Ron Snyder

We discussed this arrangement in some detail on this board about 2 years ago.

Some interesting information about using a Sec 115 trust vs a VEBA for funding an HRA is located at: VEBA/115 Comparison

Legally, yes, but the collective bargaining agreement may preclude this. The two-hatted fiduciary.

I just read your thread for the first time in several weeks. I am amazed that you are still trying to get people to discuss this topic. You acknowledge that 401(k) plans began in 1981 rather than the "early 1970s" and then insist that I made the error? What is a 401(k)-type plan? An individual account profit sharing plan? Those go back a long time before the early 1970s. A 403(b) annuity plan? Those have been in the IRC since 1954. Which 401(k) type plan goes back to the early 1970s?

I am also a pension actuary. I hired health actuaries on 2 separate occasions to assist me with similar projects, one for a health plan and the other for a combination life insurance/health reimbursement plan. I discussed all aspects of such plans with the actuaries, including the sources of their data (most was in-house proprietary stuff that M&R had developed). Their math was very familiar. I also worked with in-house actuaries at an insurance company with respect to a similar project, but those calculations were based on specific promised benefits and calculations relative to the amounts that could be funded with respect to those present and future benefits.

Gary- Actuaries revel in the type of statistical data you desire. Since Section 419A of the IRC requires calculations being determined by an actuary in any event, I suggest that the best solution to your need is to hire an actuary with health and welfare plan background and experience.

You seem to be shooting from the hip with your assertions. Please provide a citation to the "MEWA Amendment" you refer to. Also please provide a citation to at least one case where the Supremes encouraged MEWAs or even welfare benefit plans. In the few cases that are out there, the SC has found against the health or welfare benefit plan, in favor of IRS, in favor of plan participants, etc. I have yet to see a case where the Supremes provide the asserted encouragement.

IRC Section 419A requires that the reserves be limited to a safe-harbor amount (very small) unless they are determined by an actuary. The calculations are not done using "statistical data sources", they are done using standard actuarial methods and assumptions. And they are not done by laymen, but actuaries. You have no choice but to hire an actuary to do these calculations.

No, your conclusion is not logical. It is possible to comply with prevailing wage laws and still violate other laws. The MEWA issue doesn't go away unless they are covered under a collective bargaining agreement. By definition, a prevailing wage plan is NOT for CBA employees.

You're mistaken if you believe that state insurance commissioners can lower minimum capital and surplus BELOW statutory minimums for an insurance company engaging in the same line of business. This has not and will not happen. The 1983 MEWA "amendment" was nothing more than the Secretary of Labor announcing that federal regulation of MEWAs did not preclude state regulation. (ERISA gave the Secretary discretion with respect to federal pre-emption.) There have been so many illegal health insurance arrangements masquerading as MEWAs that states without MEWA laws automatically close down all such arrangements as illegal insurance arrangements. Only MEWAs which are fully insured by an admitted carrier are allowed to continue to operate. Please cite those "Supreme Court rulings" which encourage MEWAs. I am aware of none. ERISA doesn't encourage the establishment of MEWAs, it discourages it. The purpose of defining MEWAs in ERISA is to set them apart from those plans that are encouraged so that they can be separately regulated.

Belgarath hasn't much of an imagination. Insurance companies run the gamut: some fully disclose commissions; some partially disclose commissions and others refuse to disclose. Filing Schedule A is the responsibility of the employer, not of the insurer. I believe that those companies which do not already include Schedule A amounts in their reporting will refuse to provide such information unless forced to do so (by a lawsuit). A few may capitulate under threat of lawsuit. Exhaustion of administrative remedies prior to suing always makes sense; the client may file a complaint with the state insurance department if he really wants to know.

As mentioned on the other thread, the significance of the plan's being a MEWA is that it is subject to both Federal and state regulation. State regulation is much more difficult because only a few states have MEWA laws; those that don't require the MEWA to license as a full-blown insurance company.

DOL MEWA Enforcement You ask the US DoL if it's a MEWA. They will say yes. If it is a MEWA, it is subject to regulation by the DoL and by the state insurance department of each state in which employees reside.

Why not use a nonqualified DB plan for the exec? This would avoid all of the qualified plan requirements.

Affiliated service group rules do not directly apply to VEBA trusts or associations. Howeve, the ASG rules DO apply to the benefits provided by the VEBA. IRC Section 414(t).

I believe that it can be done, but I would certainly have an ERISA attorney guide the plan and the participant through the process. Many questions and conflicts of interest to deal with here. (Fiduciary duty toward participant vs. toward other participants? Distribution in kind rules, including tax basis upon distribution. Circuitous PT? etc.)

Although our TPA firm has clients from coast to coast, we not choose to outsource our services abroad for the following reasons: 1. Our clients expect us to be accessible, including operating within 1 hour of their time zone; 2. When clients or their advisers call, they expect to speak to someone who can answer their questions. I can train a person within a year or two to understand enough about our services and our clients' plans to be able to answer their questions intelligently. I cannot imagine how to train someone who is thousands of miles away; 3. I would much rather create jobs here than there. Our balance of payments deficit is too large already for me to add to.

Making an arm's length loan is NOT a PT. The only thing that would make it a PT would be if the bank required personal guarantees of the trustees, or relied on the credit of the the trustees or employer in making the loan. And even then the PT would be the loan of creditworthiness by the trustees or employer to the Plan. In any event the bank would not incur any liability with respect to the transaction. The trustees should make sure that the loan is NOT a PT, because they are the ones who will pay the piper, not the nonfiduciary lender. The bank is just as likely to incur nonfiduciary liability if they permit the trust to have a checking account at their bank and then notice that checks are being used for obviously personal rather than trust purposes, yet they don't worry about this. Of course, the real issue here is whether debt financing of the real estate creates UBTI. There is a great potential for UBIT in this situation and careful planning must be done to avoid or minimize the trust's paying income taxes with respect to the RE investment.

This certainly smells like an Affiliated Service Group. If so, it would still be a single-employer plan and fit under most prototypes. Get an opinion on the ASG issue!

You have raised many issues. No, no one can help you make sense of this, because not enough information is provided. Who are you? The TPA? The broker? An employee of a consultant that recommended this mess? Problem #1: A trust that provides a multiple-employer FSA. This is a MEWA and requires registration with the DOL. Several states require that TPAs be licensed as such with the state insurance department before administering such an arrangement. There is no reason to use a VEBA trust for an FSA. A simple TPA claims payment account is quite sufficient for the purpose of providing such services. As a MEWA providing health reimbursement benefits, several states would close you down as an unauthorized health plan, so check with the state insurance department before accepting business in a state. Problem #2: What does the "Trust set up one policy" mean? You have referred to an FSA only at this point. Are you referring to the underlying health insurance policy that would be available for premium reduction under the FSA? If so, what does it matter to you if each employer has its own coverage. No insurance carrier would look at this as a single group anyway. And if you self-insure any of the benefits, you will be closed down in any of the 50 states.

QDROphile is correct. A response to MJB: (1) Courts retain indefinite plenary jurisdiction in domestic relations matters. This allows them to modify previous court orders in the case of "changed circumstances".

Good suggestion, Frank. Of course the transaction proposed is a PT. The problem in voluntarily entering into a PT is that the excise tax is not only the annual excise tax payable with the 5330 based on 15% of the amount involved in the transaction (the greater of the amount of cash or the value of the property) each year. The bigger problem is the need to "correct" the transaction with the potential 100% excise tax penalty. Your concerns, therefore, are well founded. I typically refuse to continue to provide services for clients who ignore my advise in this area, because they are a disaster waiting to happen.

You are mistaken. For the 80% test 5 or fewer must own 80%. Each owner does not need to own an interest in each entity. For the >50% test, only overlapping ownership is counted, so the shares of owners who own an interest in only 1 entity are not counted.

3 Others + 2 family (bro & sis) = "5 or fewer" which control 100% of the ownership of all entities. Therefore, the only test for CG is the >50% test. The only way you get out of CG status is if bro & sis own 50% or less; if they own >50%, you have a CG. In any event, this has all of the earmarks of an ASG, so they would still have to be covered. You must include all employees on the payroll for testing purposes, even employees leased to unrelated employers. Benefits provided by the unrelated employers may be included in the nondiscrimination testing.

IRC Section 1563(a): "(2) Brother-sister controlled group Two or more corporations if 5 or fewer persons who are individuals, estates, or trusts own (within the meaning of subsection (d)(2)) stock possessing-- (A) at least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of the stock of each corporation, and (B) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation." In this case 3 persons own 100%, thus meeting the requirements of (A). Therefore the only issue is (B), as I suggested in my post: Does the overlapping ownership exceed 50%?