GBurns

I am not aware of any new regs effective 7/01 that would change what has lomg been covered by HIPAA and the PHSA. In general any actively -at-work requirement violates HIPAA. This was explined last year in HCFA Program Memorandum 00-04. Any non-confiment requirement violates HIPAA and PHSA and was explained last year in HCFA Program Memorandum 00-01. A good link to look at would be : www.ebia.com/weekly/articles/HIPAA001005HCFAMemo.html

Being eligible for other coverage is different from being enrolled in other coverage but it seems that you are saying that having other coverage is somehow different from enrolling in other coverage??? As far as I know you cannot have other coverage unless you are enrolled in it making the two one and the same.

Iteresting as it was, I think that we got away from the original question. ERISA does not deal with retirement plans only and the term benefit matters is very broad. It also does not matter if it only pertains to 1 person out of all the employees. Some cases that illustrate this were reported recently by the EBIA. For example: A severance payplan protecting against corporate change of control in Bowles v. Quantum Chemical. An individual agreement to pay money and life insurance after retirement for a CFO in Nelson v. Jones & Brown, Inc. It seems that if it a promise to deliver something at a future time to an employee is becoming enough to make it governed by ERISA.

Why do you think that there was any trend towards market indexed defined contributions? What are market indexed defined contributions, anyway? What are interest credited defined contributions?

I was hoping that someone who had done something even remotely close to this would have replied, but I guess they had as many questions as I have. If the "founders" are going to become consultants, What does that change? They will still be shareholders. A W2 or a title will not change that. A bonus purporting to be a return on capital investment is still going to be a distribution of dividends regardless of what you want to call it or try to recharacterize it as. It seems that you are trying to complicate a straight forward sale or transfer of shares which is an everyday transaction that needs no frills.

Please enlighten us. I also would like to know what you are talking about. What type of benefit? What state income tax law?

First, there is no Plan Document that can preempt the law. Second, enrollment (automatic or otherwise) does not mean that there is an employee contribution. Third, while I do not remember seeing a requirement (under the IRC) that a salary reduction agreement be in writing, I remember a DOL requirement and state requirement that there be a written and signed document. Even if there was no regulatory requirement, it would be foolhardy to not have the election in writing.

Aside from the fact that the Proposed Regs for 125 say that it must be done. How else would you get permission? How would you verify that the amount was the mutually agreed amount?How would you know what to spend the money on?

Yes. What you just described is a standard Premium Only (POP) section 125 Cafeteria plan.

Why would a determination letter from the IRS have any relationship to a hardship withdrawal feature (whether a practical provision or not)? I also would not try such a provision, not only for the difficulty of applying iit n a non-discriminatory manner, but timimg issues, availability of funds issues and record keeping and payback issues. I see administrative nightmares.

You missed the point. The CEO/President, as you say looks to HR/Benefits to present them with the details not the decision. They make the decision, HR/Benefits does the grunt work but does not make the decision.

One of the things that I have noticed is that very few agents sell retirement plans. The main thing that I have been able to attribute this to is the target contact. In companies that are not mom and pop but which have become large enough to have a HR and Benefits Dept. the insurance agent deals at that level and has very little if any contact with the decision makers. the decison to have a health plan etc was already made all the agent is doing is either providing service or replacing coverage or carrier. The sale of a retirement plan requires that there be a corporate decision to have such an employee benefit, then HR or Benefits are empowered to go out and get quotations etc from agents and providers etc. To initiate the corporate decision requires contact with the decision maker usually the President or CEO. This is not agent territory. The ability to get to decision makers is not determined by length of service in the insurance or other industry, it is a matter of personal ability. So the choice of who to use should be based on factors other than length of service such as the ability to approach decisionmakers. That is why the average insurance agent and health agents in particular do not sell much in this are.

hapa123 You referred to a Rev Ruling but then added "but it is dated". What did you mean?

The reason is not surprising. If you read any proposed reg. it states that the taxpayer may rely on it. The law that allows them to issue regs states that the service cannot rely on it and cannot use it against a taxpayer who does not rely on it. It therefore is binding on the IRS not the taxpayer. Only after public input etc etc can it be made final ot temporary, other than that it is just proposed. There have been numerous court cases that have pointed out the status of Proposed Regs versus Temporary and Final Regs culminating in US Supreme Court cases such as the recent Mead case. In general, "First, we note that although final regulations command our respect (Commissioner v. Portland Cement Co. of Utah), 450 U.S. 156, 169 (1981), proposed regulations carry no more weight than a position advanced on brief by respondent. Freese. v. Commissioner, 84 T.C. 920, 939 (1985), ...., quoting F.W. Woolworth Co. v. Commissioner, 54 T.C. 1233, 1265 (1970).......... We therefore decide this case by considering the evidence under the standards of the statute, not those of the proposed regulation." Laglia v. Commissioner, 88 T.C. 894 (1987). The above is one of the gentler comments made by the Tax Court, the District Courts, Appelate Courts and the Supreme Court have been brutal in their comments and in one case referrred to them as "merely proposed". There have also been court criticism of the eventual validity of regulations that have stood proposed for in excess of 10 years. It has always amused me that I have never heard a benefits "expert" legal or otherwise express any curiousity as to why the IRS has not issued any rulings on section 125 since pre 1989. If you look at most of the Rulings that are issued under the related UIL you will see the statement to the effect that they are not ruling anything regarding 125 in the ruling. These same ruling also usually in item 1 of the conclusion usually state that the amount by which the employee elects to reduce their compensation is allowed under 106. They have never said that it is allowed under 125. Why? You cannot issue rulings under Proposed Regulations. In addition every year since before 1989 th IRS issues their "No Rule" position. This year it was in IRB 2001-3. In it they state that they are not able to rule on whether or not the amount by which the employee reduces his salary is really tax free.

The link takes me to a January 10, 2001, Federal Register Notice that withdraws a section of 1.125-2 Q&A 6 and amends 1.125-1 Q&A 8 as a result of 1.125-4 which as you should know mainly relates to election changes. Nothing in the Notice provided by your link is relevant to the issue and DEFINITELY NOT what is under discussion. But please stick around, To err is human etc etc.

It was asked if this could be done under a 125 plan. Are you saying that you have designed 125 plans with: 1. Funding on an ad hoc basis, where the employer contributions are not made at any specific time but on an irregular basis. 2. Unused contributions revert to the employer not the plan. 3. All of this is done under a 125 plan.

I did not understand your post.

Why not use the same person that did the corporate policy for company cars and other company property? Aircraft is just another piece of corporate property.

There is no standard that I have ever come across.

1. I do not see any way of doing this under 125, it has to be done under 105 etc. 2. The mechanics vary with the plan design and more info would be needed. 3. No in a properly designed plan he would not have to make the contribution each payroll. What are your thoughts why the payroll has become your focus? I also do not think that there will be a way to return unused contributions to the employer. I also do not agree with the 10% useage. It can be a good deal if done properly AND IF the circumstances are right. I suspect that there is much more to this plan design than you are letting on. It is dangerous to get answers to pieces of a plan when there is the danger that the pieces will not fit when you put them together. Each piece might be right but the combination might be wrong. What plan did you get this idea from?

I suggest that you read the Regs again or have someone else read it and give you their opinion. In 1.125-2 Q&A 7(2) there are examples that explain.

Can you give any cites or references that show that a self-employer individual can : 1. Sponsor a 401(k) for employee. 2. Can participate in that 401(k). Like M.N. I have conflicting opinions the majority of which say no and I would like to build a consencus of qualified opinions. I have disregarded those that cannot give any basis for their opinions.

Who is the common law employer of the W2 employees? Did your client set up a personal service corporation, a Qualified Residence Trust or some other intermediate entity? If he has some intermediate entity, then it should be ok. I have my doubts about doing it without the entity, but that is just gut feeling. You have raised my curiousity and I hope that I have time to do some research on my own, especially since I have heard of such households ( but not in my client base).

I was hoping that someone would reply, so as to satisfy my curiousity. What were you told etc etc by whomever told you about it?

Do not forget to get the DOL (PWBA) and the state Dept of Insurance involved immediately.