GBurns

Why does it have to be an HRA? There was no mention of a rollover, only reimbursement up to the deductible, which would mean up to submitted claims not exceeding $1500.

mjb: Your question "Just what part of "state law" dont you understand? " makes no sense. What I have to understand is what the OP means. Each reader is entitled to their own opinion and as far as I know each reader is free to respond to any or all parts of any post as they interpret it. No one has to interpret any post the same way that you do. And although you do not seem to realize it, an interpretation or opinion that is different from yours is just as valid as your interpretation or opinion. You have no exclusivity, you have no infallibility. That I see the OP's wording "retiree" as pertaining to those already retired, rather than pertaining to promises of retirement benefits made to active employees, is no less valid than any other interpretation that you might have.

Is it the Plan Sponsor who will be selecting and providing this investment advisor, or will it be the participants who will freely choose whomever they each wish?

mjb : It was reduction of "retiree medical benefits". Neither my post nor the OP mentioned "active employees". The posts both relate to retirees. Many retirees have their benefits arranged as part of their employment agreement as a result some are through CBAs while some employees have their benefits arranged through their retirement agreement.

jpod: You are the only person I see who has made this a 406(b) issue. No one else has. We do not know the context of Mr. Watson's statement. We also do not know the facts and circumstances. So it cannot be determined what applies. mjb: That RE can be a valid plan investment does not mean that RE cannot also be speculative. It is not whether something is RE that makes it speculative, it is the facts and circumstances of the particular RE transaction. I do not suffer from a lack of understanding of RE as a plan investment and I do have an understanding of plan investments and investments in general. At least enough to know that some RE is speculative and that it depends on the particular transaction. It is much more remarkable that you do not understand that yet are willing to make such a comment.

You can get them from the DOL, but do you want them in that format? The DoL does not give you a photocopy of the exact document filed unless you are willing to pay a substantial sum. You get them in their scanned and stored format. Even then not all years will be free. Even if you got actual photocopies, you would then have to go to the expense of entering them into a database so that you can use the information. This should also take considerable time. To get them in a searchable or "actively useable" format requires some time and expense, that is why FreeErisa and such others charge a fee for some of their services. Even the limited free service is not really free, since it serves as a lead generation device for them for the selling of other services to users. Unless you plan to do large volume, it should not be feasible to go directly to DOL. A Volume User discount from FreeErisa or others should be much easier and cheaper.

Pensions in Paradise: Why do you consider the change to be retroactive? The change, according to the OP, was as a result of a "permitted change in election". ************** I had not come across this situation before and although my gut feeling says that there should be no refund, LRDG does cause me to think that it could be done. Now that I think about it, there is nothing that says that an election has to be a positive amount, So what happens if that is what the employee elects, e.g. -$50 per pay. Yes that is a minus sign. What stops this from being done? Looking at Treas Regs 1.125-4 I see examples that , on the face, seem to allow refunds. For example 1.125-4© 4) Example 9 allows cancellation of the FSA election. What now happens to the account balance? There will be no claims to reimburse. Then there is 1.125(f) 5) Example 5 which allows the employee to revoke a previous election. If you revoke, you are annuling the election, it never happened. So doesn't that mean that the account reverts to the status it was in before and without the now revoked election? How do you do this without refunding the amount in the account? I would say that LRDG's examples are quite plausible, although I think that a literal reading of the examples in the Treas Regs gives easier solutions.

I did not make any connection between "speculative' and 406(b). I made the connection to such investments possibly being PT. 406(b) is not the only section that pertains to PTs nor is it the only section pertinent to the OP.

Did Watson give any further information regarding the need or rationale for the purchase? What was the reason why the purchase is even being made? Speculation, planned development ? Aside from examples such as the one given by jpod, it could be that Mr. Watson's position is based on the rationale that there is no reason for the Plan to purchase real estate. Additionally, I thought that Real estate investments, per se, are speculations and speculative investment especially those involving a relative or other party in interest seems to fall in line with the concept of PTs. If such a Real Estate transaction was from "facts and circumstances" a necessary and proper exercise of fiduciary duties, there still should be the issue and example raised by Kirk and Gompers.

Such a state law would serve no useful purpose. The conditions that apply are those imposed by the employment and retirement related contracts. What do the Pension Plan Plan Documents, SPD, Agreements and the applicable CBAs actually say about this?

Kristine What do you mean by "pre-funding"? To me, and it seem the others also, all DCAP in an FSA is "pre-funded. The employee " pre-funds" by making salary reduction contributions BEFORE submitting expenses. An account balance is created and exists before expenses are even incurred. That is what I understand when someone says that the employee "pre-funds". What do you mean? jpod Why does ceasing elective contributions mean a cessation of participation? I always thought that it was possible to participate in either or both the FSA and DCAP without making contributions. Further, If ceasing contributions equates with ceasing participation and that causes the situation where "The participant can only be reimbursed for dependent care expenses incurred prior to cessation of participation.", How do you reconcile that logic with COBRA. The employee who elects COBRA certainly has ceased elective contributions, is no longer an employee, yet gets benefits from the account that existed prior to cessation of employment and contribution. The COBRA covered employee is a participant yet ceased contributions. What is different in this scenario that leads to your position?

A proper answer would probably need more info. Q1 and Q3: Check the "Who's the Employer" Q&A section of BenefitsLink. Attribution, controlled group, common control or other aspects of "attribution" could be applicable. Q2:Do a search of the Forums for "Execucare". There have been a number of discussions on the issue. IMHO, if regardless of attribution or even if a partner could get such a benefit (in a favorable manner), it would make no sense to use something like a fully insured MERP whether ExecuCare or any other. The difference between the treatment of an S-Corp shareholder and a C-Corp shareholder first depends on the S-Corp shareholder having more than 2% of the shares, assuming that in both cases there is a valid employee status. In this case the LLP presents a different set of additional circumstances mainly because of there being other Partners (Members).

I was responding to your statement which I thought applied only to the premium reimbursement plan being contemplated since you said that you already have the HRA with the wording that you like and you also stated "If I say in a plan document that we will reimburse up to $5000 in individual health insurance premiums per employee then the goal of every employee will be to pick the lowest deductible possible...." which could only apply to premium reimbursement not to the HRA. An employee could not submit a claim for more than they paid since they also have to provide proof. If your plan reimburses for employee only coverage, the employee is limited to the premium for that coverage. If family is allowed you can define family and limit the dependents somwehat. The premiums for whatever coverage is limited by what is available in the market. An employee cannot pay more than the insurance company charges. But you are correct in being aware that the employee might choose the most expensive coverage just because they will get reimbursed. However, if you educate the employees to the fact that if you terminate the reimbursement plan, or employment is terminated, then they will have to pay that expensive premium themselves or lose the coverage. They might also not be able to get other health insurance. So if you do not want to state a maximum because you fear that they will choose expensive coverage, then you leave yourself subject to the success of the education campaign. That is probably why most would likely choose to state a limit although they do not have to.

You do not have to state an "up to" or any specific amount. Please see the attachment. This is an old document that I kept in my files. Although somewhat dated it stll lists most if not all the laws that relate to employee plans. The premium reimbursement plan that you are contemplating might/probably will be an ERISA governed plan in addition to being impacted by 1 or more of the laws listed. I do not know if any state law might be applicable but that is also a possiblity. Because anything you do could be subject to dispute and litigation, I think that it is only prudent to "act as if" and cover all bases. This is why I advocate having a written Plan even if you think that ERISA's requirement is not applicable. It would take too much of your time to peruse each and every possibly relevant law to see which do and which do not require a written plan and you can never be sure that every court will agree with you. Since you have to communicate this benefit to the employees, you might as well do it as an SPD just to amke sure that you cover as much as possible. Having such an SPD puts you well on the way to the ERISA requirements, So my advice is to "act as if" ERISA is applicable and have a written document and that should cover you for any others laws that are applicable. The problem with waiting until you get questioned, it that it is then too late to correct anything that might be wrong and the penalties can be very severe. By the way, my personal opinion is that a premium reimbursement plan is a self-insured medical reimbursement plan under Treas Regs 1.105-11 which at 1.105-11(b)(i) Definition requires "a separate written plan". A premium reimbursement plan although to many also an accident and health plan, IMHO, does not get exempted from having a written plan under Treas Regs 1.105-5. Plan_Document_Requirements_by_first_Choice.doc

Even if you do not need a written plan, IMHO, you should have one. Since I always advocate written documents for nearly everything, I have not bothered to look to see if some law somewhere really requires it. As long as something has to be continually explained to someone else and is subject to differring interpretations, I take the view that it should be in writing. If I recall correctly, ERISA usually, in general, requires a written plan and an SPD for something like this even if the IRC might not. What happens to the accumulated money when the employee terminates employment? Is the money set aside in the mean time? If you look at Rev Ruling 61-146 or other related writings you will see that the amonut varies with the employee and the employee's coverage. There is no stated requirement or indication that each person gets the same amount, they get whatever they expended. For any rules/regulations look at ERISA and Treas Regs 1.105. Look at Q 10 here: http://www.irs.gov/govt/fslg/article/0,,id=112717,00.html#10

Why was it necessary to have unused funds in the HRA, then also allow rollover? If you wanted to cover the employees out of pocket expenses, you could have accomplished this quite effectively with a standard section 105 Medical expense reimbursement plan. If any employee incurred any eligible medical expense, they would submit the claim and get reimbursed. The employer is only liable for the amount expended by the employee and the employee only gets back exactly what they spent. The empoyee is covered and the employer spends exactly what the employee needs. Compare to your HRA where some employees get that which they did not spend, meaning the employer gave away money unnecessarliy. Some employees actually make a profit because they get money without having spent anything. What do you think the attitude is of those employees who only got back what they spent and had no "surplus"? To the section 105 MERP you could easily now add the premium reimbursement to complete the package.

Section 129 and section 125 are 2 separate items. The issue rests on whether or not you have to participate in the section 125 cafeteria plan in order to participate in the DCAP, as pointed out by Jo-Anne. Can the expense be paid directly by the S Corp and not be includable in the income of the shareholder? This probably is the real question, assuming no salary reduction under section 125.

You did not say whether this was a fully insured plan or a self insured plan. The difference between premium and lifetime maximum is easier to see in a fully insured plan. I still wonder how an employer has any input into the maximum set by the insurance policy. Is the employer going to call the insurance company and say STOP Do not pay $50,000 for the bypass surgery, only pay $27,500 because we paid $12,500 in premiums already! I still do not get what this employer hopes to accomplish. Then, If the benefits from the insurance coverage are treated the same as the employer paid premiums (or vice versa) , I wonder if they would BOTH have to be taken into consideration when doing testing? If these premiums are provided under a section 125 cafeteria plan, the employee had to make a choice between cash and qualified benefits. The employee chose the qualified benefit (health insurance) so How can you reclassify the premium payment ? If the premium is treated other than allowed by section 125, does that not change the tax treatment and cause the premiums to be taxable income? Can you get the tax benefits while not adhering to the conditions of the sections of the tax code that grants those tax benefits?

Below Ground Could it be that this problem would not exist for small employers if they did not particpate in these large multiple employer plans but had their own plan? Be that as it may, there is no reason why this "central site" has to wait on all particpating employers to submit before making the deposits. They can do it as received which should alleviate the time issue.

Why do you even want to have an HRA? What will it accomplish or do for you that cannot be done otherwise, other than allowing a rollover of unused funds? I still have yet to find an HRA with rollover.

The main guidance on this issue seems to be Revenue Ruling 61-146. Also do a search for discussions related to this issue and this RR. You can find the RR at www.taxlinks.com As for having a written plan, even if not required it would be probably in your best interests to have everything spelled out so that there are no misunderstandings etc.

Think about it this way. You pay insurance premiums for coverage on your car, let us say $100 per month. You have no accidents for 5 years, which would be after paying $6,000 in premium. Then you have an accident and the repair estimate is $5,000. Would you think that the insurance company should make a connection between the premiums paid and the benefit payable? If you do not want the automobile insurance company to make such a connection, Why would you want either the employer or the health insurance company to make it? The payment of premiums by the employer is not included in the wages of the employee as per IRC section 106 whereas the benefits received ( payment of medical expenses) are as per IRC section 105. The IRS makes the distinction between premium and coverage (benefits), Shouldn't you also?

The Op did not state that there was an employment contract. So what happens if there is no employment contract? The OP also has not clarified what the benefits are. So what happens with those benefits that were not listed by Locust and vebaguru?

I thought that it was a requirement of ERISA etc that an SPD must be provided. I think that it was section 102 for ERISA and 125 for Cafeteria Plans. Even if not required, How would you communicate the information regarding these benefits without using an SPD?

Will the financial advisor be advising the law firm or the participants ?