Dave Baker

Lemme take a stab at the first one -- A cafeteria plan can offer only certain types of benefits -- see the regs at http://frwebgate1.access.gpo.gov/cgi-bin/w...action=retrieve One of those types of benefits is coverage under an accident or health plan described in Code section 105 (says that reg). A flexible spending account under a cafeteria plan would be such coverage, specifically it would be a self-insured medical reimbursement plan described in section 105(h). Regs under 105(h) are used to determine whether a benefit (a reimbursement) is taxable or nontaxable, when the 105(h) program is offered as part of a cafeteria plan - http://frwebgate1.access.gpo.gov/cgi-bin/w...action=retrieve - they say that "A self-insured medical reimbursement plan is a separate written plan for the benefit of employees which provides for reimbursement of employee medical expenses referred to in section 105(B)." (Emphasis added.) 105(B) says: (B) Amounts expended for medical care Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include amounts referred to in subsection (a) if such amounts are paid, directly or indirectly, to the taxpayer to reimburse the taxpayer for expenses incurred by him for the medical care (as defined in section 213(d)) of the taxpayer, his spouse, and his dependents (as defined in section 152). (Emphasis added.) Best quickie list of allowable expenses is included in IRS Publication 502: http://www.irs.ustreas.gov/prod/forms_pubs...pubs/p50207.htm [Edited by Dave Baker on 07-30-2000 at 12:17 AM]

Important new article from the Association of Private Pension and Welfare Plans: http://www.benefitslink.com/links/20000724...24-006308.shtml (Link to PDF article published online by APPWP)

In an article in the New York Times magazine on July 23, 2000, the author argues that genetic discrimination by employers and insurers is rational and shouldn't be illegal. "Genetic testing is not a reversal of the principle behind insurance; it's just an elaboration of it," says Andrew Sullivan, in his Counterculture column. Here's the link to the New York Times site (free registration required); not sure how long they'll keep the content online: http://www.benefitslink.com/links/20000724...24-006319.shtml Your comments? Post 'em here!

(Jonathan P. Weiner, in the Baltimore Sun, 7/21/2000) Excerpt: "And yet, in our attempt to regulate and litigate HMOs and other health insurance plans into submission, we have once again side-stepped the two real U.S. health-care issues: the more than 40 million Americans who have little or no access to services and--election promises and contingency fees aside--that health-care resources are finite. Neither of these two issues are the HMOs' fault. In fact, quite the opposite is true." http://www.sunspot.net/content/archive/sto...d=1150370207105 Please take a look at this piece and post your comments here!

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission (copyright 2000 TRI Pension Services, all rights reserved). <blockquote>Please feel free to add a reply to this thread (see link towards bottom of this page) if you would like to discuss comments or questions about this article with others!</blockquote> Automatic enrollment feature is permissible in 403(B) plan/caution on Title I issue (added July 18, 2000). Rev. Rul. 2000-35 confirms that an automatic enrollment feature is acceptable under a section 403(B) plan. This is true regardless of whether the plan is funded with annuity contracts or custodial accounts. The requirements parallel those prescribed for 401(k) plans under Rev. Rul. 2000-8. If the automatic enrollment feature is properly applied, the contirubtions deducted from an employee's compensation, for transmittal to the 403(B) plan, are treated as salary reduciton contributions that are excludable from income (subject to the §402(g) limit, the maximum exclusion allowance under IRC §403(B), and the section 415 limits). Caution - Title I issue. If a 403(B) plan is set up solely to receive salary reduction contributions, and no employer contributions will be made to the plan (i.e., no matching contributions and no nonelective contributions), the plan is generally exempt from Title I of ERISA. See DOL Reg. §2510.3-2(f). However, one of the conditions for the Title I exemption is that the employer have limited involvement in the plan. Included in the activities the employer may engage in without creating a Title I plan is the collection of contributions through the salary reduction agreements and transmital of those contributions to the annuity provider or custodian of the custodial account. Is an automatic enrollment program crossing the line, resulting in Title I coverage? This issue is not addressed in Rev. Rul. 2000-35, because the employer makes matching contributions under the plan, resulting in Title I coverage anyway. Perhaps the IRS or DOL will clarify this issue at a later date.

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission (copyright 2000 TRI Pension Services, all rights reserved). Please feel free to add a reply to this thread (see link towards bottom of this page) if you would like to discuss comments or questions about this article with other users of BenefitsBoards.net! Rollover of non-employer-stock investments to money purchase plan established solely to accept rollovers does not preclude exclusion of NUA on employer stock distributed from KSOP (added July 18, 2000). In PLR 200027058, Plan X includes a 401(k) arrangement and an ESOP (referred to as a "KSOP" in this discussion). Employer contributions are invested in employer stock. Employes have several investment choices for their 401(k) contributions. Plan Y, a money purchase plan, was established solely for the purpose of accepting rollovers. The employer contribution formula is 0%. The only eligible employees for Plan Y are: 1) employees who have attained age 59-1/2 and have received a lump sum distribution from Plan X, and 2) former employees who receive a lump sum distribution from Plan X. The purpose of Plan Y is to provide a means for these employees and former employees to accomplish two goals: 1) retain the portion of their lump sum distribution that consists of employer securities, in order to take advantage of the gross income exclusion for net unrealized appreciation (NUA), and 2) continue the remaining investment of their account in the same investment options they had under Plan X. IRC §402(e)(4) provides that, in the case of a lump sum distribution which includes employer securities, NUA on those securities is excluded from the distributee's gross income unless otherwise elected. In several previous private letter rulings, the IRS has ruled that, although a partial rollover precludes income averaging treatment on a lump sum distribution, it does not affect the right to the NUA exclusion for the emploiyer securities that are not rolled over. Thus, when an employee or former employee who is eligible for Plan Y rolls over the non-employer-securities to Plan Y, the remaining distribution from Plan X is eligible for the NUA exclusion. In other words, the combination of the distribution of the employer securities from Plan X and the direct rollover of the remaining investments to Plan Y, constitute a lump sum distribution for §402(e)(4) purposes, allowing the NUA exclusion on the distributed employer securities. By establishing Plan Y, the employer has provided a means for these participants to preserve the current non-stock investments in their accounts, through the rollover to Plan Y, while electing a distribution of the employer securities and taking advantage of the NUA exclusion. An interesting sidenote with this case is the establishment of Plan Y with no employer contribution formula. Is it significant that Plan Y is a money purchase plan and not a profit sharing plan? It seems so. Questions have been raised at various employee benefit conferences whetehr a profit sharing plan can be established solely for the purpose of accepting rollovers. Treas. Reg. §1.401-1(B)(2) requires an employer to make "substantial" and "recurring" contributions to a profit sharing plan. No parallel requirement exists for money purchase plans. Thus, by establishing Plan Y as a money purchase plan, the fact that the plan is funded solely with rollovers from Plan X does not present a problem.

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission (copyright 2000 TRI Pension Services, all rights reserved). Please feel free to add a reply to this thread (see link towards bottom of this page) if you would like to discuss comments or questions about this article with other users of BenefitsBoards.net! Interest rate not exceeding 120% of federal mid-term rate is deemed reasonable for calculating "substantially equal" payments under IRC §72(t)(2) exception (added July 18, 2000). In PLR 200027062, the taxpayer, who is age 53, elected substantially equal payments to be made from his IRA. The payments are intended to be exempt from the premature distribution penalty, pursuant to IRC §72(t)(2)(A)(iv). The monthly payments were calculated on the basis of the taxpayer's IRA account balance as of November 30, 1999, uding A's life expectancy (30.4 years) under Table V in Treas. Reg. §1.72-9, and an interest rate assumption of 6%. This is the amortization method prescibed by Notice 89-25. In past rulings, IRS has said that the interest rate used to calculate substantially equal payments must be reasonabe, but has not established any safe harbor standard. In this ruling, the IRS takes the position that any interest rate which does not exceed 120% of the federal mid-term rate is treated as reasonable.

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission (copyright 2000 TRI Pension Services, all rights reserved). Please feel free to add a reply to this thread (see link towards bottom of this page) if you would like to discuss comments or questions about this article with other users of BenefitsBoards.net! In applying the same desk rule, it is not relevant whether a transferred employee performs different services and job functions than he performed for former employer if such change occurs after the date the employee is transferred to the new employer (added July 18, 2000). In PLR 200027059, the IRS specifically address the affect of a later change in a transferred employee's job functions on the determination of whether there has been a separation from service with the prior employer. This case is another one where there is no sale of assets, stock, merger or other business transaction between the former employer and the new employer. However, the transferred employees, at least initially, continue to perform the same job functions that they performed for the former employer. The 342 employees at issue here were performing information services for Corporation A. A determinated that it needed to concentrate on other business operations, so it decided to outsource the information services component of its operations. The outsourcing occurred under a contract with Corporation C, an unrelated company. The contract was effective March 1, 1999. As of that date, the 342 employees were terminated from A's employees and were hired by C. Corporation C determined that the required level of staffing under its contract with A required no more than 300 of these 342 employees. C initially had all 342 employed to carry out the functions of the contract with C, but by October 1, 1999, there had been substantial changes. Only about 100 of the 342 employees will continue to perform services for A on-site. The rest work in other facilities, some performing services for A only part of the time and others no longer providing services for A. A maintains a 401(k) plan. Rulings were requested on whether any of the following employees could be treated as having a separation from service with A, thereby triggering a distribution event from the 401(k) plan: 1) those whose supervisors, benefits, or policies had changed, but who continued to perform services for A under Corporation C's contract with A, 2) employees who, on some date after their initial hire by C, work exclusively on non-A work, 3) employees who, on some date after their initial hire by C, work at least part of the time on non-A work. The IRS ruled that none of these employees has a separation from service. When there is no business transaction (e.g., sale of assets or stock) that involves the transfer of employees, IRS looks at the job functions of the transferred employes to determine whether the same desk rule applies with respect to the former employer. If, at the time of transfer, the employees continue to perform services for the former employer in substantially the same job capacities, the same desk rule is triggered and there is no separation from service with the former employer. Any later changes to the job functions of the transferred employees are irrelevant in finding a separation from service, so long as the employees continue to work with the company who initially hired them from the former employees. Thus, all three categories of employees described in the prior paragraph do not have a separation from service with A, even if they no longer perform any services under C's contract with A or work only part of the time under such contract. So long as these employees continue to work for C, the A 401(k) plan may not treat them as having a separation from service.

The following article is from Sal Tripodi's TRI Pension Services web site ( http://cybERISA.com ) and is reprinted here with Sal's permission (copyright 2000 TRI Pension Services, all rights reserved). Please feel free to add a reply to this thread (see link towards bottom of this page) if you would like to discuss comments or questions about this article with other users of BenefitsBoards.net! Plan may provide for direct rollover as the default method of making involuntary distributions in the absence of an affirmative election by the participant (added July 18, 2000). A qualified plan provides for involuntary distributions of vested account balances of $5,000 or less, following termination of employment. There are no after-tax contributions in the plan. Pursuant to IRC §402(f), the plan first provides a notice to the terminated employee, which explains the rollover and withholding requirements. Under the current terms of the plan, if the employee has not affirmatively elected whether to take a cash distribution or to direct a rollover, the plan makes a cash distribution. The employer is now amending the plan to make the direct rollover the default distribution method. Under the amendment, if the employee fails to make an affirmative election within the 30-day minimum election period prescribed by law, the plan will rollover the involuntary distribution to an IRA. The plan administrator selects the trustee, custodian or issuer of the IRA. The default rollover is explained in the notice material provided to the terminated employee. In Rev. Rul. 2000-36, the IRS ruled that a plan may use the direct rollover as the default method of distribution. Pursuant to Treas. Reg. §1.401(a)(31)-1, Q&A-7, the plan must explain the default procedure. The IRS also ruled that the amendment of the plan to change the default distribution procedure from cash to rollover is not a cutback described in IRC §411(d)(6). A change in a default method of distribution does not eliminate any option available from the plan, it only changes the automatic method of payment that is made in the absence of an election among the plan's options. Uses of the default rollover procedure. Why might a plan sponsor consider this approach? One reason may be the hassle of having an involuntary distribution outstanding for a long period of time because the participant doesn't cash the check. By using the direct rollover as a default, the plan transfers the funds directly in the IRA, and no check is issued to the participant. The plan satisfies its obligation to pay the benefit, and the participant can take the withdrawal from the IRA when he wishes. A default direct rollover may be a useful tool when dealing with missing participants as well, in particular when a defined contribution plan is terminated and, after taking reasonable steps, the plan is unable to locate several participants. Note that Rev. Rul. 2000-36 does not address missing participant sitations. The facts of this ruling deal solely with situations where the participant receives notice of the pending distribuiton, and an explanation of the right to elect cash or rollover, and the default rollover procedure if no affirmative election is made. However, IRS has stated at many employee benefit conferences that use of the rollover process is the IRS' preferred method of dealing with the accounts of missing participants under terminated defined contribution plans. Title I of ERISA issues. The IRS notes in the ruling that DOL would treat the choice of the IRA trustee, custodian, or issuer as a fiduciary action. However, once the funds are rolled over to the IRA, the distributee is no longer a participant under the plan for Title I purposes, because the entire benefit has been paid from the plan. See the definition of participant in DOL Reg. §2510.3-3(d). Default rollover may not occur before end of 30-day election period. Remember that Treas. Reg. §1.402(f)-1, Q&A-2, requires the §402(f) notice to be provided no less than 30 days before the distribution. Thus, the participant must be given at least 30 days to make an affirmative election between the cash distribution and the direct rollover. Only after the expiration of this minimum election period may the plan proceed with the default rollover.

Info re interest rate to be used: http://www.benefitslink.com/boards/index.php?showtopic=5073 Another user suggests looking to the DOL's Voluntary Fiduciary Correction program for guidelines, even if the plan sponsor does not file under the program: http://www.benefitslink.com/boards/index.php?showtopic=4904 VFC program is at http://www.benefitslink.com/DOL/volfiduciary.shtml

Has the plan sponsor (or any affiliated entity or predecessor entity) ever had a 401(k) plan that's been terminated?

This looks good -- Your Pension and Your Spouse--The Joint and Survivor Dilemma, 5th edition http://www.ifebp.org/pbpensps.html Anybody used it?

Final regs have adopted the IRS' 1998 proposal to eliminate the "lookback rule" (generally effective October 17, 2000) which has prevented involuntary cashouts in some circumstances (e.g., where account value once was over the $5,000 threshhold but has dropped to less than $5,000 due to investment losses) http://www.benefitslink.com/taxregs/cashou...out-final.shtml

Sen. Harkin's press release of 7/11/2000: http://www.senate.gov/~harkin/releases/00/...2000711642.html Please take a look at Senator Harkin's press release and its description of the proposed office -- has the time come for a federally-funded pension policy agency that advocates for participants in general?

It's so hard, in a sound bite, to distinguish between cutbacks of accrued benefits vs. reduction or elimination of future benefits. If employers and planners could come up with something concise and positive to express it, I suspect we could eliminate some of the perceptions of injustice arising from an employer's decision to reduce the additional benefits in the future for some or all employees. About the best anybody's come up with in the cash balance scenarios is "wearaways," which doesn't help much.

Gary Lesser has some software that might fill the bill -- he's been selling and refining it for quite a few years. I understand the calculations are particularly ugly if more than one partner is involved. http://www.benefitslink.com/GSL/QPSEP_profile.html

http://www.benefitslink.com/links/20000714...14-006197.shtml takes you to the PDF file published by the Joint Committee on Taxation regarding the version that was reported out of committee (I think) (Requires the free Adobe Acrobat Reader to view or print) Headlines with links to articles about the bill are here: http://www.benefitslink.com/buzz/topics/he...lawsbills.shtml

From the Green Party: "Currently, we are the only industrialized country without a national health care system. Unfortunately we have a private insurance system that insures only the healthiest people, systematically denying coverage to individuals with 'pre-existing' conditions and routinely terminating coverage to those who become ill." (More: http://www.benefitslink.com/links/20000714...14-006198.shtml) In your opinion, what's wrong with their position?

A Morningstar employee has written an article that criticizes the practice: http://www.benefitslink.com/links/20000714...14-006190.shtml Do you agree?

I suppose one could say that the funds are the plan's property and that the bank account is holding them in some sort of constructive trust ... but it seems to me that the plan's only asset is the note, and that the obligation to pay on the note is personal to the borrower such that there's nothing magic about the funds that are now in the wrong bank account. The borrower still owes the missed payment, and if the borrower writes a check out of some other account to satisfy that liability then the plan is getting its due. The plan really doesn't care where the money comes from, just that it gets the money as soon as possible. Sounds like the funds might be gunked up in the bank account for a while. Perhaps it even would be a fiduciary violation for the plan trustee to wait for those funds to get freed up again, if the borrower is willing to make payment from another account now!

Security Trust Company: http://www.securitytrust.com/

Excerpt: "Tax legislation to be considered by the House Ways and Means Committee this week would substantially expand pension tax preferences for high-income executives but likely lead to some reductions in pension coverage among low- and moderate-income workers and employees of small businesses. The pension provisions, which are similar to those included in the large tax bill that President Clinton vetoed last summer, would primarily benefit high-income individuals." http://www.cbpp.org/7-12-00tax.htm Do you agree?

One trouble with this situation is the failure of the sole proprietor's SEP arrangement to provide contributions (i.e., to cover) the employees of the corporation. A SEP arrangement is simple but clumsy in this regard; it has to cover all of the age-and-service-eligible employees of the "employer," applying the common control rules of Code section 414©. A corporation wholly owned by a sole proprietorship would be a "brother-sister group of trades or businesses under common control." (See Treas. Reg. section 1.414©-2©.) So the SEP's failure to provide contributions for the corporation's employees means the contributions into the IRA have not been made under a simplified employee pension arrangement after all, and would be treated like any other excess contributions to an IRA (to the extent they exceed $2,000 per year).

He's the sole shareholder of the CPA practice?

Watch your 404 deductibility limit - comes up on you fast if you have a 200% or 300% match. I had a group of doctors use such a match; a couple of the doctors didn't want to contribute but didn't want to formally waive participation in the 401(k) plan, because they thought maybe one day they'd like to contribute. The other doctors were delighted to have the non-contributors continue to be eligible to participate, because the compensation of the non-contributors counts as part of the 15%-of-aggregate-participant-compensation figure (the 404 limit), thereby giving the contributing doctors more headroom. The professional association was able to get a total of $30,000 into the accounts of the contributing docs (deferrals plus the match) without having to make any profit-sharing contribution (which pleased the non-contributing docs, because they didn't have to have a chunk of their draw put into the plan on their behalf as a profit-sharing contribution either).