J Simmons

Are you certain you can make that switch from the normal form of payment being a J&50 to J&100? If a participant's spouse does not consent to another form, this plan re-design would reduce the amount payable to the participant during his/her life from already accrued benefits (albeit boosting what the spouse would be getting as a survivor annuity after the participant dies)?

The ENTIRE loan is a prohibited transaction and needs to be corrected by returning the entire $70,000 plus interest and a Form 5330 filed and penalties paid.

If by in-service provision you refer to a provision for allowing in-service distributions of benefits and now you want to stop that, it is a prohibited cut-back of a protected benefit, right or feature. You may now stop such access as to future accruing benefits, but not as to those already accrued.

Is it an IRA?

No spousal consent necessary for owner to take withdrawals from an IRA. It is truly an INDIVIDUAL retirement account.

Seven appendices? That does make managing--and interpreting--the documents more difficult. No suggestions on your organizational challenge. As for keeping electronic copies, I suggest keeping the signed copies in case you ever need to prove out of your file copies what has been signed and when.

If no PS contribution has been made during the current plan year (other than perhaps one made early in the year and specifying that it was made for last year), then no one should have any accrued right as whether to make the contribution or not is most likely discretionary with the employer--check your plan document.

Hey, George, Do you know of any webpage that lists out, state by state, the Small Group Health Plan or List Billing regulations?

That third eye is amazing--it let's you see so much more! (seriously, good observation)

It also allows an EE of that age (or older) to make in-service withdrawals.

Is DFVC permitting the retro Wrap? Does the DFVC rep view it as a retroactive merger of the 3 H&W plans into one? If so, I would think you'd report those 2 separate plans as merged into the 3rd plan on the 5500s for them for the last year, or part of year, they had separate existence as 3 plans. As to that 3rd plan, you'd not indicate that its 5500 for the year of merger or next year as its first year (unless the 3rd plan was in fact first started that year--which I doubt given the facts). Also, I'd do retro merger amendments. If the DFVC rep sees it as the 3 H&W plans as having terminated and in their place, a new plan encompassing all the benefits that had previously been provided by the 3 separate plans, then I'd do retro termination amendments and final Forms 5500 for the last year, or part of a year, before those plans terminations were effective. I'd also indicate that the 5500 for that year for the wrap plan as its initial filing. Personally, I like the merger better than the termination/new plan because merger should preclude any employee claiming double benefits during the retro period, first under the 3 separate plans and secondly under the wrap, claiming that the termination amendment cannot be retro to deprive employees of benefits accrued under those 3 plans.

H owns 100% of corp. H is only EE of corp. Corp sets up a 401k plan. W is independent contractor providing medical transcription services to an unrelated medical practice. W reports the income on a Schedule C to Form 1040, but W has no employees. One of the requirements for filing 5500-EZ is that the ER sponsoring the plan not be part of an affiliated service group or control group. Does anyone know if the Service accepts a 5500-EZ in this situation?

lmccormick, Does that state have a statute or regulation that declaratively makes such illegal? Does that state make it legal to reimburse individual policy premium payments with pre-tax dollars but not with after-tax dollars as you are doing? The reason I ask is that I understand the state being able to regulate what will/will not be subject to state income taxation and thus on what income the employer must compute and withhold state income tax. However, it does seem odd that the state could somehow dictate those issues for federal income tax purposes.

Because the exception to QJSA requires it. ERISA, Title I, § 205(b)(1)©(i) and IRC § 401(a)(11)(B)(iii)(I)

For what its worth, the only 'tea leaves' from the IRS weighing in on the question you ask of which I am aware were in the Preliminary Draft of IRS Examination Guidelines for Cafeteria Plans (Spring 1998). In that document it was implied that the insurance policy had to be owned or held in the name of the employer or employee, not the spouse or the spouse's employer. Even more attenuated is that on April 6, 2006, EBIA conducted an Web Seminar, "Individual Health Insurance Policies in the Workplace." One of the PowerPoint slides in that presentation included the following:

It will be interesting to see what the 7th Circuit does with this. Personally, I think the federal district court got it right, and the DoL is overreaching on this one. The employees there were given a brokerage window and could choose from among 2,600 investment options, some of which Deere highlighted for consideration by the employees in making their investment directives. The employees complain now that the fees associated with the highlighted short-list were too high. The district court basically said that there were lower fee investment options among the 2,600 and thus it was each employee's decision to invest in a higher fee investment option, albeit highlighted by Deere for employees to consider, that resulted in the higher fee. Those higher fees weren't required by or the result of Deere's decisions and acts, to offer a broad window and highlight certain options. The complaining employees could have, but did not, choose lower fee options among the 2,600. The Deere case is, I understand, the only one of the Schlicter cases that has been dismissed at the district court level, but is also the only one that had a broad window. The DoL's briefing on appeal suggests that an employer that gives an employee choice as broadly as did Deere should have no protection under 404c. If the employee chooses the higher fee option rather than a lower fee one, the excessive fees are the result of the employer's failure to pare down the options rather than the employee's choice of the high fee option rather than a low fee option. I disagree. Those excessive fees are more naturally and more closely the result of the employee's decision of which of many investment options rather than the more attenuated decision of the employer to give employees a broad selection. An employer should be potentially liable only to the extent it limited the commercially available investment options.

The ASPA (or some TPA-related organization) would not be the place to look for guidance as to whether certain advice or functions are the practice of law. It would be the agency or entity in each state that regulates the practice of law and is charged with pursing the unauthorized practice of law. It would be helpful if the ABA put together a 50-state compendium of where one crosses the line of practicing law, for ERISA plan purposes maybe the Section of Taxation's Committee on Employee Benefits would contribute commentary and identify specific functions in relation to plans. ERISA attorneys too would like such as most state's rules of professional conduct applicable to attorneys makes it unethical to assist anyone in the unauthorized practice of law. Suppose an ERISA attorney is asked a question by a non-attorney handling some aspect of a plan and the question presupposes actions taken or being taken by that non-attorney that have crossed the line in that state. If the attorney answers that question, is he or she assisting in the unauthorized practice of law?

It should be no problem to limit FSAs to just the 6 lowest earning employees. That should fit within section 125 nondiscrimination and usage rules. As you describe it, the nondiscrimination rules of sec 105h should not be a problem as the MERP would benefit at least 70% of the total 76 employees. The problem is the part about the HCEs funding "their own MERP as they go ( if they have a reimbursable expense, the employer takes the amount of their paycheck on a pre-tax basis) and then reimburses them." That's closer to being an FSA than a MERP--MERPs are employer-only dollars and to the extent not used, the benefits do not enhance pay the employee receives--which is what you have described. That means you'd be governed by 125, and you'd have problems. One is that the key employees (a subset of HCEs) may have no more than 25% of the total tax-free benefits of all employees. If the employer is owned by, say, just a handful of those 70 HCEs, then this wouldn't be a problem. There are new nondiscrimination rules that take effect 1/1/2009, and those would likely be a problem. However, another problem with the MERP that smacks of a disqualified FSA is that the amount of an FSA for a plan year must be elected in advance of the plan year beginning, be taken out of paychecks ratably over the year (regardless of medical expenses being incurred). If the employee does not incur enough expenses during the year (and if designed in, the next 2 1/2 months) to exhaust the FSA through reimbursements, the employee forfeits the unused amount.

There should not be tax-free reimbursement for premiums paid tax-free already. This would be similar to the HI Plan promoted about 6 or 7 years ago by the Redwood Group. That 'double dipping' was stopped by Rev Rul 2002-3 and Rev Rul 2002-80. Even if the premiums were not already paid tax-free, it is not clear that they would qualify for tax-free reimbursement because the policy is not owned by the employer sponsoring the HRA or its employee. As for proof before reimbursing the employee for paying premiums, take a look at Rev Rul 61-146, 1961-1 CB 25, and PLR 9631023.

If the sponsor or the plan provides a higher level of service, there's a discrimination problem. However it is quite another matter to say that in an otherwise open architecture environment that the plan is discriminatory unless it prohibits all participants from directing the investment of his/her benefits in any commercially-available option that requires a minimum balance that is greater than some other participants' benefits balances.

Grumpy456, As to your E&O, you want to disclose in detail all you can on the application about what services you perform so that the insurer has a harder chore trying to wiggle out of providing you the coverage you are paying for, if and when a customer makes a claim. Maybe throw the question back on your E&O carrier as to what its definition of practicing law is and whether it thinks that any of the activities you've explained on your application are/are not within the ambit of 'practicing law' for purposes of the coverage exclusion. Also, adding the disclaimers should give you some buffer. Doing this won't hermetically seal you from the possibility of being found to be practicing law without a license, but it could help.

KLM, Not exactly a loophole. That's how 106a was intentionally written. The HCE would not have to be excluded entirely from the cafeteria plan for the ER to pay separately under 106a all the premiums for the HCE. If the cafeteria plan has other benefits available, the HCE could elect and receive those to the extent the utilization test permits in light of all the benefits that the NHCEs do, including their choosing to pay health premiums through the cafeteria plan. Keeping the payment of premiums for the HCE separate from and outside of the cafeteria plan is the key.

Is the land at 2.1m yet less than 10% of the assets of the plan trust? Are there potential liquidity demands that would make 20% of 2.25m now and the balance of that 2.25m not until as long as 24 months problematic? Is a 2006 appraisal, in light of the land being in an extremely high-end development area too old for prudently relying on now making a decision as to the sales price? Assuming the 2006 appraisal is yet valid, the 2.25m provides a $150k return for waiting up to 2 years for the remaining 1.8m. That would be a return of just 8.33% for two years. Is that a prudent investment? What recourse would the plan have against the property and the developer if there is a default in payment on that 1.8m? These questions should help you focus on the prudence of doing this from the Plan trust's perspective.

By letter dated January 26, 1999, comments by members of the Committee on Employee Benefits about and a request for clarification concerning nondiscrimination standards of what was termed "open option" participant directed plans were forwarded by the chair of the ABA's Section of Taxation to the Commissioner of the IRS. One of the 'operational results' posited for comment and clarifications was that "Participants in an open option program may receive solicited and unsolicited investment opportunities from parties that are not affiliated with the plan, some of which may require that a minimum dollar amount be invested in order to make any investment. It is possible that the minimum dollar amount threshold might make these investments available primarily or exclusively to predominantly nonhighly compensated employees." Those comments specifically acknowledged that the right to a particular investment is an "other right or feature" per Treas Reg sec 1.401(a)(4)-4(e)(3)(iii)(B) and ©, but opined that "where certain investment opportunities are, in practice, effectively unavailable to nonhighly compensated employees, not as a result of plan limitations but as a result of external market practices" should not be discriminatory "because the lack of availability is not the result of any restriction imposed by the plan or any action taken by any fiduciary. Instead, the lack of availability is the result of the actions of third parties or advisers who either were selected by plan participants or who, on their own initiative, without the involvement of the plan or its fiduciaries, approached the participants. In no event could (or should) the plan or its fiduciaries control (or preclude) these practices." I am aware of no response from the IRS, either accepting or rejecting the analysis and opinion contained in those comments. The IRS has left that posed question unanswered for more than 9 years now. The position that such minimum thresholds are or may be discriminatory could have serious implications for plans that permit both participant loans and investment directions. Most plans that have both features coordinate them through a provision that explains a participant loan shall be considered a plan investment directed by that participant. The loan program may limit the amount that may be borrowed by a participant, for example, to 1/2 VAB. For someone with $100,000 or more of VAB, he or she could borrow $50,000. But the participant with just, say, $29,000 of VAB, he or she could just borrow $14,500. Does the discrepancy in how much can be borrowed, and thus be a directed investment, pose a nondiscrimination challenge since there is likely a correlation between larger VAB balances and hce status? Would you have to limit the loans to the 'lowest common denominator', the lowest amount that anyone could borrow?

Generally, I don't think that's a problem if the same minimum balance is imposed by the brokerage and not contrived or imposed by the plan, and it is applied to all plan participants/beneficiaries. I'm sure that you could fathom an unlikely scenario, such as a plan allowing only two investment options: one that requires $100,000 minimum balance and the other simply a money market account. That would likely be problematic particularly if the only ones with $100,000 or more in their accounts are hces.