Ron Snyder

Whether sufficient indicia of ownership is maintained in the US is determined by whether courts in the US have jurisdiction over the asset to be able to protect the participants' interests. Clearly the LLC would be subject to the jurisdiction of US courts. The question, however, is: would Costa Rica recognize a judgment of a US court to affirm or transfer ownership in Costa Rican real estate? That would depend on the treaty between the US and Costa Rica.

Again I agree with GBurns. The plan and VEBA trust may not be legally distinguishable, but the VEBA and the employer clearly are. In general, it is better for the VEBA plan/trust to contract with the insurance co. Unfortunately, however, many health insurance companies will only contract with employers and require proof of employment, etc., so the ideal may become unworkable. Note: 501(m) applies to 501©(3) and 501©(4) entities, not VEBAs. Don Levit's aside was unrelated to VEBAs and to the question at hand. Don seems to enjoy quoting from outdated and nonbinding rulings issued by IRS or Treasury in a different era of plan regulation. He should spend as much time reading court decisions, the Code, Regs, Temporary Regs and Proposed Regs for current, governing law.

IRC Section 419A(d)(3): "For purposes of this section, the term "key employee" means any employee who, at any time during the plan year or any preceding plan year, is or was a key employee as defined in section 416(i)." IRC Section 79(d)(6); "For purposes of this subsection, the term "key employee" has the meaning given to such term by paragraph (1) of section 416(i). Such term also includes any former employee if such employee when he retired or separated from service was a key employee." Whichever way you look at it, 416(i) governs.

You are focused only on the Section 125 Regs, but a lump sum payment is deferred compensation and may not be provided under a cafeteria plan since it is not part of a 401(k) plan. It would have to be provided in compliance with IRC Section 409A and Regs thereunder.

You're talking to yourself again. IRC Sections 419 and 419A apply additional tax deduction limitations to other requirements of the Code relative to welfare benefit plans. Section 419(b): "The amount of the deduction allowable under subsection (a)(2) for any taxable year shall not exceed the welfare benefit fund's qualified cost for the taxable year." Just because amounts are carried over, they are not automatically deductible in the following year. Qualified cost is reduced by excess earnings each year, and the excess earnings will be greater if there are extra assets in the plan. Qualified additions to a qualified asset account are limited, but that does not preclude excess additions (nonqualified additions) to such account.

If the CBA is amended to reflect the various groups and their eligibility, that alone would be sufficient to establish an employment-related common bond. Coverage under the same agreement is all that is needed.

But for a defined benefit plan, 8-1/2 months is the maximum they get with extension even if the other returns are extended another month.

Good response. And the employer has to pay, although we build a expected time into our annual flat fee billing amount and only invoice excess over the time prepaid. For small plans we allot 1.5 hours as included in the base fee.

Since there is no insurance, there are no PS-58 costs. If there were insurance, it would be Table I, not PS-58 that governed imputation of taxable income. By self-insuring the employer gets no deduction for funds set aside to provide such a benefit until the death of the participant. Then upon a participant's death the employer gets a deduction and the beneficiary pays income tax on the distribution, which is ordinary income. If group-term life insurance were used, the employer would receive an immediate tax deduction for premiums paid, the employee would not have imputed income on the first $50,000 of benefit and the death benefit would be received tax-free by the beneficiary.

The Grist Mill Trust claims to be a welfare benefit plan for some purposes and not one for other purposes. Grist Mill also erroneously claims that they are not subject to ERISA because they are a top-hat plan. While they may be a top-hat plan by discriminating against non-HCEs, any contributions under IRC 419A would not be deductible, and contributions under 419 are limited to current term insurance costs. However, GM does not comply with the split dollar regulations and is one of the plans IRS was aiming at when they released the Notices and Revenue Ruling last October. Your concerns about providing benefits to non-employees are well considered. The rule that permits inclusion of contract workers in welfare benefit plans is just that: an inclusion. In order for the plan to be established it must cover at least one employee. It optionally may also cover independent contractors. The company should refile their tax return without claiming the deduction, pay their taxes due (with penalties and interest), and then sue Grist Mill, the salesman, the insurance company, the Administrator. Several of these suits that have begun since the Notices came out. There are several attorneys contacting companies in similar situations to handle the lawsuits for them.

You come on this board to promote a competing forum? The topic could be discussed here quite well, although the background of the responders would be considerably more varied. Here we are attorneys, administrators, life insurance agents, actuaries and benefit consultants that specialize in employee benefit plans. So if you want our perspective rather than a bunch of health insurance agents this is the place to post.

It is unfortunate that the life insurance companies with their deep pockets will end up paying the settlement and that those who created the abusive arrangement will probably be judgment proof. It will also be nice to see the Brian Cave law firm get its come-uppance for their flaky opinion letter. (However, the opinion letter was flaky in part because their client, Hartstein and ECI, misrepresented what they were doing to their own attorneys.)

Nothing in Section 501©(9) prohibits funding of increases in health care costs. The limitation that you are referring to (I believe) is found in IRC Section 419A and limits tax deductions to the amount required to fund current benefit levels over the working lifetimes of the participants. THIS DOES NOT APPLY TO TAX-EXEMPT EMPLOYERS whether funding a 115 trust or a 501©(9) trust.

Looks like you arrived at the correct answers in my absence. In a similar manner, Flex plans (FSAs) and HRAs may be used to reimburse long-term care premiums, even though the long-term care benefits may include living expenses in addition to medical expenses.

Sections 409 and 409A don't authorize tax deductions; they simply limit them. Tax deductions under §409 for current expenses realized during a taxpayer's year; the funds need to be expended rather than just set aside. Tax deductions under §409A are permitted for "qualified additions" to a "qualified asset account". Those amounts are tax deductible to the extent that they are within the limitations provided, either under the safe harbor or as determined actuarially. However, as you imply, those assets must be separated from the general assets of the corporation. They could be paid to an insurance company or to a trustee as a way of their becoming deductible. As with all expenses, the contribution payments must be made in order to be deductible; acknowledgment of a liability is never enough to obtain a tax deduction.

http://www.irs.gov/irs/article/0,,id=174844,00.html

I have seen little discussion of the DOL fee disclosure rules that were released last month. NEW DOL REGS You're probably already in compliance. It's the opposite of "don't ask, don't tell". The fiduciary now has a responsibility to ask the service provider for all fees and commissions relative to a 401(k) plan, and the service provider now has the responsibility to disclose everything. Good luck in achieving full compliance with this for small plans. The service providers will not notify the fiduciaries of their duty to ask so that they have an excuse for not disclosing.

1. Read Notices 2007-83 and 2007-84. 2. The doctor is participating in a listed transaction and has until today (1/15/08) to file form 8886 (Reportable Transaction Disclosure Statement) to avoid gargantuan penalties. 3. He doesn't own his insurance policies, the trust does. He therefore cannot surrender the policy, only the trustee can. 4. If the trustee surrenders the policy it will be taxable to the extent that the surrender value exceeds the trust's basis in the policy. 5. If the trustee distributes the insurance proceeds to the doctor, it will definitely be taxable. However, as provided in Notice 2007-84, it may be treated as a dividend (subject to double taxation), as a non-qualifying distribution from a deferred compensation plan (subject to ordinary income taxes plus a 20% excise tax), as a disqualified benefit from a welfare benefit plan (subject to a 100% excise tax), etc. 6. Under the same Notice 20007-84, anyone who "promotes" or "aids and abets" the doctor with this abuse (distribution from a welfare benefit plan other than upon a welfare benefit occurrence) may be subjected to penalties under IRC sections 6700 and/or 6701. Very scary.

An S corp can have a 125 plan anyway. The only limitation was that 2% shareholder-employees were not permitted to participate. If you are referring to an S corp that has hundreds of employees with none of them being a 2% shareholder, they can all participate in such an arrangement. I note that IRS has issued rulings about S corp ESOPs, including making such arrangements listed transactions in certain circumstances. See the article at http://www.irs.gov/retirement/article/0,,i...331,00.html/url.

A plain vanilla buy-sell agreement (X will purchase Y's shares for $-Z-) would not be considered synthetic equity. However, it is possible to imagine a synthetic equity arrangement that is couched as a buy-sell agreement. If your buy-sell contains any elements of synthetic equity, you should obtain appropriate guidance from your own deferred compensation counsel with respect to the issue.

As G Burns, I also am unfamiliar with such "success stories" but too familiar with frauds perpetrated in many states by several MEWAs who sought to avoid state regulation. It is my understanding that the only state that has obtained an ERISA waiver was Hawaii (in 1984?), and that the door is now closed for additional waivers to be granted.

The result of prohibited transaction in a Roth IRA is disqualification of the IRA. (The prohibited transaction may occur in lending your credit to the Roth IRA.) This may result in double taxation of the amount inside the Roth IRA. A Roth IRA may permissibly invest in real estate: 1. If the Roth IRA can purchase a parcel of real estate without a mortgage; 2. Through purchase of a fractional interest in the real estate through an unrelated entity (not a disqualified person) which pools funds together for such purchase (but watch out for securities laws). 3. A situation to which your ERISA counsel advises is ok. In my experience, real estate investors are so greed-motivated that they are too cheap to pay for legal counsel before they get into trouble, preferring to rely on the advice of amateurs who tell them what they want to hear. I am an attorney who hears regularly from real estate investors who want to get around the laws rather than comply with them.

Several states have MEWA laws with reduced capitalization requirements. Other states apply the requirements applicable to insurers to MEWAs. For most states there is an exception in the laws for self-funded health and welfare benefits of an employer or of a controlled group of corporations. Other states administratively grant such an exception based on the facts of the case. I know of no state that exempts VEBAs which are also MEWAs from registration, filing and capitalization requirements applicable to insurance companies. Almost every state has had its citizens burned by so-called ERISA health plans (MEWAs) which were undercapitalized and underregulated. Rather than pining for the good old days before the Secretary of Labor made it clear that he would not apply ERISA pre-emption, you should be looking for creative solutions within currently permissible legal structures. I am involved with creating a captive insurance company for funding welfare benefits for a MEWA, for example. This permits creative designs and yet is subject to sufficient oversight and capitalization requirements as to protect the public.

You wrote that there is no advantage to the VEBA, other than the exclusion of current investment income from income taxation. You seem to be focusing on the tax benefits, and exclude the VEBA as a non commercial insurer. Why would you limit the advantages of a VEBA to merely tax advantages, and exclude the unique products it can offer, to help maintain those tax advantages? Because no such advantages exist. If a VEBA acts like a "non commercial insurer", it must be licensed as an insurance company. Why would a VEBA licensed as an insurance company be any more creative than any other insurance company? It is likely to be considerably less efficient because of its size. That is correct, if the VEBA is fully insured. Why would it matter whether the plan is insured? Does an ERISA fiduciary have fewer duties or more when insurance policies are involved? I believe the answer is more because the fiduciary must (in addition to other duties) select the insurance company, oversee the insurance contracts, etc. However, if the VEBA is self-funded, it is not an entity independent of the employment relationship, as a commercial insurer is. A self-funded VEBA still maintains the employer-employee relationship, so that the insurer and the participants are seen more like one unit. The Employer is also an ERISA fiduciary, but that doesn't relieve the VEBA trustee from its liability simply because the Employer is a co-fiduciary.

[W]hat are the advantages of a taxable welfare benefit trust over a tax-exempt trust? There are many advantages: 1. Not nearly so many rules to live by; 2. Compliance work is easier; 3. No UBIT; 4. More flexible; 5. Can cover an industry and all states with one trust; I believe a VEBA offers unique advantages as a tax-exempt 501©(9) trust, in addition to the tax advantages. That is because a VEBA can be more than just a tax-advantaged way to contribute, accumulate, and distribute benefits. It also is a non commercial insurer, which, according to the VEBA regs, is intended to provide products that are not available to the public. This provides a wonderful opportunity for creative plan design, similar to what Blue Cross and Blue Shield used to accomplish. There is no advantage to a VEBA besides the exclusion of current investment from income taxation. A VEBA is not a "non commercial insurer" any more than a taxable trust is. Either must comply with insurance laws, especially if they intend to "provide products that are not available to the public". The Blues quit offering "creative plan design" in 1961. In addition, as an insurer, the VEBA has strict fiduciary responsibilities to the participants. The duties of an ERISA trustee are the same for a taxable trust as they are for a VEBA.