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How is this technically handled under a cafeteria plan? One way to do this would be to have the employer contribute the, say $100, to the employee's medical reimbursement account or dependent care account, which allows the employee to use those dollars on a pre-tax basis for unreimbursed medical bills or qualifying dependent care expenses. But, what if the cafeteria plan does not contain unreimbursed medical or dependent care? How do you handle the $100 payment under the cafeteria plan, both from a tax standpoint and from a documentation standpoint? What literally happens to the $100?

What about the use of covered calls in a qualified retirement plan (eg, money purchase, 401(k))? If allowed, does the plan or trust agreement specifically need to provide for them?

Gburns- what is the problem with the "bootleg" plan as opposed to the HI Plan? How are they different? What is the true HI Plan and who is offering it? You mentioned the use of a TPA with the bootleg plan and that it "is illegal" (except in calculating the incentive payment). Can you expand on the illegality of the TPA? Thanks.

Take a look at PLRs 8918030, 8918043 and 8942062 which are being cited by the HI Plan as support for its program. In particular, the last two PLRs are being cited as support for allowing premiums to be reimbursed (tax-free) to an employee when those premiums were originally paid on a pre-tax basis by the employee under a cafeteria plan. Any thoughts on these PLRs (other than that they only apply to the companies to which they were issued)?

I have also recently been asked by a client to review the Healthcare Incentive Plan. I would appreciate any comments on whether this works.

What is the "fix" when a plan sponsor fails to report as a taxable distribution a plan loan that was in default in a prior plan year? For example, assume that in 1998 a participant failed to pay a plan loan for an entire calendar quarter and the sponsor should have reported the outstanding balance of the loan as a taxable distribution to the participant (ie, should have defaulted the loan)in 1998 via a 1099R. However, it is now 2000,no further payments have been made on the loan and the sponsor still has not defaulted the loan. Obviuosly, the sponsor needs to default the loan. Can this be done in the current plan year (2000) or must a 1099R for 1998 be done, causing the participant to amend his 1040 for 1998? Are there any consequences to the plan sponsor for failing to default the loan? Is this somehow a prohibited transaction? Any thoughts on these issues would be appreciated.

Is anyone moving forward with amending plans to eliminate optional forms of distributions in accordance with the newly-finalized regulations without waiting for approved language (LRMS) from the IRS? It seems like a fairly easy change to do without approved language (ie, simply eliminate the option with the effective date stated in the regs - earlier of 90 days after notice or first day of second plan year after amendment is adopted). I have clients that have J&S annuities in 401(k) and profit sharing plans that are very eager to get rid of them immediately. Obviously, waiting on approved language is the safetst approach, but I do not feel terribly uncomfortable with amending without the approved language. Another issue: Will the IRS issue a DL on a plan that has been amended to eliminate an optional form of distribution in accordance with the new regulations now, or will it only issue a letter once LRMs are out? If no DLs will be issued yet, this would be a reason to wait on the approved language. Last, when are LRMs expected to be issued?

Defined Benefit Plan: States that payments won't be made at age 65 unless you elect to take the money (ie, deemed deferral until minimum distributions). What do you do when: Vested term. reaches age 65 and does not return distribution forms; thus, deemed deferral; time comes for mimimum distributions; you do not have current info. on the participant (ie, participant terminated 10 years ago and you do not know whether the participant is married, and if so, the age of the spouse)to allow you to calculate the mimimum distribution and you cannot get participant to respond to your request for the info. (or, in some cases, you can't find the participant). What should you do? In the case of the participant who simply won't give you the information, do you simply warn them of the excise tax and not pay the min. dist.? What about the case of the missing participant? I suppose in the case of the missing participant, after making diligent effort to locate the missing participant (e.g., participating the in the DOL program), you can segregrate the funding attributable to that participant's benefit in some type of suspense account, subject to reinstatement if the participant resurfaces. ???? Has anyone run into these problems? Any suggestions would be appreciated.

I see. I was thinking of family aggregation being repealed in the context aggregating the compensation of family members(ie, the elimination of former 414(q)(6)), but I now see that family aggregation applies in the context of determining who constitutes a 5% owner, which in turn determines HCEs. Thanks.

Why is the son an HCE? The facts did not say he was an owner and there should not be any attribution between the father and the son.

Kirk- Why does it matter if it is self-funded or not? If this is preempted by ERISA, what does ERISA or the federal common law say about this issue? I can understand a general preemption argument, but I don't know what the rule would be absent state law. I came across a few random cases the other day. For example, in Blessing v. Deere & Company, 985 F.Supp. 899 (S.D. Iowa), the court stated "The issue of what constitutes a common law marriage is not expressly governed by ERISA; the Court therefore applies federal common law. In applying federal common law, the Court looks to Iowa law for guidance on this issue. . . . The Court may properly apply Iowa's state law on this issue, because it does not conflict with ERISA or its underlying policies." As another example, in Bond v. Trustees of the Sta-Ila Pension Fund, 902 F. Supp. 650 (D. Maryland), the court speaks of preemption in this context and states the following: "The Supreme Court has also warned, however, that even under ERISA claims, we 'must presume that Congress did not intend to pre-empt areas of traditional state regulation.' Metropolitan Life Ins. Co. v. Massachusetts . . . . In the instant case, the definition and regulation of marriage is a traditional area of state authority. Following the approach of Metropolitan Life, this Court will presume that Congress did not intend to pre-empt this area of law. Plaintiff has provided no authority to rebut this presumption, nor has plaintiff provided this Court with authority suggesting what 'federal common law of marriage' would be."

Kirk - thanks! You are on point - I want to know about excluding common law marriages in states that recognize them. In Scott V. Board of Trustees, 859 F.2d 872 (11th. Cir. Ala. 1988), the court held that it is against Alabama's public policy to deny common law marriages the same status as ceremonially solemnized marriages. In this case, an indemnity policy excluded common law spouses from coverage. However, the case never mentions ERISA. Because of this case, according to a contact of mine at Blue Cross Blue Sheild of Alabama, BCBSA does not allow such exclusions in its health plans and will not administer a self-funded plan with such an exclusion. Despite any decisions like Scott, there are some who argue you can exclude common law spouses, under ERISA, even in a state where there is such a holding. Those who argue this have not been able to present me with any authority for this, except to analogize the situation to the statute of limitations under ERISA (ie, defer to state law, unless the parties have otherwise contractually agreed). I happen to know about the Scott case because I am in Alabama. I have no idea what other cases may be out there in other states.

May common law spouses be specifically excluded from welfare and pension plans? For example, assume Georgia recognizes common law marriages. Would it be allowable to have a health or pension plan maintained by a Georgia company exclude, by definition, spouses through common law marriage?

Assume Employer A and Employer B are sharing some employees. Further, A and B are an affiliated service group. Questions: 1. Compensation. It appears that, for purposes of determining contributions under any retirement plan maintained by A or B, only the compensation payable by the company sponsoring the applicable plan may be considered. See, eg, Rev. Rul 68-391. For example, In determining the contribution payable to Participant X in A's profit sharing plan, only the compensation paid by A to X can be considered (ie, the compensation paid by B cannot be considered). Does anyone know of any rule that would allow compensation from A and B to be considered? 2. Vesting: Is it allowable to count Participant X's service with A in determining whether he meets the hours of service requirements in B's plan for purposes of eligibility? vesting? contributions? It appears such service is counted for purposes of eligibility (see Rev. Rul. 67-101, 73-447 and 81-105), but we want to consider it for purposes of vesting and contributions as well.

Are there companies out there who recently have set up the following arrangement: Set up DB plan which calculates a monthly pension benefit, which is converted to a lump sum ("LS") for each participant. The LS represents a minimum account balance. In addition to the DB plan, a profit sharing plan is implemented and participants are allowed to self-direct their profit sharing accounts. When a participant becomes entitled to a distribution, he will receive his profit sharing account balance if such balance is greater than his LS in the DB plan. If the profit sharing account balance is less than the LS in the DB plan, then the DB plan will pay for the shortfall. Although this idea is not new, it is recently being marketed again due to various tax law changes. I am interested in knowing whether any companies have recently set up such an arrangement (within the last year or so).

I seem to recall some "authority" or "non-authority" regarding providing different investment options for former participants and that this is a "significant detriment" problem. If my recollection is correct, there was much speculation about what bearing the "authority" may have on other issues for former participants (for ex, loans, hardships, etc.). My experience is that many have continued to treat former participants different in areas other than investment selection and plan to continue to do so until some "authority" or "non-authority" specifically addresses the particular situation and conflicts with the company's practice.

Can anyone point to some authority on the following issue (note: I am already aware of DOL Adv. Ops. 82-55A and 82-65A): Bank trust department wants to pay referral/finder's fees to employees of its affiliate banks who refer qualifed plan trust business to said trust department. Such fee would be an ongoing annual fee as long as the trust business remains with the Trust Dept. and would be based on a percentage of the trustee's fees(which trustee fees would be equal to any 12b-1 fees received from the mutual funds, assuming that such trustee's fees are reasonable in amount). Ex: Employee A of Bank A tells Company X to call Trust Dept. (an affiliate of Bank A) regarding acting as trustee of Company X's 401(k) plan. Company X makes the call and Trust Dept. becomes trustee of Company X's 401(k) plan. Accordingly, Trust Dept. pays Employee A a referral/finder's fee for so long as Trust Dept. continues to act as trustee of Company X's plan. The referral fee would be based on a percentage of the trustee fees. The trustee fees are equal to any 12b-1 fees/sub-trasfer fees/finder's fees the Trust Dept. receives from mutual funds in connection with the investment of the 401(k)'s assets in said mutual funds. Prohibited Transaction?

Dawn and Kirk - thanks for your responses. Kirk - Would you agree that a payroll period true-up would work for those who hit the 10,500 limit (assuming you did not have to worry about election changes)? Of course, I doubt that the plan could, from a anti-discrimination basis, true-up on a payroll period basis for those who hit the 10,500 limit and true-up on an annual basis for those who have mid-year election changes (ie, true-up could be monthly, but at the point an election change is made, no more true-up would be done until the end of the plan year). Other than Dawn, are there folks out there who are aware of companies that are truing up on a payroll period basis? Is so, what is the answer to Kirk's point?

For plans that are drafted to contain a true-up matching provision (ie, matching contributions are based on annual compensation rather than payroll period compensation), does the Employer have to wait until plan year end to make the true-up matching contribution? I have always seen it done at plan year end once the annual compensation is exactly known. However, I have a client who wants to make the true-up at the time the participants hit the 10,500 limit all at once based on projected compensation for the year, or alternatively, to true-up each payroll rather than waiting to the end of the year. Can this be done? Any comments would be appreciated.

Does anyone have an impression as to whether closely-held companies with ESOPs are using institutional trustees or whether they are individually trusteed? What are most doing?

Employer wants to amend its MP plan to lower the contribution for the existing plan year. There is a last day requirement in the plan. Assuming an appropriate 204(h) notice is given, can this be done? I am aware of some guidance in the area of a profit sharing plan, but not aware of what guidance exists, if any, in the money purchase plan arena. I know there are practitioners who will make these types of amendments arguing that there is no entitlement to an allocation until the last day of the plan year (which I personally think is a good argument). Is there any authority directly addressing this issue? Are most practitioners allowing such amendments, or is this considered a very risky approach?

Employer maintains an Attendance Bonus Plan wherein an employee is paid a bonus if s/he does not miss more than 8 days a year. If an employee is on FMLA leave, can the leave count against the 8 days (e.g., if the employee misses a total of 9 days in a year and the 9 days were all missed on FMLA leave, can the bonus be denied)?

Thanks so much for your responses. My suspicion is confirmed. ------------------

Facts: Employee of Corp. A terminates employment with Corp. A and moves to Canada to become employee of Corp. B. Corp. B is a wholly-owned subsidiary of Corp. A. Employee participated in Corp. A's 401(k) plan and wants to take a distribution. Has employee separated from service from Corp. A (ie, is employee entitled to a distribution of his elective deferrals)? Note: Corp. B employees are not eligible to participate in Corp. A's plan. Corp. B has its own retirement plan established under Canadian law. Any citations would be greatly appreciated.

In response to Anthony Belbis' questions: The amount exceeded $5,000 and the entire amount was an eligile rollover distribution. (why does this matter? Even if it is less than $5,000, it is still an eligible rollover distribution). Participant is single; only lump sum distributions (no QJSA/QPSA).