Ron Snyder

I have yet to see a plan document that didn't exclude non-resident aliens with no US income. However, assuming that the plan does not exclude non-US employees, they would need to be covered. Failure to operate the plan in accordance with the terms thereof is a disqualifying event.

You seem to be jumping between securities laws and Regs, insurance laws and Regs and IRS laws an Regs. You cite the NASD, a securities industry group and chide me for not citing IRS Regs? It is the DOL, not the SEC, NASD, or IRS, that determines what is an investment for purposes of ERISA plans. For example, in DOL Regs. they refer to insurance contracts backed by insurance company general accounts as "investments". See http://www.dol.gov/ebsa/regs/fedreg/final/2000000032.htm. This issue was originally addressed by the "plan asset regulations" in 1988, 29 CFR 2510.3-102. The DOL has been clear in its instructions for form 5500. Schedule H lists "value of funds held in insurance company general account" under "General Investments", item 1©(14), and requires that the amount be consistent with the amount reported on Schedule A. Your interpretation would mean that the thousands of 401(k) plans that wrap mutual funds within annuity contracts have no "investments".

Since the original question dealt with DC plans, no doubling up of annual additions is permitted as you correctly stated. The situation I described relates to DB plans. Corp. #1 funds 100% of salary benefit over a 10 year period and closes down. A few years later Corp. #2 opens up and funds a new DB benefit. Corp #2 enjoys a new 415 limit, since is was never part of a controlled group or affiliated service group with Corp. #1.

This is to clarify my prior post. I was in too big of a hurry and it was misleading. Section 404(a)(7) applies if there is at least 1 overlapping participant. How does it apply? DC alone: The DC plan is subject to the 25% limit anyway under 404(a)(3), so the 404(a)(7) limit is never reached by the DC plan alone. DB alone: Under 404(a)(1), the tax deduction is he greater of (i) the amount necessary to satisfy the minimum funding standard, (ii) the amount necessary to fund the remaining unfunded cost computed as a level amount (or %) over remaining service years, or (iii) the plan's normal cost plus amortization costs over 10 years. DB and DC with no overlap: With no overlapping participants, the 404(a)(7) limit does not apply and the deduction limits are as above. DB and DC with overlap under 404(a)(7): To the extent that a company funds a DB plan, it may deduct the greater of the amount required to meet the minimum funding standard or 25% of compensation. If the DB contribution is > 25%, no DC deduction is permitted. If the DB is < 25%, the DC max deduction = 25% - the DB cont. I believe that we agree to here, and no "novel" interpretation is required. Now let us now explore planning opportunities: Plan 1=DB for dual participants (DB plus DC) Plan 2=DB for DB only participants Plan 3=DC for dual participants Plan 4=DC for DC only participants Plan 2 is subject to the the DB alone limit. Plan 4 is subject to the DC alone limit. Plans 1 and 3 are subject to 404(a)(7) limit on the overlapping payroll.

E is correct. However, if the 2 businesses do not overlap in time so that they never were a controlled group or affiliated service group, it appears that 2 415 limits are possible. For example, if business #1 closed down in 1998 and business #2 did not come into existence until 2004 they apparently would not fall under the rules. This appears to be an (unintentional?) loophole that could be fixed by Regs.

I believe that this is not a BRF issue, but a plan qualification issue. Failure to operate the plan in a manner consistent with the plan documents is a disqualifying event. Any of the death benefit purchase rules can be followed, but the plan document needs to be clear and the plan needs to be operated as required under the plan.

While I generally agree with mjb's response, I would note that 409A is not part of ERISA. I would choose not to provide documents suited to a state in which I am not licensed to practice even if they are labelled "specimen". If clients needed such specimen documents, they should be labelled as being provided "for use of local tax counsel".

I'm glad to see that you have reached consensus. X company's DB plan has 25 participants with total compensation of $1,000,000 and X's profit sharing plan includes 50 partcipants with total compensation of $1,800,000. How much may X contribute under 404(a)(7)? The answer cannot be derived from the facts, since we don't know if the 25 DB participants are included among the 50 PS parts. It turns out that 20 of the participants are covered under both plans, with a total compensation of $800,000. Total contributions to BOTH plans on behalf of the 20 participants may not exceed $200,000. Contributions to the DB plan for the other 5 participants and to the PS plan for the other 30 participants are not covered by 404(a)(7). The 404(a)(7) limit only applies with respect to overlapping participants.

NASD opinions are not binding on the insurance industry, state insurance departments, federal agencies, etc. The insurance industry universally disagrees with the NASD on this issue. I read the IRC as creating three statuses: (1) Non-MEC (falls within the corridor); (2) MEC (outside the corridor but within the definition of insurance); (3) does not meet the definition of insurance contract. A MEC is an insurance contract but is not entitled to all of the favorable tax treatment afforded Non-MEC contracts. Investment income under a MEC still has tax-free inside buildup. However, loans from a MEC are treated as taxable to the extent that they exceed the basis paid in. The entire presumption of the statute and regulations is that there will be an investment value that will cause the contract to be worth more than the premiums paid in. That is an investment.

I have never seen a case where a state's unclaimed property statute was pre-empted by ERISA.

An ESOP is a tax-exempt trust. An insurance policy is a tax-deferred investment outside a tax-exempt trust. However, non-MEC status is not required to avoid taxes. Investment income is tax-free to the trust whether from taxable gains in an insurance policy or in an otherwise taxable mutual fund or other investment. The UBIT fact is a red herring. It doesn't affect taxability of other investments inside the tax-exempt trust. You seem to believe that because a trust has UBTI, all of the trust's income is taxable. Not so.

b2k- You're presuming that the PA statute is not pre-empted by the ERISA (REA) provision that makes a surviving spouse the beneficiary of the participant absent a contrary designation with spousal consent. The Plan Administrator is entitled to operate on the reasonable belief that federal law applies, rather than state law. This may be a case for invoking interpleader.

I don't think you're really having a disagreement. So long as the contributions are made to the health plan (you mentioned VEBA Trust) and cannot revert to the employer, the employer can count them as Davis Bacon (or Service Contract Act) wages. Non DB or SCA employees should not be covered under the same plan, or if they are, should be walled off from receiving any of the economic benefit of the contributions for DB or SCA employees.

Form 990 is used to report the asset information with respect to a VEBA trust.

Read IRC section 414(m). If it is not clear to you, get advise from an employee benefits attorney. It appears to me that this is an affiliated service group. Each of the owners owns over 10% of the service provider S corporation. Employees of the S corporation would be entitled to benefits that are comparable to the best of the 3 plans.

If the contract was entered into after the latest plan adoption, Locust is correct: the contracts could be construed as a waiver. The plan should have adopted a plan amendment barring participation by groups/individuals who are precluded from participating under their CBA or contract of employment simultaneous with the execution of the contracts. A belated remedial amendment should still be adopted.

I have followed this thread from the inception and agree with Mr. Burns. I have seen dozens of MEWAs closed down over the past few years, as insurance departments become aware of them. If a state has now MEWA law, MEWAs are required to register as a full-blown insurance company to be able to write business in that state. In the alternative, a MEWA may have all of its benefits guaranteed by a licensed insurance company and the MEWA policy submitted and approved by the state insurance department. The legitimacy of the sponsoring association is irrelevant to compliance with state insurance laws. You might be interested in: http://www.ins.state.pa.us/ins/cwp/view.as...1&Q=525731&tx=0 http://www.naic.org/Releases/2004_docs/12-..._december_5.pdf

Such terminal funding contribution is deductible within the limitations of section 404. If the corporation is ceasing business operations, the entire amount is currently deductible. If the amount is actuarially justified under section 412, it is also fully deductible. (Such treatment may require a change in actuarial funding method to accrued benefit cost method with end of year valuation date. Your actuary had better be familiar with these rules.) Otherwise the current deduction amount is limited to the 412 calculations with the balance treated as a 10-year amortization base for deduction purposes.

The employer may terminate the plan at any time. However, employees would still be entitled to be reimbursed to the extent of actual medical expenses incurred up to the date of termination, whether the employer has made all of the contributions or not.

I agree with GBurns. Although the original transaction may not have been a PT at the time it was entered into, at the very least each payment on the lease or loan would be. The loan or lease may have to be unwound ASAP to minimize excise taxes. I am curious, however, to find out how someone with whom the trust did an arm's length transaction later became a party in interest. (1) He was hired by the employer; (2) He purchased shares in the employer; (3) He became a joint venturer with an owner of the employer, or with the employer; (4) He married a party in interest. As you can see, these are all unusual circumstances, and the actual facts may cast doubt on the original transaction, which IRS/DOL could categorize as a sham from the outset if the situation that came to be was forseeable.

At the risk of stating the obvious, we try to make sure that beneficiary designations are not done naming minor children. Our beneficiary instructions specifically so state. The beneficiary designation should be to the guardian, personal representative or trustee consistent with the estate planning. Otherwise they will be probated.

I have a death benefit that was payable to a trust. Do you mean paid, not payable? I'm doing a 1099 for the trust to show the amount received. Are you doing the 1099 on behalf of the payor trust to show the amount paid or the recipient trust to show the amount received? Do I show on the 1099R box 2a that the entire amount is taxable? Was the death benefit (i) an account balance or (ii) death proceeds of life insurance?

IRS Notice 2005-94, issued on December 8, 2005, suspends all reporting and wage withholding requirements (but not tax payment requirements) for 2005 with respect to salary deferrals. The Notice specifically states: "For calendar year 2005, an employer is NOT required to report deferrals for the year under a nonqualified deferred compensation plan as § 409A deferrals in box 12 of Form W-2 using code Y." Note that under Notice 2005-94, IRS reserves the right to require employers and payers to make additional, amended filings at a later date.

This sounds more like a consulting project than a quick response on a free, public message board.

Taking the lazy way out won't work well because you will have to reference those provisions (and ONLY those provisions) that are to be incorporated by reference. Otherwise you are incorporating language that could disqualifyyour plan, or change how it operates. It is likely that the nomenclature between the two plans is dissimilar enough that incorporating various sections (even with definition sections) the result is likely to be confusion. The best approach is to "interpret" the prior plan provisions into the terminology employed by your plan documents. Any good attorney can handle this for you. The plan should be forwarded to the employer as well as to the union(s) affected by the change for review. Once all have signed off on the new document, including the grandfathering provisions included, you're home free.