Lori Friedman

In general, Title I of ERISA applies to VEBAs. A VEBA is an employee welfare benefit plan that meets all of the statutory and regulatory requirements of I.R.C. Sec. 501©(9). ERISA's reporting and disclosure requirements, participation and vesting rules, minimum funding standards, and enforcement provisions affect VEBAs to varying degrees.

Is there any question about the Patriots' dominance? Tom Brady is a morphing chameleon. No matter what challenge he faces, he quickly adjusts, adapts, and prevails. (And I'm not saying this just because I grew up a few towns away from Foxborough.) Hey...it's almost time for the pitchers and catchers to report to spring training. Hooray!

Some years back, I completed the exams for the APA (Accredited Pension Administrator) credential offered by NIPA (National Institute of Pension Administrators). The program was extremely comprehensive and thorough (not to mention grueling, having to study for and pass 6 exams).

Isn't it amazing how many employers believe that elective differals and payroll tax withholdings can be used as a business's very own piggy bank?

If the individual is covered by 2 different plans, sponsored by 2 unrelated employers, each plan has its own Sec. 415 limitation. This situation is very common when someone has a regular job and is also the sole proprietor of a side business. The individual can be covered by his/her employer's plan and also benefit under a self-employment plan.

A corrective distribution isn't subject to the I.R.C. Sec. 72(t) early distribution tax, regardless of the participant's age. Depending on the timing of the taxable distribution, use Code 8 (taxable in 2004) or Code D (taxable in 2002) or Code P (taxable in 2003). There's a helpful discussion at pages R-3 and R-4 of the 2004 Form 1099 instructions.

Each individual gets just one Sec. 402(g) limit per year: $14,000 in 2005, with a $4,000 catchup addition for someone over the age of 50. The 401(k) elective deferral and the 403(b) salary reduction must be coordinated. Even if an employee participates in more than one plan, he/she can't get more than 1X the annual limit. If you're talking about the Sec. 415 annual addition limit, however, the answer is "it depends". If a 501©(3) employer pairs a non-ERISA 403(b) arrangement with a qualified plan, the employee gets 2 separate 415 limits. That isn't true, though, for an ERISA-covered 403(b) + a qualified plan.

The items covered by the annual additions limit are described in I.R.C. Sec. 415©(2): employer contributions, employee contributions (but not over-50 catch up amounts), and reallocated forfeitures.

Thank you, everyone, for your help. Andy...how nice to hear from you. I hope you're having a great New Year so far. I was absent from this message board for at least a month or so. I was preoccupied with the holidays, followed by my laser eye surgery in early January.

I think I'm missing something... The DBP can make expenditures to (1) provide benefits to plan participants and their beneficiaries and (2) pay the normal, reaonable costs of administering the plan. It can't pay out any interest, dividends, or whatever to some party that has made an "investment" in its assets.

Defined contribution plan - Profit sharing with a 401(k) provision. Actually, a short limitation period normally doesn't affect the dollar limit under a DBP. A particular year's contribution to a DBP isn't a factor in computing the plan's limit for the pension payable to any plan participant.

When there's a change in the end of the limitation year, the Sec. 415 limit is prorated for the resulting short year. This rule is very clearly described in Reg. Sec. 1.415-2(b)(4). But, I've never seen a similar rule for a short year resulting from plan termination. Example: A plan terminates on 03/31/05. Both the plan year and the limitation year are the calendar year. For this short, final year, does the plan get the full, 12-month Sec. 415 limit? Does it make any difference whether there's a successor plan? Any words of wisdom will be most appreciated.

Patrick, I think the problem is that most people simply aren't aware that I.R.C. Sec. 457 doesn't apply to church employees. It's a good thing when any professional -- broker, banker, attorney, CPA, etc. -- is even aware of Sec. 457 and its importance. Knowledge about the law's intracacies is even more unusual.

SLuskin, It looks as if we have concensus (actually, a somewhat rare event at his message board). The entire amount of each employee's election must be available at all times during the period of coverage. Presumably, someone could elect and use the full $75,000, even though the amount will exceed his/her compensation for the year.

Would anyone be willing to provide a sample notice for a 401(k) safe harbor? I'm talking about the participant notice that gets distributed at least 30 days (but no more than 90 days) before the beginning of a plan year. The plan satisfies the provisions of I.R.C. Sec. 416(g)(4)(H) and, therefore, isn't subject to top-heavy testing. Each year, the plan makes a 3% QNEC contribution for every NHCE. I'm trying to same time and avoid "reinventing the wheel" by having to draft the language myself. Any help will be much appreciated.

I believe that "Dolgoff Plan" is the proprietary name of a specific product, not a generic term for a type of retirement arrangement. There's a website called www.thedolgoffplan.com Ralph Dolgoff's own story is interesting. He's a former professional basketball player turned accountant, and he was instrumental in developing the American Basketball Association. Mr. Dolgoff created a long-term annuity retirement arrangement to help entice players to sign with ABA teams. That plan, or at least a descendent of it, still exists today.

Help! I've fallen and I can't get up. A VEBA provides some nonexcludable, taxable health and medical benefits -- coverage for domestic partners and other nondependents. It's very clear how to handle this situation for active employees. The benefits are Form W-2 compensation, fully subject to all payroll taxes and income tax witholding, and the FICA and FUTA wage bases are coordinated with the regular compensation paid by the common law employer. But, what about retired beneficiaries? What happens when a VEBA pays taxable benefits to someone who's retired? Even though the individual is treated as an "employee" for the purpose of excluding eligible health care benefits, the employer-employee relationship no longer exists. Do the benefits constitute wages? Does the VEBA report the taxable benefits reported on Form W-2 or on Form 1099? If the VEBA uses Form 1099, which version should it use (1099-R? 1099-MISC?)?

Kirk, Yes, there will be imputed income. The employee is taxed on fair market value of the coverage for a nonspouse/nondependent -- the amount that an individual would have to pay for the same benefit in an arm's-length transaction, as determined by all of the relevant and objective facts and circumstances. The employer's cost to provide the benefit isn't determinative. [Regs. Secs. 1.61-21(b)(1) - (2)] In P.L.R. 200108010, a provider used a reasonable estimate of the cost of providing coverage for the period of coverage for similarly situated beneficiaries, determined on an actuarial basis, under the COBRA premium rules of I.R.C. Sec. 4980B(f)(4)(b)(i). That approach was acceptable to the IRS. By the way, hooray for Massachusetts, home of the Superbowl and World Series trophies, beautiful beaches, civil liberties, and individual rights and freedom.

Jet352, You might find it helpful to read P.L.R. 200108010, which provides a lengthy discussion and a list of rulings about the federal tax consequences (both payroll tax and income tax) of benefits provided to an employee's domestic partner and the domestic partner's dependents.

Pata, Could you be confusing the SEP rules with the SIMPLE plan rules?

Under the DOL regulations [sec. 2520.104b-10(d)(4)], we add the following SAR language when it's applicable: I can't find any guidance about the definition of "total of all benefit claims paid". I'm guessing that this is the number found on Form 5500, Schedule A, Line 8b(1)? Any thoughts?

Andy, Long time, no hear-from. How've you been lately?

As other people have noted, the plan document dictates a participant's cut off date. Please see Reg. Sec. 1.125-2, Q&A 7(b)(3). The law permits a plan to: (1) cease coverage when an employee separates from service, or (2) continue coverage until the end of the plan's period of coverage, or (3) specify a time period in between termination and end of the plan's normal period of coverage (30 days, 60 days, etc.). Each plan is governed by its own document. Many plans cut off participation at the time of an employee's termination. Other plans, however, have a "grace" period after an employee's separation; coverage continues even though the individual isn't making any additional contributions to the plan.

Yes, a 501©(3) organization's ERISA 403(b) plan is required to distribute a Summary Annual Report. Just as the plan has limited reporting requirements for Form 5500, however, it also prepares a pared-down version of the SAR. Don't include the SAR section for "Basic Financial Statement". You don't fill in any of the blanks about plan assets, liabilities, revenue, and expenses. Those numbers are taken from Schedule H (or Schedule I), which isn't filed by a 403(b) plan. Also, there's no trust for 403(b) plan assets; the assets are held in annuity contracts and/or custodial accounts, and they're really not plan assets. If you do an internet search, you'll find numerous examples of SARs for 403(b) plans.

Performance will give you just 1/2 of the overall picture. You also need to get information about loads and fees. Too many custodial accounts charge exhorbitant amounts, all borne by the plan participants, that greatly diminish any investment earnings. You might begin by looking at the websites for some of the major 403(b) carriers. I know that we don't "name names" or endorse products at this website, so I'll leave it at that.