Lori Friedman

I'm a big fan of the PPC Deskbook binders. They provide very thorough information in a clear, easy-to-read format.

"Now I Can Die in Peace", the story of the 2004 Red Sox, by Bill Simmons. "Mind Game", about how the Red Sox won the World Series, by Steve Goldman. "Why Not Us?", all about the 86-year journey to redemption, by Leigh Montvile. "Blood Feud: The Red Sox, Yankees, and the Struggle of Good versus Evil", by Bill Nowlin. Seriously, now that I've had my fun, here's my real answer: my husband is my inspiration. He spends every day of his life saving children's lives. Whenever I need to be inspired, I just think about him and all the things that he accomplishes.

So you're asking about a self-insured health benefit arrangement? (Forgive me if I seem dense. I'm just trying to make sure I understand your questions.)

And to think, I've been buying all of my insurance products from Ned Ryerson. I should be shopping around for competitive prices. But, I guess there really isn't any "competition" out there after all, because Ned is unique...an industry unto himself.

I'm not familiar with the 15%/$50,000 numbers, but aren't you asking about a cafeteria plan medical FSA? If yes, nothing in I.R.C. Sec. 105, which governs medical FSAs, sets a specific annual limit. The maximum election is a matter for the plan sponsor to determine. There are several cautions against setting a very high election limit: 1. If the plan covers key employees or HCEs, a very high amount can cause nondiscrimination problems under both the cafeteria plan rules and I.R.C. Sec. 105(h). 2. The entire elected amount must be available throughout the period of coverage. An employee can receive a huge reimbursement early in the year and then quit. 3. Well-intended employees might elect enormous amounts that they end up losing at year-end. What amount is reasonable? What amount is too high? Again, that's for the sponsor to decide.

A final Form 990 for the exempt organization.

I just received some Schedule A information that includes a page of "Supplemental Compensation Data". Certain amounts ("additional compensation paid") are provided for non-cash compensation, incentive plan payouts, and other items allocated to the policy and attributed to a broker and/or agent. Is anyone familiar? My initial thought is that "additional compensation paid" is just something extra to report on Schedule A, Line 2. But, the amounts are neither commissions nor fees, so they don't fit neatly into the form. Any thoughts?

The Department of Labor has backed off from its position and given us another "reprieve" this year. Contrary to the 2004 Schedule SSA instructions, it's ok to use a non-standard list attachment. If you call the EBSA helpdesk, you'll get verbal confirmation that the 2004 instructions won't be enforced. As an alternative, have you considered using the EFAST Electronic Filing System? You can import Schedule SSA data into a return and then file paperless.

The 80/120 small/large issue is irrelevant if there's no filing requirement for the plan.

In general, there's no longer a filing requirement. You might want to read Notice 2002-24, which suspended the Form 5500, Schedule F filing requirement for "specified fringe benefit plans" described in I.R.C. Sec. 6039D(d)(1) (which include Sec. 125 plans). These plans had been filing Form 5500 for the sole purpose of remitting Schedule F; when Schedule F disappeared, there was no longer any reason for the plans to file Form 5500. But, if ERISA requires a fringe benefit plan to file Form 5500 because it's also an welfare benefit plan, the IRS suspension doesn't apply. Confusing enough? The IRS Notice provides a much better explanation than my own feeble attempt.

Schedule C requires us to list "service providers", but the form's instructions don't define the term. I believe that Schedule C is for reporting services to the plan, not to the participants. For example, a plan that offers employee legal service benefits will report its own attorney's fees, but not the expense of providing legal service benefits to plan participants. And, how broad is the term "service"? Do you include the janitorial company that cleans the plan's office suite every night? What about the caterer who serves food at enrollment fairs? Is Schedule C limited to reporting only "professional" services?

When 401(k) elective deferrals are included in a Sec. 125 plan, don't they become subject to yet another level of nondiscrimination rules?

The credit is scheduled to expire for any year beginning after December 31, 2010.

Quint, you just took a really cheap shot at Ned Ryerson. I'm sure he's outraged.

It's extremely common for a 403(b) arrangement to exist in tandem with a qualified plan. This is how an employer can maintain the non-ERISA characteristics of the 403(b) arrangement yet still provide retirement plan contributions for its employees -- make the employer contributions to a separate, parallel 401(a) plan. But...I've never seen the two plans created by one document. That would be mixing the "apples and oranges" of a qualified plan and another type of arrangement that exists under different law. As for a common trust document...how could this happen, when 403(b)'s don't use trusts?

It's the ultimate gift -- and not the structure of the reward program -- that's relevant. As you know, your gift may have unintended tax consequences for your employee. Although certain gifts are nontaxable, many job-related gifts are considered to be taxable employee compensation, fully subject to withholding and payroll taxes and reported on Form W-2. Your generosity goes much further if you provide gifts that are excluded from taxation. I have some detailed information about different types of gifts. Rather than post an enormous message here at the board, I'll contact you by email.

tinaud54, Have you tried digging around in the Department of Labor website or calling the DOL? I'm sure that DOL would have some very current statistics about multiemployer plans.

Hi, Kirk. It's nice to hear from you. Janet's right...a facelift. I thought that the term was widespread, but it might be common just in D.C. and vicinity. Not that you need one, but maybe your alumnus status would give you a special discount?

I'd like to argue that the normal aging process is a disfiguring disease. That way, a Georgetown Lobotomy, which I'll probably want to have someday, would be deductible.

Lori, It might be a good idea to make sure that the employee has a full understanding of the 457(b) caveat -- all contributions and earning will be general assets of the organization, subject to creditors' claims, and can't be segregated into a trust. The individual may not have a problem with this issue, but he should certainly be aware of it. Yours, Another Lori

I can't make up my mind about this one. Under I.R.C. Sec. 213(d)(9)(A), a cosmetic procedure is deductible if it ameliorates a deformity arising from: (1) congenital abnormality (2) injury resulting from an accident or trauma, or (3) disfiguring disease. Isn't severe acne a disfiguring disease? If so, a procedure to remove the resulting scars should be tax deductible. I haven't been able to find any PLRs that address this question. It might be fair to compare the procedure to breast reconstruction after a mastectomy, which is certainly deductible. The reconstruction, itself, doesn't cure a medical condition, but it does correct a disfigurement caused by an illness or disease.

Is there any chance that this plan comprises participant-directed brokerage accounts?

Teri, Unlike your first question, your second question has a clear answer. Lump-sum payments are taxable in the nation of origin. If a U.K. resident receives a lump-sum distribution from a U.S. plan, the distribution will be taxed by the U.S. Periodic payments are treated very differently -- they're taxable only by the recipient's resident nation at the time of distribution. Your U.K. resident client would be subject to U.K. tax on periodic payments and exempt from U.S. taxation. You might find it helpful to take a look at the U.S.-U.K. tax treaty. I also recommend IRS Publication 515, which provides a list of tax treaties and some very helpful tables of information.

Do you report aggregate groups of employees, rather than individual employees by name, on Schedule C? One of my clients has a legal opinion recommending this approach. The opinion is based on information provided by two DOL employees who spoke at a pension/benefits conference. Both of the DOL employees said that Schedule C's purpose is to report significant payments to service providers, not to list such very personal information on a publicly-disclosed document. Conference attendees were instructed to take employees with reportable compensation, lump them together in broad categories such as "administrative" or "executive", and report the aggregate amounts on Schedule C. The Schedule C instructions certainly don't suggest this approach. In fact, the instructions say to use the employer's EIN (rather than individual social security numbers) when reporting employee compensation; this instruction suggests that each employee gets reported separately. And, since when is DOL so concerned about confidentiality? Form LM-2, another publicly-disclosed DOL form, reports some very explicity information about employee compensation. On the other hand, the IRS prepares the Schedule C instructions, and the DOL could have a very different postion. Has anyone else encountered this issue?

This is an unresolved matter, and you'll get different answers from different sources. Under the terms of the U.S.-U.K. tax treaty (signed 07/24/01 and ratified 03/01/03), a transfer between "personal pension schemes", including a rollover, isn't taxable. It's unclear, however, whether this language permits a nontaxable rollover between a U.S. plan and a U.K. plan. One opinion is that a 401(k) plan isn't a "qualified plan" in the U.K. and, therefore, that 401(k) assets can't be rolled into a U.K. pension scheme. Other people take the position that the treaty language authorizes nontaxable transfers between U.S. and U.K. plans.