GBurns

What was the outcome ? Did any of you resolve the issues of legality, patent infringement etc ?

Regardless of the "position" that you say the plan has taken, the real question is what does your SPD and the Plan Document say? I would also seek some input on Medicare as primary from Medicare and the supplement provider (NOT the sales agent)on the issue of primacy because I got the impression that the Medicare coverage might not be on both of you but only on one.

Wasn't this part of your evaluation and decision making process? How did you make the decision if you did not look at these items? Your answers might already be in your RFP specs or the bid responses.

I did not say that the TPA is illegal. I said the giving back of the amount that was deducted on a pre-tax basis was illegal.The difference between the plans is that one gives back the pre-tax deduction and the other does not.The "bootleg" plan is a re-naming of their old MR106 Plan that Mercer, in their Grist Report, said "Beware the MR106 - It makes snake oil look good".The other HI Plan operates in an entirely different manner.Unfortunately both are named the Health Incentive Plan so it will be up to the buyer and their advisors to decide which is which. Check the referrals that are being used (even though these are usually selected Yes men) find out when they got their plan,under what name did they get their plan, what references were in use at that time (as opposed to the current best list), what support material was used (who wrote it and what was cited), what or who convinced them as to the legality etc. Dont forget to ask Mr. Beker at the IRS about the investigation, his opinion, and the promoters.

If these are the main PLRs being used as support you no doubt are looking at the main "bootleg" version. The PLRs that you listed all show the standard Section 125 Plan with a FSA. All are funded by the employee's pre-tax salary reduction plus an allowance or benefit credit from the employer to the FSA.The only difference that is stated by these PLRs is that the FSA amount can be applied to insurance premiums. I think that the only premiums that would be allowed would be for anny supplemental or add-on coverage such as vision, dental or dependent coverage. None of these PLRs give anything to the employee's paycheck as is shown in the HI Plan illustrations. I do not see where these are applicable or different from most existing 125 Plans.Please note the requirement for claims submission. Is this required in the plan that you are looking at?

I suggest that you make sure that you are getting the authentic HI Plan and not the "bootleg" plan that is coming out of a Chicago TPA. The Plan should not use a TPA unless you are trying to calculate the "give back" of the amount pre-taxed by the employee. That is illegal. The IRS started a formal investigation into the plans but nothing has yet surfaced. You could get an opinion from Mr. Beker or Mr Zech at the IRS but their opinion is based on very limited knowledge and dated information.

What sort of materials and on which plans have you seen? How did you find or get them?

Cafeteria plans can be used by any size employer. The purpose usually is to reduce the cost, to the employee,for participating (cost sharing). In some cases the money saved by the employee will allow them to purchase other benefits. The employer can also use it as a cost reduction technique. What do you mean by "scaled down health plan"??

This looks like a very interesting topic but none of my local law libraries have those issues. Is the article available elsewhere? Publisher? Have you considered updating the article to reflect current tax law and case law?

To: Matt Since i was not aware of IRC 162 governing contributions to VEBAs, I visited your website, as suggested, but I was inable to find such a discussion there. Can you name the article or section of your website where this is discussed? Thank you. To: vebaguru The only places a taxpayer should be able to loose a tax deduction re a VEBA are 419 and 419A. I did not understand your reference to these sections. Are you saying that there is some other section under which they would not have lost their deductions?

I suggest that you reread the first sentence of that post. Then reread the body again. These appear long before you get to your last paragraph.

On the contrary. One of the riskiest things that you can do is to purchase any employee benefit including health insurance from a PEO. I suggest that you do some research. A good place to start is the Q&A Columns at benefitslink, in particular "Who's the employer?"; "404(k)" Questions 31 and 41; "Advanced Plan Design" Question 14. There is also a lot of info available on the websites of many of the law firms that practice Labor law.

Even without the idea of a "multiple employer" plan, you should be very cautious about enetering into any plan with any PEO. I suggest that you start your research by visiting the Q&A section of Benefitslink, in particular "Who's the Employer?"; "401(k)" Questions 31 and 41; "Advanced Plan Design" Question 14. Essentially, because the PEO says that they have a plan, that does not make it legal etc etc.

Why would you think that it is illegal? ... In fact it is a situation I have seen quite a number of times and seen it pass scrutiny. [Edited by Dave Baker on 08-21-2000 at 10:54 PM]

The most likely plan that you would have seen, which includes Fortune 500 companies, does not operate as you think. Mainly the employee is not reimbursed the pre-tax premium, what you see in the illustration is just a mathematical effect of the figures used. Logically if the pre-tax amount is $150 + $15 = $ 160 and the "allowance" is $130, the amounts are different and not the same ??? As for being legal or allowed, there have been apparently 2 PLRs issued so far since June 1999 to users of the Health Incentive Plan.The Plan is "custom" designed to fit each client and could be different each time. The H I Plan was apparently designed after certain plans that have been in use for up to 11 years and some of which have been audited more than once.Some of those plans do have Private Letter Rulings and Tax and District Court cases. Ask the consulting firm for further details if you qualify as a prospect.

Lisa...I never suggested that they were narrowly focused. I said that they were no good. They depict a scenario created by the author for his article and not the scenario of the plans per se. They also misquote Mr Beker. To make an additional review of them seems pointless if you have no info on the plans nor the transcript of what Mr Beker really said. SLuskin...How did Fisher & Phillips perform an evaluation without info on the plan? Did you pay them to review just the brochure?

To IRC401... What PLR and what nonbinding opinion are you referring to?

I dont agree that the article or the reprint in the legal guide were any good. They both addressed a scenario created by the author and which is used in part by two of the plans but not the third.The article then went on to cite Rev Rul 61-146 claiming that this is the authority under which the plans operate. None of the plans make that claim. As a result the article has very little accuracy or relevance to the actual plans but relate only to the hypothetical scenario created by the author. The article also misquotes Mr. Beker. a transcript of the actual conversation was made and can be requested from the sponsors or from Mercer. In the transcript Mr Beker said "I haven't seen any of these questions, so I am trying to follow them as well as I can.". This was in response to the his being asked to comment on the scenario created by the moderator. Mr Beker went on to criticize the use of 61-146 in the depicted scenario etc. He did not comment on any of the plans on the market, he only commented on the scenario presented and the questions asked.

There are apparently three (3) such programs out there. On the face the illustrations are similar but the plans are very different. One, from Paychex, actually does state that it is reimbursing the amount deducted pre-tax, a situation which cannot be supported even by them. The second, called MR106, is being sold mainly in the Cleveland and Cinncinatti areas is a little different but has not been able to provide any material to support the plan design. The main program is the Health Incentive Plan which seems to have a lot of documentation and PLRs etc to support the various plan designs. In any case, based on what you wrote, I dont think you got the full explanation of how the plan works. You seem to be following a brochure or sales literature. Just as you dont buy a car or a house by looking at the brochure, you should not be able to pass any meaningful judgement without further details. you could compare this statement to an employer deciding to implement a 125 cafeteria plan after looking at only the brochure. What happens regarding funding method, eligibility, product offering, FSA admin etc etc etc are not in a brochure and this info is found elsewhere. Any plan out there is no different.

Score one for the "country" CPA. You miss his point. The choice that the employee is given is one of method of compensation. You have confused this with the choice between cash and qualified benefit within the 125 plan. This second choice comes AFTER the first and will only exist if the employee decides in favor of the 125 over the 403(B). If the employee decides on the 403(B) there is no 125 choice.Being "country" might not be as bad as you think.

Does anyone know of any source of info regarding "defined contribution" health plans? I read occasionaly that companies are adopting such plans, but no one ever says who is nor specifically what it is.

nb .. Didn't this present a discrimination issue ?

jnoel ....What is the benefit of paying your medical premium after tax ??

In S. Florida some of the larger employers have a variant of this. they give a benefit credit of $x, if the employee does not use it all, there is then the choice of having an "amount" credited to the 401(k), if they have one, or taking an "amount" as taxable income. This "amount" is usually less than the unused credit to discourage it.

To CV Calhoun...in your response on 8-12-99 you quoted Example 35 and stated that this action disqualified the participants 403(B) plan. I read the link etc and nowhere do I find such an inferrence in the IRC or Treas Regs. IRC 403(b)11 which is referred to in the example seems to say that there would be a "premature" distribution nothing else. Where did you see disqualification?