GBurns

I would have thought that as part of the feasibility study which was done in order to make such a decision, you would have looked into this issue. On what basis and with what information could you have arrived at a decision to offer "VEBA benefits" (whatever that is) without geting such advise from such professionals BEFORE the decision? I appears that you have put the cart waaayy before the horse.

While I have not yet researched to find the answer to the original post, I must point out to rcline46... You did not give any cites, regs or whatever to justify your position either. Fair is fair.

Why would a MEWA or Group Insurance Trusts be getting any input or directives from the DOL? Aren't they regulated by the State DOI?

Do you think that "Employees with eligible Dependents" would be an acceptable class?

There should be no problem as long as there was a clear delineation between both functions. It is not a very unusual situation it happens quite often.

It does not matter if it is a C, an S (especially a more thanor a partnership. It is curious that this is a 401(k) Board and a 401(k) plan is for the exclusive benefit of employees and former employees. IRC 401 and Treas. Regs. 1.401 have participation restrictions etc. Treas. Regs 1.401(k)-1(g)(5) and (6) define "Employee" and "Employer" respectively. Other definitions of employer and "wages" are provided at length in Treas regs 31.3401 and 3121. In general, if you provide service as an employee you have to be compensated in some form. To contribute to a 401(k) you must be eligible and have compensation. An owner has no compensation as an employee and is not an employee therefore cannot contribute or participate in a 401(k). So how did the get into the testing etc?

Jon, Read my post, it required the rendering of services. In any case this discussion is related to normal situations not an occasional circumstances that is clearly covered by law. FJR, An owner is not an employee. These are 2 different things. If an "owner" happens to ALSO be an employee there has to be compensation for services. Although you might have seen instances where the owner who is also an employee does not "draw" that does not mean that he is compliant or that he will continue to get away with it. Simple tax research will provide you with numerous cases where the IRS and the Courts recharacterized dividends and profit draws to be salary and charged large penalties for having misreported and under withheld and in many cases levied not only civil Penalties but also Criminal Fraud penalties.

How can an employee not get comp for services rendered? How do you cover them for state unemployment, workers comp.and general liability?

You are right, it is a very simple issue. You cannot reimburse on a tax free basis the premium that was deducted on a tax free basis for many reasons.You have a lot of people who look at the sales literature and come to that conclusion. However, that is where the problem lies. Because that is not what the sales literature says. Their sales literature including brochure, FAQ and Plan Document all clearly and very often state that the plan is an Accident and Health/Medical Reimbursement Plan and that it reimburses the employee for the expenses of medical care. the Plan Document even gives the procedure for submitting claims in order to get reimbursement. One of the reasons why people buy the plan is because the sales reps can easily point out that the so-called "expert" could not even read the sales literature properly and therefore was not capable of rendering a valid opinion. Once the sales rep discredits the expert's opinion he can then embellish freely. The claim is made that the tax free payment is not a reimbursement of the pre tax premium but an actual benefit fron an accident and health/medical reimbursement plan. If the client is astute enough to ask how the claims submission and adjudication works, it is pointed out that the employee does not really need to submit receipts or actual claims. An explanation is given of Treas Regs 1.125-5 Q&A 7 (B)(5) and (6) regarding Claims substantiation and Claims incurred which clearly state that the employee does not have to have paid the expense etc. A very spurious claim is also made regarding the wording of IRC 213(d) which does include the term "insurance premiums" in the allowable expenses and to the definition of "wages" found in 3401 and 3121. Believe it or not people actually buy this story. But this is not the main reason why that particular HI Plan does not work. It does not work because it does not do what the Plan Document and sales literature claims. It does not qualify as an A&H Plan, and it does not qualify as a Self-Insured Medical Reimbursement Plan under 1.105-11. If it does not qualify then deductions and exclusions would be disallowed. In a nutshell what is presented is not what is delivered. The Audit Protection is supposed to provide representation in case the plan or the employee is audited in connection with their HI Plan. The provider is not conversant with that particular plan and I dont think he has any idea what he got himself into. according to the IRS top experts (not Mr. Beker) the 125 plan is also at risk for allowing deferral of compensation and also, in some plans, for violating the regs. for FSA as per 1.125-2 Q&A 7 (B) and 1.125-1 Q&A 17. The link to E&Y and Mercer are now restricted to paid subscribers but I can email you what I downloaded. As you will see these "experts" also did not understand the sales literature that they read and make references and cites that are not used by any of the HI Plans thereby allowing the reps to state convincingly that the "expert" must be referring to some other plan and not theirs. The other plan must be the bad one therefore theirs must, by a process of elimination, be the good one. Many people have even got approvals from the IRS telephone CSRs.

I have been unable to find such a thing as a group MSA in the law, on the internet or by asking some of the providers. No one and nothing shows a group MSA. An MSA is not the insurance plan. It is a tax-exempt trust or custodial account in which you can save money for furure medical expenses. The account must be used in conjunction with a HDHP ( a high deductible health plan). This is as per IRS pub. 969. It is the HDHP that can be a group plan not the MSA. There is also no such thing as an MSA policy, there are only policies that can be used with MSAs. The problem, therefore, is finding a group health plan with the required high deductible. Since most insurance plans for small groups are pre-filed shelf products, that should be difficult. Products for larger groups are often custom designed and could have a high enough deductible.

Is such a thing as a group MSA (insured or self-insured) allowed?

Anyone can offer "Audit Protection". The problem is will you get it and what are the conditions under which it will be delivered??? The biggest problem that I have with it is that the President of the company offering the "Audit Protection" has no idea what he is protecting and never investigated it. He said that the promoter and the promoter's CPA told him that it was a legal product. That was it!! I also found a couple of their clients who thought that they had "Audit Protection" as part of the package with the price included in their Administration fee. However, the President of the "Audit Protection" service said that there is a fee for coverage that is separate. I suspect that there are a lot of people who think that they have coverage that might not exist for more than 1 reason. Regarding what is in the Manual: The main reason why that plan has been able to make progress is because of that discussion in the manual and articles based on it or similar that have appeared in newsletters. The Manual does nor reflect the plan in anyway and the sales reps are able to easily show that since it reflects some other plan, then their plan must be ok. There have been many warnings put out by others such as William Mercer in their May 14, 2001 Grist Report and Ernst & Young in a May 14, 2001 Tax Alert. Most of the articles are not very accurate and have only served to help sales. It now turns out that the authors are too embarrassed by their weak and inaccurate articles (similar to what is in the Manual etc) to issue corrections and are waiting on the IRS, the DOL and a number of State DOI to protect the public. The IRS/Treasury has included it in their 2001 Priority Guidance Plan as an item for which guidance will be issued and a Revenue Ruling is overdue but should be out soon telling why that plan does not work. It is hoped that the ruling will also address penalties.

What is this list of "ineligible expenses"? How is it related to an FSA?

There was a very large study done on 401(k) fees by the PWBA on the subject. If you visit the DOL website the PWBA section has the results along with 2 guides, 1 for employees and 1 for employers.

The employer should be neutral. This not only should be for legal reasons but also for employee relations, let someone else be the bad guy. Yes I have seen employers sued in state court but if I remember correctly it was always caused by them being too involved. The employer has no qualifications to make decision on medical matters and is not licensed (or bonded) as a TPA. If they dont outsource to a competent party then they leave themselves open to all sorts of fiduciary and other problems most of which will be state employment and contractual obligations problems. I might soon have time to get you some cites of recent cases.

I should have used the word "should" instead of "must". there is no legal requirement of an annual W-4 for all employees, it is only a requirement for those who are exempt from withholding because the exemption expires each year as is ated on the W-4. Many employers that I have seen over the years do it annually as a safety factor necessitated by high turn over and frequently changing family situations that change personal allowances. Doing it annually in these situations help to limit underdeduction. Regarding Form 4029 it is a very restrictive form and restricted to qualifying members of certain recognized religious groups of which there are very few. The easier form to use might be Form 4361 which covers Ministers and members of Religious Orders and is much less restrictive. For instance Form 4029 requires that the group must have existed continuously since 1950. In any case the employee has to do a lot more than just saying that he/she is exempt. They at least have to file first with the IRS and get approval.

Yes in many cases he can sue in State Court. But first make sure of ALL the parties to be sued and why. You said that the claim was denied by "his employer's self-insured medical plan". That is impossible. The plan is not a communicating entity it is a paper entity. The denial had to be done by either the claims administrator or the service provider. The claims administrator and the service provider in many cases are insurance companies definitely under state jurisdiction. Remember an employer provided accident and health plan is any arrangement that an employer makes to pay the expenses of medical care for its employees. It may be insured or it may be uninsured(self-funded).The actual services provided by a service provider whether it be a contracted PPO, HMO or insurance company is separate and apart from the employer's plan.

I dont see anything wrong with the 2:1 matching. But you seem to be running the risk of overcontributions and therefore forfietures.

You seem to be implying that there is some way to offer pre-tax benefits other than through a cafeteria plan. Is that what you are implying? You also seem to be implying that there can only be 1 section 125 cafeteria plan. Why is the insurance company filing a 5500 instead of the client? Can you clarify your scenario a little better?

In general a employer has to obtain from each employee a Form W-4 each year. In addition, at start of employment there is a INS form (maybe I-9) that must be filled out and the state new-hire form. All these forms require either a SSN or a TIN as a substitute. If the INS and state new-hire information is not provided the person should not be hired. If the W-4 info is not provided the employee is to be treated as a single person who claims no withholding, however, the lack of a SSN presents other problems that should cause the person to be not employable. There is also the issue of state unemployment reporting which requires the SSN of the employee. If the employee is eligible to be changed to independent contractor status, which is very unlikely, there needs to be a Form W-9 which again needs either a SSN or a TIN. Any employer who decides to succumb to the wishes of the employee and not withhold the proper payroll taxes should eventually face massive penalties from the IRS and the State. If any employee wishes to be exempt from FICA etc the employer should have them establish a corporate entity for themselves and provide services through that medium, thereby assuming all the responsibility themself.

What are these employees claiming as their reason?

I dont see what changing the date of open enrollment has to do with the plan year. If she normally has open enrollment in, let us say, October so that all paperwork etc can be completed comfortably for plan year starting January 1, and she wants to change open enrollment to November or even December and she feels that she can complete all the paperwork etc in time for January 1, why would there be a problem?? Why a short plan year etc?

While it is nice to tout the merits of a law degree it does point out that you learn a lot about the law. The original question had more to do with planning. I have not seen planning as an item in a law school curriculum. Clients need some one competent in planning strategies and concepts. These should then be referred to a competent lawyer for the implementation and legal structure and documentation. The client needs more than one competent advisor, each skilled in their respective areas. A lawyer most likely is not a planner or concept creator. Egos should not be a factor.

I suppose that they should first find out if a foreign corporation can have a US payroll and US employees in the first place.

It is a ridiculously high fee!!! You could rerun the payroll and recreate every entry, write a book of ROIs to a dozen trustees, wait on their replies, then put together the figures and still not use up enough hours to justify $12,000 unless the hourly rate at all levels (including the secretary)was in the region of $400 per hour.