Peter Gulia

Thank you for the further perspective. Perhaps the SEC might answer the lobbyists' call for symmetry by requiring a broker-dealer that advises a "retail" investor to state a legally enforceable obligation to provide advice in the investor's best interest.

A friend guessed that for anyone who hasn't yet accumulated the first $1 million in investments, the portion beyond tax-favored accounts is no more than 5%. Is he wrong?

How common is it for an IRS-approved prototype or volume-submitter document to restrict a user plan's investments to those of the document sponsor and its affiliates? Which providers do it this way?

"The plan does not offer an early retirement provision." Under the plan's provisions, does severance-from-employment alone entitle the participant to a distribution?

When opponents of the Labor department’s investment-advice fiduciary rule still were trying to delay the rulemaking, one of the arguments was that the Labor department shouldn’t set standards for “retirement” investment advice until the Securities and Exchange Commission had set standards generally for a broker-dealer’s investment advice, including for advice about accounts beyond those for which the Labor department’s interpretive powers has a legal effect. Once the Labor department’s rule takes effect (in about 3½ weeks), that point is over. But the SEC still has on its agenda considering a rulemaking that could set some new standards for a broker-dealer’s advice to a retail customer. How much is left for the SEC to do? Perhaps it’s biased by who my friends and neighbors are, but I sense that while many people have investments under employment-based retirement plans, Individual Retirement Accounts, Archer Medical Savings Accounts, Health Savings Accounts, and Coverdell Education Savings Accounts – all of which the Labor department’s rule applies to, few have significant investments outside those forms. Is my guess right? Is your experience different? What’s your guess about the portion of the population with investments beyond the tax-favored accounts named above (and § 529 plans, which have some investment-advice regulation by other means)? Is there survey evidence or an economist’s study on this?

GBurns and hr for me, thank you for the further information.

If you presentation remarks on ambiguities, here's another: Schedule I part II line 4g asks "Did the plan hold any assets whose current value was neither readily determinable on an established market nor set by an independent third party appraiser?" If the answer is Yes (and none of the exceptions applies), the instructions say: "Enter in the amount column the fair market value of the assets referred to on line 4g[.]" Is the amount to be reported the sum of the end-of-year values? Or is it the highest values during the year? If it's end-of-year and the plan disposed of all of the 4g assets before the year's close, does one report the amount as $0.00?

For Schedule C's line 2 element ©, the text on the Schedule and the instruction [page 27] refer to a relationship to the plan's sponsor, an employer, an employee organization, or another party-in-interest. The instruction gives four examples of relationships: (i) employee of employer, (ii) vice-president of employer, (iii) union officer, and (iv) affiliate of plan recordkeeper. Each of those examples refers to a relationship that exists separately from the fact of providing a service to or regarding the employee-benefit plan. I recently reviewed a Schedule C in which this element's reporting on the custodian, investment manager, accountant, lawyer, and recordkeeper all were "none".

Effen, what do you think about the letter's explanation that assuming one average entry age is not sufficiently sensitive to the purpose of the evaluation? ESOP Guy, although lowering pensions might conserve some cash flow, even the maximum benefit suspensions that can be allowed might not lead to a projection that the plan would return to the degree of normalcy that the Multiemployer Pension Reform Act of 2014 requires as a condition for approving a benefit suspension. The challenge for the Central States Pension Fund is to discern whether there is any configuration of benefits, contributions, and withdrawal liability that would avoid the plan's insolvency.

In the U.S. Treasury Secretary's denial of Central States Pension Fund's application to allow benefit suspensions, special master Kenneth Feinberg cited some actuarial practice standards, and found weaknesses in some of the application's assumptions. https://www.treasury.gov/services/Responses2/Central%20States%20Notification%20Letter.pdf

Thanks, everyone, for your good help. The "refund" or return is under a combination of an administrative-services-only arrangement and a stop-loss insurance contract under which the employer/insured pays upfront amounts that pretend that a year's claims would reach the point at which the stop-loss insurance starts paying. If the experience is better than that "maximum liability", the employer gets a return of the employer's money the ASO held as the employer's agent. In the real world, does an employer separately account for how participant contributions are used to assure that none of that amount is used for a purpose beyond paying the health plan's benefits and administration expenses?

Some further guidance is in a recent ERISA Advisory Opinion. https://www.dol.gov/ebsa/pdf/AO2015-02A.pdf

About point 2 (in my earlier post and your most recent), in my experience what the ministers want (and the church wants to help happen) is that the payer's 1099 reporting will display not only the gross amount paid but also a lower taxable amount - to make the minister's tax-return preparation easier and tidier. When I represented the payer/tax-reporter, it would play along if it got satisfactory indemnification from an entity with plenty of money. The letter ruling one might seek would not be about whether something is excludable as a parsonage allowance; rather, you'd ask the IRS to confirm that an otherwise available tax treatment (whatever it is) does not become undone merely because the obligation was transferred from the pension plan to the annuity insurer.

Flyboyjohn (and others), does Chaz's description about participant contributions lead us to revisit the analysis? Does it matter whether the participant contribution was specified only as a particular amount (with the employer stuck with the all-else), or instead as a percentage of the "cost" of a specified health coverage?

Kevin C, I'm not sure, but I suspect the church plan's fiduciaries might want your advice on at least these questions: 1) On plan termination, can the church governing body or authority and the plan's fiduciaries resolve a designation of the amounts or portions of the periodic payments that are treated as parsonage allowance so that this designation will last for decades? 2) Can the plan's fiduciaries negotiate with the annuity insurer for tax-reporting that supports a participant's exclusions from income? (If the pension plan ends, what person or entity with enough steady money will indemnify the insurer for its reliance on the parsonage instruction?) The ideal is to get an Internal Revenue Service letter ruling on all points. But given a small plan with few participants, the people involved might prefer not to spend the plan's or the church's money on that procedure. Alternatively, they might spend a little money on lawyering to get the insurer/payer comfortable.

Thank you for the good reminder. Just curious, what consequences did the small church bear?

Flyboyjohn, thank you for the further thought.

Thank you for the further help.

Thank you for your help. There is a plan document (which states that it also is the summary plan description), an administrative-services agreement, and a stop-loss insurance contract. And the service provider furnished summaries of benefit coverage, each of which states that the coverage is not insurance. Why does the fact that participants paid a contribution entitle them to a portion of an adjustment between the employer and its stop-loss insurer?

An employer maintains an ERISA-governed group health plan. An employee pays a cafeteria plan’s salary-reduction contribution toward the employer’s cost for the employee’s health coverage. There is no trust. The plan uses no group health insurance contract; every benefit is paid from the employer’s general assets. The employer uses an “ASO” service provider to serve as the plan’s claims administrator. An affiliate of that service provider provides a stop-loss insurance contract. The employer pays upfront amounts described as its maximum liability. If the experience for a year (after some set-asides, including fees, stop-loss premium, an incurred-but-not-received reserve, and some further margins) is more favorable to the employer than what invokes the maximum liability, the service provider returns money to the employer. The people who advise the employer are familiar with ERISA Technical Release 2011-04, which includes a little guidance about whether employees might be entitled to some portion of a health insurer’s rebate. Those advisors disagree about whether employees are entitled to a portion of this “rebate” from an arrangement that involves no group health insurance. • One believes the employees should get a portion that approximates the ratio of the participant contributions to the whole “cost” of the health coverage. • Another believes the self-funding adjustment is wholly the employer’s property, and nothing should be allocated to participants or employees. Who is right? And what reasoning supports the conclusion?

Does the IRS's recent publication of procedures for correcting a failure to adopt "by the April 30, 2016 Deadline" suggest that someone in the IRS thought about the section 7503 point? https://www.irs.gov/Retirement-Plans/VCP-Submission-Kit-Failure-to-adopt-a-new-Pre-Approved-Defined-Contribution-Plan-by-the-April-30-2016-Deadline Or is it equally plausible that the IRS published that guidance without saying whether the date is April 30 or May 2?

Thanks!

Is it ever possible that an employer met all of its ERISA and Internal Revenue Code funding obligations to a single-employer defined-benefit pension plan (including as of the most recent required contribution date), and yet the plan lacks sufficient assets to pay currently due benefits? If it is possible, what circumstances would cause this?

Mike Preston, thank you for the perspective. Your observation about professional-services firms' honesty as taxpayers is how I first saw this issue years ago (and thought about it yesterday). I've seen business tax returns in which substantially all of the declared receipts had not been 1099-reported. And big businesses too miss this.

The rule on reporting nonemployee compensation refers not only to payments to an individual natural person but also to payments to a partnership (including a limited-liability company treated as a partnership). These are kinds of business organizations often used by professional-services firms. Further, the general rule for not being required to report a payment to a corporation has some exceptions; these include payments to lawyers. How often do we see a 5500 that reports payments to accountants and lawyers but no 1099-MISC on any of those payments?