J Simmons

the law firm has employees but the individual partner has no employees. Then pay particular attention to the last sentence in Gary Lesser's post #5 above.

How do you de-trust the benefits of a 457b plan incident to its sponsor (a hospital) going from being an agency of a local governmental unit (457b benefits must be trusteed) to being a 501c3 non-profit (457b benefits must not be trusteed)?

Who is doing the clerical, support work if the law firm has no employees?

45% does seem high for equities given conventional investment wisdom and the relative's age. However, if you rebalance and put more of that 45% into cash and fixed, then you'd miss out on any rebound in value from the recent market crash. While always a gamble, if you moved say 30 percentage points from equity to cash and fixed (leaving just 15% in equities) and then equities do rebound, the portfolio would have suffered the downturn of '08 on that 30% but not enjoyed the potential rebound. It is unfortunate that you did not relocate from San Diego to the east coast and take a look at the portfolio mix a year ago. But your relative's portfolio is where it is. You may want to move some away from equities but perhaps not as much as conventional investment wisdom would suggest even for someone in his 80s. Given his age, you'd likely want to be more surgical than simply away from equities in the move. You'd likely want to keep only those equities for which a good argument can be made that they'd be on the upswing if the market as a whole does rebound. But then what do I know--I'm not an investment adviser.

Are they also all key employees? If so, the 25% concentration test would mean no cafeteria plan benefits for the keys, as they as a group may only have $1 of benefits for every $3 the non-keys have as a group. If you have non-keys and they have benefits, then keys as a group may have 1/3 that amount. Are the FSAs health, day care or adoption assistance? If health, then 105h only considers in its testing the highest 25% paid as 'highly compensated' and compares them against the other 80% of employees. 105h does not use the 414q HCE definition. If day care FSAs, then 129d8 requires that average benefits of non-HCEs (414q definition) be at least 55% of average benefits of HCEs (414q definition). In that case, SLuskin's suggestion may solve your dilemma. If adoption assistance FSAs, eligibility classifications may not favor 414q HCEs. But then, that should be no problem--make the eligibility rules apply equally to HCE and non-HCE alike, despite having no non-HCEs. There is also a requirement there that not more than 5% of the benefits be for owners, their spouses and dependents. Proposed regulations also spells out some tests for not discriminating in favor of 'highly compensated individuals' (HCIs). Prop Treas Reg § 1.125-7a9 defines highly compensated by reference to the 414q compensation threshold. Treas Reg § 1.125-7b1 requires nondiscriminatory eligibility classifications. As with the adoption assistance FSA, you could simply have eligibility rules apply equally to HCIs and non-HCIs alike, even though you have no HCIs. Also, there must be no discrimination in favor of HCIs eligible to participate--HCPs--as to tax-free benefits or total benefits, or ER contributions allocable to either tax-free benefits or total benefits. The absence of non-HCPs should not be a problem here, as the test does not require non-HCPs to have benefits against which the HCPs benefits are measured. Prop Treas Reg § 1.125-7c. There is a safe harbor for health benefit coverage if the contributions for each participant is 100% of the cost of health benefit coverage for the majority of similarly situated HCPs. Prop Treas Reg § 1.125-7e1i. That could be accomplished in the absence of non-HCPs. An alternate safe harbor for health benefit coverage applies if the contributions for each participant is at least 75% of the cost of health coverage for the similarly situated participant with the highest cost health benefit coverage under the plan. Prop Treas Reg § 1.125-7e1i. This too could be accomplished in the absence of non-HCPs. The proposed regs require that all similarly situated participants be given a uniform opportunity to elect qualified benefits. When measured as a percentage of their aggregate compensations, the aggregate tax-free benefits elected by the HCPs must not be greater than the aggregate tax-free benefits elected by the non-HCPs. Similarly, all similarly situated participants be given a uniform election opportunity with respect to ER contributions, and when measured as a percentage of their aggregated compensations, the aggregate utilization of ER contributions by the HCPs must not be greater than the aggregate utilization of ER contributions by the non-HCPs. Prop Treas Reg § 1.125-7c2. It is difficult to imagine the elections of tax-free benefits or utilizations of ER contributions discriminates in favor of HCPs when there are no non-HCPs to elect tax-free benefits or utilize ER contributions.

Check the language of your EGTRRA amendments carefully. The IRS published model amendment for EGTRRA good-faith purposes continued to use the term 'separation from service' despite EGTRRA changing it. See for example, IRS Notice 2001-57, section 2.2.1.

My understanding comports with yours, Peggy806.

I like what I see you and Derrin advocating, but wish there were some ruling on it. Non-owner EEs of an S corp may enjoy tax-free health benefits provided by the S corp. So too may non-owner EEs of a C Corp. It does not appear to be status an as EE then that wires you out of the tax-free health benefit situation. Rather, it is an otherwise qualifying EE owning an interest in the ER that is not a C corp. If the 'ER' is a control group that includes a C corp and a pass-thru entity, it's hard to see how the EE on the C corp's payroll but who also owns stock in the S corp escapes the stain of that ownership in the control group 'ER' whether or not also on the S corp's payroll (or in reality, an S corp EE).

I agree with david rigby. It sounds like all the EEs in the plan have terminated employment, and would be entitled to distribution of their benefits. Is that what the bank trustee is refusing to do?

Hey, Larry, I took Derrin's answer to be that if the owners were actually EEs of the S corp (despite being on the C corp's payroll and leased to the S corp), then they'd be ineligible for the health plan. It seemed to be whether the owners were in reality EEs of an S corp that Derrin thought would wire them out of the health plan, regardless of whether also EEs of the C corp. The implication seems to be that if only EEs of the C corp and not also in reality of the S corp, the fact that they are owners of both a C corp and S corp that are part of a control group would not disqualify them from the health plan. My OP was prompted by the concern that as constituent parts of a control group, a 'single' employer, the S corp being in the mix might make the owner/EEs ineligible for the health plan. Not knowing of any legal authority on the issue, I would think that it is not of which type of entity an owner is or is not an EE, but the ownership in the ER that is what disqualifies the the EE from tax-favored health plan participation. Since a control group is a 'single' employer, ownership in that single employer is at least in part ownership in an S corp. I'm not entirely comfortable with Derrin's approach, at least not until perhaps it can be backed up with a citation.

O might be ineligible as a 'partner' because he owns more than 2% of Corp S which is a part of the control group, whether or not he also has Form W-2 pay from Corp S--at least that is what S Derrin Watson says in his new blog column, Who's the Employer? relaunched on Nov 3, 2008, at its new home at Sungard

I am seeing ERs shy away from fixed contribution obligations, whether in making fixed 401k match now discretionary, not giving 401k safe harbor notices for 2009 (or wanting to withdraw them), and being more hesitant re SIMPLE plans.

No, the $5,000 for 2 or more (or $2500 for 1) dependent is a hard dollar cap, regardless of who is bearing the cost. That would depend on how the plan document reads.

Does your EBIA manual include sample plan documents? If so, I would think that would be a better starting place than a listing of requirements.

When the announced (or plan specified) annual enrollment period ended. That's when it became irrevocable, unless according to various reports of unpublished, unofficial information letters from the IRS there is 'clear and convincing' evidence that the EE thought he was electing the other amount when he turned in the election form he did during open enrollment. The plan fiduciaries have a duty to operate the plan according to its documents, if the plan is subject to ERISA. If the plan year is the calendar year, it becomes particularly 'irrevocable' once the plan year begins--because of the cafeteria plan regulations that only permit election changes mid-year under very narrow circumstances. Clear and convincing is a legal evidence standard, higher than a mere more-likely-than-not and below beyond-reasonable-doubt. You'd need to investigate all the surrounding circumstances. For example, can he produce the other filled out enrollment form? Why did he not discover his error earlier, when perhaps running across the 'right' enrollment form at his desk or his home earlier than now? What was the reason for filling out two? Which one was filled out first? If it was the wrong one, why wasn't it destroyed before filling out the 'right' one? If the amount in the claimed 'right' election differs from the prior years' elections by this EE, what is the explanation? This can be a difficult sticking point if the 'wrong' one actually follows this EE's trend from prior years. These--and any other factors--would need to be delved into in determining if there is clear and convincing evidence of the claimed enrollment error. Keep in mind, if you get it wrong and change the amount for the EE now, you risk qualification for the IRC 125 tax advantages for all EEs in the plan.

The salary reduction election signed by the EE probably gives the ER no wiggle room on this, and probably does not mention what happens if the EE only works part of the pay period. If so, then I would think you reduce the pay by the specific dollar amount. Also, the ER probably has some precedence set in its practice with other EEs that have previously terminated in the middle of a pay period with a salary reduction election in place. I don't think you can vary from that precedence so as to deny someone COBRA rights, and I don't know what other purpose you could posit for a variance in the first pay period of a cafeteria plan year. No good deed goes unpunished. The IRS regs on this point prove this axiom for ERs that offer tax savings to EEs through health flex accounts.

No, that would not be a problem.

The ER can use the forfeitures for whatever the ER wants, provided that the amount that forfeits from an individual EE's flex account is not paid to just that EE, rolled forward for just that EE, otherwise used to provide a benefit for just that EE, or applied to benefit EEs in proportion to the amounts that each so forfeited. So if the flex account forfeitures are used to offset the next year's cost of group health premiums across the board, then yes. If you are hoping that a specific EE's flex account forfeitures can be used to reduce just that EE's premiums in the group health plan the next year, then no.

I agree with k2retire. Your best hope is to locate the current SPD/plan documents and determine if (a) the coverage of types of procedure described clearly cover your type of procedure, or (b) the written terms of the plan more likely point to your procedure being covered than not and the plan documents do not expressly give the plan administrator broad, unfettered discretion to decide claims. Because it is a medical claim and precertification is involved, there are special time-frames and procedures that apply under DoL Regs § 2560.503-1©. So if you formally challenge in writing the current denial of coverage, there are expedited review requirements on the plan.

Owning more deck chairs on the Titanic? Buying Manhattan from native Americans for trinkets? I wish I had the crystal ball.

Although 411d6 might not apply, state law does as mjb points out. Most of the state law I've looked into uses employment contract principles to prevent cutbacks.

Not that I'm aware of. Darn it.

I have dealt with a similar situation over the last 18 months with an employer with about 300 employees, but otherwise very similar. The DoL has been agreeable, but only after DoL was comfortable with the independence of the appraisal of the value of the real property. However, I would give each employee the opportunity--and have him sign off if he doesn't take it--of keeping his proportion of the real estate. For those that take it, have them sign off that they so want to keep their proportion, and acknowledge that the trustee will sell the realty without their further consent if needed for plan liquidity purposes or the trustee otherwise is of the prudent opinion selling at that time is in the best interests of all participants whose benefits are represented in part by the real estate investment.

How exactly does the language read that imposes the 6 month wait on new hires? I think in the absence of special provisions addressing re-hires and prior service, you are probably in an interpretive mode of what it means to be a "new" hire.

Treas Reg § 1.401(k)-1(d)(1) is specifying what the limit on amounts that may be hardship withdrawn from benefits resulting from elective deferrals. Treas Reg § 1.401(k)-1(d)(3) specifies that it is the aggregate of elective deferrals, sans investment earnings and certain ER contributions otherwise treated as elective deferrals (i.e., QNECs and QMACs). Suppose that the EE has made in the aggregate $5,000 of elective deferrals, but with investment earnings, QNECs and QMACs there is a total of $6,600 of benefits. Treas Reg § 1.401(k)-1(d) is saying that by reason of that $6,600 no more than $5,000 may be hardship withdrawn. If there are also $3,000 matching benefits (aside from QMACs that are treated as elective deferrals), then nothing in Treas Reg § 1.401(k)-1(d) limits hardship withdrawing that $3,000 in addition to the $5,000 from the elective deferral account.