Ron Snyder

MEWA refers to multiple employers. Employees and directors of 1 employer would not make a single-employer plan a MEWA.

A payment to a participant on account of his termination of employment is permissible; a payment to a participant by virtue of his retirement is not. One more point: DOL has primary jurisdiction over collectively bargained plans, so you might look through DOL rulings in similar situations. IRS doesn't permit severance benefits inside a VEBA, because IRS considers them to be a form of deferred compensaiton. DOL considers severance benefits to be a form of welfare benefits and does permit such benefits. Because of that, IRS will accept severance benefits in plans for which DOL has primary jurisdiction.

We use Accudraft plan documents and formerly used their 5500 software. It was adequate, but lacked certain features we consider essential (such as batch preparation of extensions). We switched this past year to Datair and are happy with it.

The distribution check was simultanously a plan contribution by the employer and a distribution by the plan. To the extent that the distribution was for less than the correct amount, a correction needs to be made by the plan. If the payment was too much, good luck on recovering the excess.

AMP-I love that you joined in 2000 and have posted 8 times already. While 501©(9) does not contain an "exclusive benefit rule", it does contain a proscription against "private" or "prohibited" inurement. However, if the plan provided that the employer's contributions were to be offset or reduced by named expenses, it could achieve the same net result. Make sure that this would not violate a CBA.

If there is a credit balance, as was hypothesized, there is a difference between the 404 assets and the 412 assets.

Since this thread is under Securities Law Aspects, let me raise some securities law issues. The bad news: (1) such an arrangement may require a securities license (either Series 6 or Series 63/65) under state securities laws to be legal; (2) some states define a "profits interest" as a security (requiring registration). This means a percentage of the profits, so that fees should be based on all assets and not on earnings; (3) ERISA does not pre-empt state securities laws. The good news: (1) an offering to a qualified plan is likely exempt under state securities laws. However, I suggest reviewing state securities with a securities attorney.

It depends on your definition of "problems". The surviving plan must preserve the benefits, rights and features to which the participants in the terminating plan are entitled. This is not a "problem" per se, simply a fact of life. Of course, those can be done under wearaway provisions, if the plan documents so provide; BRFs need not apply to new benefits accruing after the merger, only to those accrued under the prior plan.

In addition to the foregoing responses, a third alternative might be for the employer to adopt into a single-employer/multiple-employer plan, such as one maintained by a PEO firm. My employees participate (along with myself) in such a plan.

Your question is oversimplified because the definition of valuation assets is different for section 412 minimum calculations and for 404 tax deduction limits. Each calculation, therefore, is done separately as part of the valuation.

I believe that this is an appropriate issue to address in the plan documents, probably under definition of Key Employee. IMHO, the definition should be based on prior year compensation unless YTD compensation is greater. While such language isn't particularly difficult to draft, it is the worst of both worlds for the executives of public cos.

Plan asset regulations are located at: Plan Asset Regulations IRS is required to defer to DOL in those areas of the law where DOL has primary jurisdiction (ERISA), but not where there are specific provisions of the Internal Revenue Code, such as 4975. The issue is not whether or not a "collective investement (sp) fund" is a "Plan", or whether such funds are from "retirement-type accounts" but whether there a transaction is a prohibited transaction, and the rules are slightly different between ERISA 406-408 and IRC 4975. Your scenario does not give enough specifics to judge whether it would be a PT. Is the transaction a sale or exchange of property between the Plan and a party-in-interest/disqualified person? How much of the investment will the plan own? Who are the other owners? Are there any other relationships between the plan, any PII/DP and the other owners of or investors in the fund? And is this transaction simply an attempt to circumvent the PT rules by using other entities?

In general it includes all fringe benefits. Line 8b of form 5500 and the instructions therefor include the following under "Welfare Benefit Features": health, life insurance, supplemental unemployment, dental, vision, disability, vision, prepaid legal, severance pay, apprenticeship & training, scholarship and travel accident benefits.

Employers screw their employees all the time, in lots of ways. (Ask the Enron and MCI/Worldcom people.) Adopting and maintaining a self-funded health plan creates another risk to employees of getting screwed. State legislatures determine how many burdens to place on employers. They could outlaw self-funded plans entirely, or make employers post a bond, or regulate all self-funded plans as insurance arrangements, or impose separater regulations on such plans. Most states have chosen to do none of the above since employers are not required (outside of Hawaii) to provide health benefits in the first place. Remember that employers are fiduciaries with respect to any plan adopted, and ERISA gives participants remedies in addition to state laws. For those states that have MEWA laws, a partial self-funded MEWA would be satisfactory. Again, the appropriate comparison is not with single-employer plans (which run the gamut) but with plans offered by licensed insurance carriers. A plan's status under tax laws (IRC 419A(f)(6)) has no bearing on whether benefits are protected adequately. Community-rated health plans go broke all the time. The ability to spread risk is a benefit for employers with employees who are high utilizers, a negative to employers whose employees are healthy. Specific provisions under both IRC 419 and 501©(9) impute such amounts (income not actuarially needed for paying claims in a particular year) to the employer as taxable income. UBIT is payable on UBTI by the tax-exempt entity.

You meant DOL

Non-VEBAs are not tax exempt and are therefore not subject to UBIT. VEBAs are subject to UBIT with respect to non-passive or debt-financed income, or on income which is not "exempt function income" (such as investment gains on retiree medical amounts). The rules you seem to be referring to are not UBIT rules but rules relating to excess accumulations under IRC 419A. MEWAs are inappropriate for self-funding medical benefits because they are not as secure as insurance companies, and are not rated for consumers to know how secure they are. This is not a matter of 1, 2 10, etc. Of course, my comments and opinions would not apply to MEWAs that establish captive insurance companies or to those who fund their benefits through insurance companies. The appropriate comparison is not to single-employer plans, because that is not what is offered in the marketplace, but to insurance company sponsored or underwritten plans. Single-employer plans are an issue almost all states have chosen not to regulate as such. Such plans are covered by ERISA, however, and are subject to DOL regulation.

In 1983, Congress amended ERISA, as part of Public Law 97-473, to provide an exception to ERISA’s broad preemption provisions for the regulation of MEWAs under State insurance laws. This permitted the DOL and the states to have concurrent jurisdiction over MEWAs. Section 1144 of ERISA says: ERISA Section 1144. I do not agree that state insurance commissioners are required to consider ERISA's purposes in regulating insurance arrangements, even though such arrangements may also be subject to DoL regulation. I believe that practitioners are the ones who need to consider both sets of regulations and laws. May commissioners appropriately consider other statutes in issuing their regulations? Of course. I know of no "strict guidelines" relative to accumulations within VEBAs. Are you referring to the limitations imposed by IRC sections 419 and 419A? Those apply to all welfare benefit plans, not to VEBAs? The issue you raise about choosing between insufficient reserves or excise taxes only obviates the fact that a MEWA is not an appropriate vehicle for providing self-insured benefits. The ideal impact of state laws and regulations would be to close down all self-insured MEWAs.

I have seen several such notices previously. They say "levy" on them and are mailed to the employer, not to the plan. And they don't meet the legal requirements of an actual levy. We don't know: (i) is this a real levy? (ii) Was it served on the plan? (iii) is the participant in pay status? Until these issues are clarified I would be careful about telling the Administrator to honor the purported levy.

Has ERISA been amended while I was napping? Participants' accounts may are not subject to "execution, levy or attachment" except by a letter purporting to be a tax levy from the IRS? I don't believe that IRS' letter has any legal effect on the plan. The exception to this would be a governmental plan exempt from ERISA.

Blinky is correct: there is insufficent information to analyze the transaction: Does the plan place no limitations on participant-elected investments? Who is the general partner? How many limited partners are there? Can the limited partners control the general partner in any way? What percentage of plan assets is going into the LP? What percentage of the LP will the plan own? Is the investment prudent? Since the investment is real estate, is it diversified? The trustees should get the answers to these questions and any others that may arise when the facts are divulged and get an opinion from their legal counsel before permitting such an investment.

My opinion is "no", with the caveat that you should review the SPD and make sure that you don't go anywhere near to offering anything that could be construed as an opinion. Also review all other materials and communications with respect to the plan.

Exec-U-Care is sponsored by a reputable company. Their brochure states that "premium contributions may qualify for a tax deduction" and includes the disclaimer, "As with any tax matter, you should discuss this with your personal tax advisor." This is not adequate to make me feel comfortable. The opinion letter, from Ernst & Young, goes all the way back to 8-1-2000, almost the dark ages for this type of opinion. I would expect a post-230 contact with Ernst & Young to yield a response that the opinion letter has been withdrawn.

While you are technically correct, my point is that the Secy of Labor has already deferred regulation to the states. No state legislature or insurance commissioner is going to look at ERISA to see which regulations they can promulgate. In fact, since the DoL has declined to pre-empt, even a well-founded court action (commissioner tries to impose regulations inconsistent with ERISA on welfare plans in state, benefit plan removes to Federal Court) is likely not to fail. Because the courts will never second-guess the DoL on an issue where discretion has been granted by statute, due to separation of powers.

Your approach seems inconsistent. The Administrator's duty, upon being served with a DRO, is to make a determination whether the DRO is a QDRO. If it is, the Plan will honor it. If it is not, the Plan will not honor it. Administrators are given considerable discretion in being able to call DROs QDROs. This is because it's easier to honor such an order than to get mired in litigation, especially when it's not the Plan's money. This is a long way of saying that your determination to require them to go back and obtain a clearer order is based upon a determination that the DRO is NOT and QDRO.

Certain portions of ERISA automatically pre-empt state laws; other sections don't. With respect to the MEWA rules, the Secretary of Labor has the choice as to whether to assert Federal pre-emption. Since the early 1980s, the Secretary has refused to assert such pre-emption, permitting states to regulate MEWAs that fall under the definition of life insurance. The issue with respect to MEWA regulation, therefore, is not a function of whether a state law is inconsistent with ERISA.