Ron Snyder

The big negative with a fee-based advisor is that the plan may be required to pay greater expenses in connection with the administration of the plan. However, most fee-based advisors who are worth their salt will obtain at least as much savings in investment management fees, 12b-1 fees, etc. as they charge the plan. The smaller the plan the more likely it is to realize savings through such an arrangement.

Even though you have been correctly instructed to include the leased employees (who have more than 1 year of service) in the employer's plan, you may include contributions made to the PEO 401(k) plan in the test, thus potentially enabling the employer to pass the test without including the employees in the employer's plan. (This may require that the employer make a contribution or a matching contribution to the PEO plan in order to pass the test.)

My summary of your lengthy post: Para 1 - Active employees above age 65 must be covered under employer's group health plan. Para 2 - If employee elects out of group health plan, employer may not provide individual Medicare supplement coverage. Para 3 - No other inventives may be provided to employees for opting out. IMHO, yes, although I note that this is permissible under HRA rules. Otherwise, why would an active employee who is eligible for full coverage under the employer's health plan choose rather to waive that coverage and make Medicare primary, thus spending his own HRA dollars unnecessarily? Same answer, although I note that this is permissible under flex rules. Same answer. In this case "cash" is salary rather than a deferral of salary. And the answer is yes again. You might take the DoL to court over this, but you'll lose. I agree. So long as the extra pay is not incentive for waiving coverage under the group health plan. You are correct, it is problematic.

There is a difference in dealings with a disqualified person (or party in interest) and others under the law. The facts and circumstances would have to be examined to determine that an actual conflict of interest is involved; with a person other than a party in interest, no such conflict can be presumed. Ms. Choate gives no citation to any DoL Regs or rulings, other than to Temporary IRS Regs entitled: "Statutory exemptions for office space or services and certain transactions involving financial institutions." The actual quotation from the Temp Regs is: "Thus, a fiduciary may not use the authority, control, or responsibility which makes such person a fiduciary to cause a plan to pay an additional fee to such fiduciary (or to a person in which such fiduciary has an interest which may affect the exercise of such fiduciary's best judgment as a fiduciary) to provide a service. Nor may a fiduciary use such authority, control, or responsibility to cause a plan to enter into a transaction involving plan assets whereby such fiduciary (or a person in which such fiduciary has an interest which may affect the exercise of such fiduciary's best judgment as a fiduciary) will receive consideration from a third party in connection with such transaction." Both you and Ms. Choate leave out the most important elements of the Reg: (1) it is limited to the cases cited, (2) no service is being provided and (3) no third party consideration is involved.

While I detest popups, banners and other obnoxious ads, I know that there is a cost in making this board available. Thank you for trying to do it in a way that respects our feelings and opinions. One request: that a portion of the revenues from the ads be used to expand capacity so that I don't get the overflow message every time I try to reply to a posting (during work hours). Thanks for all you do.

The plans I have seen that operate in this manner use money purchase pension plans. Some also allow conversion pay to go to a funded health reimbursement arrangement (welfare benefit plan). This was based on a private letter ruling from IRS in January of 2003 (I believe). Those arrangements do not appear to be in danger. It also appears to me that such contributions could go directly into a 457 plan without causing a problem.

You're on an IRA thread and asking about investing in real estate "outside of the IRA"? What does this even mean? A personal purchase of real estate? What does this even have to do with IRA? Your post is unclear. Perhaps if you cited one or more of the myriad of articles you refer to, it would be clearer.

Yes, those are considered to be medical plans for purposes of ERISA and of the Internal Revenue Code.

Wow, what a response! I welcome the different views expressed. However, like mjb, I must point out that a purchase of real estate by a qualified plan from the sister of the owner of the business is NOT per se a prohibited transaction (i.e., a direct or indirect transaction between the plan and a party in interest). The citations you have referred to are transactions between IRAs and disqualified persons. Even the example that Kirk Maldonado referred to involved the fiduciary's son, a named party in interest. Without additional evidence to the contrary, I must presume that Mr. Watson was wrong in his analysis: the plan was able to purchase the real estate from the owner's sister without its being termed a prohibited transaction. However, I will agree with Belgarath that if the facts and circumstances indicate that the transaction was done to benefit the sister, it would likely be deemed to be a PT.

Such a provision would cut off municipalities ability to customize benefits to their employees, unions and budgets. Part of my work is to assist governmental groups in transitioning out of guaranteed medical benefits for life plans and into a reasonable and workable program that maximizes benefits to employees for dollars available in the budget of the employer. Usually I am retained by employee organizations who desire a win-win result. The appropriate result is seldom to saddle a municipality, school district or other governmental unit with an underfunded plan that they cannot fund. Now that GASB rules require a reality check for governments, they are scrambling to find a solution to a problem that has been festering for years. While I am not a Texas attorney, I believe that no such provision exists.

Just got back from attending the Western Pension and Benefits Conference summer meeting in Las Vegas. The final session was about fiduciary duties and was conducted by S. Derrin Watson. In his slide presentation he gave as an example of a PT the case where a qualified plan purchases a piece of real estate at fair market value (as set by independent valuation agreeable to both parties) from the sister of the owner of the Employer corporation. Although he acknowledged that the sister is not a party in interest (or disqualified person), he insisted that the transaction was a PT because the owner of the business certainly would not have had the plan purchase the real estate simply as an investment for the plan, but would only have entered into such a transaction to benefit his sister. He asserted that the trustee who caused the plan to enter into the transaction would be liable for the excise tax relative to the transaction. (Presumably the transaction would need to be "corrected" as well.) "I strenuously object." Congress obviously didn't agree with Mr. Watson's view or they would have named siblings of parties in interest or of fiduciaries as parties in interest in their own right. Has anyone run accross an IRS or DOL agent applying such specious logic to commercially reasonable transactions not involving a named party in interest? Does anyone agree with Mr. Watson's specious reasoning?

This has been discussed more than once. Do a search of the threads.

G Burns is correct. Some of the additional information needed includes ownership percentage in the LLC, whether the LLC or the individual corps employ employees. And I would have referred you to the discussion on Execucare in which G Burns and I both expressed concerns about the legal viability of ExecuCare. When a "C" corp provides a medical benefit or a medical reimbursement benefit, it is fully tax deductible to the corporation. If the benefit is provided through a self-insured health plan, including a MERP, benefits provided to HCIs are taxable to the HCIs to the extent that the plan is discriminatory. If an "S" corp provides medical benefits to a 2% owner, the amount spent on behalf of the 2% owner is passed through to the owner's tax return. There it is deductible only to the extent that the owner itemizes tax deductions and the expenses exceed 7.5% of FAGI. Hope this helps. I will not be replying off board since you asked the same questions.

Your questions are tricky. As a TPA firm, we don't service 457 plans because the administrative services are generally provided by the mutual fund group or insurance company acting as the funding provider. Their platform, like any 401(k) platform, generally includes a choice of investments, recordkeeping, monthly or quarterly statements, use of plan documents, etc. For non-governmental, 5500s are required. I have never seen an unfunded 457 arrangement. As a TPA firm, we provide annual or quarterly statements for 409A deferred compensation plans, whether funded or not. We register such plans with the DOL. We provide an annual valuation report for the employer, whether funded or not, in a format similar to that for a 401(k) plan.

Note 4975(e)(2)(I)

You are describing a prohibited transaction unless both parties acquire less than 10% of the property and an unrelated third party is in control of the property.

The Administrator or an officer of the sponsor may sign under such circumstances.

Is anyone named by the minutes? Who has been acting as the trustee? On the bank/brokerage account? On Schedule P? My guess is that there is a trustee, whether properly named or not. Your document should so reflect. I don't believe that any remedial action is needed, although the 2005 year may still be in its remedial amendment period.

The appropriate manner of transferring land from an IRA to the IRA holder is a distribution, not a purchase. The DoL has no jurisdiction over IRAs, so no rulings would be available through them.

The standard is the earliest date that the employer can reasonably transmit the contribution. Depending on how hard it is to collect the information and the funds, that may be 2-3 days, as suggested by Paradise, or 5-6 days.

You are in a no-win situation with no employer to pay the fees. If you go through VCR you will cost the employees a portion of their distribution to "fix" the situation when they end up paying both you and the IRS. And there's no guarantee that the situation is fixable. If you are the plan trustee, you may have a duty to attempt to legalize what wasn't legally correct. The plan was never qualified because it never legally existed. You may wish to consult with a benefits attorney as to the correct way to handle the distributions: If the amounts are treated as amounts in a nonqualified deferred compensation plan, for example, the participants would be paying taxes on them this year anyway. And the onus would be on the (now nonexistent) employer for having deducted contributions before they were vested in the employees.

No. Lifetime maximums do not include premiums. If your plan document and summary plan description clearly describe that for your plan premiums are part of the lifetime maximum, it might be possible. I would not wish to defend you. Can you imagine standing before a jury with a straight face and explaining that the premiums an employee paid were part of the benefits he received. Is paying for a benefit the same as receiving a benefit? You obviously work in a right to work state under the illusion that medical benefits are something an employer does out of the good of his heart. In fact, medical benefits are part of a compensation package. If the employer did not provide the health coverage it would have to pay greater wages to recruit and keep good employees. The employees are paying for employer funded health coverage by taking lower wages. By the way, I am an employer in a right to work state and provide health benefits because I have to.

Why wouldn't there be any benefit? Is there a plan provision that says that vested benefits are forfeited upon death? I have only seen such provisions in plans that provide a death benefit through insurance policies in lieu of the accrued benefit. The annuity distibution provisions are not applicable because he was single and had already elected a lump sum distribution. Had the participant executed a beneficiary designation form? If so, honor it. If not, the benefits should be paid to his children if he has any or to his estate if he has none.

I agree: no need for an SPD for executive physicals, financial planning, legal services, life insurance or use of the company jet are all part of his employment contract. I disagree with respect to retiree medical benefits unless such benefits are provided through an insurance policy or contract.

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