g8r

I agree with your comments regarding the user fee exemption. I wasn't trying to get into the details. Rathe I was just trying to point out that some plans are exempt and it might be a factor in deciding whether or not to submit. As far as the amendment to change a plan provision after you update for GUST, I just don't know. I can make some compelling arguments that the amendment doesn't destroy reliance, assuming the language in the amendment uses the same language that was in the approved volume submitter. I certainly think that should be the correct answer. My concern is that I think the stakes are higher when you're dealing with GUST updates. I'm not as concerned post GUST - I'm sure on an IRS audit you'll have no problem; likewise if you attempt to use EPCRS. I'd be shocked if some IRS agent picked up on this. But, the IRS will actively be looking for late amenders and I'd want to make absolutely sure I don't have a problem. Yes, I think's it ridiculous to restate to change the effective date of a pre-approved plan provision. I may end up contacting the IRS to see if we can get this issue clarified (before 9/30).

FYI, they did meet late last month but no decisions have been made. Based on an ABC (American Benefits Council) brief, the focus is on ERISA pre-emption. I think the NC Bar realizes they opened up a can of worms and the process on this has slowed down significantly. Although, the NC bar marches to its own beat - I heard they are the only state requiring that attorneys be present at real estate closings. I don't think we'll hear more for many months. The discussion on what is or isn't the "impermissible" practice of law is certainly interesting. The problem with NC is their position is very broad in that it would prohibit things such as the completion of a prototype adoption agreement. If you go through an adoption agreement, you'll see that most items have nothing to do with the interpretation of the law. For example, whether to allow loans or require 1 YOS or something less. Many of those have to do with administrative issues - and most attorneys aren't in a position to provide advice on how to handle these in operation. But ....... eventually you may get to the question of "name of trustee." Everyone focuses on the tax law and being able to practice before the IRS. But who's advising the employer about the ERISA issues (e.g., fiduciary issues). Certainly being enrolled to practice before the IRS doesn't qualify you to advise an employer about ERISA issues. And these days, that's becoming a fairly big concern. What really makes all of this interesting is the conflict that many of us have. Many of us want compliance with the rules (you constantly hear about those takeover cases where someone sold a plan to an employer and had no idea what they were doing). Requiring that attorneys be involved in the process might solve that problem. Of course if that were to happen, there would be fewer plans to worry about. At this point I think attorneys are out of the picture for small plans. It would destroy the establishment of plans due to the costs. But, I think many of you would agree that there is a big gap as far as advice being provided to employers, particularly when it comes to ERISA issues. I certainly don't have a solution. But, the DOL project of providing an employer fiduciary handbook is certainly a start in the right direction.

There is no procedure. You are doing the right thing by sending a certified letter. And, I believe that under Rev. Proc. 2000-20, you need to keep the employer on your list for 3 more years. After that, you drop them from the list. The real concern I'd have is liability with the employer -- not what the IRS will do if you don't follow the Rev. Proc. Sure, the IRS could revoke your prototype letters. But I think that's unlikely to happen. Again, the bigger concern is the employer that misses the deadline and blames your firm. That's why I always suggest that you send a certified letter.

I haven't decided if I'm in favor of status quo or the staggered remedial amendment period. While the thought of restating 1/5 of all plans each year isn't wonderful, the alternative is crunch time trying to get all plans restated at once. For many people that has been a tremendous burden. By doing 1/5 each year, you might be able to get a "groove in your swing" and the process might be smoother and not tie up as much of your resources. The idea of staggered dates doesn't alarm me. Then again, I think there are so many details that need to be worked out on this that I'm not sure it's really viable. And, if you don't like the staggered approach, you're probably not wild about the annual amendment approach (to the extent we aren't already in that mode).

Before commenting, the safest course of action is .... if in doubt, submit. Particularly if doing GUST restatements. Since the GUST extended deadline requires submission if no reliance, I would be very conservative. Also, for small plans established after 1990 there are no user fees so the only cost is the time involved in preparing the submission. There is some debate about what destroys reliance in a volume submitter plan. I've heard the IRS state numerous times -- "any" change destroys reliance. I was on a conference call where the issue of "typos" was discussed. Some of those decision makers in D.C. (you can probably guess who they are) said correcting a typo destroys reliance. If there is a typo in the volume submitter, then the IRS in Cincinnatti will work with you to get it corrected as part of the approved volume submitter. As far as other modifications, especially the effective dates, I would again have to err on the side of being conservative. Even though you use the approved language, adding a lead to state that a particular provision is effective as of X date could be construed as a modification. While it seems that doing the plan without modifications gets you past the GUST update, if you later do a short amendment and destroy reliance, you then have to decide whether to submit for a DL in order to use some of the EPCRS correction programs or to have bankruptcy protection. The stakes aren't as high as GUST restatement, but you still have to deal with the issue. I've argued with the IRS about minor changes. My personal opinion is that changes to the language should be permitted without destroying reliance. I think the IRS could provide reliance on everything other than the modification. It would then be up to the practitioner to decide whether to take the risk of not submitting the plan to obtain reliance on the modification. Clearly there are really minor changes (such as fixing a typo) that a practioner would be willing to make. To require a submission in this case is a waste of resources for both the IRS and the practitioner. But then, that's just my opinion, and the IRS obviously hasn't bought into this yet. But, there's still hope .....

Yes, that person is now a non-key employee and is disregarded in determining whether the plan is top-heavy.

There is actually some dispute over this issue. Some people (e.g., papogi) take the position that only amounts subject to the cash election are taken into account in running the 25% concentration test. The argument is that amounts not subject to a cash election aren't really part of the 125 plan. The other argument is that all the premiums are taken into account. The support for this is that you get no benefit from the cafeteria plan if you didn't take into account the employer subsidy. In other words, by reducing your pay through the 125 plan, you get the benefit of having coverage. Thus, the full value of the coverage (the employee portion plus the employer portion) is taken into account. Similarly, people who take this position also think that if there is an employer subsidy for spousal or dependent coverage, the employer subsidy is taken into account if someone elects spousal or dependent coverage. I know that Harry Becker at the IRS has takes this latter position. Ultimately it is gray and it's hard to say if either position is more beneficial to the employer. It really depends on the facts. So, you need to take a position and apply it consistently.

Interesting issue. I know this provision is numerous prototype and volume submitter plans. While that doesn't make it right, to the extent an employer has reliance on the opinion or notification letter, the employer is protected. I think that due to legislative changes, you can at least make an argument that the revenue ruling no longer applies. The ruling relies on the fact that a profit sharing plan must be established for sharing in profits of the employer. Since the law has changed, that position is no longer true. Of course, that's just an argument. The best position is the first point I made -- reliance on the terms of the plan means it is O.K. with respect to that plan.

Disagree about what? Whether they are trying to get him to come back or whether it's a good if he does come back? Whether they are trying to get him to come back is a rumour that I had heard, so I can't comment on that. But, whether it would good if he returns is subjective and I have no doubt that some people don't want him to return. My personal opinion (which is irrelevant) is that it would be good if he returns. While many of us disagree with some of his opinions, at least he was willing to give an opinion. He's extremely intelligent, has a passion for what he does and his opinions are generally not off the cuff (i.e., most are well reasoned). Yes, there are times where an opinion seems off the cuff and not well reasoned. But, he is a known quantity. Without him, you'll either have the sole opinion of Jim Holland or you won't get any opinion at all. It's not for us to decide, so we'll just have to move on and see what happens ...

This is the ultimate dream for many small employers. If you find a way to pull this one off, you'll be able to retire. You can't do what you want. Without going on into detail, you must first pass 410(b). Since the second plan only covers HCEs, you will have to combine it with the 401(k) plan to pass coverage. When you combine plans for 410(b), you must combine them for 401(a)(4). The NHCEs have no non-elective contribution, therefore you must give them the gateway, or more if needed to pass nondiscrimination.

Obviously, there is some dispute over this one. While I think it qualifies as a medical expense, I'm not the one who has to make that final decision. However, I strongly disagree with GBurn's comment that the fact that an insurance company won't reimburse the remote control "says volumes to me." To me, that's totally irrelevant. There are many things my general health plan won't cover (e.g., dental care, experimental procedures, etc.). It's a contract - not a statement as to what's a deductible medical expense. Thus, what the insurance "contract" covers doesn't mean a thing to me.

It's true that he left. Rumour has it that they are trying to get him to come back. Rumours are bad - but I hope this one is true and that they are successful.

Sounds like things are getting a little heated. On the initial question, clearly it's a matter of plan design as to whether rollovers will be accepted. On the employee/consultant issue, I agree with everything Mike stated. Under the code, a plan must be for the exclusive benefit of employees. While the regs elaborate on this (such as permitting beneficiaries on death), there is generally nothing out there permitting a non-employee (i.e., an independent contractor or consultant) to participate. In fact, the IRS revenue ruling on PEOs is based on this. The only way to have non-employees to participate is to have the actual employer of this individual adopt the plan, therby creating a multiple employer plan under IRC 413©. As Mike pointed out there may be very, very limited exceptions (such as the provision in the IRC treating full-time life insurance salespeople as employees - I don't know why they only carve out life insurance but that's what the law provides). I also agree that most plans contain "microsoft language." Certainly all of the GUST approved non-standardized prototypes and volume submitter plans I've seen contain the langauge. The language is based on the fact that you can exclude anyone you want as long as you pass coverage. Thus, I can write a plan to exclude anyone that I designate as an independent contractor (even if the IRS or a court ultimately determine that the person is a common law employee). It's better to deal with a potential 410b coverage problem than an absolute claim for retroactive benefits should a person be re-classified as a common law employee.

I think you're taking the right step - which is documenting that employees were informed about the plan and declined, in writing, to participate. I always joke that with an ADP/ACP safe harbor matching plan, you should hold enrollment meetings at 5:00 on Friday and don't serve food. Of course if none of the NHCEs participate, I'd be concerned (as you are) about the IRS challenging this. And, the only challenge would be as to whether employees were informed about the plan and whether they had the opportunity to defer. Documenting this up front is very prudent.

The long and short of it is that there is no answer. Eventually you'll get replies from various people indicating what they've done, but the IRS and DOL haven't agreed that any of the methods are acceptable. Then again, I haven't heard of anyone having any problems with the IRS or DOL. First, I'd go the extra step of hiring a company that specializes in locating lost participants. They aren't expensive and are fairly successful. If you really can't locate someone, first check the document. Some plans provide that you can forfeit the account of lost participants or that you can let the amounts escheat under state law. If the plan is silent, below are some alternatives. I've heard some people argue that there are ERISA issues with any of these because the money isn't being invested. Of course, the DOL is silent and unless it's a large plan, it's unlikely anyone will bring a cause of action for small amounts. But, that doesn't make it right. 1. Escheat to the state (even if the plan doesn't permit it, the IRC 411 regulations state that escheating it to the state doesn't violate the vesting rules. 2. Send 100% to the IRS as withholding. 3. Rollover the amount to an IRA. It may be difficult, if not impossible, finding an IRA custodian willing to accept this without the signature of the participant so this may not be practical. Maybe once the DOL issues regulations dealing with automatic rollovers for amounts over $1,000 more institutions will be willing to open these IRAs. 4. My favorite, get a cashier's check, mail it the last known address and don't put a return address on the envelope. Just kidding! But, it would certainly be fun to try this one. There have been letters written to the IRS and DOL requesting guidance and there has been legislation proposed permitting the PBGC to accept amounts from DC plans. But, no guidance has been issued to date.

Not to beat this to death, but I agree that as long as one trustee agrees to serve as trustee you have a valid plan. If there is another trustee named but that trustee doesn't sign a document (either on the adoption agreement or a separate acceptance document) agreeing to serve as trustee, then that person or entity is not a trustee. The bottom line is the designee must formally agree to serve as trustee. However, once you have multiple trustees (i.e., more than one has been appointed and formally agreed to serve as trustee), then you need to look to the trust provisions (whether a separate trust or a trust within the plan) to see if there are provisions dealing with signatures. Many plans provide that a majority of trustees must agree to the action being taken, but that one or more have the power to sign on behalf of the others. I don't know that I'd want someone signing on my behalf (but that's a different story). One final point regarding a prior comment. When using a prototype, the current IRS position is that you can only use a separate trust if that separate trust has specifically been approved for use with that prototype. Thus, if you use a separate trust that hasn't been approved for use with the prototype, you have an individually designed plan. This is the IRS interpretation of Rev. Proc. 2000-20 (and is the same interpretation they had of the predecessors - rev. proc. 89-9 and rev. proc. 89-13).

Unfortunately I typically go onto this site from my home and I don't have the regs here (either I need to get a life or a copy of the code and regs for my home). But, the risk shifting is only due in part to the restrictions on changing elections (this shifts the risk to the employee). But, for employee risk shifting, it also includes the inability to carryover amounts from one year to the next. Thus, the employee generally is tied to the election for the full year and forfeits anything not spent. For the employer, the risk shifting is due to the fact that the full amount must available through the period of coverage. Here the employer may be required to reimburse the full annual election and may not be able to recoup the full employee contribution (if, for example, the employee were to quit). There are numerous ways people try to avoid the risk shifting - especially to the employer - but that's another story.

I would reimburse it. As mbozek pointed out, I don't think convenience is a factor. Look at the practical side of this - exactly how do you determine what "convenience" is and do you really want to put yourself in the position of making that determination. I'm sure the IRS doesn't (and can't) make such a determination. How many of you would use a similar analysis for an electric wheelchair? I don't know how wheelchairs are itemized, but if there are separate itemized costs for an electric motor or control device for a wheelchair vs. a manual one, would you deny that claim? Or, would you only allow it if a person had limited use of the arms? The point is that for virtually all medical equipment or treatment, I could probably find a lower cost and claim that any payment over this lowest cost is for "convenience" and therefore not reimbursable. If the remote control can only be used for the hearing aid, then it's for medical equipment and I see no reason, logically or legally, to deny it. But, that's just my opinion.

Not to open a can of worms here, but there is a distinction between drugs and non-drugs. For drugs, the drug cannot be one that can be obtained over the counter. Thus, even if a Dr. prescribes it, it's not reimbursable. For example, ibuprofin can be obtained over the counter. If a Dr. prescribes a high dosage ibuprofin pill, it's not reimbursable even though the higher dosage horse size pill can only be obtained with a prescription. The reason is because the drug itself can be obtained over the counter. The reason for this IRS position is because of the wording in IRC 213. Having stated that, many TPAs don't bother looking for this when processing claims. Anything other than drugs is subject to the "but for" test (this was how an IRS representative described the test). "But for" a specific medical condition, would the item (e.g., therapy, swimming pool, electric toothbrush, I even heard of a claim for a breast pump) be necessary. This is a very subjective test and I think the majority of TPAs would find something in writing from a Dr. sufficient to reimburse the claim.

You need to be careful on how you handle this one. I'm at home and don't have the cite handy, but there is an old DOL opinion letter stating that whether or not a plan is funded might depend on the perception that the plan participants have. Thus, if the participants receive reimbursements on a check that has the TPA's name on it, they might have the perception that the plan is funded (i.e., that benefits aren't being paid from the employer's general assets). Likewise, if the check is issued in the name of XYZ Employer Cafeteria Plan, there could be a perception that a separate fund has been established. However, if the employer creates a separate bank account but in no way identifies it as an account established specifically for the plan then I think you'd be safe. Fortunately, I have not heard of the DOL actually attempting to apply this standard. But, the opinion letter is still valid and you're better off playing it safe if you can work it out with the TPA.

I think you should also look at Rev. Rul. 2002-27. The situation was one where employees were "automatically enrolled" in the health coverage and could only elect cash if they "certified" that they had other health coverage. I put the two items in " "s b/c it's not clear whether these are material to the revenue ruling. In particular, the fact that the employer only relied on employee certifications and didn't collect it's own information about whether someone had other coverage was rather interesting (and confusing to me). But, the IRS held that the arrangement was not covered by IRC 125. Thus, you don't need a cafeteria plan in order for the employees who don't get cash to have an exclusion from income. However, because many people think that is a cafeteria plan, the IRS allows you to treat the amounts paid for insurance as "deemed 125 compensation" for qualified plan purposes. Clearly those who elect cash pay taxes and those who don't have the other coverage (and can't get cash) don't have an inclusion in income for federal tax purposes.