Ron Snyder

Regs §1.105-11 states: "This test is applied to the benefits subject to reimbursement under the plan rather than the actual benefit payments or claims under the plan. The presence or absence of such discrimination will be determined by considering the type of benefit subject to reimbursement provided highly compensated individuals, as well as the amount of the benefit subject to reimbursement." This seems to leave the door open. Read the Regs.

Your post was ignored, not because no one noticed it, but because you purport to want to "expand" your operation, yet this is your first post ever on BenefitsLink. Something doesn't add up. If you're in the pension/benefits community already, you don't need to ask. If you're not, go on BenefitsLink, set up an identity, but don't pretend that you are "expanding" and existing operation.

Just noticed your post with no responses. As you aver, this is a tricky area. Yes, IRS has provided a ruling which addresses some situations which were questionable to begin with. But they are easily worked around as you suggest. There are a handful of models floating around. 1) The underfunded plan acquires the entity sponsoring the plan and then merges the overfunded plan into the underfunded acquiring plan. The corporation is then closed. 2) Corporation with underfunded plan acquires corporation with overfunded plan. Plans are merged. Other models are also possible. A client of mine participated in such a transaction, the sale of a medical PC to a hospital with an underfunded DB plan. This would seem to be a perfect fit under the rules. General guidance? Here is mine: 1) Obtain the best advice possible, an AV-rated attorney who specializes in qualified plans. 2) Remember the price of an overfunded plan without such action is an 80%+ tax rate. 3) If a sale of the stock of the sponsoring corporation is not presently possible, split the corporation into separate entities, a parent with with the nontransferable assets and a subsidiary with the payroll and transferable assets as the other. 4) Make sure the business are related in some way, ie, that there is an apparent business purpose for the transaction other than (in addition to) the pension plan. 5) The purchase price of the goodwill represented by the excess plan assets is 80-85% of the excess. Note: few plans are overfunded anymore, so these are now rare. Undoubtedly, IRS will attempt to enforce the rules if he facts are drawn to their attention. However, a transaction done and reported prudently is not likely to draw scrutiny from the IRS.

I would choose NOT treat the participants (and the plan) as terminated, pending clarification from the clients. The facts don't seem to indicate that the employees were fired by one group and hired by another, only that payroll functions were passed from A to B. Did A give up all of its revenues to B also? I would demand that A (your client) provide you will full documentation of the transaction. If there was no sale of stock or business, why was there a transfer of employees in the first place? Why don't we all simply have strangers hire and pay our employees so we can leave them out of our plans? Because no strangers would do so unless there were some contractual or legal arrangement that clarified what was going on.

Would you attempt to impose 20% withholding because someone was moving to Colorado? Since Puerto Rico is "here in the US", there is no such thing as a "Puerto Rican IRA". Any IRA in Puerto Rico is the same as an IRA in the District of Columbia, the 50 states, Guam, the US Virgin Islands, etc. No withholding is required.

Are we talking about the NFL or the NBA here?

Flexible Benefits Answer Book.

I would think that a client would consider themselves lucky not to owe much more excise taxes with form 5330. There is the irony of charging $50 to prepare form 5330 on which a $5 tax is due.

Try attaching the previous year's audit on the basis that the current audit has not been completed. That might get them off your case for a year. [Note: the DOL may still come after you, but I have seen this work.]

You have entirely too much time on your hands.

Give it to him electronically, via email. No cost, no excuses, confirmed delivery.

If I were in your shoes, I would roll the account to a IRA account at an international bank with a US presence, such as HSBC. Once you are no longer a US resident and have no US income, you will not be subject to US income taxes. However, the IRA will, of necessity, remain in the US, and will be, at least, subject to US withholding taxes. I don't know whether or not your IRA will be subject to US income taxes upon distribution, but even if they're not, you would have to file a US tax return to obtain a refund. Perhaps the bank could advise you, but I recommend that when you are ready for the distribution, you approach the in-country office of a major international CPA firm for advice on these issues. Also, it may be possible to transfer the IRA into a similar type of retirement account in your country of residence.

To answer your first question directly: Oregon. The divorce court retains jurisdiction over the divorce, and the QDRO would be incident to the divorce.

My idea of a KSOP: KSOP

Your arguments are on point. The Guardian doesn't like to lose lawsuits and has been willing to settle such cases on a favorable basis. You will need a plaintiff's attorney knowledgeable in the area to handle your case. If you wish to contact me off the board, I can refer you to a couple to choose from. Or you can simply go to Martindale and go through their search for an A,V rated litigator that specializes in taxes and insurance.

Why change the name from "PWBA" to "EBSA"? It's a new administration.

Companies frequently will fund executive deferred compensation through life insurance policies so as to obviate this situation. The participant's spouse (or beneficiary) receives a death benefit (which may be substantially less than the life insurance proceeds) and the employer receives the accumulation amount. This also allows the company to accumulate the executive's deferred compensation benefit in tax-deferred investments. MetLife, Mass Mutual and others provide GVUL (group variable universal life) policies for this purpose.

Don't pay more than "fair market value". A willing buyer and seller have to negotiate other terms in addition to price: 1) Will the seller remain involved to insure that the transition goes smoothly? If so, at what price? 2) Will there be a non-competition agreement? If so, at what price? 3) What type of plans are they? Some plans have higher billing and profitability rates than others. 4) Are investment commissions involved? If so, who receives them before and after the transaction? 5) Are you purchasing a block of business or an ongoing concern? 6) Are you purchasing potential lawsuits or clean plans? 7) Will the seller indemnify you against any claims relating to services before the sale? In general, a block of business would be valued somewhere between 60% of annual revenues and 120% of revenues; an ongoing business would be purchased at a multiple of (say 5-15 times) annual profits. However, both of those amounts can go up or down considerably based on the answers to the foregoing questions.

Is intent needed for the "tax benefit" rule to apply? Are you saying that the tax benefit rule should not apply if at the time you made the VEBA contributions, your intent was to only use those funds for retiree medical benefits? Not so much "intent" as imputed intent, based on the facts and circumstances. If the intention was to provide post-retirement medical benefits and the amendment to add current medical benefits had been made during the same year, the amount of permissible tax deductions would be greater, not less. If, however, the retiree medical benefits had been adopted and discontinued in favor of current medical benefits in the same year, those are fundamentally inconsistent. I thought the subsequent amendment of the plan to pay current employee medical benefits is the event that is "fundamentally inconsistent" with the prior deductions that were taken for the contributions made to fund for the retiree medical benefits. In our case we will continue to use a small portion of the assets to pay for retiree medical benefits for a few retirees, but the majority of the assets will be used to pay for current employee medical benefits. The amendment to pay current medical benefits is not necessarily inconsistent if it is in addition to paying retiree medical benefits. Would you recommend going for a letter ruling on the non-application of the tax benefit rule? No, because they don't have to decide the issue in your favor and it will muddy the water on your other issues. They are likely not to rule. We are requesting a PLR on the tax qualification of the trust That is handled by filing form 1024, not a PLR. and that the 4976 excise tax should not apply as a result of the amendment. Should we include the tax benefit issue as well, or be silent on that issue????? This is fine and 4976 should not apply. I would choose to be silent. Has the plan's actuary determined the amounts that would be deductible under IRC section 419 (the current medical costs plus a 25% reserve) and under section 419A (the post-retirement reserve determined as required)? That would seem to be necessary before any IRS filing in any event.

In our situation, the employer pays employee only major medical insurance premium. Employees can pre-tax family potion. There is not a cash out option if the employee declines the insurance. We have noticed that most discrimination rules do mention a cash out option where the employer will provide cash if employee declines non-taxable benefit. How do the discrimination rules change in our situation? What is different about your situation? The fact that no cash in lieu of premium is offered? I believe that is much more common than offering cash. The discrimination rules and nondiscrimination tests do not change in any event. And in our situation, should the employer provided potion be mentioned in the plan doc's? The "employer provided potion" (stricknine?) should be mentioned in the plan documents as well as in the summary plan description.

A loan (via tax payment) by the trust to the party in interest who owed the excise tax is a PT pure and simple. Has ERISAtoolkit developed his own self-correction procedure? The VFC doesn't permit such self-correction without an application (and the inevitable fine).

Do you have an employment contract? If so, what does it say? Do you have any evidence of the negotiations to be able to prove what they agreed to? If so, you have detrimentally relied upon their binding promise. While you may be an "at-will" employee, they cannot fire you for asserting your rights. Your problem will be in proving that they fired you for asserting your rights. If you have appropriate documentation and are for a game of chicken (or brinkmanship), have your attorney draft a letter to the company stating your case and demanding that they pay your health coverage.

The IRS may claim that the "tax benefit" rule applies which would trigger retroactive taxability in the year of deductions claimed. However, if you can show that there was no intention to accelerate tax deductions at the time the contribution was made, it should fall within the Hillsborough case below. The tax benefit rule was considered by the US Supreme Court in Hillsboro Nat. Bank v. Commissioner, 460 U.S. 370 (1983), US Sup Ct, (March 07, 1983). At page 371, the Court stated, “We conclude that, unless a non-recognition provision of the Internal Revenue Code prevents it, the tax benefit rule ordinarily applies to require the inclusion of income when events occur that are fundamentally inconsistent with an earlier deduction. The Court added that “fundamentally inconsistent” means that “* * * if that event had occurred within the same taxable year, it would have foreclosed the deduction.” If retiree medical benefits were eliminated at the same time current medical benefits were added, rather than the "tax benefit" rule, the company would have taxable income under section 419 with respect to the excess funds left in the trust. My suggestion would be to continue the retiree medical benefits, quit funding and use up the funds for current medical benefit. At least this moves the burden of proof to IRS to show that there was intent to circumvent the deduction limitations of the statute.

A grantor trust which would be taxed back to the non-profit entity should sufficiently get the assets "off the books" for your purposes. In your shoes, I would only choose to use a VEBA if the benefits were collectively bargained and the CBA stipulated that a 501©(9) trust is required. If your non-profit org. is a governmental entity, a section 115 trust would be quite suitable. A reminder: only the HCEs would be taxed at all, and they would be taxed only to the extent that they received disproportionate benefits. This would be unusual rather than common in your situation.

Q1. is the life benefit self-funded or insured? A1. As far as the captive is concerned, it is self-funded with 100% passed to the reinsurance company. As far as the employer/employees are concerned it is insured. Q2. what other benefits would you put in a captive? A2. Captives have several structures, including protected cells or series captives. The most desirable benefits to put into an ERISA captive would be post-retirement health, current health, disability (both long- and short-term), etc. It is now becoming popular to put defined benefit pension plans into an ERISA captive, especially when the employer is trying to get out from under the DB liability. However, captives are more commonly used for property and casualty coverages that are impossible to obtain (or prohibitively expensive) on the commercial market. Coverages like deductible reimbursement, E&O & exclusions, D&O & exclusions, excess liability, terrorism risk, litigation risk, employment practices, crime, tax audit, political risk, first party coverages, etc. Since each cell or series is taxed separately, a captive with multiple cells permits P&C risks to be handled by one cell, L&H by another and pension by a third. Q3. are you talking about creating a captive (inexpensive) or renting a cell? A3. While rent-a-cell arrangements are becoming common, I have yet to see one that does ERISA benefits. More likely would be using an inexpensive off-shore jurisdiction or DC as the domicile to keep the capital commitment down. We selected Utah for ours.