Ron Snyder

If we are still talking about a plan maintained by a municipal government, the earnings on the "excess" (at least they would be excess if section 419 applied) contributions are not taxable, whether those are held in a 115 trust or in a VEBA.

A one-member LLC is a pass-through entity. No medical deductions are allowed to the LLC including qualified direct costs and qualified additions to a qualified asset account. Those amounts are passed through to the member's personal return and may be deductible on the personal return within the application limitations. The answer is different if the LLC has elected to be taxed as a "C" corporation under the check the box regulations. The contributions would then be tax deductible and excluded from the individual owner's income.

A VEBA would only be "necessary" for advance funding of future benefits, but arguably a grantor trust would work as well without the VEBA baggage. A medical expense reimbursement plan would be sufficient for current expenses.

Why was the claim subsequently denied although previously approved? It seems to me that if it was paid in error (as with a reimbursement in excess of the deferral election for 2007) it could be different than a case where, for example, a medical credit or debit card was used and initially approved (pharmacy charges), but which upon review turned out not to be for 213(d) medical expenses (ie, case of beer was not prescribed). I'm not sure that "taxable income" is the appropriate treatment. In fact, in either case I would argue that the plan should recover the excess payments rather then simply calling the amounts taxable income. What does the plan doc say?

Under a 162 plan the participant owns the policy and the premium is paid by the employer. The premium is treated as current taxable compensation to the employee and is included on form W-2. A death benefit plan referred to in the 409A Regs. is a group term life insurance plan (whether funded with term or permanent, individual or group policies) under Section 79 of the Internal Revenue Code. It is NOT a 162 bonus arrangement where the employer is paying premiums after an employee's separation from service. Continuing to pay a participant's personal expenses (including life insurance premiums) is deferred compensation subject to 409A requirements.

The original post said "BPO", not "PBO". Don't know what either of them means. We provide third-party actuarial services for a TPA firm that pays us to run the valuation, print out reports and prepare and sign the Schedule B. For this we receive 50% of the TPA's fee. All Enrolled Actuaries are subject to the JBEA rules and Circular 230, even those in India, to the extent that they are providing ERISA-covered retirement services. It would be foolish to outsource services to someone who did not have E&O, especially because it is likely required in order for your own E&O to cover you with respect to the services provided to the client. In other words they have to be covered under your policy if they can't provide satisfactory coverage.

You might wish to read the Sherwin-Williams case: Sherwin-Williams

I don't see why not. However, the legislation doesn't necessarily make sense. For an interesting perspective on 409A, try Einstein Theory of Tax.

In a lawsuit, the TPA would be held liable for reimbursing the erroneous refunds to the plan. However, the TPA has an offsetting claim against whoever received the funds. Your post curiously makes it sound like the refund went to the employer rather than to the HCEs.

The 20% excise tax refers to distributions from plans which are not in compliance with the provisions of 409A and and Regs thereunder. cf, Corporate Counsel and Journal of Accountancy. The 20% additional tax, therefore, applies to amounts which become taxable during and are included in gross income for the year (whether or not those amounts are paid) from a plan which is not in compliance.

It's a hot item right now with doctors' offices to make a patient sign an arbitration agreement before the physician will render medical services. But unlike doctors (who hate lawyers) while actuaries and pension administrators don't necessarily, there is little advantage to an arbitration clause. Many of them are not even binding in contracts of adhesion. Non-binding arbitration means "let's talk until someone gets mad enough to sue", which may occur before or after the arbitrator renders a decisions. Binding arbitration may successfully avoid going to court, but either requires cross-referencing to AAA (American Arbitration Association rules) which will make it as expensive as litigation, or requires a complicated process to be described in detail, thus bogging down what ought to be a simple, straightforward agreement. A lot of firms look at this issue as a way of protecting themselves against clients who may sue them. I consider it likelier that I may have to sue a client for unpaid fees, than that a client will sue me for malpractice. Therefore, my perspective is as a potential plaintiff instead of a defendant. In many jurisdictions small claims courts can handle claims of up to $5,000, $7,500 or even $10,000. The process is simple and inexpensive. I believe that the way to go is to limit clients to a credit limit of whatever the small claims court amount is your jurisdiction, and cut them off when that limit has been reached. I would not wish to tie my hands and force me to go through expensive arbitration when the matter can be handled in small claims court. A simple clause in the agreement can guarantee venue and jurisdiction (both in personam and subject matter). Since that's what I want as a plaintiff, I am happy to stipulate that that is what I will have as a defendant as well. What's good for the goose, etc.

You might start by looking at these: BenefitsLink or simply by Googling the web for "125 flex plan administration software".

To put it succinctly: UBTI -> UBIT (-> = implies). If there is (net) taxable income, there is income tax. It is clear from the cases is that medical accumulations, even within the limitations permitted under 419A, are not "exempt function income".

In most cases I have seen, purchasing assets in excess of what the plan can afford to pay cash for will require a personal guarantee, which will result in a prohibited transaction. This is true whether the borrowed funds are used to purchase a piece of real estate, securities or otherwise. Debt financing using a non-recourse note secured only by the plan's assets will not result in a PT, but may result in UBIT. cf, http://www.sterlingtrustcompany.com/Default.aspx?tabid=468 and Pensco

Good understanding as far as it goes. Watch out for the following: The funding target may not exceed the expected cost of retiree medical benefits for the participant at current benefit and cost levels (no cost of living increase). The statute states that the reserve must be "actuarially determined". If no actuarial certification is provided, the contributions are limited to the safe harbor amounts provided in the statute, basically 35% of current medical costs (other than current insurance premiums) paid for the year. The accumulation will be subject to UBIT inside a VEBA, thereby obviating the need for a VEBA. Since all participants are HCEs, individual accounts must be kept and their benefits paid from those accounts. Read 419A carefully and hire an actuary to certify the calculations. He/she will keep you on the straight and narrow.

Nice to see that you weren't self-destructing after all. Good luck!

The problem you really have is that the transaction, if proper documents were executed, is a PT. And without documentation it is a disqualifying event. The permissible way to do a sale of policies for FMV (assuming cash values) is to pay for the policy either immediately prior to or following the transfer. Failure to pay is an in-service distribution in violation of the plan's terms. Failure to pay timely is an extension of credit to the participant.

I notice that I still have the same problem. Could it be a browser incompatibility? I am using Mozilla Firefox and occasionally have problems with certain websites.

When I log into the message boards, it tells me that the last time I was on was July 9th. However, I have logged in several times since then, but for some reason the board is not updating. The only problem caused by this (of which I am aware) is that I want to use the "View New Posts" option, and it goes all the way back to July 9th rather than to the most recent time I was on. Is this a problem others are experiencing? I am using Mozilla Firefox version 2.0.0.16. Is this problem related to the post about the "need to log in multiple times"?

The standards that apply to what your attorney says to you and a tax opinion are quite different. Under Circular 230, the penalties for the attorney's making a mistake are considerable, in addition to the potential liability to you in case you detrimentally rely upon his opinion and ultimately his position is upheld. Many tax attorneys will not issue written opinions any more. Those who continue to do so have implemented safeguards to avoid making mistakes. If your ERISA/tax attorney will give you a favorable opinion, you can go ahead with the transaction. Otherwise you should not. Your excuse ("I have found so much disagreement between experts") doesn't wash. Here on this thread you have consistent opinions from several knowledgeable people and you don't want to accept those, only to argue with them.

Pretty good checklist and you still have a few letters of the alphabet left over. The answer to your question is "yes". Several firms, including flex software vendors, have training programs for administrators of cafeteria plans. Check with your own vendor. If you don't have one, either buy appropriate software (BenefitsLink has a section to look and see what's available), or hire some who already has the software to do the job. While cafeteria plan administration may not require the same amount of training as defined benefit plan administration, for example, it requires a lot more than a checklist.

You certainly seem to want to live dangerously. You want to do highly leveraged commodity trading with retirement funds. And if the investment risk isn't enough risk for you, you now desire to take legal risks as well. If you are a moth, why bother to come on the board to assuage your conscience? You're going to self-destruct no matter what we say because you are hell bent on taking risks. Imagine being at the roulette table in Las Vegas (or otherwise). You bet black and win, doubling up. You bet black again and win, doubling up again. How many times can you leave all your chips on black before you have nothing left? 2, 3, 7, 10? The point is that if you keep taking risks, sooner or later you will be left with nothing. There are investments, even investments in commodities and currency futures that are not highly leveraged, do not require a personal guarantee and can provide an adequate return. Stop letting greed get the best of your judgment before it is too late. Ask your ERISA attorney to put his opinion in writing. If he is a decent ERISA attorney (as a member of the Employee Benefits Committee of the ABA, I know many of the top ones) he will not give you the response you reported. My guess is that you heard what you wanted to hear from him and need to speak with him again.

You might not meet much resistance, but the downside risk is considerable. Your plan has violated the exclusive benefit rule of 401(a)(2) and the effect of such violation is plan disqualification! Let's hope the IRS has the power and willingness to impose a lesser sanction, but it's going to be expensive if they do.

Does ERISA purport to pre-empt unclaimed property laws? Not at all. It only seeks to regulate employee benefit plans of non-governmental employers. However, ERISA does provide a procedure that avoids state escheat laws, as you suggest. Those provisions do NOT apply to other payments that are not protected by ERISA such as the ones you describe. Those amounts should be turned over to the state's unclaimed property office after the appropriate time period.

You posted this on IRAs and Roth IRAs, leading me to believe that there are more issues than a personal guarantee: 1. What is the effect of a prohibited transaction on an IRA or a Roth IRA? Plan disqualification and immediate taxation (including penalties for premature distributions). 2. I have seen previous rulings where lending a qualified plan one's credit worthiness may be deemed a prohibited transaction. 3. Would you be doing any leveraging? While leveraging such trades is common, it creates a separate set of problems. Similar to PTs, the penalty for debt-financed unrelated business taxable income is plan disqualification. 4. When is a guarantee by the IRA holder a "personal" guarantee when the account is denominated an IRA account? My answer is that when the purpose of the guarantee is to bypass creditors and bankruptcy laws and give the brokerage firm a superior claim priority in the event of a problem. If it were me and I was hell-bent on doing the futures trading (rather than purchasing a futures trading fund, for example), I would find another brokerage firm to deal with that did not make me go out on a limb legally to open an account with them.