GBurns

QDROphile, Can you expand on why you think this arrangement constitutes a scam? While I am aware that PLRs do not give the whole story and very often can be misrepresented by slick salesmen, and that I have not ready any of the PLRs that MWeddell alluded to, I must ask if you have read any of them, and if so, why do you think that they do not give any guidance in this matter? Is it that the PLRs are not consistent or on-point with the arrangements that you have seen designed or installed?

The reason that I suggested that you, at the least, read the Q&A is because they cite the court cases and the IRS, thereby showing that the matter is well settled by both the courts and the IRS. The NJ DOI Advisory Bulletin also address the issue as it relates not to NJ law but to Federal Laws again showing that the issue is settled. I did not give you my opinion, I also pointed out the the comments in the Q&A were the personal views of those lawyers. But the cites showing the Court and IRS view etc are irrefutable. I can only lead you to them. To read them and use them as a basis for research will be your decision.

I think that it could be a good idea to make a mortgage broker available to the employees. If I were the HR Director (assuming that this is even a decision that could be made at this level). I would want to make sure that the mortgage broker had a very wide selection of funding sources so as to be able to handle almost every employee regardless of credit etc. and to ensure competitive rates etc. The selected Mortgage broker would also have to have the same wide selection of Closing Agents etc. I would definitely not use anyone who is restricted to or promotes only one source.

Just a few months ago National Underwriter though it important enough to devote a few weeks to cover the issue of "Who owns the client". This was caused by a number of recent cases both in court and in arbitration which involved agents and agencies trying to sell or colateralize their "book of business" or "future commissions". The end result seems to have been that neither the agent or the agency owns the client nor the commissions under most contracts but instead are at the mercy of the insurer who is the one with a contract with the insured. I would first check to make sure that there is a "book of business" that the insurers recognize as being the agent's property. It is nice for agents to think that they "own" something, but the reality is that they usually do not. More importantly, I would make sure that these insurers will accept a change of agent of record. What would happen if you bought the agency but the insurer does not accept changes to the agent of record and will only pay the commissions to that original agent. If he assigns the commissions to you he would still be liable for the income taxes, so he most likely would not do it. What happens if the client will not sign off on the change?

Since the Proposed Treas Regs indicate the need for the element of risk, don't you think that if the employer secures such insurance, that it would eliminate the element of risk thereby disqualifying the plan?

The bigger question is whether or not a PEO can legally offer benefits as you outlined, any at all. I suggest that you visit the Q&A columns on the Benefitslink website such as "Who's the Employer" and "Advanced Plan Design". There are also relevant items in the Q&A for Cafeteria Plans and for 401(k). While the items there are only the opinion of those lawyers, they do cite a large number of cases to support their various opinions. A number of state Depts of Insurance have similar opinions on their websites. I have attached the New Jersey DOI Advisory Bulletin on the issue. It is the standard explanation that most states give as to why the arrangements that you outlined are not allowed under Federal law and State law. http://www.naic.org/nj/seh00_02.htm

Other than loan info, most, if not all the information exists in the schools payroll etc systems. There are very few employees who should be able to provide much other information. The employee age, salary (historical etc), 403(B) start date, plan and provider, contributions etc are on file with the school. Previous contibutions under other plans etc are on the application. It is possible to complete the audit without input frm the teachers. Am I missing something?

I do not see where anyone referred to or suggested an FSA. The money would be put into a "Premium Reimbursement Account" or a similarly purposed account outside of a section 125 and set up under 105.

I have never seen one of these that was not fully insured usually by Guarantee Trust or EPIC. The reason for fully insured is because Treas. regs 1.105-11 which governs Medical Reimbursement Plans requires non-insured (self-funded) plans to not discriminate in favor of highly compensated individuals, which executives usually are. This in addition to other availability and participation rules governing 105 plans, in general, are the reasons for the fully insured product so as to be able to discriminate in favor of the executives. I suspect that Lincoln is discontinuing because of the legality issue and I do suggest that you ask them about these issues. That way you will better know how to proceed and not proceed under the assumption that your plan is legal and all you need is a new administrator. I am not as well versed on this issue as I used to be and I hope that Joe Priselac or one of the other Board participants who have more expertise in this area will see this thread. If not send Joe an email through the system. I also suggest posting your question on another Board.

Is it the insurance policy that is being terminated or is it that Lincoln FInancial Group will no lomger provide admin services? If it is the admin services that is being terminated then the insurer should be providing a replacement administrator. In any case I do not see why another TPA would not consider this lucrative account provided there will still be the insurance policy. If it is the policy that is being terminated, then you should consider a different insurer.

There have been a number of threads, but the main ones were: "Company reimbursement of pre-tax employee contributions- Redux (Originally posted by Garnett)" started on 10/05/01 which continued the original thread from January. Other threads such as "Section 105 Plans" on 10/12/01 were much shorter. The purpose of the plan is mainly to reduce the net cost of providing employee health benefits by between 25% and 45%. Higher % are possible in some plan designs that additionally redesign the level of benefits thereby reducing the premiums payable.

The answer to ALL the questions is NO. As you stated "you have no idea what the HI Plan is" . How would you have evidence that something "actually saves anyone any money (in comparison to a 125 plan)" if "you have no idea what the HI Plan is". But, as usual, that does not stop you from having an "expert" opinion. Re c) what old rulings could you be referring to re Cafeteria Plans? Pre 1986? What "use it or lose it rule" has a litigation risk? Re a) If you have no idea what the HI plan is how can you so expertly decide that I don't have any idea that produces tax savings in comparison to a 125 plan. As per your question if it was a proprietary form of a cafeteria plan, it would be producing savings in comparison to itself because it would be a 125 plan. The comparison would therefore be to itself, a 125 plan to a 125 plan. That was your post not mine. A PLR that might give you some better understanding is PLR 200007021, pay particular attention to the "Healthcare Reimbursement Account".

I think that you need to clarify what you mean by "employee sponsored" and how the plan got there in the first place. The term employer sponsored has nothing to do with who pays the premium, it has to do with the promotion and the making available etc. I have never heard of "employee sponsored".

The Burns HI Plan provides an actual benefit from actual accident & health and medical reimbursement plans, whereas the TRG "version" does not usually qualify as either and only reimbuses the premium that was previously deducted on a pre-tax basis. This has been pointed out by many tax and benefits experts in various newsletters and reports. William M. Mercer in their June 2001 Grist Report named the TRG "version" as the one that they were referring to. The IRS has done the same regarding their investigation into all the plans. What do you mean by "a tax idea or a data processing product"? Re saving payroll taxes: the reason for the use of a section 125 Cafeteria Plan is to cause a reduction in payroll taxes so as to mitigate the employee's premium deduction. To suggest that any idea that saves payroll taxes probably doesn't work suggests that health and welfare benefits are not the area of your experience. A look at the sales presentations that are given by the promoters of section 125 plans and voluntary benefits under a 125 plan, such as AFLAC, Colonial/Unum, American Heritage or any of the health insurers will show that the emphasis of the presentations is the saving of payroll taxes thereby freeing up money to be used to purchse other benefits etc. Are you saying that you know that this probably doesn't work and they do not? The Burns plan does not require the Confidentiality Agreement that the TRG "version" does. However, a Non-Compete Agreement is required. A confidentiality agreement would be of no relevance to the Burns plan for a number of reasons. The IRS and Treasury Dept and the majority of state DOI are not only aware of the Burns plan but are very knowledgeable of its structure. The USPTO is required, by law, to publish the Patent applications. A number of clients and prospective clients are public entities who fall under various Public Records disclosure laws. In addition, prospective clients are advised to seek outside legal counsel. In other words, there is no way for a confidentiality agreement to be applicable to the Burns HI Plan. The Burns HI Plan is not required to be registered as a Tax Shelter and it is exempt from the Reporting and Disclosure requirements, whereas the TRG "version" should have been registered and should be subject to the reporting and disclosure requirements as an Other Reportable Transactions. The exemption from registration etc was provided by the Treasury Dept and the Tax Policy Division would be your best source of information regarding this position. I also suggest that you at least familiarize yourself with the Treasury Dept requirements in this area before you make assumptions about matters on which you have no detailed information. An opinion letter issued to any entity other than the client is of no legal value. I suggest that you look at Treas. Regs 1.6662-2, 1.6664-4 etc and Proposed Circular 230 for the current position regarding opinion letters. You might also want to look at the AICPA Ethics Rules and the ABA position papers on the subject. Information is also available on the Treasury Dept's website in the Tax Policy section that is devoted to Tax Shelters. If you were familiar with the subject you probably would not have found it relevant to have made the reference. Rather than purchasing an opinion letter from a friendly source that would have no legal value to the client, the Burns HI Plan prefers to rely on material of "substantial authority" such as the IRC, the Treas. Regs., Revenue Rulings, PLRs, Tax Court and District Court cases, that exist in support of the various plan designs. One user has already received a favorable PLR and another has been verbally informed of such approval. There is no opinion letter that has more value than a PLR. The Burns HI Plan has already been accepted by the legal advisors for 3 Fortune 500 companies, so far, and is under review by over 20 others currently. I have been around long enough to have been here when people used to say that a section 125 Cafeteria Plan was not legal, and even with a distinct lack of rulings that allow these section 125 plans they are certainly in popular use. I was also here in the benefits and insurance industry when the experts etc said that a 401(k) plan could not be legal. I have also seen numerous financial services industry products supported by high priced legal opinion letters and Big 5 research etc that turned out to be wrong and illegal, for example most COLI designs, many VEBA designs, Reverse Split Dollar and Split Dollar techniques etc etc. The lack of value of opinion letters that are used as marketing tools by promoters was highlighted in the many recent COLI and Tax Shelter cases and also by the Senate Finance Commitee in their 1999 hearings on The Problem of Corporate Tax Shelters also available on the Treasury Dept website. In any case the decision as to whether or not any plan or concept works, legally, for any client is a decision that each client is advised to make after taking the facts etc into consideration and seeking competent legal counsel. In the end if any prospective client feels that there are any questionable areas, it is suggested that they do get their own Private Letter Ruling from the IRS. This is cheaper than any opinion letter and has much more value. Some of the prospective users have decided to do so whereas others decided that it was not necessary. The choice will always be that of the client and our opinion is of little consequence.

Try Great West, Wellpoint, Aetna, United Healthcare, Humana, Anthem and CIGNA. They all provide self funded plans, ASO, Stop-loss etc etc. A significant number of Tribes do self fund. Just call around to the larger ones.

Sell the stock since you have no confidence in the continuity or performance of the stock. It cannot be taken away from you but it could be rendered valueless.

What do you mean by "closing" your 401(k)? Are you not going to make any more contributions because you are no longer an employee, or are you rolling it over to another qualified plan, or are you getting a distribution because of liquidation? What are you really doing?

I was hoping that someone would have responded by now so that I would not have to ask, What do you mean by reporting matrix or matrices??

I was hoping that someone would have responded so that I would not have to ask, What is a reporting matrix or matrices? Is the attached an example of what you mean?

It was very surprising to me. Some of them have referred the matter to outside consultants because they could not put together a decent rationalizable figure after 6 months or even months after closing their fiscal year. Stop-loss premiums and other fees were partially paid as billed and partially paid with argued adjustments. They all thought that paying in 180 days was normal processing time. So they really did not have a handle on the issue. Claims payment seemed to be largely an advance against the account. This is probably why you might read of hospitals etc having large accounts receivables. As for budgeting they all seemed to have guessed and all accepted a deficit as normal. I still cannot believe some of the reasoning that I got.

What imputed income?

Larry, For this year I am now over 50 companies that have no idea of what their self-funded plan cost is or how to impute or calculate a monthly per employee rate etc. These 50 include Fortune 100 and 1000 companies. It is a real cause for concern.

I trust that you understand that the employees will lose the benefit of being able to pre-tax the premium through a Section 125 Cafeteria Plan. Also be aware that even though it will be employer contribution only, there is nothing that says that you can or cannot roll over from one year to the next. However, be aware that this issue is one on which the IRS has refused to rule. It appears in Rev. Ruling 2001-4 in section 5. I suggest that you carefully weight not only the tax issue but also the availability of insurance to the employees on an individual basis. There will be no guaranteed issue and there will be pre-existing condition exclusions (if not initially it will be on renewal). There is also the issue of group pricing versus individual pricing and of benefits caps or limits. It might not be a good move and should only be done after careful extensive consideration.

You totally missed the point. The ex-participant has no check, therefore it is impossible to do what you want them to do. To not want to do something because you might not have an obligation is dangerous. You first determine if you have an obligation then take action, not the other way around. Your second paragraph was not understandable.

Bandb, When a payee receives a check they usually endorse it and either deposit it or cash it. Once that is done the check is no longer in their possession. How would someone do what you suggested of looking at the check that they received a few years before? Please tell how? Also the date of distribution is not the same as the date of receipt of the distribution, nor the date of a subsequent rollover or deposit. The ex participant might well know the date that they deposited the distribution or could ask the rollover institution, but that was not the question. The question was date of distribution.