J Simmons

I think the sibling relationship raises more suspicions, will trigger closer scrutiny, and thus make more problematic any deficiencies there may be in the plan fidicuiary's duties imposed by 29 CFR §2550.408b-2. I would recommend against a plan fiduciary giving that contract out to his or her brother, in order to keep a lower profile for employee and DoL questioning.

I agree, per se. But I think it will raise suspicions and cause closer scrutiny by DoL should it ever inquire into the matter.

The PT exemption of IRC §4975(d)(2) and ERISA §408(b)(2) only goes so far as "reasonable compensation" paid from plan assets for services. 29 CFR §2550.408b-2 requires all plan fiduciaries involved in deciding what services to purchase and pay for with plan assets do some investigation and essentially, 'comparison shop' for what is 'reasonable', to fulfill their general fiduciary duty to only discharge their duties defraying "reasonable expenses" of operating the plan (29 USC §1104(a)(1)(A)(ii), the payment from the plan must be reasonable for the services. If 29 CFR §2550.408b-2 procedures have not been observed, what evidence will the plan fiduciary have to establish that the compensation paid to the brother was reasonable?

In these situations where 'services' are provided to the plan by a relative of an owner, paid out of plan assets, there is almost never compliance with 29 CFR §2550.408b-2. And that will make reliance on the PT exemption of IRC §4975(d)(2) and ERISA §408(b)(2) difficult to establish.

I agree with Belgarath re disqualified person/party in interest for PT purposes. However, I'd be very concerned about possible fiduciary violations unless the owner can prove that using the brother as the plan's investment advisor can clearly be shown to be in the best interests of the employees and other beneficiaries.

29 CFR §2560.503-1(b)(4) requires that the plan recognize a representative authorized by the employee for making claims and appeals, but permits the plan to impose reasonable procedures by which that authority must be established. As for assignment of benefits and standing in court, see Spectrum Health v Valley Trust Parts, 2008 WL2246048, 44 EBC 1715 (WD Mich 2008) and Belmont Cmty Hosp v IBEW Local Union No. 9 & Outside Contractors Health & Welfare Fund, 737 FSupp 1034, 12 EBC 1636 (ND Ill 1990).

I agree that Flyboyjohn's concerns should be investigated. The HR functions are likely 'management functions'. See pages 7-77 through 7-79 of www.irs.gov/pub/irs-tege/epchd704.pdf. 1. Daily business operations (such as production, sales, marketing, purchasing, and advertising), 2. Personnel (such as staffing, training, supervising, hiring and firing.), 3. Employee compensation and benefits (such as salaries and wages, paid vacations and holidays, life and health insurance, and pensions), 4. Short-range and long-range business planning (such as product development, budgeting, financing, expansion of operations, and capital investment), 5. Organizational structure and ownership (such as corporate formation, stock issues, dividends, mergers, and acquisitions), 6. Any other management activity or service, and 7. Management activities and services also include professional services that relate to services listed in ##1.-6. Barring some attribution of the 60% owned by the unrelated operator of each franchise (and if none of the franchises themselves are related--section 144(a)(3)-->section 267) then I think it would be an uphill battle for the IRS to succeed in claiming that the principal business of Back Office Co is performing management functions for 1 organization or 1 group of related organizations. The separate recipients of the management functions seems diffuse enough to belie the assertion that those performed for just 1 of the franchises is the principal business of Back Office Co.

Don't know the answer to how to get the document, but most employers that have had SARSEPs have held onto the ease and simplicity vis-a-vis a 401k plan. It's unfortunate that Congress doesn't allow new SARSEPs to be set up.

I think that Flyboyjohn's concern is worth considering, however the IRC has for years and years excluded 2%+ S corp shareholders from being "employees" for employee benefit purposes. Stock attribution also applies for tax reasons to the children, rendering them to be S corp shareholders too. However, ERISA Title I only excludes from the "employee" category the shareholders and their spouses, not the children. I think that until there's some specific pronouncement that shareholder/employees will be considered 'employees' for ACA '10 purposes and the restrictions it applies, the S corp could continue to pay for individual insurance premiums for coverage of the 2%+ S corp shareholders and spouses, but not the children. They're employees.

They could take the position that there's a document failure, and propose a CAP resolution. Last time I dealt with that situation (2003), the CAP fee was $3,000 per plan (client had two plans).

ERISA section 107 I think that the work papers and source information for f5500 reporting only needs to be kept for 6 years after this purpose. ERISA section 209 If you are purging (albeit after 6 years) plan documents, like the GUST restatement, how do you prove the benefits to which the employee is entitled?

Obamacare does not apply beyond providing health coverage/benefits to active employees. The 2% or greater S corp shareholder is under the IRC not considered an employee, but a self-employed person like a partner in a partnership. So, arguably the rulings under Obamacare prohibiting reimbursement of an employee's individual health insurance premiums would seem not to apply to a 2% or greater S corp shareholder.

More than 50% common ownership is the threshold. 267(b)(3) and (f)(1)(A). Since A and B, siblings (related for 267 purposes) own 70% of Z and 100% of the other 5 companies, they are lumped together, and per your facts, Mgtmt Co derives 65% of its gross from them (45% from Z and 20% from the other 5 companies). I think Mgtmt Co is snagged into a 414(m)(5) affiliated service group.

Under the particular plan, when does the child lose coverage by reason of turning age 26--on his or her birthday or at the end of the plan year in which he or she reaches age 26? Whichever, I believe, is the COBRA event. Give notice and election to the child at least 14 days before he or she will lose coverage. The plan might permit the child's coverage via the parent/employee to be continued, but it might not be tax free.

Hey, all that's at stake is the tax qualification of the entire plan. Surely helping the owner get some money out of the plan early to fix his swimming pool outweighs that, right?

I would lean towards denying the request. The house is yet inhabitable, I presume, despite the damage to the pool. The pool is a luxury. Just because it is on the lot (and within the curtilage) that the residence structure is, I don't think that snags it into 'hardship' territory.

Hey, Austin, Participant-directed investments is the gift that just keeps giving--one plan administration headache after another since 2007. The pooled-account approach with an investment committee making all investment decisions is now the more efficient plan design.

These days I often suggest merging the FBO accounts into a single, pooled investment account, and having an investment committee (appointed by the plan sponsor) take over all investment decisions, and follow and document their periodic meetings and discussion/votes on specific recommendations from a selected investment advisor. I think that there is less risk in this approach than the daily penalties potential avoided with quarterly statements required since 2007; and unless your fee disclosures for each account are up to snuff, then the plan officials would have no 404c protection anyway. Some employers have just pulled the trigger on this and continued the existing plan with the pooled account going forward. Others have terminated the plan that had the FBO accounts, and set up a profit sharing-only plan with pooled account for future benefit accruals, and will then add a 401k feature after 12 months. If timed right, no one really loses any elective deferral annual cap opportunity. Doing this allows the employees to continue directing the investment of benefits accrued under the old, terminated plan if they had their benefits under it rolled into an IRA. And they know going forward that as to future benefit accruals, they do not have that option--and do not feel as slighted because they are not losing the option of directing investments on previously deferred earnings. The brokerage houses have come up quite short in helping the plan sponsors meet these new regulatory requirements that attend to participant directed investment. So, rather than expose the plan sponsors to daily per employee penalties for the brokerage house's shortcomings, I think it better to go pooled. Also, it makes it easier for the investment committee and/or plan sponsor to go from one investment brokerage to another, where there is just the one, pooled account to transfer. So it makes the plan and its accounts less captive to a particular investment brokerage.

MTurner, for unwrapping, or in my wording, decanting, the AFLAC type insurance products, I look to avoid the factors that in Roehrs v Minnesota Life, 2/16/2006 Findings of Fact and Conclusions of Law (U.S. Dist. Ct--Dist. Ariz., Case # CV-03-1372-PHX-LOA) and Peterson v American Life & Health, 48 F3d 404 (9th Cir 1995) led the courts to find the arrangements were subject to ERISA, as well as the factors in the safe harbor of DoL Reg §2510.3-1(j). The more you fit under the -1(j) criteria and avoid the factors that led the courts to the ERISA application conclusions in Roehrs and Peterson, the better. I am not sure you can hermetically seal against it being ERISA plan. You need to read the group policy to make sure that the insurer does not have language in there trying to assure that the group policy will be ERISA governed. Many do. If not, I like also to send a certified notice to EBSA/DoL explaining what we're doing (unwrapping) and that's why despite the insurance coverage yet being available to employees, we're excluding it from the company's ERISA welfare benefit plans and any reporting of them.

IRC sections 414(b) and ©, 1563(e)(3)(A) and (6)(B) 1563(e)(3)(A) attributes the 30% of stock owned by Mary's Trust to Mary, who thus owns 49% Since John owns more than 50% of each company, he is deemed to own what his children, regardless of their ages, own. 1563(e)(6)(B). Thus, John is considered the 100% owner of each company, and Companies A and B comprise a control group.

TPApril, Good luck with decanting the wrapped individual policies out of the ERISA wrap. You might want to check out a couple of court rulings that immediately come to mind. Roehrs v Minnesota Life, 2/16/2006 Findings of Fact and Conclusions of Law (U.S. Dist. Ct--Dist. Ariz., Case # CV-03-1372-PHX-LOA) and Peterson v American Life & Health, 48 F3d 404 (9th Cir 1995).

TPApril, What is the perceived benefit of including the individual policies in the employer's ERISA-wrap document? There is an entire body of case law that discusses the employer involvement, and when individual policies end up being part of an ERISA plan. As QDROphile and Chaz mention, there are implications of doing so. One is that you give AFLAC a protection at the expense of your employees. If the individual policies are outside of an ERISA plan, then a claim denial might subject AFLAC to insurance "bad faith" liability to the insured whose valid claim has been denied. There's the opportunity for a jury too. By 'wrapping' the individual policies into an ERISA plan, you do a disservice to the employees, and give AFLAC a protection that Congress really wanted for employers, to encourage them to provide employee benefits.

It depends on whether you have individual Plan accounts--or just a pooled Plan investment account in which each employee has a proportion that is updated periodically, such as through balance forward accounting. If the employee is able to direct the investment of his or her benefits, then individual benefit statements are due quarterly. Even if the plan uses a fiscal plan year, the quarterly statements are required for each calendar quarter; they are due 45 days after the calendar quarter has ended. The information provided must be as of a date in the calendar quarter being reported. Many employers that I advise chose to stop individual direction of investment and fold the individual Plan accounts into a single pooled account. Either the trustee or an investment committee meets quarterly (or in volatile investment market situations, more frequently) to make the investment decisions for the entire pooled account. Once a year (some employers choose more frequently), everyone's proportionate share of the pooled account is re-determined, to take into account new contributions made during that year, and then a simplified benefit statement is provided. This is done as of the plan's required valuation date (last day of plan year). The statements show each employee his or her accrued benefits total(s), vesting years earned and applied, to show also the vested amount. Doing this at least once every 12 months avoids having to do it in the interim, even when an employee requests. Given the penalties for being late with the quarterly reports, and not having 404© liability protection against investment underperformance claims even on self-directed accounts if all the employee's fee information is not properly disclosed, the pooled account approach seems more attractive and less costly to employers not using (and paying for through asset assessments) the platforms like John Hancock's. Given some federal court decisions since 2000, as long as the trustee/investment company meets periodically, gives due consideration to each investment change proposed by a qualified investment adviser, and keeps files of doing so, there is probably less liability for plan officials than trying to do the now very cumbersome quarterly reporting chores attendant to participant directed accounts.

Under Obamacare, payment by an employer of an employee's premiums for individual policy coverage is now prohibited. See IRS Notice 2013-54 and DoL Tech Release 2013-3. It's not just a tax deductibility issue; It's now illegal to do it (except if the policy is bought on the Exchange under the employer's SHOP registration, which is only available to small employers). I've not seen anything directly address the payment of COBRA premiums. However, they would be for the continuation of group coverage, either under your group policy for an employee no longer meeting the regular eligibility rules or under the prior employer's group plan for a new-to-you employee. SInce it is group coverage that is continued, barring some direct statement to the contrary (of which I am not aware), I think that the employer can pay the premiums.

You will need to give him a taxable 'bonus'. Don't designate that it is for health care or premiums, and don't require proof of coverage. Putting an upper dollar limit (e.g., the amount of the premium cost) on what the company will pay for health care is now ver boten. See IRS Notice 2013-54 and DoL Tech Release 2013-3.