FACTS:

The C Corporation maintains an Employee Stock Ownership Plan ("ESOP") and has two types of stock. The first type has special formula dividend rights, no voting, but is convertible to common if dividends are not paid ("Preferred Stock"). The second type has all voting rights and may receive dividends if the Preferred Stock has first received its accumulative formula dividends ("Common Stock"). C Corporation currently maintains an ESOP that holds 25 to 30% of the C Corporation's Common Stock.

ISSUE I: IRC Section 409(l)(2) Compliance.

Is Common Stock held by the ESOP "employer securities" under IRC Section 409(l)(2)? Put another way, when determining whether the ESOP held stock has the greatest dividend rights, do you look only at stock with voting rights, or does the ESOP's stock have to have equal or greater dividend rights than the non-voting "Preferred Stock" has?

Would it make a difference if the outstanding Preferred Stock was not convertible to Common Stock?

ISSUE II: Correcting IRC Section 409(l)(2) Compliance Failure.

Assuming that ESOP held stock must have equal or greater dividend rights than the Common Stock and the Preferred Stock, would the exchange of existing ESOP Common Stock for a new type of stock ("Hybrid Stock") that has the same voting rights as the Common Stock, but has special dividend rights, where it first gets Preferred Stock dividends and than, if the Common Stock also gets dividends, it would get an additional dividend once the amount of the Common Stock dividend exceeds the Preferred Stock dividend.

For Example: Preferred Stock gets formula dividend of $1 per share; Common Stock gets dividend of $0 per share; and resulting Hybrid Stock dividend equals $1 per share. Alternatively, Preferred Stock gets dividend of $1 per share; Common Stock gets dividend of $2 per share; and resulting Hybrid Stock gets dividend of $2 per share. Basically the Hybrid Stock gets a dividend that is equal to the greater of the Preferred Stock and Common Stock dividend amounts, instead of getting both the Preferred Stock and Common Stock dividends.

I'm looking for any input on an issue with the Women's Health and Cancer Rights Act. I have a plan member seeking a precert for breast reconstruction under a plan that provides mastectomy benefits. The twist in this case is that her original mastectomy was performed 12 years ago, before her effective date with this plan. Pre-existing exclusion is not an issue in this case.

The original reconstruction used a saline implant, which is now causing constant pain due to contracture since the implant. The physician is proposing to remove the implant and perform a new reconstruction.

Having read the Act and numerous Q&A's, I see nothing addressing the issue of mastectomy performed prior to the passage of the Act or prior to existence of the plan. My inclination is to recommend it be covered, but it would be nice to have a cite or anything else to back it up.

Has anyone out there encountered this issue? I would appreciate any opinions.

What is the definition of an "unpaid" leave of absence? If an employee goes on STD or LTD, can they be allowed to change their benefit elections? Specifically, drop coverage because they cannot afford their share of the cost while on leave. I know the regulations state "a commencement of or return from an unpaid leave", but I am unclear if STD or LTD is technically an unpaid or paid leave.

Our employer is a Sub S corporation. For FY 1999, we had a SIMPLE IRA. The Employer made a 3% contribution covering the first half of 1999, but to date has not sent in the 3% covering the last half of 1999. It is his belief that he can defer the contribution until he is ready to file his 1999 taxes, including extensions.

Is his assumption correct?

A few posts back, I saw where employers who do not make the contribution risk the employees contributions being declared as income by the IRS, which would certainly be a blow to the employees.

Carl C

The company I work for initiated a SIMPLE IRA plan on August 4, 1998. Contributions had been made until January of this year, when an employee leasing firm took over as our employer. While the leasing firm couldn't continue with our existing SIMPLE IRA plan, they did recently start a 401K plan for us.

I have a Traditional IRA, Roth IRA, and the new employee leasing firm 401K plan.

I would like to move the funds from the SIMPLE IRA to any of the other vehicles. Can this be done, and if so, are their any tax consequences on moving the funds to one plan vs. another?

I also heard that moving the SIMPLE IRA funds should be done after a certain date or holding period. Can anyone elaborate?

Carl C.

Our company offers employer paid medical, dental, std, ltd, and group life and dependent medical and dental is offered on a pre-tax payroll deduction. Our renewal was July 1 and we wanted to make some changes but due to TPA delays were not able to. Can we change the plan before July 1 next year to a cafeteria plan to include vision and supplemental life? We were thinking of offering "benefit dollars" and any benefit dollars not spent would automatically go into the flexible spending account we offer which includes unreimbursed medical and dependent care. In setting the benefit dollars we were also considering using the cost per employee from last year for fixed costs and claims. Any suggestions would be appreciated.

We have a self-funded plan with about 875 participants and a $50,000 specific deductible with a $100,000 deductible for one dependent child. Our contract until July 1 was a 12/15 and now the TPA has changed it to a 12/12 for specific and aggregate with the intention of changing it to a paid contract in 2001. Can someone explain the difference between a 12/12 and a paid contract? I am afraid we won't be able to change carriers next year because of this type of contract.

I am seeking recommendations for a Service Provider for a large (2,000 + participants) 401(k) Plan. Sponsor requires standard services (daily valuation, customer service representatives, interactive voice response and fully transactional internet capability).

There would be $0 to manage in assets - everything is in separate accounts.

Recognizing there will be recordkeeping fees,do you have any suggestions?

New DB plan effective 4/1/2000 with 9 month plan year, switching to calendar year 2nd year on. Plan sponsor is on Calendar tax year.

For section 412 minimum, charges & credits are prorated for a short plan year. I could not find such a requirement (or restriction) for Section 404 maximum, which implies that full Normal cost etc can be deducted!

Any one disagree, and if so why?

1. Where in the Code/Regs/Ruling etc can I find the medical expenses that can be reimbursed from a Section 125 plan? From general reading, I understand that the reimbursable expenses are those that can be deducted under Code section 213 (without regard to the 7.5% exclusion - but I can't find express reference!

2. Can a participant pay premiums from his/her Section 125 plan account for an individual health insurance policy to cover the benefits not provided by the employer's medical plan or if the employer does not have a medical plan?

Thanks for your help.

Anyone know where I could find an article or some information on SEC issues related to group trusts?

Thank you.

Our firm is located in Ohio and we are in the process of beginning to administer 401(k) plans. We are in need of testing and administration software but have no experience with any products or vendors. Any suggestions for reasonably priced products would be appreciated. If the vendor's web address is available, that would also be appreciated.

Thank you

Plan has 6 trustees. The space provided on the Schedule P for trustees names is not large enough.

I think that I should put as many of the trustees as will fit on the Schedule, and forget about the rest of them.

Another administrator thinks that I should file 6 Schedule P's; one for each trustee.

Another says to file 2 Schedule P's; one with 3 trustees on it; and another with the other 3 trustees.

My understanding is that only one Schedule P is filed for each trust. What are others doing in this situation. Thanks for your help.

May common law spouses be specifically excluded from welfare and pension plans? For example, assume Georgia recognizes common law marriages. Would it be allowable to have a health or pension plan maintained by a Georgia company exclude, by definition, spouses through common law marriage?

A client wants to offer prior service credit for acquisitions of key people and staff from other entities. It has done so in the past for those who came over through mergers etc. but now it wants to grant it to selected employees who will have no ownership interest in the new entity. They won't be HCEs (obviously) in the first year but more than half of the people who recieve the credit will be HCEs going forward. Does anyone see problems with this provided that there are staff members coming in with them (and they recieve the same credit)?

Assume Employer A and Employer B are sharing some employees.

Further, A and B are an affiliated service group.

Questions:

1. Compensation. It appears that, for purposes of determining contributions under any retirement plan maintained by A or B, only the compensation payable by the company sponsoring the applicable plan may be considered. See, eg, Rev. Rul 68-391. For example, In determining the contribution payable to Participant X in A's profit sharing plan, only the compensation paid by A to X can be considered (ie, the compensation paid by B cannot be considered). Does anyone know of any rule that would allow compensation from A and B to be considered?

2. Vesting: Is it allowable to count Participant X's service with A in determining whether he meets the hours of service requirements in B's plan for purposes of eligibility? vesting? contributions? It appears such service is counted for purposes of eligibility (see Rev. Rul. 67-101, 73-447 and 81-105), but we want to consider it for purposes of vesting and contributions as well.

Anyone having problems with Quantech handling the 402(g) limit or 415 limit incorrectly? Just curious if this is just a plan I ran into with one plan or an overall problem. Ran a payroll that limited the participant to $10,000 even though the limitation table says $10,500.

I have some general administrative questions about NQDC Plans, since I have never actually seen one accounted for on a recordkeeping system:

1. Can anyone give me an example of how a NQDC Account Title should appear on a recordkeeping system(e.g. ABC Trust Co., TTEE for the XYZ company NQDC Plan)?

2. Can an NQDC account be labelled as "for the benefit of" ("FBO") a particular participant without actually considering the account as funded for that participant? It would seem to me that, as long as the Trustee retains control over the account for the purposes of paying corporate creditors, then this would be acceptable. Please comment.

3. As far as I can see, because the nature of the underlying investments are at the ultimate discretion of the trustee, these accounts could be maintained on almost any type of financial recordkeeping system (e.g. retail brokerage account, retail mutual fund, retirement plan r/k like Trustmark, etc.) It seems the only limitation exists with service provider and their access to investments that the trustee might want. Any necessary internal reporting could be assembled by a CPA, in theory. Any comments?

4. Can the plan be Trusteed by person or entity other than a benefitting employee? Are there any restrictions as to who may be the trustee?

Thanks

I would be interested in hearing any opinions on a strategy for preserving plan assets. If a self-funded client were to maintain fully-insured policies on the side, and move people into them as large charges were received, could this be construed as discrimination based on health status?

The usual example I see for that type of discrimination is someone denied entry into a plan because they are expected to incur major charges. In this case they are already in the plan and incurring those charges. No one is being denied entry into a plan, it is just a question of where they end up.

It is possible some new members have been shuttled straight into the fully-insured plan, but I believe most are moved after enrollment into the self-insured plan, when the major charges start rolling in.

To my knowledge the fully-insured plan is on the whole at least as generous as the self-insured one, but I suppose it is possible that on a specific benefit the self-insured might be richer.

My obvious concern is the appearance of discrimination, since the plan you end up in is determined by your health status. These plan changes are not member elections, and happen at all times in the plan year. I don't think the member has much choice in the matter.

Has anyone seen this before?

Does anyone have a policy for fiduciary review of mortgages held in plans? We have acquired a book of business that has some plans and IRAs that hold mortgages and we aren't quite sure what responsibilities we have or what we could be liable for. We are named (directed) trustee.