GBurns

Kirk, Self administration of a small 105(B) medical expense reimbursement plan might be okay, but I doubt that this is what was meant by the term "self-insured medical plan" as posted by Moe. Moe, What type of coverage did you mean?

You have a very odd plan design. In a "Benefits Credit" plan design the employer makes available an amount which the employee spends for benefits. If it is not enough the employee contributes the needed amount. . In many cases the unused amount is directed to a 401(k). For example, the employer commits to $400 per month, the employee elects single coverage HMO for $250, Dental $20, Vision $15, STD $25, FSA $50 leaving a balance of $40 which goes to the 401(k). If the employees have to make an annual election how can they use money that is given quarterly? The employee is already committed and has a salary reduction agreement that cannot be changed easily so what could the employee do with a quarterly allocation?

Any sort of employer plan self funded or not has to have documents establishing the plan. There is the Board Resolution, the Adoption Agreement, the Plan document, the SPD etc etc. Something has to spell out what the plan is, how it operates, what is provided and ERISA rights etc etc. Somewhere in all of this there will be a plan year specified and any renewal or termination procedures. Remember I am talking about the Plan, not the components of the plan such as health benefits coverage, which might be insured or self-insured. The health coverage is not the Plan.

Agent "A' has a lot of commission at stake on these individual policies and could be biased in his opinion. I do not see a discrimination issue in any case, however, I see a fiduciary issue and a major tax issue. Are the individual policies Term or Cash Value insurance? Assuming that they are Cash Value policies; Have these "key" employees been made aware that they will be taxed on the "economic" benefit of these policies? Has the employer been advised regarding the possible lack of deduction as an expense these premiums? Has the employer considered or been advised of the fiduciary liability issues that exist if it is the employer (instead of the employee) who selects other than Term Life insurance for a death benefit oriented plan?

Now you should do the basic math. You know the $ value of the 92.7%. Add the admin fee, the cost of the brochures, SPD and other employee communications, the cost of the stop-loss, any reserving requirements etc. Add a margin for safety. This should give you a good picture of how much your current plan would have cost(ed) you if you were now self-funded. If you can get a fully insured plan for this price then you do not need to even consider self-funding. Why take the risk? If you can only get similar coverage for a much higher price then you have a basis for considering taking the risk.

Why discontinue??? Why not just convert the premium funding source (with the approval of the insurance providers, of course)? Converting the existing plans from employer paid to employee paid would provide the premium release that you seem to be seeking, but would keep the benefits provided by a group plan such as guaranteed issue, no pre-ex, lower premium. Converting the premium, replacing with individual plans or otherwise still in most cases leaves you with an ERISA plan that needs a Form 5500 etc just like before.

Union members are usually employees who join a union ratified by their employer. Union employees work for a union. Which do you mean? In any case there are no restrictions that stop employees (unionized or not) from participating in a 125 plan set up by their employer, unless there is a collective bargaining agreement or other agreement that prohibits this.

Regardless of what the IRS says you should still pay close attention to your applicable state laws regarding the issue of salary deductions and reductions.

As far as I can remember ownership of an interest in an ESOP is not the same as ownership of shares in the "S" Corp. I would first find out the difference, maybe on the ESOP Board.

I read you post to indicate that this employer wishes to set up an HRA in addition to the FSA that is already in place. Am I correct? Assuming that the employer will now have 2 separate and different plans, 1 HRA and 1 FSA: 1. The employee CANNOT contribute to the HRA. HRAs must be employer funded ONLY. NO employee salary reductions are allowed. 2. There CANNOT be a cash option in a HRA. 3. The employer contributions to the HRA does not affect the contributions to the FSA whether from the employees or not and does not affect the FSA limit. 4. Pay attention to the "Ordering Rules" regarding which of the plans pays for which expense and which plan pays first etc. 5. Recheck Revenue Ruling 2002-41 and Notice 2002-45 to see whether or not you would be violating those rules by basing the employer contribution on health plan participation rather than on other allowable status.

It seems that Dependent care is only deductible or reimbureable if it is provided so that the taxpayer can work etc. these rquirements are made clear in section 129 and in the 1040 instructions. Kindergarten is educational because is provides learning and tutoring, even if that only consists of learning nursery rhymes and fingerpainting. Day care is the providing of care during the day in the absence of the taxpayer. Kinder-care is the providing of Day care mixed with Kindergarten. If whatever is provided is not related to the ability of the taxpayer to work, there is no deduction etc. Educational activities and services are not deductible or reimburseable. If there is an overlap of services then the amounts have to be apportioned between what is provided related to work of the taxpayer and what is educational (which is deemed as treated otherwise). The prudent thing to do is to use Day care where the educational content is not emphasised and treated as incidental. Note that Day care providers do not promote their educational activities. If someone needs the status symbol or marketing buzzword of "kinder-care" they must expect to pay for the privilege ( through loss of the tax break). Essentially if you cannot deduct it on your tax return you should not be able to get it reimbursed through a DCAP.

You were the person who posted: "This Plan was initially a 403(B) Plan." Therefore, it is spurious that you later now try to state : "Everything I've talked about is in the 401(k). Everything. Two completely and totally separate plans. " I guess that since you are not sure of what it is you want to write and seem to use words for which you have your own definitions, that is why "everything" is not an all inclusive word and also why my simple question ... "How does a 403(B) plan get converted to a 401(k) plan?" , which was only asked because of your above statement, seems to have thrown you into a tantrum. Usually posters on these Boards try to keep a civil tongue, however, you seem to easily lean towards vulgarity and abuse whenever you are questioned etc. I do not know if you are embarrassed by my questions, you think that you are above questioning, or by the need for the suggested remedial course, which it now seems might not be broad enough.

Without knowing at the least what state you are in makes it difficult to recommend an attorney. I know great attorneys who specialize in employee health plans rather than benefits attorneys ( most of whom are really pension plan and ERISA attorneys). However, they are in Illinois, Indiana, Ohio or the NE area down to D.C. The first thing that I think that you should do is to start looking at the websites of a number of the larger or more popular law firms. Look at the practice areas and the bios of the lawyers in the relevant practice areas. This will give you a feel for the differencees between benefits attorneys, ERISA attorneys and attorneys who do health benefits. You will not only start to see the differences but get to realize what the issues might be and what you need to know about what they do so as to be able to better select. You also need to do some research on self-funding, MEWAs, METs and a little ERISA. The self-funding info you can get first from your present carrier, then from anyone that you think might be a possible bidder. If they will not help to educate you now, How can you trust them to provide good service later? The MEWA and MET info you can get from some state DOI websites, the PWBA (DOL) and the Association of Pension Benefits Administrators (www.apba.org) (dont worry about the name the info is still good).

I suspect that to most people it does matter that there are really two (2) different plans that have nothing to do with each other. It now raises the issue of which plan made the loan and in which plan is the GIC account? Is it that a 403(B) loan was taken and the 403(B) account used as colatteral? OR Is it that a 403(B) loan was taken and the 401(k) used as colatteral? OR Is it that a 401(k) loan was taken and the 401(k) account used as colatteral? Did you confuse the 2 or cause the insurance company to misinterpret your questions and that is why you are not getting a satisfactory answer from the insurance company? Not being accurate leaves the door open for misunderstanding and incorrect answers. That is why most people try to be as accurate as possible in their descriptions and explanations.

BillClinton, You post refers to these affected persons as "participants" outlines a failure to withhold and refers to the incident as an "error". I read your post to state that these are eligible participants who made valid elections to have contibutions deducted from their salary etc, but because of this "error" the deduction (reduction) was not done. Did I read you correctly? I ask because the first response that you got talks about "eligible employees are excluded", ADP/ACP testing and "tacking on earnings". None of which seems relevant. Can you clarify your post or correct my reading?

Most posters have the common courtesty to leave personal comments out of their posts. I do not think that there is anyone who else posts on a regular basis to this Board who thinks that they are above question. If somehow you see "attitude" in my post, I suggest that you could/should consider the possibility of a remedial course in reading comprehension. To quote fron Rev Rul 76-250: "A participant who completes 1,000 hours of service in a particular year does, however, not cease to be a participant for such year, for the purposes of the minimum participation standards of section 410 of the Code, merely because he separates from service before the end of that year. " Therefore it is clearly not a requirement placed by the Rev Ruling that the participant be employed on the last day. In fact there are many employees who will work enough overtime etc etc to complete 1000 hours in the first 6 to 9 months of any given year. As mbozek points out it is not clear what the employee is really asking, therefore there are questions to be asked and things to be discussed... That is the purpose of these Boards. The original post referred to (1) a last day requirement NOT a 1000 hour/last day and (2) a per pay period ER contribution. The cited Rev Ruling shows that there is no statutory last day requirement and it does not address the per pay period contribution.

How does a 403(B) plan get converted to a 401(k) plan?

If someone claims that an item etc is legal or statutory, the burden is on that person to provide the legal support for their position, not for you to try and find something that you think satisfies what it is that you think that they might have meant. Get that person to provide the required support.

Aside from the obvious fact that Rev Ruling 76-250 predates 401(k) and therefore could not address it, it does not even seem to address the issue posted. The Rev Ruling pertains to minumum participation, vesting requirements and warns of a 401(a)(4) failure. Where do you see this as being applicable to the post which concerns ER matching contribution timing in particular year end (with last day employment) vs. per pay period?

What would this Committee do and why would it be needed? I assume that you are either a large non-profit or public entity so why not just copy the charter of you other committees and change the functions descriptions. The only difference between this and your other committees will be in the functions which will be a very minor portion of the charter, all other sections should read essentially the same.

It is very popular not only with public sector employers who do have a 401k, but also with some larger employers. It is very often used in Benefits Credit cafeteria plans. As for the "CODA" issue thatyou raised, since you stated that it is within a Cafeteria Plan it must therefore already have a cash option. Without a cash option there would be no Cafeteria Plan. Re your discrimination issue ... What do you mean by "not benefiting"? The money was non-discriminatingly provided to the employees, All plans are available to all eligible employees. How can it then be discriminatory after the employee makes their unrestricted choice? Would the medical plan be discriminatory if 1 employee chose medical and 401k while another who did not need the medical chose Dental, Vision and 401K?

What happens if the employees who stopped deferrals now want back in but increase their deferrals so as to "catch up"? Would the match on the "increased" deferrals restore these employees by the end of the year to where they would have been if they had not stopped (interest and other investment earnings not counted). The employer match could/should end up the same at the end of the year, anyhow. It might be a PR wash if the deferrals that were not stopped would have been invested in a fund etc that would have lost their money.

K1 income is not salary, wages or other compensation. No salary or wages means no salary deferral.

Simply put, as long as there is a choice given to the employee to do a salary reduction or to not do a salary reduction, you should do it through a section 125 plan. Of course, based on your plan design and employment contract you could follow the example of EXpress Oil Change and a few others who did not use a section 125 plan and yet defeated an IRS challenge in court on this constructive receipt and salary reduction issue.

I would seriously question anyone who thinks that it is acceptable. I think that your state Dept of Insurance would certainly have something to say about LTC or any insurance product being sold or promoted as an investment. You treat the incidental requirement very casually as if it is a secondary thought or concern. It is the first and most important issue. If any product or item does not satisfy the incidental requirement it could not be used regardless of how good it is. Have they given you any cites or authority to support their position?