GBurns

I know next to nothing about these plans but in reading the posts I had some questions. Is a 401(a) plan a qualified plan? If it is then mbozek post raises a question. How then can you have a qualified plan that is linked (used in conjunction with) to a 457 plan? another question is raised by the original post which stated that the the current 457 provider was also going to be involved with 401(a). Why would anyone want to have a plan which involves a provider who could not help you set it up and who could not even provide the basic set up material? Or who would want a provider who could not provide help?

RichelleHJ What you have described is a standard "Benefits Credit" section 125 cafeteria plan. Such a design is very popular among large public entities. I suggest that you contact a few large ones in your area and look at their communications material and documentation. This will give you a much better handle and insight into the isuue than you will get on this Board. However, you might want to come back to the Board once you have the knowledge, just to expound on items of concern and use us as a "sounding board". Money in a section 125 plan is never the employee's money. All money is treated as employer contributions including the employee's elective contribution. Employer contributions can never be the employee's until certain conditions are met such as the submitting of an eligible claim for reimbursement or for payment to a third party such as payment of the insurance premium for the selected coverage. Tha is also 1 reason behind leftover money being forfeited instead of being given to the employee. If plan changes cause a Qualifying Event which allows the employee to change coverage, that change usually does not also allow any change in employee FSA election. In general, if not always, no changes are allowed to an employee's FSA election during the plan year. However, from what you posted, the employee will not be making any change in their FSA election. What the employee will be doing is re-allocating the "Benefit Credit" from the employer. This is a totally different thing. If the employee can re-allocate the money to an health insurer, then logically they can re-allocate to any available insurer. This would include the Group Life provider or the Dental provider. In re-allocating, all the employee is doing is redistributing the Benefit Credit to another provider. The 401(k) etc is just another provider. However, do not take my word for it, just look at what the users of such plan designs do and ask them for the supporting logic if the documentation that they provide is not clear. You might also want to look up the BNA Portfolio on Cafeteria Plans available at most large Law Libraries if you cannot get on-line access.

duh Aside from the benefit of an annuity that MGB points out, I think there are other very issues. 1. If rolled over to an IRA, in what will the money be invested and at what rate of return? Will that rate of return be better than the rate of return from an annuity? Were you thinking that the IRA is an investment or earns much just by being an IRA? 2. What are the charges, fees and expenses for the IRA and for its investment? Do these charges total more or lees than the sales commission etc load of the annuity? How much is the sales commission? It could very well for an immediate annuity be less than 2%. Is that more than the charges for the IRA and its investment? 3. You stated that after "the five/59 1/2 time obligation, he can withdraw whatever he wants without penalty". Why is this any different from the 5 Year surrender charge of many annuities? Which penalty is less? 4. Taxes on accumulations or earnings. What is the tax liability of the IRA vs the annuity? 5. Taxes on premature withdrawals. Which has a higher tax liability? 6. Net gain. Which will leave the engineer with the most net money at any given time? Having a blind bias prevents one from evaluating the facts and circumstances and leads one to make assumptions that might be very inaccurate. I personally try to gather all the facts, consider them, then give an opinion. The opinion might not be as good as those of others, but at least it was given with some thought of the facts.

As far as I know or have seen, a Plan is free to NOT contract with any provider it chooses. The Plan is free to establish its own list of eligible providers or to place limits on the members of any provider network that it contracts with. In contracting with any network, IPO, IPA or any group of providers, the Plan can negotiate exclusion of any member provider. The only exception would be in a state with an applicable "any willing provider" law. In my opinion, listing the name of undesired providers is not only unnecessary but should be slander, defamation or be subject to some similar litigation. If the accepted or desired providers are listed, and any providers not listed are deemed as "Restricted Access" and subject to a punitive co-pay higher than normal "out of network", that should be sufficient deterrent to the employees. The use of Providers should be taught as part of Open Enrollment. Why is this provider even available to the employees, anyhow? Remember, the problem is not the dentist, the problem is the employee who chose this dentist and the availability of the name (to the employee) as a provider.

HMO's and other insurers are required by state law to provide the Certificate of Coverage. HMO's and insurers do not provide SPD. A Certificate of Coverage is not an SPD nor does it have the required language. An SPD is a Summary Plan Description of the Plan provided by the employer or Plan Sponsor. In essence the SPD summarizes the Plan Document. HMOs and insurers do not provide plans and are not Plan Sponsors. HMOs and insurers are providers of benefits and services, they do not provide health plans. Employers and Plan Sponsors provide health plans, hence the phrase "employer provided". The Employer or Plan Sponsor is responsible for providing the SPD and Plan Document.

I have to paraphrase that which has already been posted by QDROphile and mroberts. What does this action by the employer have to do with either a Qualifying Event or a Change in Status? NOTHING. What change will the employee be making to their election? NONE. However, as QDROphile points out, the whole thing could backfire. IMHO, (In My Humble Opinion) care and more thought is needed for the plan design, bearing in mind employee communication, effective date for incurring claims and future years projection. It probably would be best to not fund ALL eligible employees, but instead put in a simple 105 MERP and take care of those who turn out to need it, bearing in mind my other caveats in a previous post.

[i]"Individually owned accident or health insurance policies may be offered under a cafeteria plan " [/i]Both group and individual plans can be offered through a cafeteria plan, but that has nothing to do with the issue of reimbursement. Any plans that are through a cafeteria plan whether individual or group gets the premiums pre-taxed. That is it SOLE purpose of a section 125 cafeteria plan, the pre-taxing of premium. The difference is that while the employer has instant verification of coverage and premium payment in a group plan, the employer does not have the smae with individual plans, hence the IRS statement [i]"provided that the employer requires an accounting to insure that the health insurance is in force and is being paid by the employees"[/I]. I think that a problem might also be in your definition of reimbursement. Payment of premium through a cafeteria plan is not a reimbursement of premium to the employee. An employee getting money back from either an FSA or from an employer because the employee had an eligible expense, is a reimbursement to the employee. A Premium Only Plan (POP) is a plan that has insurance premium only and no FSA or DCAP etc. It does not matter what the underlying plans are, it matters only whether there is Premium only or not. See and explanation given by any TPA, insurer such as AFLAC or Aetna, or document provider such as MHM, DataPath etc. It does not matter what you want to call it, this is what the industry as a whole calls it. Re Rev Rul. 2002-3 and 61-146: In 61-146, the premiums paid by the employee were paid post tax as you stated BUT the reimbursement was done by the Employer from the employer's general assets NOT from employee pre-tax funds. In Rev Rul. 2002-3, the employee paid the premiums pre-tax and then was reimbursed by the employer on a tax free basis. Since pre-tax premium payment is not a reimburseable expense, the reimbursement should not have been tax free. In other words you cannot be tax free on the same thing more than once, hence no double dipping. Rev Ruling 2002-3 went to the trouble of distinguishing 61-146. Why would you want to put them back together and contradict the IRS and the dozens of similar explanations of 61-146 and "Double dipping" that have been given by so many "experts" over the last 4 years? Try a Google search on "double dipping arrangement" , "Health Incentive Plan" and "HealthIER Plan".

OOPS! That's a BIG gotcha. I guess I missed a lot. However neither Rev Ruling 61-146 nor what Mr. Beker said nor "Premium Reimbursement Accounts" involve any employee funding of the reimbursement, so none are applicable to the post anyhow. KJohnson, What you described in I) is not a PRA but rather a standard section 125 POP (Premium Only Plan), It pays premium, it does not reimburse. Re 2) Where is your support for such a scheme?

What you are all missing is that the premiums are paid on a pre-tax basis by the employee. The only time that Mr Beker or anyone at the IRs addressed the reimbursement of pre-tax premiums has been in connection with the "double dipping" arangements that caused Rev Rulings 2002-3 and 2002-80. Reimbursement of premiums that were not pre-taxed through a cafeteria plan or otherwise is a different issue from that which was initially posted. Rev Ruling 61-146 addresses premiums that were not pre-taxed. Premium reimbursement accounts are for premiums that were not pre-taxed. The IRS link provided by calcu does not relate to premiums that were pre-taxed.

Some use Trust, some use funds, some use special account and some pay directly from general assets. I do not think that there has been any tallying of who does what when. Personally, I have only very occassionally seen claims paid through Accounts Payable. Although payment of claims is from general assets, payment is made through an expense account rather than from the Accounts Payable "ledger" which is usually reserved for Vendors. So maybe the real difference lies in your meaning of Accounts Payable. For example, deductions fron an employee's salary for FICA is kept in what is technically an account payable (and sometimes is titled "FICA Payable") but it is not paid through the Accounts Payable ledger.

I usually suggest re-reading in cases where a person misquotes a post or contradicts their own post. I do not recall ever seeing any difference, regarding ERISA pre-emption, between single employer self funded and multiple employer self funded plans (that are ERISA MEWAs). MEWAs that are not ERISA are regulated by the State. To more directly address your question regarding parameters, I have to refer you to a Google search for "ERISA preemption". The issue of ERISA preemption is still rather unsettled and the standards are still evolving. The issue is also very facts and circumstances dependent. As a result a broad brush answer would not be appropriate, and your own reasearch would be best so that you can apply your specific facts and circumstances to each of the items that you find. In general, the exceptions to preemption are under: 1. The Savings Clause. 2. The Deemer Clause. 3. The MEWA Clause. However, it is possible that a contractual condition could cause waiver of an exemption, for example: http://www.bccb.com/Publications/Files/Hea...rivacyRule.aspx The Fordham Law Review (61 Fordham L. Rev. 401) has identified a four-step process, within ERISA, for determining whether a state statute has been preempted by ERISA. 1. a determination must be made that a state law exists, 2. that it relates to an ERISA covered plan, 3. whether the law falls within 1 of the preemption exceptions. 4. even if a state law covers matters within an exemption and relates to insurance, it must be determined whether the law is still pre-empted under the Deemer Clause because the law is being applied to a self-insured plan. There is also a de facto "standard" of a 4 step process derived from Supreme Court cases for determining whether state law relates to an ERISA employee benefit plan which is 1 of the steps in the Fordham process: 1. determine whether there is a conflict between the state law and ERISA, 2. does the state law contain an explicit reference to employee benefit plans. 3. Is the state law intended to affect an ERISA plan. 4. does the state law produce a substantial indirect effect on an employee benefit plan.

q8r, Will you explain what you mean by "If an employer can pay it outside of the plan, then it can be provided through a cafeteria plan. " Pay what? the premium or the reimbursement? If the employer pays the premium there is nothing to reimburse. If the employer is reimbursing, what are they reimbursing since pre-taxed premiums are not reimburseable? Rev Ruling 61-146 has nothing to do with the issue. The post referred to the employee pre-taxing premiums and a Cafeteria Plan. 61-146 has nothing to do with pre-taxing premiums or Cafeteria Plans or section 125. Insurance premiums are an expense under 213(d) but that is only applicable to Itemized Deductions and where the 7 1/2% limitation applies. Itemized Deductions cannot be pre-taxed. IRC section 213 is in Part VII of the IRC which relates only to itemized deductions, whereas sections 105, 106 and 125 are in Part III which relates to Exclusions from Gross Income. Exclusions are pre-taxable whereas Itemized Deductions are not. Deductible is different from excludible. Also, "a separate "premium payment account." would have nothing to do with reimbursing premiums that were pre-taxed, anyhow. Premiums that are pre-taxed through a section 125 cafeteria plan are treated as "employer contributions". This is necessary to meet the requirements of sections 106 and 105. If the pre-taxed amounts are now employer contributions, there is no employee expense. If there is no employee expense, then there is nothing that is reimburseable. See Revenue Ruling 2002-3 etc etc.

I could not find where I ever said that a MERP was not subject to COBRA although I could have. A MERP could be exempted from COBRA depending on the plan design although in general most plans should be subject to COBRA. For example, would a Plan whose PD restricted reimbursements to the deductibles of certain named health insurance coverages (HMO1, PPO1, PPO 2 etc) be subject to COBRA if the COBRA plans are none of the named coverages? Active employees participate in HMO1, PPO1 and PPO2 whereas COBRA electees have some other named plans (PPO3) even though the coverage is identical. However, that being said, it would be a simpler issue and not of significant cost to allow COBRA coverage.

moe, You need to re-read your posts from scratch. You were the person who would not accept the OIC statement that "The OIC believes that MEWA case law would be totally separate from single employer case law". All that I and others have pointed out is that the OIC is correct. MEWA does not involve single employer plans and therefore single employer plans have separate case law etc etc.

As oriecat pointed out any relevant health care fraud would depend on there first being a finding of a fraudulent marriage claim. A finding of a bona fide marriage would make claims investigation unnecessary. Additionally, Why is health care fraud being investigated by the Company rather than by the insurer, health plan or state regulators? How does it get to be within the jurisdiction of the Company, anyhow? But, what bothers me even more, is that these internal investigation people even thought to look at health claims BEFORE satisfying the marriage issue. It makes me wonder about their acumen, experience and intelligence.

Premiums that are pre-taxed though a Cafeteria Plan or otherwise are not reimburseable. Revenue Rulings 2002-3 and 2002-80 etc. The medical expenses of 213(d) have nothing to do with what is reimburseable through an FSA or MERP etc. The only relevance of 213(d) is for the DEFINITION of medical care NOT for the expenses.

moehoward2, How do you get a single employer plan to be a MEWA?

I do not understand why you think that you can "gloss over" the Who's the Employer issue. If they are employees of Corp G, How can they be eligible for Sole Prop's Plan? What about the other employees at Corp G? If they are eligible for Sole Prop's Plan, From what payroll will elective contributions be deducted? If they are eligible for Sole Corp's Plan because of the "leasing" then that would mean that they are really Corp G employees. Does this mean that BOTH Corp G and Sole Prop will have to sponsor the 401(k) Plan? If so will you have a multiple employer plan? I do not see where eligibility is even to be considered until the Employer-Employee issue is determined. Following and accepting what the employer tells you will not absolve you from liability. Ask your E&O carrier.

I only said that "Header, Wollenberg come to mind". That is why I did not quote from them nor cite them formally, I suggested that the cites given by the IRS be looked at instead. Wollenberg: Leola Wollenberg IS the spouse of Walter Wollenberg and there was an Employment Agreement and retroactivity of adoption although primary was not the only issue as a reading would show. However, the issue was not whether she was a spouse or not but whether she was an employee for which they could adopt the Plan. While the issue was primarily the retroactivity of the plan adoption, other issues such as being a bona fide employee and the payment of premiums were issued raised and subsequently adjudicated. Page 3, II ANALYSIS, A. Medical Expense Reimbursement, [*10] n3, "I have assumed for the sake of argument that Leola Wollenberg was Walter Wollenberg's employee during the relevant time frame. If Leola was not ..." Page 2 states "Leola Wollenberg signed an "Employment Agreement" with Walter as employer and Leola as employee". Page 4 "Premium Payments" also see "It is Ordered". http://www.irs.gov/pub/irs-utl/wollenburg_v_comm.pdf The issue of reasonable compensation is an issue frequently raised by the IRS and it is very difficult not to notice the frequency if one is involved in taxation and representation before the IRS or just research into taxation. Based on the frequency with which it is raised an an issue in cases in which the IRS prevail, it is more than foolhardy to casually think that any shareholder/employee, shareholder/Officer can be paid any minimal amount. In fact not even the most menial employee can be paid just any amount. Paying an employee $100 per year would not fly, neither with the IRS, the DoL or the State, and if any 1 shoots it down the rest follow suit. The cites at the IRS link include this Coordinated Issue Paper: http://www.irs.gov/pub/irs-utl/all-cafhealth.pdf On page 2 under Law And Analysis, Issue 1: the last paragraph on page 2 has wording that is very frequently used in "reasonable compensation" cases and these accident and health related cases, namely, "Accordingly ...are deductible, if ...bona fide employee ...for which the accident and health coverage is reasonable compensation. However, if the "employee-spouse" does not meet this standard ...". Rueschenberg: http://www.irs.gov/pub/irs-utl/rueschenberg_v_comm.pdf Here there was an employment contract but still the issue of reasonable compenastion was a primary issue. The employee benefits programs amount related to the amount the employer paid for himself and family. The disallowance was partially for failure to establish that the amount deducted each year was reasonable in amount in terms of "employee-spouse" overall compensation. The issue of "eligible employee" was also raised in relationship to hours worked related to compensation. Haeder: http://www.irs.gov/pub/irs-utl/all-cafhealth.pdf While Haeder had no employment contract, the issue of reasonable compensation (or lack) was a major issue. On page 6 ".he based her salary on the maximum amount that a qualifying individual could deduct .... an IRA". While most of the above cases are related to self employed situations, there are even more cases related to the issue of "reasonable compennsation" involving C Corporations. Asking a Tax Practitioner, visiting the Tax Court archives or doing a Google search on "IRS reasonable compensation" should get anyone numerous cases etc. sufficient to show that this is a major issue.

The plans I remember had an "imbedded" long term DI policy for this "benefits completion" feature with premiums paid out of either the employee's election or the match. I even vaguely remember a PLR in about 1999 on this. By "a 401(k) product" I understood a pre-packaged plan such as provided by Manulife, Principal, ADP, Fidelity etc. PATA Is this what you mean?

In my opinion these employees might not even be employees of Sole Prop V any at all. The fact that he compensates Corp G might be regarded as a fee for service rather than a lease. Which raises the question of whether or not Corp G can legally lease employees? Although someone is going to state that the Corp G artiles probably states "any and all" as type of business, there is still the state law requirements regarding "Leasing Companies" along with Workers Comp, Unemployment liability, Health Insurance and General Liability insurance issues. If these employees are in a different location, Whose WC and General Liability covers them? Who covers Unemployment Claims? Is the Health Insurance provider aware that the employee location has changed? If Corp G cannot "lease" the 401(k) issues are moot. If Corp G can legally "lease" but other the other liability issues rule against it, it is also moot. By the way, Have you considered the employee reaction when they find out that they are getting Sole Prop V 401(k) instead of Corp G 401(k)? What will be done when at that time they discover that they are not (and have not been for some time) employees of Corp G??????? What do you think the State UC Office will say when the first ex-employee files against Corp G then everyone discovers that there is something called Sole Prop V??? The same for the first OSHA or WC incident??? The timing or eligibility for a 401(k) seems of no consequence.

Remuneration that consists of, or is equal (or nearly equal) to, the costs of benefits provided, whether health insurance premiums, IRA or pensioncontribution etc, has been an issue in a number of cases in which the IRS prevailed, and which were related to the questions of "bona fide" employee and reasonable compensation. In the IRS Q&A at the links provided, the IRS cites some of these cases. Header, Wollenberg come to mind.

Now you have me wondering how good my memory still is. Somehow I had it in my head that a good 401(k) plan had this feature and that a large number of those that I had come across had this feature.

A shareholder is an investor in the corporation, company or venture etc. A shareholder, whether sole, major or otherwise does not have to be either an Officer nor a Director. A large number of sole shareholders are not Officers of the companies that they funded, started or invest in. There is no logical reason to state "then it stands to reason that he might be a corp officer" because there is no reason why any shareholder has to be an Officer, other than personal preference. I am the sole shareholder in a lawnmower equipment repair facility that is a C corp. I employ a CEO, I am neither an Officer nor an Employee, I am only a Director. This is a very common scenario among people who invest in small enterprises. Also very popular is to be just the major shareholder or "silent partner" in a venture with someone who has a certain expertise but who lacks the capital and/or business handling capability. The major shareholder quite often will be a Director but not a Corporate Officer. But understanding what the relevant definition of an "employee" is, still does not address most of the original post, anyhow.

moehoward2, Definition of employee: IRC 3121(d). Note the test in paragraph (b) regarding officers. Of course you might need to understand the difference between an Officer, a shareholder and a Director. Treas Regs 31.3121(d)-1 Explanation of IRS position: http://www.findarticles.com/p/articles/mi_...193/ai_87570366 The relevance of 3121 and 3405 etc is that amounts under 104, 105 and 106 are exclusions from Gross income. The taxation of Gross Income is outlined in 3121, 3405 et al. C Corps are even more clear cut because of the stricter enforcement and structural adherence to the separation of duties whether imposed by the By-Laws of the Corporation and/or by the state Corporation Law. http://www.bdo.com/about/publications/industry/re_summer02/