E as in ERISA

I presume the member's income tax returns are extended to 10/15? The 1065 isn't necessarily an "income tax return" -- the deduction will flow through to the members on their income tax returns.

Are you sure its an "F," not a "C" -- as in CoreSource (a Trustmark company)?

I was responding to Brent Rowell, who indicated he wasn't aware of any cases on this. I was trying to indicate the IRS' practice, which may not be documented anywhere. My point is that the employer should only have limited responsibility with respect to certain 403(B) arrangements that are not ERISA plans (if the employer is merely facilitating the salary reduction, then its responsibility should be limited to correctly withholding taxes). But the IRS seems to have an expectation that the employer is monitoring a variety of other operational aspects (potentially including distributions). So no matter what kind of 403(B) arrangement I had, I would want to take some care to make sure that the service provider is doing a good job. That said, my understanding is that T/C does a good job.

Maybe the plan administrator means to say that the 403(B) arrangement doesn't need to be audited... !

I think that its not clear b/c: Tax treatment of LLCs as corporations under the check-the-box rules is an IRS issue. The definition of employer securities for purposes of ESOPs is primarily an ERISA issue.

I don't think that there are any cases on this. The IRS is conducting examinations of many 403(B) arrangements, including many in cases where the employer is not considered the sponsor of the plan. The IRS could be limited in its ability to obtain corrective action at the employer level in those cases (e.g., it may be primarily a payroll tax issue). However, the employers help take corrective action, because the alternative is that the IRS will go to each employee and treat the monies as taxable. It is my understanding that TIAA/CREF is very helpful to employers and has a lot of tools to help them keep the arrangements in compliance.

My understanding is that, although the employer technically has limited if any responsibility for a 403(B) arrangement in which its only involvement is payroll deduction, the IRS expects the employer to monitor the arrangement. It can "enforce" this expectation by auditing all your employees' individual tax returns if the employer disclaims all responsibility.

My understanding is that the accounting office of the DOL has indicated that a CPA firm can perform recordkeeping and still do an audit. The audit is performed at the plan level on the trust financial statements; whereas recordkeeping is mostly a matter of participant records. I'm not sure how the issue of participant testing is addressed. And, of course, it depends on what services are actually performed.

My understanding is that, if the plan allows it, 401(k) deferrals may be taken out of severance paid at or soon after termination of employment. (Most employees get their last check after their termination date). However, if the severance is paid over a period of time, then 401(k) deferrals cannot be taken out.

The VEBA is the funding mechanism for the plan. The VEBA is a tax exempt entity under 501©(9). The employer's deductions are subject to the 419 rules on funding. And the related plan is subject to applicable rules for that type of plan. See the IRS' training on VEBAs at http://www.irs.gov/pub/irs-utl/lesson5.pdf. I have only seen VEBAs set up as trusts (I believe that it must be some form of legal entity in order to obtain tax exemption). There should be a trust document for the VEBA. ERISA will generally require a plan document for any welfare benefits. Section 419 requires separate accounts for key employees.

Mbozek alluded to this.... it's always been my understanding that by the end of the corporate fiscal year, you should always have something setting out the formula or amount of the contribution for the year in writing (plan document, board resolution, authorization by some other party to whom board has delegated responsibility).

I'd be concerned that it would disqualify the entire arrangement, since by definition all participants in a cafeteria plan must be employees.

I would guess that two of the main investment objectives of a VEBA are to protect the money against losses and to have sufficient liquidity (no long term growth objective like in a retirement plan). I've seen some VEBAs that invest in non-interest bearing accounts, so that they can keep funding levels up without having to worry about UBTI.

No.

The 5500 for a plan merging in February is generally due in September. That's been my understanding for so long -- I don't have documentation anymore. I can't remember if there are specific regs or rulings. The 5500 instructions provide a special exception for plans that are terminating -- i.e., you use the date of distribution not legal date of termination. But there is no special rule for mergers -- so you actually use the date that legally is the end of the plan year. The plan documents should support that conclusion. The plan that is merged 2/1/02 ceases to exist on that date from a legal standpoint (and hopefully both the plan and trust documents give control to the plan and trust into which it is merging on that date -- otherwise you are in a grey area). I'm pretty certain of my answer. There has been a lot of discussion about whether a plan that merges on 1/1 has to have a one day audit and file a one day 5500. It was my understanding that for a long time Ian Dingwall at the DOL was very adamant that the one day audit and 5500 were required, but that he possibly has a non-enforcement policy at this time. But the point is that wouldn't be an issue if you didn't use the merger date.

I agree with R. Butler. If A owns 100% of B, you don't look at the ownership of A. The interests of the individuals only come into play if there is another company, Z, in which the individuals own interests and you are trying to determine if Z is part of the group as a brother-sister. If A and B are subchapter C corporations, ask the accountant if they are filing a consolidated return or sharing tax attributes for filing purposes. That should help confirm the answer. If they are flow-through entities, then that analysis will not answer your question.

There are a lot less "privacy" rules in regard to employment than people would generally think. And the rules vary widely state to state. The one area where there are more rules is in relation to "medical information." I think that relates more to actual health information, but you might try posting your question on the HIPAA board to see if those experts can help you.

I would make sure they get all their ducks in order: (a) determine who he wants to be the sponsor of the plan, (B) determine if the employees are paid by that sponsor, and, if not, make sure that entity is also an adopting employer of the plan, © make sure the plan, SPD, etc. identify the sponsor (and any adopting employers), and that they have signed on as such, (d) make sure the IRS has allowed him to re-assign an EIN to another legal entity (???), (e) make sure that the EIN of the sponsor (and any adopting employers) are properly identified in the SPD (and possibly the plan), etc., etc. etc. Once everything is properly documented, then you can figure out who to put on the 5500.

If there is no per se prohibition against hiring the brother-in-law as a service provider for the plan, the owner should still the same due diligence that he would in hiring any service provider (e.g., obtain info on several different providers; analyze the information -- including services, fees, etc.; make an informed decision; and document how he decided that was the best service provider).

If the cafeteria arrangement is not an ERISA plan (e.g., premium only and no health fsa), then it is not subject to the ERISA SPD requirement.

A "wrap" plan is usually used to minimize audits and Form 5500 reporting. Otherwise each plan with assets in the trust has to be audited separately. The "wrap" doesn't necessarily make it a 125 arrangement. Is there anything in the document other than the statement that it is intended to be a Section 125 arrangement? There should be separate "plan" provisions -- describing eligibility (everyone should generally be eligible and), which coverages the participant may choose among (e.g., some do not include LTD in a 125 plan -- but that appears N/A here), how employees make and change elections, etc. It should be clear whether employees can buy coverage outside the Section 125 arrangement (e.g., whether they can buy medical coverage on a month by month basis so that they can opt out at any time).

Leveraged ESOPs are being targeted for audit by the DOL (not just those refinancing). They are finding problems with loan documents....

The legal date of the merger is generally the ending date for the single employer plan (as opposed to the date that the assets in that trust go to zero like in a plan termination). But that is not a hard and fast rule. It depends on whether the both the plan and trust documents are properly amended, so that the new plan and trust control at that date. Then you must file within 7 months of the month in which that merger occurs.

I don't believe there is much clarity in this area. Under Reg. Sec. 1.414©-2(B)(2)(i)©, only the profits and capital interests of a partnership are considered in determining whether it is under common control. "Voting" appears to have no impact. But I've struggled with similar situations.

See also the IRS' new Revenue Ruling at 2002-43, where a disqualified person borrowed money from the plan. They took the money out, instead of putting the money in late -- but the result is the same in that it's a prohibited transaction involving a loan. It just came out and is at http://www.benefitslink.com/IRS/revrul2002-43.pdf