J Simmons

I don't think you'll find a Code reference that will specify that you can do this--but I don't think you will find one that prohibits it either. If your discrimination does not favor HCEs vis-a-vis non-HCEs, it will not violate nondiscrimination or minimum coverage requirements. You've said that none of the managers that would receive the higher MC% are HCEs. It's not prohibited. As for your prior years of service crediting, you haven't indicated that doing so would or would not favor HCEs vis-a-vis non-HCEs. If it doesn't, then that too would not be prohibited. You won't qualify for safe harbors nor be able to use a mass submitter or prototype documentation, but with an individually designed plan, you should nonetheless be able to demonstrate nondiscrimination and minimum coverage.

What definition of "material revisions" does the SEC provide? Apart from needing to know that, removing the vesting requirement will result in more of the 'restricted' stock being awarded than if the vesting requirement is kept. This has the affect of diluting the percentages of other, existing shareholders more than the equity comp plan would as approved before the change. Given that a prime reason for the shareholder approval requirement is to protect the existing investments, I would think that you would need shareholder approval to make this change to eliminate the vesting requirement. Otherwise, it might be too easy to "Win Ben Stein's Money"

Send the death bene an election form setting forth any options he or she may have under the plan (e.g., direct rollover to an IRA), as well as any notices that may be required by reason of such choices, explain that by default payout will be made in a lump sum payment directly to him or her if no response is received 30 days hence. If no response, send him or her a check for the lump sum.

As long as no pattern develops or statement is made that might show that the real reason is one of the prohibited discriminations, the employer should be able to offer to pay 100% of the premiums for new recruits even though perhaps not all and not for existing employees that only receive 50%. I would caution, however, that the employer paying health insurance premiums for employees amounts to an ERISA employee welfare benefit plan and that there should be an ERISA-compliant document. Those documents should detail out what will be paid by the employer for which employees. Under the facts you've outlined, I'd do one ERISA wrap for everyone, explaining 50% is what the employer will pay and give an SPD accordingly. Then I'd do a second ERISA wrap for just those that will have 100% paid. Each person covered now or added to it would be documented through a one-page addendum to this second ERISA wrap, specifying that person by name. The SPD for this second ERISA wrap would be structured so that it had the generic info, and mention that these benefits are provided for the person named in an addendum--and then when giving the SPD to a person covered by the second ERISA wrap, attach a copy of his/her addendum page from the second ERISA wrap.

It depends on why the difference. Is it due to race, religion, gender, etc. (Title VII of the 1964 Civil Rights Act)? Is it because an employee is pregnant? (Pregnancy Discrimination Act)? Is the one paying 50% over age 40 (ADEA)? Is one but not both eligible for Medicare (Secondary Payor rules)? Is it because of the health condition of one, driving a higher premium cost (HIPAA nondiscrimination)? Is the one getting 100% paid a shareholder-employee and the other is not (disquised dividends)? From a tax-free perspective, yes, there can be discrimination (IRC sec 106(a))

Is the firm refusing to make good with you what it promised as an inducement to you to take the job? The firm may not have a group health policy from an insurer, but its reimbursement of more than one other employee of part (or all) of the premiums for individual insurance policies may, when considered together, amount to a 'group health plan' and be subject to HIPAA nondiscrimination requirements--that might be your hook. If that angle vets out, then the firm may be responsible to you for your health expenses not covered due to the lack of coverage. Unless carefully navigated, the firm might be violating several federal and perhaps state laws via its providing benefits using individual health policies.

Determine which employees are 'key employees' (determination may have already been made if they had a top-heavy status determination for a qualified retirement plan). Then determine if the POP premiums of the key employee group total more than 1/3 of the total of such premiums for the non-key employee group.

Perhaps the LLC could employ the staff, own/rent the building, etc. Each of the three owners could set up a separate corporation of which he/she would be the only employee. His/her corporation would have a contract with the LLC for facilities and services from the LLC. For the LLC, a safe harbor 401k plan is set up and 5%-of-pay contributions made. Each of the owners' corporations could adopt a safe harbor 401k plan for that corporation's employees (i.e., just that owner), which specifies that it is permissively aggregated with the LLC's plan. The older owner's corporate plan would allow him/her to electively defer $15,500 + $5,000 catch up if age 50 or older by year's end. If his corporate plan is cross-tested, he might be able to have the corporation contribute for him as much as another $29,500 vis-a-vis the 5%-of-pay contributions made to the LLC's plan.

#1 Whether C is part of the CG depends on stock proportions owned by the three in each entity. #2 The exclusion of C would not have discrimination implications, since it would only exclude HCEs. #3 If C had a nonHCE that was also employed by A and B, would you only take into account the nonHCE's earnings from A and B? That would invite some abuse--underpayment of the NHCE by A and B, with a corresponding overpayment of the NHCE by C. Doing so would depress C's plan earnings, if you don't count earnings from C. I don't think you could do that. Thus, it would make sense that you'd include earnings from C (if part of the CG with A and B) of the owners who also work for A and B. #4 For the reasons stated in #3, I think this would be yes.

Unless your plan document specifies otherwise for this type of situation, I would think you'd treat the FSA when the employee makes the change in status election over to the medical coverage as you would, under plan provisions, the FSA of an employee that quits in the middle of the year. If your plan would call for the continuation of the FSA (and a former employee's payment of the costs) until the end of the year in which he or she quits, you could (if you desire) establish here and then follow in the future an administrative practice that does not call for a continuation. The reasons would be (a) the continuation rules only apply to those that quit, and (b) the plan spells out clearly a policy forbidding co-terminous FSA and medical coverage. Whichever path you choose in the absence of plan provisions dealing with this type of situation, you should follow the precedence in the future with other, similarly situated employees making the mid-year change from FSA to medical coverage incident to a change in family status.

The HDHP and contributions to HSAs have different rules that apply to them. For sake of simplicity, let's assume the employer is a C corporation. The HDHP, if not part of a 125 cafeteria plan or a 105 health plan, may discriminate in favor of employees that are also owners. That is, the employer can set it up and pay for the cost of coverage uner the HDHP plan for just employees that are owners. The owners must not have a choice of cash or other taxable benefit instead. If so, there is no discrimination problem under 106a. (One issue to watch here, however, is disguised dividends, and the possibility of being recharacterized as such and two-tiered taxed by the IRS. A simple illustration would be 3 owner-employees, A, B and C. A owns 40%, B 35% and C 25%. If the company is so willing to pay up to $250 per month towards C's coverage, $350 for B's, and $400 for A's, this is in exact proportionality to their stockholdings and looks more like disguised dividends than a benefit for employees. Mix it up differently, maybe extend the employer payment of the cost of coverage to some non-owner/employees too.) This payment arrangement would be an ERISA plan, so needs documentation. As for contributions to HSAs, these are subject to discrimination rules under 223. However, instead of the employer making those contributions, beef up the pay to the employees (here the owners) you want to benefit and let them contribute it themselves to their HSAs. Then there's no discrimination rule to deal with. If the employer sponsors a 125 cafeteria plan, then that plan could offer the option to eligible employees individually to have part of their pay held out and paid over into an HSA he or she has created. This would avoid FICA on these contributions. Otherwise, contributions to an HSA that an employee makes on his or her own without a 125 cafeteria plan are income tax free, but are FICA taxed. Things get more complicated if the employer is not a C corp.

If the plan year begins anytime during January 1-March 31, then the first quarterly statements for a self-directed plan will be due May 15. Those statements must include individual vesting information.

After the Swanson purchase of the initial issue of stock of the corp, then what? Can the IRA owner have any involvement with operating or working for the C corp without that constituting a prohibited transaction? Does the IRA owner who then directs the IRA to vote the corporate stock to elect himself as the director, or to elect directors who will appoint the IRA owner as an officer, or hire the IRA owner as an employee or consultant, commit a prohibited transaction? Is that an indirect use or benefit? Would free gratis services from the IRA owner to the corporation constitute a 'contribution' to the IRA since he's enhancing the value of the corporate stock and thereby the IRA assets?

You can file in the federal courts of the state where the plan administrator is domiciled, or in the federal courts of any other state where the plan is administered, including in the federal courts of any state where employees worked for the employer and earned benefit rights under the plan. A defendant can mount a forum non conveniens challenge if outside the federal district where the defendant is domiciled. However, the court weighs the inconvenience to both litigants and often finds that it would be a greater burden to an employee or former employee to litigate from a distance than it would be for the plan administrator, who presumably has more resources. Also factored is that the extra cost to the employee of long-distance litigation might possibly take all of an eventually-won award of benefits, as compared to the litigation being conducted local to where the employee might be.

Possibly. It depends on whether any of the other participants in the plan worked in PA for the employer and earned benefits rights under the plan from their work in PA. There is a federal district court decision from Idaho that I'm aware of that addresses this in the 401k context: Ingalls v Mobile Corral Inc. Sorry I don't have a cite readily handy for it.

Thanks, QDROphile. The property of the 501©(3) org being sold to the IRA is real estate, not stock or ownership in the 501©(3) org. I know the owner of the IRA is a 'disqualified person' by reason of being a fiduciary, by reason of control over the self-directed IRA. My question is whether the non-profit org is also a 'disqualfied person' with respect to the IRA by reason of the IRA owner's involvement with the non-profit org (its executive director). The relevance about stock is due to 4975(e)(2)(G). That defines a level of stock ownership by a fiduciary that renders the corporation to itself be a disqualified person along with the fiduciary, because that fiduciary controls the corporation through stock ownership. If the non-profit corp is a disqualified person by reason of the IRA owner having a degree of control (even though there's no stock to own), then the sale would be a prohibited transaction. Turning to the issue of the propriety of the 501©(3) engaging in the transaction, I've looked at sec 503. The 501©(3) corp is not a church or governmental plan, a supplemental unemployment compensation benefits trust, nor a pre-June 25, 1959 pension trust funded only by employee contributions. So it would appear 503 doesn't apply. The sales price is per independent third-party valuation, neither unreasonably high or low, and the terms are cash on closing. So I don't think it would violate the 501©(3) standards.

I have a client that wants to cause his IRA to purchase property from a 501©(3) non-profit organization. The non-profit was organized several years ago by the IRA owner as a corporation without stock. The IRA owner does not serve on the board of directors, but serves at the board's pleasure as the executive director. Because there is no stock, it seems 4975 technically does not apply to cause the transaction to be prohibited and disqualiy the IRA under 408. I must be looking in the wrong places as I cannot find any thing on point. If anyone knows the cites to any rulings that address this, such would be greatly appreciated. Thank you.

The penalty for an IRA that engages in a prohibited transaction is not the excise tax, but immediate loss of the IRA's tax advantage on all of the IRA's assets. That can often be more drastic to the taxpayer than the excise tax would have been. 4975©(3) just coordinates that with 408. But true, you don't face the excise tax of 4975 from an IRA's prohibited transaction if the IRA loses its tax advantage under 408.

leevena, the example I showed does not have the employer asking for the extra reimbursement 'back'. That would be asking for $700 from just the one employee in my example, the one that had been reimbursed $1,000 but only paid $300 through payroll reductions by the time of employment termination mid-year. That, I agree, would be improper assessment based on the claims experience, belying the necessary risk-shifting element. Rather, if the plan provides the employer may require every employee who quits mid-year to finish paying the annual cost of health flex plan elected by that employee. That's why each of the employees in my example would have to be pursued for the remaining $900 after having paid just $300 of the $1,200 cost of the annual flex elected. A plan doesn't have to include such a provision, but if it does, it must collect the remainder of the elected annual 'cost' from every employee who quits mid-year, whether the employee is 'ahead of the game' or behind it at the time of employment termination.

As a previous post in this thread explained, a flex plan can be drafted to provide that the remaining annual cost of an elected flex will be collected from the employee who departs mid-year. If so, it must be applied to all who leave mid-year, regardless of the claims experience against that flex account from the first of the year. For example, if two employees both elect $1,200 flex accounts for the year, both leave after 3 months (and $300 has been deducted from the paychecks of each), but one has used $1,000 of the flex in claims and the other has used $100 of her flex in claims, the plan must pursue them both for the $900 remaining of the annual cost, and must do so with equal vigor. At least this is what Harry Beker informally opined several years back. A plan cannot go after the one employee for $700 ($1,000 of claims paid less $300 paid to point of termination), which is the scenario your murrr77 explains: employer "requesting payment for the difference in what I had contributed and what I was reimbursed before termination". I would suggest you ask for the plan documents, the plan summaries, and specific reference to the provisions that the employer claims to be relying on in asking you for payment. As for the 403b, if the employer were to monkey with that because of issues about the flex, the employer would likely be opening itself up to significant enforcement and civil penalties.

Thanks, Tom and Bird. That's an opportunity I hadn't realized before.

I agree with papogi, to a degree. The distinction drawn is between the cafeteria plan and the health insurance coverage. The cafeteria plan is a mechanism for paying for the health insurance coverage. The cafeteria plan is distinguishable from the health insurance coverage itself. The coverage could be dropped mid-period of coverage, but the payroll reduction not. An employee can only make a cafeteria plan change (i.e., a change in election for payroll reduction and to which benefits the reduced amount will be applied in payment) mid-"period of coverage" if there is (and then only to the extent consistent with) certain changes in status spelled out in the regulations. Regs 1.125-4, 1.125-2, Q&A-6. Reg 1.125-1, Q&A-8 provides that a "plan may provide that elections may be made at any time" in accordance with certain guidelines (see Q&A-15) to avoid taxation due to constructive receipt. It won't be an 'election' if the employee can change it after the period of coverage has begun but before it has ended (except for a Reg 1.125-4 specified change in status mid-period of coverage). If the employee is otherwise permitted to revoke the 'election' after the period of coverage has begun but before it ends, that power of revocation is constructive receipt of the taxable income. Reg 1.125-1, Q&A-15. So to be valid, the election must be made before the period of coverage begins and the election must be irrevocable once the period of coverage begins (but for a Reg 1.125-4 specified change in status mid-period of coverage). The cafeteria plan might be designed with periods of coverage shorter than 12 months for the self-insured health coverage and other benefits except for health flex accounts. It should not be assumed that the periods of coverage must be 12 month periods when designing a plan. Granted, the 'period of coverage' for a health flex account must generally be a 12-month period. Reg 1.125-2, Q&A-7(b)(3). For any and all other permissible benefits, the regs don't specify. Thus the plan can be drafted to specify different 'periods of coverage' for benefits other than a health flex account. If the plan specifies that the self-insured health coverage is for 'periods of coverage' of for example a month each, then the election form can be made to evergreen the election into successive months until the employee stops it. If an employee stops or changes the election, that would take effect at the beginning of the next month after so stopping or changing the election. This would increase administrative tasks and burden on payroll. But it would also give some flexibility to the self-insured health coverage benefit that most cafeteria plans simply don't permit, but could. If you have a premium only plan (POP), this latitude can be particularly useful without engendering additional confusion among employees. The cafeteria plan may also allow for different periods of coverage for day care flex accounts than the typical 12-month period so many plans use. One plan I've reviewed used Jan-May, June-August, Sept-Dec as periods for day care flex, reasoning that this reflected differences when children may be in school or on summer break, and when the other spouse may be attending college for a semester at a time.

I stand corrected (thank you, J4FKBC)

Tom, I'm a bit confused. I didn't think an over 50 employee could do catch up ($5,000) until he or she first topped out the 402g amount ($15,500 for 2007). If the HCEs can't do the 402g amount because of the nonHCEs' ADP being zero, then the HCEs (even if all over 50) could not do catch up. Did the IRS reverse its position on topping out the 402g amount before deferrals are 'catch up'?

Neil, A single member LLC can have a 401k plan and your wife, the sole owner, can benefit under it regardless of the fact that you accrue benefits under the corporate 401k where you work. The issue is the amount that she can do. An LLC (unlike a corporation) renders your wife to be self-employed in that business. The question is whether the limits on individual contributions kicks in because as the only owner she alone would make the decision as to any company (LLC) contributions to the plan. Some in the IRS have expressed their view that there is no substantive difference, so the total benefits she should get under that plan would be the individual limit amount: $15,500 for 2006 (or $20,500, if age 50 or older by year's end). This view cuts contrary to legislative efforts dating back to the 1980s when Congress tried to put plans for the self-employed (Keoghs) on equal footing with corporate plans. That notion would suggest that in addition to those individual limit amounts, your wife could cause the LLC to contribute up to an additional $29,000 to the 401k plan for herself, as a 'profit sharing contribution'. It gets a bit tricky because her self-employed earnings, after all other business expenses have been paid but before the LLC contribution, would need to be adjusted downward by 1/2 of the self-employment taxes. This is one of those efforts to put the self-employed on par with the corporate employee. Then, the amount of the LLC contribution cannot be more than 25% of what would remain of self-employment earnings (reduced by 1/2 of the self-employment taxes) for her after the LLC contribution is made. As for then a Roth IRA contribution, if your wife accrues benefits for a year under her LLC's 401k plan, the lower income threshold that you face for being able to make Roth IRA contributions would apply to your wife as well--rather than the higher, "spouse" threshold if she didn't accrue those benefits. The Roth IRA amount is $4,000 per individual eligible to make it, and not in the phase-out bracket of income.