Peter Gulia

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?

I don't have a doubt about what the law requires; rather, I'm wondering how widespread the noncompliance is. What's our guess about how many trustee/administrators don't know that they're obligated to do this?

When a retirement plan's trust (not the employer) pays the plan's service provider - such as an actuary, a certified public accountant, or a lawyer, does the plan's trustee or administrator issue a Form 1099-MISC to tax-report the amount paid to each service provider?

Belgarath and jpod, thank you for the helpful further observations.

I do not recall any court decision or administrative-law document that explicitly analyzes whether a pursuit of improving the plan's purchasing power is within the exclusive-benefit concept. That's why I ask what BenefitsLink maven think.

GMK, it's feasible to pursue the idea without asking the employer to spend money because the plan enjoys the services of an investment adviser and an employee-benefits lawyer, both of whom contribute their time without fee. Do you think there is a prohibited transaction if the credit is applied only to a participant's account under the plan, and the participant is not a fiduciary (and also not anyone who could decide anything for the plan's sponsor)?

David Rigby, I didn't mean anything in particular by "persuades", and because I sought to focus on the exclusive-benefit question, I didn't want to get into the proposed details about exactly what facts and conditions would get the credit. mphs77, all of the participants are non-highly-compensated employees, and among them none is an officer or even a supervisor. ESOP Guy, for those participants who get neither the credit nor the value of starting retirement savings, is there an argument that increasing participation will, over time, increase the plan's asset size, which could get the plan more purchasing power, enabling it to buy superior investments or less-expensive services? jpod, would there be a nondiscrimination issue if only non-highly-compensated employees can get the credit?

An employer maintains a retirement plan that allows non-highly-compensated employees to make elective contributions. These contributions are by affirmative election. The employer is unwilling to provide any automatic-contribution arrangement. The plan provides no nonelective or matching contribution. Although the plan has no difficulty with any coverage or non-discrimination test, the employer’s human-resources people want to “do something” to urge more employees to choose retirement savings. But whatever is to be done must involve no work time of the HR people, and must not ask the employer to spend any money. The plan’s trust has a plan-expenses reserve that resulted from mutual funds paying shareholder-servicing, 12b-1, and revenue-sharing fees in amounts greater than the recordkeeper’s fees. The HR chief would like to use this trust subaccount to add a credit, perhaps $48, to the plan account of a participant who persuades his or her coworker to make elective contributions. The plan and its trust each includes a provision, following Internal Revenue Code § 401(a)(2), that the plan’s assets must not be “used for, or diverted to, purposes other than for the exclusive benefit of [the employer’s] employees or their beneficiaries[.]” What are the arguments for and against using the plan-expenses reserve to provide the proposed credit?

Does the idea that some States measure income by following or adapting a Federal measure return your analysis to evaluating how the Federal tax returns and information returns affect whether a deduction or a non-recognition of income is valid?

Yes. But (as long as the loan, when made, is "adequate secured" by a provision to adjust the participant's account) neither ERISA's 408b-1 rule nor the tax Code's 1.72(p)-1 rule requires a showing that the participant has the means to repay the loan. If the plan allows a participant loan in these circumstances, shouldn't the employer set payroll to take as much of the amortized repayment amount as can be taken from each period's pay without failing to withhold required wage and withholding tax amounts, even if this results in a net paycheck of $0.00 or $0.01? Will the hardship claim arrive a few weeks later?

What do BenefitsLink mavens think about writing the plan documents so that - for any participant that meets the prohibited-transaction exemption of ERISA 408(b)(1) and the tax-treatment conditions of Internal Revenue Code 72(p) - taking a participant loan is solely on the participant's direction with every fiduciary lacking discretion and bound to follow a proper direction. If those are the plan's provisions, doesn't a fiduciary get the ERISA 404© defense?

Among other concerns under Federal and State laws (including laws regulating the business of insurance), a nongovernmental and nonchurch employer might want its lawyer's advice about whether receiving compensation of the kind the originating post describes might or might not result in the employer receiving "consideration" (described in 29 C.F.R. 2510.3-1(j)(4)) such that an arrangement the employer intended as not a plan governed by ERISA might be a plan governed by ERISA.

The Internal Revenue Service announced a new correction program under which a preapproved documents sponsor may cleanse many users failures to adopt the document. https://www.irs.gov/Retirement-Plans/New-Program-Allows-Providers-of-Pre-Approved-Plan-to-Correct-Missed-Deadlines If a document sponsor has only 20 plans to cleanse, the minimum fee of $10,000 averages to $500 per plan, which is the VCP fee for a super-micro plan. But if a recordkeeper has 10,000 plans to cleanse, the maximum fee of $50,000 averages to $5 per plan. What do BenefitsLink mavens think about this?

Thank you both for your help. The chart on the webpage GMK points to suggests that an application on Form 5307 has the lowest priority in getting assigned to a specialist.

In mid-September 2015, a lawyer received a form letter confirming that the IRS had received her client's application, on Form 5307, for a determination. (The plan has modest variations from an approved volume-submitter document.) The IRS's letter states: "You may normally expect to hear from us within 145 days." Is 145 days normal or realistic? Now that more than 200 days has elapsed (without any further communication), should the lawyer contact the IRS? Or should the lawyer wait until something more like a year has elapsed? I'd appreciate your sharing of experiences and suggestions.

GBurns, thank you; your thinking is greatly valuable to me.

A New Jersey small-group health insurance contracts says an employee is a full-time employee if his or her normal workweek is at least 25 hours. The employer would prefer to make eligible only those employees that Internal Revenue Code § 4980H would require the employer, if it were a large employer, to treat as a full-time employee (generally, 30 hours per week). May the employer consider the insurance contract as the insurer’s obligation for what the insurer must cover (if applied for), but not necessarily a constraint on the employer’s choice of whom to make eligible under the employer’s ERISA-governed health plan? (Assume the difference between 30 and 25 hours a week would not result in less than 75% enrollment of those employees the insurance contract defines as full-time employees.) Is there anything that binds the employer to offer health coverage to those whom the insurance contract describes as full-time employees?

If it gets to examination, a typical IRS examiner won't like arguments of the kind I described above. But the ideas can help in a few ways: If an employer won't do a correction, a lawyer's memo might help the employer take tax-return reporting positions assuming the plan remains tax-qualified. If something is examined, reliance on the lawyer's memo might support a defense that the employer did not knowingly or recklessly file a false tax return. Even if the IRS's examiner and her supervisor don't like the story, it might be enough that the difficulties, expenses, and hazards of a dispute motive a supervisor to close the situation with a negotiated sanction smaller than what otherwise might have been. Of course, it helps if the facts are better than those you described.

I missed a word in post 7; it should refer to considering whether a time limit is reasonable under ERISA sections 413 and 503. The evaluation also should consider whether the communication and the procedures are reasonable. Nowadays, a paystub often takes the form of an automated e-mail. Perhaps a notice of the kind GMK alludes to (which a panel of First Circuit judges considered necessary in particular circumstances) could be included in payroll's e-mail.