Christine Roberts

A closely held corporation wants to repurchase company stock from its formerly-leveraged ESOP. However it wants to use a "note" from the Company to the plan to do this! Seeking confirmation that (a) this would be a prohibited transaction; (B) it is likely to be a fiduciary breach (imprudent investment), independent of PT rules; © this would render the ESOP a non-ESOP; and (d) the correct approach would be to terminate the ESOP and distribute cash or stock, as the case may be, to participants, after obtaining a valuation of the company by an independent appraiser, as of the date the employer purchases company stock.

Then if I understand clearly, the practice of limiting participation in an ineligible 457 plan to a "top-hat" group, where the plan sponsor is a governmental entity, merely reflects a design choice on who to include in the plan, and does not have any other purpose (such as the ERISA exemption applicable for a private entity). I.e., the plan would be equally ERISA exempt if participation were not limited to a top-hat group.

The employer entity is a creature of state statute but has some powers of self-governance; i.e. is an agency or instrumentality of the state. I used "quasi-governmental" intending it to be included within the definition of a governmental entity. Perhaps a poor choice of words.

Quasi-governmental employer establishes "ineligible" deferred compensation plan under 457(f) for a limited number of executives and department heads. Plan assets are to be held in a rabbi trust. If it turns out that the participants are too numerous to satisfy "top-hat" criteria, is the plan now a 457(B) plan subject to trust requirements ? And would plan assets be subject to tax for lack of an adequate trust?

Is there any general guidance out there on how to treat employees on military leave, under a flex plan? Do we refer to the FMLA/Sec. 125 regulations by analogy? Does USERRA's "restoration of benefits" requirement apply to participation in a reimbursement scheme (dependent care, medical expense) under a flex plan? Any pertinent comments welcome.

I have been told that New Jersey and Pennsylvania subject employee salary deferrals to a flex/cafeteria plan, to state and local taxes. My cursory research indicates that this is not entirely accurate - any comments from practitioners in those states would be welcome.

Does the requirement that 457(B) plans of governmental entities be held in a trust or its equivalent prevent governmental entities from establshing "ineligible" 457(f) plans holding assets in a rabbi trust only? My thinking is the answer is "no," but seeking confirmation

IRA holder requests transfer of IRA funds from one investment broker to another. The transfer was intended to be a trustee-to-trustee transfer but was instead was miscoded as a taxable transfer. The IRA holder never received a check or at any time had possession of the funds, however he received a Form 1099 from the investment broker that originally held and transferred the funds. What is the best way, if any, to disclose this error so as not to be required to include the 1099 amount in taxable income for the relevant year?

Employer sponsors cafeteria plan, plus 4 separate self-standing benefit plans (health, dental, AD&D/life and LTD). Employer wants to do a megawrap document to consolidate health benefit plans but does not want to include cafeteria plan. Does this make sense? Would cafeteria plan reporting consist only of Form 5500 and Schedule F, or does reference need to be made to the underlying welfare plans?

I am looking at a prototype flex plan document that calls for the plan sponsor to "advance a sufficient amount to make the required contribution" in the event a plan participant does not have sufficient compensation to make his or her flex plan election contributions. Advanced amounts are to be recovered by way of future salary reductions. Is this kosher? I can see state wage and hour law problems with the increased deduction from pay. And if this is meant to address an unpaid leave situation, wouldn't it be trumped by the FMLA/Flex plan regs that were issued some time ago?

Small professional corporation wants to transition founding partners from FT employee/owners to consultants, with phased transition of stock ownership to younger shareholders. As consultants the founders would work on premises and have W-2 compensation & benefits, including health coverage, life insurance and disability insurance, qualified plan participation, expense reimbursements, bonuses, and a bonus representing their share of the return on capital investments in the firm. Looking for other examples of this type of transition.

Employer wants to make sliding scale contributions to employees' FSAs, based on longevity of employment; e.g., $500 for employees w/0-2 years of employment, $1,000 for employees with 2 - 5 years, and up. Only one HCE is employed, that person is not necessarily in the highest longevity bracket. Presuming the plan passes the key employee concentration test, would this arrangement be permissible?

If an employer establishes a self-insured plan to reimburse former executives and their spouses for medical expenses, is there any way around the Section 105(h) discrimination problem, other than to make the plan available to all former employees? Or, if the employer simply treats the reimbursement amounts as taxable income to the former employee, would this avoid the Section 105(h) problem entirely?

If an employer establishes a plan to reimburse former executives and their spouses for medical expenses, is there any way around the Section 105(h) discrimination problem, other than to make the plan available to all former employees? In my experience it is fairly common to have a private retirement plan or deferred compensation arrangement for an executive, that calls for reimbursement of medical expenses for the executive and his or her spouse, for a set period of time following retirement. Are these being established with knowledge of the discrimination problem, on the premise that the 105(h) problem is not strictly enforced, or is there some loophole that makes it permissible?

Employer with self-insured group health plan wants to restructure benefits, such that employees are offered additional cash compensation if they opt our of discretionary benefits including group health coverage. Presuming these employees are not Medicare eligible through age or disability, is there any problem with the Medicare Secondary Payer Act, in making such an offer? As a precaution shouldn't the employer get a written statement from employees who opt out, demonstrating that they have coverage elsewhere (e.g., through a spouse's employer)?

Cafeteria plan participant wants to add spouse to coverage under group medical mid-year, due to increase in cost of spouse's coverage under her employer's group health plan. Cafeteria plan does not have open enrollment for medical plan (self-insured plan). Adding spouse to coverage is not a problem, however can the employee change his pre-tax premium payment, mid year, to include the spousal premium?

Is it still $5,250 per year or was it increased under EGTRRA?

A former employee remained on its employer's partially self-insured group health plan, at the company's expense, for 15 years following termination of employment. The company tried to purchase individual insurance for the former employee but found he was uninsurable, hence kept him on the plan. Some time after the individual reached age 65, and elected Medicare Parts A & B, the company agreed to pay for a medigap policy for one year. The medigap coverage is less extensive than the employer's group policy. Even though the former employee's medigap coverage is a unique situation and not a "group health plan" doesn't the Company have a COBRA obligation when its subsidy of the medigap policy ceases?

In restating an ERISA 403(B) plan for GUST compliance, is it advisable to state different effective dates for each component of the GUST changes - e.g., make the cash-out increase to $5,000 effective for plan years beginning after August 5, 1997, but make the elimination of the look back rule for purposes of determining $5,000 cash out effective March 22, 1999. Won't this make for a very confusing document? Is stating each effective date even necessary given that there is no IRS review process? And, even if each effective date were stated, shouldn't the effective date be keyed to when the adopting employer actually changed its procedures to be in line with the GUST provisions?

Thank you. Can you recommend a good source of information on how to deal with the bonds upon maturity date, in a way that does not raise prohibited transaction concerns?

An employee provides outside services to his or her employer as an independent contractor. Presuming the provision of such services meets the definition of an independent contractor relationship, and not that of a common law employee, is there any prohibition on the employer issuing a 1099 and a W-2 to the same individual for any given year? I understand that this might be an audit trigger, but am trying to confirm whether there is an outright prohibition on this form of reporting.

Is it ever possible to contribute to an ESOP bonds backed by debt instruments held by the employer sponsoring the ESOP? My admittedly limited understanding is that the definition of qualifying employer securities under ERISA is broader than that under the Code and that the ERISA definition includes debt instruments.

You have the scenario correct and I agree w/your conclusion.

Per te EBIA ERISA Compliance for Health & Welfare Plans guidebook, mega-wrap or umbrella plan documents combining a variety of welfare plans (permitting one 5500 filing in lieu of several) are supposed to be adopted prospectively only. Does this mean the plan must be in place as of the first day of the plan year for which combined reporting will occur, or is it still prospective if adoption occurs anytime during that year, and is retroactive to the first day of the plan year?

A new salary reduction election *is* required to switch from PPO back to HMO because the HMO costs less. So it goes back to the original question, is this okay to do simultaneously w/adding the dependent child, or is it not *consistent* with the change in status?