katieinny

A company has retained a large investment firm to provide plan services. Part of the package includes investment advice. However, some participants would rather use the services of local firms. Therefore, the employer has requested proposals from some local investment firms to provide investment advice only. Employees would not be able to invest plan assets with these firms. They will probably end up hiring 2 local firms for employees to chose from (other than the big firm where the assets are currently held). Employees have the option of paying for the service out of pocket or with their plan assets. Does anyone see a problem with this type of arrangement? What if a participant gets bad advice from one of the local advisors? Since the employer hired the local firm, does that increase the company's liability if a participant's investments take a nose dive? Would it be better if the company does not participate in hiring any local firms, but tells participants who want the advice of a local firm that it's up to them to go out on their own and pay for their services out of pocket?

A company has retained a large investment firm to provide plan services. Part of the package includes investment advice. However, some participants would rather use the services of local firms. Therefore, the employer has requested proposals from some local investment firms to provide investment advise only. Employees would not be able to invest plan assets with these firms. They will probably end up hiring 2 local firms for employees to chose from (other than the big firm where the assets are currently held). Employees have the option of paying for the service out of pocket or with their plan assets. Does anyone see a problem with this type of arrangement? What if a participant gets bad advise from one of the local advisors? Since the employer hired the local firm, does that increase the company's liability if a participant's investments take a nose dive? Would it be better if the company does not participate in hiring any local firms, but tells participants who want the advice of a local firm that it's up to them to go out on their own and pay for their services out of pocket?

Employees are participating in the employer's Premium Only Plan. I understand that FICA should not be withheld from those salary deferrals, but what about FUTA?

mjb: I followed up on Kroop v. Rivlin and found the Great West case, too. Thank you for pointing me in the right direction.

The Trustees didn't see any rush. They felt they were acting responsibly by keeping the document up to date and 5500s filed -- and I'm not so sure they're wrong. That's more than some employers are doing. I just think the punishment should fit the crime.

A corporation dissolved in the mid 90s. The officers and Trustees of the corp are still around, so they've kept the plan going. It's been properly updated and 5500s have been filed. Nearly everyone has been paid out, but now the IRS is having a fit because, technically, there isn't a plan sponsor. They want to disqualify the trust and put them through the CAP program. Maybe I'm out in left field, but it seems to me that the IRS is overreacting. Why can't the Trustees be considered liquidating agents, acting as successors to the employer? Any thoughts from my peers?

mjb: We're talking about a large amount -- over $50,000. Because the money has been paid in installments, and went to more than one person, it would much more difficult to track than a lump sum payment.

Distributions were being made to a participant's beneficiaries for what was supposed to be a 10 year period. However, the checks kept going out for 2 years beyond the 10 year period before somebody discovered the error. Now the employer is asking for thousands of dollars back. Of course, the beneficiaries have been paying tax on it all along. I understand that the employer has a duty to restore the plan to where it should have been, and in a perfect world the beneficiaries would hand it over. But I have a feeling that in the majority of cases, the employer ends up making the plan whole. Does anyone have any real world experience with this type of situation?

RLL: Ahhh. That's what I was hoping somebody would say. This plan does allow diversification during the year, but the TPA is sticking with the 90 day rule.

tmills -- so, you agree with the TPA. If the participant doesn't make the election to diversify within the first 90 days of the plan year, he's missed the opportunity to diversify until the next plan year. I agree that the word "may" means that the participant isn't required to make such an election. Maybe if I understood what was behind the 90 day rule, it would make more sense. Why shouldn't a participant be able to make an election to diversify his plan assets in July, August and September just as well as in January, February and March?

This happens to be a public corporation, although I don't think that matters. I've read 401(a)(28)(B) and it's a bit ambiguous. It says a participant "....may elect within 90 days after the close of each plan year...." I think the argument could be made that a participant can make the election during the plan year -- but has up to 90 days after the plan year to make the election for the prior plan year. If it read "during the first 90 days of the plan year" I would be more convinced that the participant was limited to that period. The plan's TPA is restricting the election to only those first 90 days, and I'm just not convinced that they should be doing that.

An HCE is in the qualified election period and is able to diversify his plan holdings. A question has come up about whether or not he MUST make the election during the first 90 days of the plan year. Is he limited to that time period? If so, why is that the case?

I would agree, except that the employer isn't approaching us. It's the employee who was speculating about how he could keep his own PS plan going and came up with this idea that he's going to take back to his employer. The best we could do is write a letter to the employee about the risks his employer would be taking if he allowed such an arrangement.

Mike: Thanks for your reply. Sounds -- I guess the right word would be -- legitimate -- to me. Of course, I'm wondering if a small employer will take the time, effort and expense to check with their legal counsel before they agree to the arrangement, but that's not my problem.

A sole shareholder S-Corp guy isn't working on his own anymore. He got hired by a company, so he can't make any contributions to the profit sharing plan he had under the S-Corp. However, he's thinking of asking the company he works for to reduce his salary and give him a 1099 for some of the work he does for them. Then he wants to make deferrals into his employer's 401(k) plan and employer contributions to his own PS plan. It's a small company, and he thinks they will readily agree. However, I'm thinking either you're an employee or you're not -- you can't get a W-2 and a 1099 from the same company year after year. Maybe in a transition year, but not on an on-going basis. He thinks his duties can be easily divided into employee type work and independent contractor type work. Am I being too cautious? Then he wants to hire a NHCE (can't be a family member due to attribution), and include him or her in his PS plan to keep it protected from creditors. Seems like a lot of jumping through hoops to me, but maybe I'm just getting lazy in my old age. What do you all think?

I was pretty well convinced that the 10% penalty couldn't be waived either, but I kept reading under IRC 4971 and finally came to Section (f)(4). So even though the Rev Proc doesn't address it, we're going to try under this Section.

I can find references to making application to have the 4971(b) (100%) excise tax waived for an underfunded pension plan, but I don't see anything about applying to have the 4971(a) (10%) excise tax waived. Isn't that tax able to be waived?

At this point, the sole proprietor isn't interested in incorporating. So, it sounds like hiring his spouse and putting in a Health Reimbursement Plan isn't going to work as things stand right now. Thanks for your help.

I'm so confused about HRAs, HSAs, HDHPs and FSAs (just to name a few) that I don't know which end is up anymore. In this case, the sole proprietor, with no other employees, is thinking of hiring his wife. He's wondering if he can set up a Health Reimbursement Arrangement under 105(h). She would be the only participant, he would be her dependent. I shouldn't have brought up cafeteria plans, but to me, they're all part of the same soup. It seems likely that the HCEs regs that apply under 125 plans (as mentioned by jmor99) would apply here as well, but I've learned that what seems likely isn't always the case.

Everett: I just read through the information -- but it seems to deal with the spouse having health insurance and medical reimbursements under 105(b) -- but I'm wondering about medical expense reimbursements through a cafeteria plan under 105(h). Have you got another weblink up your sleeve?

Excellent! Thank you for pointing me in the right direction.

I know that a sole proprietor can't set up a medical expense reimbursement plan for himself, but what if he hires his spouse? Can he set up the plan for her to participate in?

This military man is already receiving his pension in the form of monthly checks, and not likely to be called back into active duty. I found that Title I of ERISA doesn't apply to govenment plans, so that's why I'm wondering what protects his benefits.

I'm wondering if general creditors would have access to a military man's retirement benefits.

If government plans aren't subject to ERISA, I suppose the state laws would determine to what extent there is protection from creditors. So a military person would look to his home state for the answer?