuntary distributions in the absence of an affirmative election by the participant (added July 18, 2000).

A qualified plan provides for involuntary distributions of vested account balances of $5,000 or less, following termination of employment. There are no after-tax contributions in the plan. Pursuant to IRC §402(f), the plan first provides a notice to the terminated employee, which explains the rollover and withholding requirements. Under the current terms of the plan, if the employee has not affirmatively elected whether to take a cash distribution or to direct a rollover, the plan makes a cash distribution. The employer is now amending the plan to make the direct rollover the default distribution method. Under the amendment, if the employee fails to make an affirmative election within the 30-day minimum election period prescribed by law, the plan will rollover the involuntary distribution to an IRA. The plan administrator selects the trustee, custodian or issuer of the IRA. The default rollover is explained in the notice material provided to the terminated employee. In Rev. Rul. 2000-36, the IRS ruled that a plan may use the direct rollover as the default method of distribution. Pursuant to Treas. Reg. §1.401(a)(31)-1, Q&A-7, the plan must explain the default procedure. The IRS also ruled that the amendment of the plan to change the default distribution procedure from cash to rollover is not a cutback described in IRC §411(d)(6). A change in a default method of distribution does not eliminate any option available from the plan, it only changes the automatic method of payment that is made in the absence of an election among the plan's options.

Uses of the default rollover procedure. Why might a plan sponsor consider this approach? One reason may be the hassle of having an involuntary distribution outstanding for a long period of time because the participant doesn't cash the check. By using the direct rollover as a default, the plan transfers the funds directly in the IRA, and no check is issued to the participant. The plan satisfies its obligation to pay the benefit, and the participant can take the withdrawal from the IRA when he wishes. A default direct rollover may be a useful tool when dealing with missing participants as well, in particular when a defined contribution plan is terminated and, after taking reasonable steps, the plan is unable to locate several participants. Note that Rev. Rul. 2000-36 does not address missing participant sitations. The facts of this ruling deal solely with situations where the participant receives notice of the pending distribuiton, and an explanation of the right to elect cash or rollover, and the default rollover procedure if no affirmative election is made. However, IRS has stated at many employee benefit conferences that use of the rollover process is the IRS' preferred method of dealing with the accounts of missing participants under terminated defined contribution plans.
Title I of ERISA issues. The IRS notes in the ruling that DOL would treat the choice of the IRA trustee, custodian, or issuer as a fiduciary action. However, once the funds are rolled over to the IRA, the distributee is no longer a participant under the plan for Title I purposes, because the entire benefit has been paid from the plan. See the definition of participant in DOL Reg. §2510.3-3(d).
Default rollover may not occur before end of 30-day election period. Remember that Treas. Reg. §1.402(f)-1, Q&A-2, requires the §402(f) notice to be provided no less than 30 days before the distribution. Thus, the participant must be given at least 30 days to make an affirmative election between the cash distribution and the direct rollover. Only after the expiration of this minimum election period may the plan proceed with the default rollover.

We provide NSCC/DCCS processing for Quantec users. Should anyone like additional information please call or email me:

Charlie Friday/ Mid Atlantic/ 412-391-7077/ cfriday@macg.com

I have written before and have had good responses. I'm still trying to withdraw funds from a non-qualified 457 Governmental Plan that I received in a divorce settlement. My QDRO states that I am able to withdraw the funds at the participant's (ex-husband) earliest retirement age, which he has passed. Under the present IRS code I have not been able to do this. I would like to know if the new legislation that was passed by the House and heads to the Senate and President (HR 1102) will be of help. The section "Clarification of tax treatment of division of Section 457 Plan benefits upon divorce" has a waiver of certain distribution requirements, inserting section 457(d). From what I have read this would treat 457 non-qualified plans, like a 457, like a qualified plan and that for distributions and payments after 12/31/00 the qualified plan tax rules for QDRO's would apply to 457 plan distributions. Does this mean that I will be able to get a distribution after 12/31/00 if HR 1102 is passed in the Senate and signed by the President? Thanks for all your help!

Just trying to verify an eligible expense for dependent care reimbursement. If a dependent care expense is incurred and paid in a claim year but it covers a period of time that extends beyond the plan year - is the entire amount eligible for reimbursement under the dependent FSA? Our thought is yes - since it was incurred and paid within the claim year - but we'd like to verify this. Anyone???

Thanks.

A hypothetical participant has taken a loan against his profit sharing balance. Under the terms of the plan, the participant had the ability to withdraw those funds on an in-service basis, but instead elected to borrow them. Now the participant defaults on the loan. My understanding is that an offset would be allowable. However, the IRS reviewer who is reviewing our document is taking the position that an offset would not possible due to 411(a) considerations: i.e. that the offset cannot occur because the balance is over $5,000 and there no was no request from the participant for the offset.

Is anyone aware of any direct evidence to the contrary that can be presented to the reviewer?

Thanks!

We currently have a DB and 401(k), the 401 has no match and they would like to start one. Can they stop adding to the DB, but still hold the accrued benefits in place? If so, how? If not, I'm looking for guidance on what options we have to help the younger employees have more tangable benefits.

A church would like to set up a non-ERISA retirement plan for its employees. The church is part of an worldwide religious "entity" which is comprised of numerous churches. However, each church has its own tax ID number. Can the church establish a retirement plan solely for its employees?

What (if any) penalty is there for failure to maintain an ERISA bond for the correct amount as provided for in ERISA REG. 2580.412-11?

An employer has two plans. One for union ees, and one for nonunion ees. Key employees only participate in the nonunion plan. Can these two plans be aggregated however for top heavy calculations?

Treas. Reg. 1.416-1, T-7

An employer may elect to treat a plan not required to be aggreagated as part of the aggregation group in order to remove the top heavy classification, but only if the aggreagated group continues to meet coverage and nondiscrimination.

Here since all union employees would be considered excludable employees for coverage and nondiscrimination, aggregating the two together will still pass coverage and nondiscrimination if the nonunion plan passes coverage and nondiscrimiantion on its own.

So, it appears to be permissible to aggreate for top heavy without any other plan issues. Comments?

We are preparing a proposal for a 401(k) plan in the

Virgin Islands. It is my understanding the regulations

fall under the U.S. Government regs and administration

of the plan would be no different than a plan in the

States. I am looking for confirmation on this as our

attorney isn't familiar with any regs on the matter.

A plan provides that a cash balance account ("cba") can be paid out as follows:

cba = 200,000

final salary = 100,000

lump sum is limited to 100,000 an the remaining 100,000 is converted to an equivalent annuity.

My problem is, what about 417(e). It seems either an equivalent pvab under 417(e) need be determined and if it is greater than 200,000, say 250,000, then 100,000 paid in cash and remaining 150,000 converted to an annuity.

Or at least the 200,000 should be converted to an annuity and the 100,000 cash payment should be offset from the gross annuity as an equivalent offset annuity using 417(e). So for eg if 100,000 as an annuity under 417(e) is 10,000 and the 200,000 is 25,000 then the remaining annuity s/b 15,000.

It seems something s/b done to incorporate 417(e). Any thoughts?

A wholly owned U.S. subsidiary of a foreign corporation is considering implementing a broad-based stock option program using the stock of its parent which is traded only on a foreign stock exhange. Can this be done? What unique legal and/or practical problems are presented by virtue of the stock only being traded on a foreign exchange?

Can an insurance company issuing a certificate of coverage for a group health plan retain the 2% administrative surcharge which a plan sponsor or plan administrative is authorized to charge under COBRA? I would like to know who is entitled to the 2% surcharge authorized by COBRA. Also, I have heard that insurance companies have been adding an additional 2% surcharge (in addition to the authorized 2% surcharge) for adverse selection. Can anybody confirm this practice?