Ron Snyder

A couple of discrepancies in your post: (i) what happened from 1993 to 2003? was that a typo? (ii) Are you sure that the entities were not an affiliated service group already? Assuming a typo and no ASG, I believe that the "grace period" you refer is what we call the "remedial amendment period". It ends on the earlier of the due date or the actual filing date of corporation A's tax return.

Good info. Thanks, Danny

IRS withdrew their shared employee regulations under IRC 414 several years ago (which would have operated in the manner you suggest). The analysis that applies therefore is under IRC 414(m) (affiliated service group). The employee is entitled to have her benefits based on her total compensation, not on the allocated share.

I believe that under those circumstances the 712 would need to be filed.

I agree with your reading of the statute. However, I would caution you to have plenty of documentation to establish a credible case for the loan. What evidence did the Plan Administrator require to show that the residence was to be the primary residence of the participant? How was it that the loan went rhough, the purchase went through, but yet the participant didn't relocate to the residence?

This sounds like a question that should be addressed in the plan document in preparing the update (prior to 12-31-05) to bring the plan into compliance. It could be handled either way, but the handling and the documents need to be consistent.

In general, if both a plan and a trust document are created, the plan agreement spells out the eligibility, benefits, distribution, privacy rules, administration, claims proceedures, etc. applicable to the plan. The trust spells out the duties of the trustee with respect to the assets. Contributions may be addressed in either, neither or both documents. Otherwise, there shouldn't be much overlap between the two. Even definitions should be addressed only in the primary document and incorporated by reference into the other. (Usually the plan is primary.) The direct answer to your question is: YES, a VEBA Trust can fund more than one benefit plan (whether in one or more plan documents). No one on one relationship between the VEBA Trust and the Plan need apply. However, this may not be dispositive of your problem because the trust should indicate which benefit plans (and plan documents) it is the trust for. The same trust can be used for both health and life insurance benefits, but only if that is what the plan and trust documents provide.

Is the insurance intended as key man insurance or a death benefit of the plan? If the insurance is intended as key man insurance: (i) the plan receives the tax-free death benefit from the insurance company; (ii) payments to participants and beneficiaries of such amounts are taxable; (iii) the 712 does not need to be attached to the 706; (iv) the insurance is done as a plan investment (that pays off big-time if someone dies); (v) insurance proceeds are allocated to each of the participants' accounts proportionately (as with other investment gains); (vi) no PS58 amounts are reportable. If the insurance is intended as a death benefit and is intended to be part of a single participant's account: (i) the death proceeds should be paid directly to the named beneficiary; (ii) the participant should report PS58 taxable income each year; and (iii) the beneficiary receives the death proceeds tax free. Some plans are drafted so that even though the death proceeds come into the plan, they are treated as a simple pass-through to the participant's beneficiary. Look at the facts and the plan document for your answer.

That doesn't sound like "PHI" (personal health information) to me. It does sound like junior high school.

You don't state whether Cos. A & B form (i) a controlled group, (ii) an affiliated service group or (iii) otherwise. If (i) or (ii), the benefits provided to the employees of both entities need to be tested together to make sure that the plan does not discriminate. Of course, this is all silliness if both corps. are S corporations, since the plans need not be discriminating: contributions for the 2% shareholders are not deductible to the corporation but are passed through to the individual anyway (for a partial deduction on their personal returns). Therefore, it is pointless for the plans to cover the 2% shareholders, and without them there is no need to worry about nondiscrimination.

Any IRS regs applicable to DC plans would likely also be applied to DC benefits within DB plans. I would love to see where IRS ruled on those "governmental defined benefit plans with a current IRS determination letter" that "have provided such a benefit for many years." My guess is that the d-letter didn't specifically approve the language, and the filing did not ask for a ruling on the feature. I reiterate my recommendation to file for a PLR, especially with all the red flags you are pointing out. Are you trying to justify a decision or to assure that your client (and yourself) don't get into trouble?

My thoughts: this appears to be a "gimmick" to avoid FICA and Medicare taxes on the accumulated sick leave. Because it doesn't pass the smell test, I would be very careful. IRS has issued letter rulings approving involuntary conversion of accumulated sick leave (and vacation, etc.) at retirement into retirement plan contributions. However, adding this as a defined contribution plan benefit (within a DB plan) in the manner you describe doesn't square with the facts ruled on by IRS previously. I would consider: (1) doing the sick leave conversion in a separate plan; (2) submitting the arrangement to IRS for a private letter ruling before implementation.

If the employer sends the funds to pay/reimburse the TPA's claims that have been adjudicated, the plan still is not "funded" and would still be exempt. If the employer sends funds on some other basis (percentage of salary, savings from electing HDHP, etc.) the plan would be funded and would require a 5500.

I endorse the comments of QDROphile. Note: an HRA is a "plan" while a VEBA is a "trust" (funding vehicle); they are not mutually exclusive. What reporting has been done with respect to the existing DC plan? The DC plan is not an "option", especially if she is now becoming vested by turning retirement age. The second employee would only be included if he/she remained in the corporation after the sale. 990s are easier than 5500s. My guess it that you have a DC plan that is not in compliance with the new laws (and must be so by the end of the year). Once you meet with your tax attorney to resolve that issue, it will be easier to determine what opportunities exist.

On the full face amount.

The usual formula for AL = PVB-PVFNC. However, the formula for PVFNC under the Modified Aggregate method is PVFNC = PVB - AVA (actuarial value of assets). Therefore, the accrued liability is not calculated using the modified aggregate method. For full funding purposes, the accrued liability is calculated using the entry age normal method. The normal cost is the PVFNC spread over remaining years of service.

You should agree to get involved but, because of the unusual situation, charge a substantial fee. You should be able to correct the situation for a fee of about $15,000. You might consider referring them to the administrator of the plan of the acquiring company.

You might go to the EBSA Website and search for the prohibited transaction exemptions. Yes, such multiple servicee exemptions exist, but they each carry with them certain conditions that must be strictly adhered to under pain of the PT rules. I would make the financial institution point to the exact language of the DOL ruling they are relying on, rather than your taking on the research (and therefore potential liability if you make a mistake).

Did it not occur to you as you were posting that your story is inconsistent. First you assert that (1) "Top hat plans are retirement plans subject to ERISA". Next, you acknowledge that (2) certain portions of ERISA do not apply. Finally, you assert that (3) participants rights are determined under Federal common law. Which is it? Are QDROs (1) ERISA? (2) A portion of ERISA that does not apply? or (3) Something to be determined under Federal common law? In fact, QDROs are determined by state court judges applying state law. No state court will ever reach a result based on nonexistent "Federal common law" (since that term is reserved to activist Federal judges who desire to achieve a particular result in a case with no statutory authority to do so). Apparently you are suggesting that the husband or wife should remove the divorce to Federal district court for adjudication of the QDRO issue, but that will never happen. The case you cited is not a QDRO case and is not applicable to any other court.

This thread began with the stipulation that the employee "participates in our "Top-Hat" SERP". There is an article here BNA Tax Management that discusses the issue. I stand by my statement that "ERISA does not pre-empt state law" with respect to benefits provided under such nonqualified deferred compensation plans. Stuart M. Lewis of Buchanan Ingersoll, P.C. apparently agrees with me, since he is published in BNA Tax Management as stating: "Specifically, the QDRO rules do not apply to nonqualified deferred compensation plans, nor is there definitive guidance that practitioners and plan administrators may rely upon when dividing and transferring nonqualified deferred compensation in connection with divorce." Quoted in the November 5, 2004, issue of the Tax Management Compensation Planning Journal.

If assets are held for investment (whether the plan is fully or partially self-funded) the plan is subject to the audit requirement. And if the plan has any self-funded benefits, non-discrimination testing is required under IRC 105(h). The employer may choose whether or not to aggregate self-funded and fully insured plans for testing purposes. See Regs. 1.105-10 et seq.

I am saying that some insurance companies do not use the network contractual or UCR rates for payment of HRA claims. They simply pay or reimburse the retail amount billed by the provider. This may be a breach of their fiduciary duty under the plan. When they find this out, many insureds find they have a bad case of the Blues. I did not mean to imply that they don't use the network pricing for purposes of calculating eligible charges for purposes of the deductible.

Hedge funds come in various shapes and sizes. Many are registered investment companies and should be reported as such for all purposes. Those would be considered to be qualifying plan assets ("shares issued by an investment company registered under the Investment Company Act of 1940") . Along with "[a]ny assets", a hedge fund "held by * * * [a] bank or similar financial institution as defined in section 2550.408b-4©" is also a qualifying plan asset. That is because the bank or similar financial institution is already subject to the requirement that they be bonded. Therefore, a separate bond of the trustee of the plan is not required for such asset. Funds held by a broker-dealer are not exempt, because the relationship is not a trust or escrow account with the b-d acting as the fiduciary. The Gabelli Fund you mention is an investment company.

If the plan provides a death benefit, using a one-year term approach is an appropriate method for funding such death benefit. However, the only death benefit you describe is the cost of vesting, in this case 0. This would not make sense even if the plan used a multiple-decrement valuation methodology.

Thank you for raising an important issue that has bothered me for many years. Not that we have any expectation of privacy, but it seems offensive to show enough information on a public form to facilitate identity theft.