A company of 14 employees wants to establish a short term disability plan. Currently they have unlimited sick days a an LTD plan after 6 months. The President wants to do the right thing for his employees. What is the standard for a small business? Any suggestions on a plan?

Thank You for your response - Kathleen

I have a client that wants its KSOP to borrow money from a bank to allow the KSOP to purchase additional employer securities. Once those employer securities are purchased, the loan would be paid back with a combination of employee deferrals and employer contributions (that is, employee deferrals would be used to purchase the employer stock from the KSOP such that the stock would be allocated to the participant's account and the cash would be used by the KSOP to repay the loan). The employer does not want to repay the loan only with employer contributions because the employer sees this as unfair. Is this OK?

is there a place to get the 30 yr Treas const. maturity rates? ASAP ASAP has a nice summary but was last undated 3/15/99.

A 401(k) plan provides for participant-directed investments. One of the investment options is an employer stock fund. The employer stock is bought and sold on the open market. There is a trading fee of $35 per transaction for purchases or sales of employer stock within the fund. Is there any reason why this fee cannot be charged directly to the account of the participant who directs such a transaction?

Does anyone have any experience with affiliated service groups in an audit or a PLR?

We have a client that is a surgical practice (C corp) owned by 13 doctors. The corporation provides medical services to the general public and day call services to all area hospitals (they bill the patients, not the hospital).

12 of the doctors have formed an LLC which will provide trauma call services to patients of one hospital. The LLC will receive a flat monthly fee for daytime trama services, and this will be the only compensation to the LLC for daytime trauma call. It will bill the patients directly for nighttime trauma services. The only other employees of the LLC besides the doctors will be leased from the C Corporation and used for billing. The LLC will not have a new location.

A few patients would receive services from both entities.

We are concerned that if the LLC elects to be taxed as a partnership, attribution rules will cause the new entity to own most of the C corp. (the new entity will be deemed to own the individual doctors' shares of the C corp.) If we do have some cross ownership then we have to deal with the A-Org test of the ASG rules. Neither entity provides services to the other, so that's not a problem. We think the problem will be if the two entities are seen as regularly associated in providing services to third parties.

We think that if the LLC elects to be taxed as a C corp. then we'll have no cross ownership since the attribution rules are different for C corps. BUT the additional FICA cost will be substantial.

We would appreciate any help we could get on this.

Can a defaulted loan be used to satisfy a 70 1/2 minimum distribution for a terminated participant? Any regulations you can reference would also help. Thanks!

I had a rocedure performed in Septmeber 1998. I got my bill in 1999, after the insuracne comanies haggled over who was primary vs. secondary. Can I receive reimbursement in 1999?

Now that traditional "security" employee benefits are viewed as basic compensation by today's employees, how important are Miscellaneous Benefits Programs to corporations and employees.

Is this an effective vehicle to attract and retain quality employees?

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I work for a small company. I was up for review this last April (my 4th year). I was supposed to have gotten a 2.5% raise (at least) but my boss said he couldn't because the budget was tight. I asked him to at least increase my vacation and sick time to 1 more week. He said he'd review the industry average. I checked with him this week about his 'research' and he said that it is normal to get 2 weeks vacation time and 1 week sick time until after you've been with a company for over 10 years. Is this true? does anyone know? I'd appreciate all your comments on this matter!!!

Over the past few months I've seen several individuals mention a DOL information letter from early 1998 clarifying that 403b plans don't need to attach Schedule A to the Form 5500 filing. I haven't found the letter. Can anyone direct me to the letter being referenced?

A plan sponsor's intent has always been to exclude collectively bargained employees and non-resident aliens from plan participation. Plan sponsor is a controlled group with two other companies whose employees are not allowed to participate in the plan. One company is comprised solely of collectively bargained employees and the other is a Canadian company where all employees are Canadian citizens.

Plan sponsor uses a standardized prototype, which has check boxes for these statutory exclusions.

Unfortunately these checkboxes were left un-checked in the adoption agreement. The plan document is being restated to another standardized prototype (provided by new investment carrier). Is it OK to check the statutory exclusion boxes in the new document? Or is this an illegal cut-back of rights, benefits and features?

Thanks for any help.

Please forgive me for posting this question twice but I really need some help!

Facts: Company A acquired the stock of company B and the two are in a parent-sub relationship (Company A is parent, company B is subsidiary). Both company A and B have their own 401(k) plans.

Question: After the stock acquisition took place, can company B terminate its own 401(k)? Or, would a termination be a sort of "de facto" merger of the two plans?

Follow up questions:

(1) What if company A acquired less than 80% of company B's stock? Does that avoid the required aggregation rules such that company B can now terminate its own plan?

(2) What if company B has an ESOP that owns 30% of company B's stock and company A owns the other 70%. Does the ESOP prevent the application of the required aggregation rules thus allowing company B to terminate the 401(k) without it being a defacto merger of the plans?

Thank you very much for your assistance.

Charles Griffin

Raleigh, NC

Facts: Company A acquired the stock of company B and the two are in a parent-sub relationship (Company A is parent, company B is subsidiary). Both company A and B have their own 401(k) plans.

Question: After the stock acquisition took place, can company B terminate its own 401(k)? Or, would a termination be a sort of "de facto" merger of the two plans?

Follow up questions:

(1) What if company A acquired less than 80% of company B's stock? Does that avoid the required aggregation rules such that company B can now terminate its own plan?

(2) What if company B has an ESOP that owns 30% of company B's stock and company A owns the other 70%. Does the ESOP prevent the application of the required aggregation rules thus allowing company B to terminate the 401(k) without it being a defacto merger of the plans?

Thank you very much for your assistance.

Charles Griffin

Raleigh, NC

I have a client who has a 401(k) plan with a 25% match on the 1st 6% for all employees. We were discussing the advantages of a Cross-Tested P/S. He asked if this formula could be used for the match. For example have two groups, HCEs and NHCEs, where the NHCEs continued to receive the 25% match but the HCEs received 50% (or 100%) on the 1st 6%. Is something like this possible and could it get approval?

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We self-fund our general health and retiree health plans. The regs. under Sec. 9801 define "group health plan" to include plans that cover former employees. Is the small employer exemption (has "fewer than 2 participants who are current employees")under the temp. regs. for Sec. 9831 which defines "group health plans" applicable to retiree plans that have no participants who are current employees or am I reading this too literally? Would the 2 plans have to be considered as one plan thereby making the exemption inapplicable?

Where can I find a listing of the average amount/coverage (health, dental, life, vision, 401K, education, vacation, sick time, personal time, etc.) that an employer typically offers to its employees as a benefit?

This question relates to a cash balance plan but is asked also in relation to DB plans in general. Following default on a plan loan without a distributable event (hence a deemed distribution), must the plan continue to charge the same interest rate on the outstanding balance as applied prior to the default? It would be administratively preferable to reduce the interest rate, following the default, to a level equal to the amount that the plan is paying on the loan balance (e.g., from 8% down to 5%), otherwise the higher interest rate gradually erodes the account balance. It would seem that the interest rate reduction would not be tantamount to an actual distribution because the participant retains the right to repay the loan at any time.

Any comments or conjecture on the Service's likely take on the issue would be appreciated.

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In a 401(k) plan, how often do you need to send the eligible employees a copy of the prospectus. (Background) Currently we send them when the EE first beomes eligible and every time the employee makes a trade on the account. Also they are available through a automated phone request system. Any help would be appreciated.

On termination or resignation of the IRA Custodian, "Article VIII" of an IRA Prototype document provides, "...(if) Depositor or Sponsor, as the case may be, has not appointed a successor which has accepted such appointment, Termination of the Custodial Account shall be effected by distributing all assets thereof in a single sum in cash or kind to Depositor, ...."

QUESTION: Is this legal? It appears to be a very harsh provision and perhaps a breach of fiduciary duties. Does anyone have documentation defending or challenging the document language?

Thanks,

Stan Jacobson

The Arizona Supreme Court ruled Tuesday (May 25) that companies may not unilaterally change provisions of their employee handbooks without the approval of covered employees and without compensating them for any entitlements they may lose.

The decision could require Arizona companies to honor provisions of old handbooks, though they have been replaced by more current policies. It could prompt businesses to retroactively get employee sign-offs on past changes and somehow compensate them for the changes.

"It creates a profound distincentive for employers to communicate openly and in writing with their employees," noted John Alari Doran, a Phoenix attorney who represented ITT Corp., the defendant in the case.

According to Doran, the decision affests employee handbooks issued prior to 1996 when the Arizona Employment Security Act specifically stated that, unless otherwise designated, employment policy manuals do not constitute employment contracts. But, Doran noted the state's top court is now weighing the constitutionality of the act, and if it is thrown out, all handbooks could be subject to the ruling.

Especially affected by this week's ruling are provisions in the handbooks that could be argued to grant an employee some kind of entitlement, such as vacation and holiday pay, medical benefits, sick time o other perks. "Employers will have to revisit how handbooks are written, what is contained in them and how they communicate with their employees," Doran said. Many may simply elect to do away with them.

The case, known as Demasse vs. ITT Corp., involves six employees, including Roger Demasse, who worked for ITT in the Phoenix area from the 1960's until they were laid off about 1993, Doran said. The employees claimed they were illegally fired because provisions in th ecompany handbooks, dating from the time of their initial employment, outlined a seniourity system under which layoffs would occur.

"These people believed the longer they stayed with the company, the more secure their jobs were," said Jack Levine, a Phoenix attorney representing the workers. "As a result, the didn't look for other work or take advantage of employment offers or other openiings elsewhere in the company."

By the time the employees wee furloughed, the company had done away with the seniority protection in the event of a layoff and the policy had been eliminated from subsequent editions of the company's employee handbook. The employees argued that the handbooks at the time they were hired relfected contractual terms of their empoyment which they never agreed to change and therefore were still in place at the time they were fired.

In 1994, the U.S. District Court for Arizona ruled that employers could change the conditions of employment outlined in their handbooks at any time without the approval of the employees and dismissed the case. Levine appealed to the 9th U.S. Circuit Court of Appeals in 1996 and the case was remanded to the Arizona Supreme Court for a determination. The case was argued in October.

The top court disagreed with the decision of the district court and concluded in the 3 to 2 ruling that the employment provisions in handbooks can represent binding contracts and cannot be unilaterally altered without the employees' consent and an offer of compensation to make up for any lost entitlement.

"It holds an employer to a handbook that was published 30 years ago when there were different methods of production, different rules of competition and different wasy of doing busines," Doran said. "And the only way to change it is to engage in one-on-one with each employee in the company."

Justice Frederick Martone, a dissenter, added the ruling "will create havoc with employer-employee relations" by subjecting employers to different obligations to different employees and by setting up potential conflicts between employees covered by different versions of a handbook. Not all handbook provisions can be considered binding as contract terms, Levine added.

"It's got to be something that would make the reasonable person rely on it," he said.

Justices Stanley Feldman, Thomas Zlaket and James Moeler (now retired) supported the decision with Charles Jones and Martone dissenting.

(Reported in The Arizona Republic, May 27, 1999 by Max Jarman, with contributions by The Associated Press)