Lori Friedman

The answer is no, regardless of whether the FSA stands alone or is part of a cafeteria plan. Offered through a cafeteria plan - Sec. 125 participation is limited to the sponsor's current and former employees. Sec. 401©(1)(A), which provides that self-employed individuals are treated as "employees" for Sec. 401 purposes, doesn't extend to Sec. 125. It's clear that a partner can't benefit from a cafeteria plan, and a 2% S corporation owner is considered to be a "partner" for fringe benefit purposes [sec. 1372(a)(2)]. Offered outside of a cafeteria plan - Partners and 2% S corporation owners are ineligible because their medical and health care benefits aren't excludable under Sec. 105 or Sec. 106.

Yes, and it's time for us to begin annoying everyone again.

WDIK, my all-time favorite guide, the PPC 5500 Deskbook, does a great job of describing the rule: So, if a corporation has multiple shareholders but just one shareholder-employee, and if the retirement plan covers only that single shareholder-employee, the plan can't file a Form 5500-EZ.

If you read the 2005 Form 5500-EZ instructions (on page 1, "Who May File Form 5500-EZ"), partners are still very much eligible to use the form. I have no idea how the website's authors came to their conclusion. Good point, JanetM, about the "tax return" references. I also notice that the website refers to the IRS's filing rules; apparently, the author's are unaware that Form 5500 gets filed with the DOL.

Betsy, your question would have been much simpler to answer if you'd asked, "I have a Sec. 127 educational assistance program with over 100 participants. Do I have to file a Form 5500?". The answer would have been a clear and decisive "no". A Sec. 127 program is a pure fringe benefit plan, governed only by the IRS rules. It's not subject to DOL's filing requirements, regardless of the number of participants. Because you asked about a POP, however, you have a fringe benefit plan (IRS) that serves as a sort of "umbrella" over a welfare benefit plan (DOL). Your actual POP -- the Sec. 125 element -- doesn't file a Form 5500, but the underlying medical plan has to follow the DOL rules.

Publication 502 provides information about medical expenses that are deductible within the meaning of I.R.C. Sec. 213. Even though the costs of certain over-the-counter medications can now be reimbursed through a FSA, they remain nondeductible under Sec. 213. To the best of my knowledge, the IRS hasn't published a "laundry list" of reimbursable and nonreimbursable expenses. You might find it helpful to read Rev. Rul. 2003-102, which explains the IRS's position. Briefly, an over-the-counter product that prevents, alleviates, or cures an injury or sickness can be reimbursed; items purchased merely to benefit overall health (e.g. vitamins) are nonreimbursable. Have you done a general internet search for suggestions? Many FSA administration companies have posted their own lists of yes/no items. Such information isn't substantial authority for reliance, but it might help you get started.

Betsy, if you're feeling a bit confused by all of this, you have plenty of good company. I really like this language from the PPC 5500 Deskbook:

I respectfully disagree. The IRS doesn't require a filing. Betsy, it's best to think of the arrangment as 2 separate "animals": (1) a Sec. 125 plan and (2) the underlying welfare benefit plan. The Sec. 125 plan is a fringe benefit plan within the meaning of I.R.C. Sec. 6039D(d)(1), and its filing requirements are governed by the IRS. IRS Notice 2002-24 suspended the Form 5500 filing requirements for all types of fringe benefit plans. The medical insurance benefit, however, is a wefare benefit plan that's subject to the Department of Labor's rules. Unless the plan meets one of the filing exclusions, it's required to file a Form 5500. In summary: Sec. 125 plan -- no Form 5500 Medical benefit plan -- maybe, it depends

First, is the VEBA a trust? A VEBA's usually formed as a trust, but you'll sometimes run accross some that are corporations or unincorporated associations. If the VEBA is a trust, the plan has both "insurance" and "trust" as its funding and benefit arrangements. Second, there's no Schedule A for the VEBA. It's not an insurance product. Third, it's the plan, and not the VEBA, that files Form 5500. The VEBA is a tax-exempt organization that files Form 990. The plan's Form 5500, Schedule H (or Schedule I) reports all of the plan's financial information, whether the assets are held in a trust, or in custodial accounts, etc. Fourth, you've posted your question in the Cafeteria Plans forum. A cafeteria plan doesn't file Form 5500. The underlying welfare benefit plans, however, may be required to file.

A nanny is self-employed? How quickly can you say "Zoe Baird"?

Have you checked out the CPE classes offered by your state's CPA society? You might find some day-long sessions about 401(k) plans, ranging from beginner to advanced level.

No, the VEBA doesn't file Form 5500. As a 501©(9) exempt organization, it files Form 990. Yes, both the VEBA and the plans are audited -- 3 sets of financial statements. Each plan discloses its allocated interest in the trust assets and share of the investment income. Are you saying that if the VEBA isn't a DFE, each plan has an undivided interest in all of the trust's underlying assets? If a CCT or PSA doesn't elect to file Form 5500 as a DFE, its participating plans are required to break out and report their percentage interests in the underlying assets. Is there a different rule for a VEBA?

A VEBA serves as the funding medium for 2 welfare benefit plans sponsored by 1 employer. There are 3 entities in this arrangement: 1. VEBA (exempt organization) - Form 990 2. Plan 1 - Form 5500 3. Plan 2 - Form 5500 The assets for both plans are commingled in the VEBA trust and can't be divided or segregated. The asset values are allocated, on a fair and reasonable basis, for Form 5500 disclosure. Each plan reports its own interest in the trust's assets. The sponsor's attorney insists that each plan's Form 5500 should report all of the VEBA assets. He's saying that Form 5500 should, in effect, overstate each plan's assets to include everything held inthe trust. On a publicly-disclosed document, each plan would report misleading information about its resources, financial position, and ability to pay benefits. I need to put an end to this discussion, but I haven't come up with any substantial authority. Can anyone point me toward a DOL regulation, IRS instruction, or other cite to back up my position?

Yeah, you see that very frequently. Too many Form 5500 preparers mistakenly believe that anything other than an unqualified opinion is somehow "bad" and will taint the plan. In reality, a limited scope audit is a perfectly valid option with a much lower cost to the plan (or its sponsor).

MarZDoates, Don't you know that there are no stupid questions (except, of course, for the ones that I ask)?

The Form W-2 income is probably erroneous (unless former employees became LLC members during the year, which would legitimately explain the Form W-2 income), but you don't want to try to make the adjustment yourself. The adjustment will have a ripple effect throughout Schedule K. Bounce this one back to your client and let the LLC's accountant deal with it.

You might begin with a Roth IRA account at your bank. I know that my own bank doesn't charge any fees for my Roth IRA. The IRS's own language about Roth v. Traditional IRA's is very helpful. You can access Publication 590, Individual Retirement Arrangements (IRAs) at http://www.irs.gov/publications/p590/index.html.

Do you mean MENSA, that organization of would-be geniuses? How about you and I form DENSA, the organization for the rest of us?

Kurt, If my vote counts for anything, I love your wit and sense of humor...at this thread, and always.

9) Ask about Mike Preston's whereabouts http://benefitslink.com/boards/index.php?s...=28264&hl=AndyH

My humble opinion -- obtain an EIN for each qualified trust, and use the trusts' EINs to file Forms 945 and 1099-R. The trusts are the payors.

You mention that you're an automotive technician. Are you a member of a labor union? If yes, some unions have scholarship funds for the benefit of members and their dependents. You're participating at this message board, so we know that you have internet access. There are countless scholarship organizations out there, and probably quite a few that help people with physical disabilities. Have you tried searching on the internet for those sources of funding? Scholarship programs seek qualified applicants who meet specific criteria for selection. I wish you the best of luck. I hope things will work out for you.

If you put employer contributions into a 403(b) plan: 1. The plan immediately becomes subject to ERISA. The sponsor assumes all of the obligations and responsibillities imposed by ERISA. 2. Instead of simply acting as a conduit to withhold and remit salary reductions, the employer is required to administer the plan. While it's true that the Form 5500 is a pared-down version, and that there's no ADP or top-heavy testing, the sponsor picks up all the rest of the baggage and costs that come with plan administration. 3. Highly-paid employees lose the rather incredible benefit of a dual Sec. 415 limit. (Don't let anyone convince you that a 457(b) arrangement will achieve the same goal. 457(b) assets remain the property of the employer, fully subject to creditors' claims.) 4. In a non-ERISA plan, compliance problems are generally limited to individual participants and don't place the entire plan at risk. Not so for an ERISA plan. 5. The IRS won't provide a determination letter to give the ERISA plan a "stamp of approval". (NOTE: This may have changed with last year's 403(b) regulations.)

I don't think that mbozek is suggesting the use of a 401(k) plan. Mbozek's message makes no mention of 401(k), and I believe he's agreeing with my recommendation to pair a non-ERISA 403(b) plan with a money purchase pension plan. Every employee -- both HCEs and NHCEs -- can make salary contributions to 403(b) without regard to ADP testing. Why have the HCEs defer to a 401(k) plan and even bother with the additional headaches? Let the HCEs put their money in a 403(b) plan, which is never subject to the ADP test.

Randy began this thread by stating that the 2 employers have a parent-subsidiary relationship.