QDROphile

The plan does not have to allow the employee to make changes even if the law allows, so the issue can be avoided if the employer chooses, or managed according to what the employer wants to accomplish. If you are asking about what to do at this moment, follow the plan terms.

Why over NRA? Why not after age 70 1/2?

I did not respond directly to the question of prohibited transactions. I am not doing so now either. If the plan owns the majority of the LLC interests, and the LLC is treated as a partnership, would not the real property owned by the LLC be treated as a plan asset under the ERISA plan asset rules? If the real property is a plan asset, the lease of the property to the plan sponsor would be a transaction between the plan and a disqualfied person. You might not even get by the purchase of LLC interests by the plan, but I have not trudged through the analysis.

A participant is a fiduciary for purposes of section 4975 when the participant directs 401(k) account even though not a fiduciary under ERISA. Flaherty's Arden Bowl, Inc. v. Commissioner, 115 T.C. 269 (2000).

No employee is being excluded. The employee can choose coverage. What is happening is that if the employee wants domestic partner coverage, the employee has to choose to get coverage by means other than through the cafeteria plan (after tax). There is is no discrimination with respect to eligibility.

Maybe no 410(b) failure if new hires are the right mix of HCEs and non HCEs.

I don't see the word "stock" anywhere in section 4975©(1), so I don't see how you can conclude that if stock is not involved, there can be no prohibited transaction. You have to go through the exercise. Start with whether or not the nonprofit is a disqualified person. If not, the more interesting questions probably come from 4975 ©(1)(E) and (F). Those provisions depend very heavily on the specific circumstances. You can't get any help unless you provide a lot more information. The only thing that we can know for sure is the the IRA owner is a fiduciary for purposes of the statute. The nonprofit has its own restrictions on transactions with related parties.

Cafeteria plans are subject to a utilization test, section 125(b)(2), but you would have to have a small company or extreme selection to fail. I don't see how you can fail eligibility requirements. Every employee can have the same pre-tax benefits. There is room for agument about what it takes to "benefit" under the plan, but I don't think the eligibility test is actually a utilization test. If you can identify the third test, maybe someone will comment on it. The fourth test is not a cafeteria plan test. The fourth test is a professional responsibility test. If your client is expecting you to advise on this issue, what are you going to do to provide adequate advice? What if you got four responses and all said it was OK because they do it? Would you put your client on the line on that basis? Or would you act only on a negative stopper?

If the plan was a qualified retirement plan, the surviving spouse is the beneficiary by law unless the spouse consents to designation of a different beneficiary. It does not matter what the actual designation was before or after the marriage. If the spouse does not consent to naming someone else, the spouse gets the benefits upon the participant's death. Once the benefits pass to the spouse, they would not revert to the participant's line unless the spouse arranged for it and the plan allowed it. I don't see much prospect for a different result, but you should not rely on any comments you get from a forum like this one. One more thought. You should have received something more informative than a rabid response when you contacted the plan administrator, if it appeared that the inquiry was from heirs or designated beneficiaries. Ignorant lawyers do not necessarily make the best inquiries.

If your HSA contribution was through a cafeteria plan, you did not make the contribution. You elected to reduce you pay in exchange for your employer's contribution. Your W-2 pay was reduced by the amount you elected, that is why you do not pay tax on the amount -- it is not income to you. You never got it. The employer's contribution is not added to your income. Whether or not you pay taxes eventually depends on the HSA rules about qualifying expenses. The information and disclosure about these types of plans often refer to employee contributions because that is the easiest way for employees to look at their reductions from gross pay. But that is not the reality from the tax perspective. Reality is relative in this case.

OK, now I would like to see some reference to Harry Beker's comments in a prior post in this thread. If you are going to take an unconventional position, please do a better job of presenting it. Or perhaps I have such a blind spot I cannot even see words on the page.

What you want to see first are the terms that provide for past service to be recognized. The regulations under section 401(a)(4) of the tax code address imputed sevice credit.

JSimmons: I did not see any prior explanation that supports propriety of collecting amounts for the portion of the year after termination of employement and coverage. I saw an unsupported assertion to that effect and I saw more arguments against, with citation to authority against. Perhaps you could explain and clarify what you claim is possible and compliant.

Maybe I overrreacted, but I am sick of administrative service providers who are not responsible for compliance requiring an employer or a plan to "prove" that some action is acceptable. Why should Company A have to provide you with anything about Company B's plan? Did anyone ask you to advise about a particular issue? It looked to me like uwarranted interference and needless make-work. But perhaps I read too much into the words of the inquiry.

Yes. Butt out.

There are coverage and discrimination rules; some are similar and some are not. They vary by benefit.

You can run a 401(k)plan through a cafeteria plan, but the differences in administration between the retirement and welfare benefits are so different that is it easy to see how one could create confusion and not so easy to see advantages. It is easier for employees to see them as two different things. Unless someone can run you through both sides of the proposition and convince you of a net advantage, don't do it. If the main arguments are a single plan and single plan document, you are listening to someone who is blowing smoke.

You missed the point. The individual is using IRA and plan assets to finance a business in which he has a personal interest OUTSIDE OF THE PLAN. Therefore, he is using plan assets to benefit the business which is also a benefit to his personal interest. It does not have to go to this degree, but what if the individual could not start the business with only the money that individual has outside of the IRA? He would be providing for a personal benefit (starting the business, which, among other things, will pay him a salary) with the IRA assets. Enabling his 5% share of ownership (which would not be possible without the 95% ownership of the plan) outside the plan also provides a personal benefit. What would you say about an independent fiduciary (not related to any plan particpant) who used plan assets to do the same thing -- start a business in which the fiduciary would have a personal ownership interest and pay the fiduciary a salary? It is not so much about the 95% as it is about the 5%.

Bird is most likeley correct. It is too difficult to be using adjusted numbers because they move around, as you have demonstrated. Also, the person who makes the election will find it difficult to predict the outcome. The most important factor for design is that the participant can make an election that produces the intended result. It would also be nice if the plan administrator had a clue about what was going on, since the adminstraor has to impelement the instructions. Does your administrator drive at night with headlights off?

IRC section 4975( c)(1) (E) and (F) are likely suspects. Read Flaherty's Arden Bowl, Inc. v. Commissioner, 115 T.C. 269, for good measure. I suspect the owner will also be an employee, which will seal the analysis. Would his source of information like to sell him anythng, perchance?

SHaddon: I don't think you understand. The cafeteria plan election is not changed and the employee's compensation is still reduced by the same amount. The cafeteria plan does not perceive any change, so no violation occurs. The insurance company sees a change. Less coverage, less premium, assuming that the policy allows mid-year disenrollment. The employer benefits to the extent of the reduced premium. You may be used to the cafeteria plan as the vehicle for health plan coverage election, but the health coverage election is not actually part of a section 125 plan. The section 125 aspect is only concerned with the salary reduction election.

Quite the contrary. It is a matter of plan administration and communication, not law. Your election could be in terms of the Gross Domestic Product. The formula simply produces an amount of deferral and can have whatever elements and meanings that the plan or plan administrator assigns. Of course, it would be helpful if the person making the election understood the terms and the effect of the election that uses the terms. Always carefully check the plan document to see what it says. Start with the definition of compensation.

You cannot have a rollover without a distribution event. A rollover is a disposition of a distribution. A move from one entity to another within a controlled group is not a termination of employment.

I am going to duck after adding one more question to the mix because a plan in the situation you describe, or any plan in a similar situation, needs expert advice. Suppose a participant (or a class of participants) has some reason to be unhappy with the participant's deferrals. Let's say the plan had a year of negative investment return. The standard remedy for violation of registration is rescission and penalty interest. What happens if the participant (or the class action lawyer) knows the law and asserts rescission rights?

Read the regulation yourself (not the one about investment education) and see if you want to engage a broker with the level of reading comprehension that your broker has displayed. Or perhaps it is not a reading problem, perhaps is is a professional integrity and resposibility problem. One of the problems with being misled is that fiduciaries must be bonded. If you don't identify fiduciaries, you won't comply with the bonding requirements. Another way to look at it is that the broker is using the disclaimer to define what the broker will do. By saying that the broker is not a fiduciary, the broker may be saying that, despite the apparent description of services in the contract, the broker really won't be providing any services described in the regulation. What services do you think you are getting?