Ron Snyder

I believe that the Manhart and subsequent rulings do not apply to all benefit plans but to govermental plans and plans in "interstate commerce" (ie, 15 employees +). How large is the plan you are reviewing? On the other hand, why not put in an actuarial adjustment for smokers? Or for ZIP code (redlining)? Where do we stop?

Insurance company investments are regulated tightly, with limits on the portion of the percentage of their funds in any single security or investment. Some companies link returns under insurance contracts to yields on specific corporate bonds they acquire. Sometimes they use an investment rate that is a composite return of their overall investment portfolio, including stocks or stock options in case the market goes up.

I choose an interest rate between 5 and 7% because those are my reasonable expectations of returns to be obtained over the life of the contract. There are a number of actuarial tables that can be downloaded from the Society of Actuaries website. Try Table Manager The face amount of $9,000,000 certainly doesn't sound like a group term life insurance arrangement, and gives rise to more concerns about the validity of the "419 plan". 4.5% doesn't offend my sensibilities. But the way home offices select interest rates is typically different from how independent actuaries do: HO actuaries look at returns on investments currently available as of the date of issue for the applicable period and then deduct the home office's "spread" that they need for operating expenses and general overhead, typically 1.5%-2.0%. If an insurance company can obtain 6.5% in the market, they will credit 4.5% interest to an insurance contract. My observations are that the rates you calculated might still be a little high, but they are defensible. But I would be much more concerned about the other issues I raised. The "maximum statutory valuation and non-forfeiture interest rates" do not apply to 419 plans nor to section 79 plans. They have to do with determination of statutory reserves for life insurance companies. Rather than using GAAP accounting, insurance companies are required to use "statutory accounting" in preparation of their financial statements.

Thank you for kind comments. I must have irritated Forms along the way.

We treat it the same. The plan's name is reported in item 1a under Part II, Basic Plan Information, for both retirement plans and welfare benefit plans. Note: The Plan Sponsor's name is included in item 2a of form 5500.

A participant in an employer-sponsored health plan obtained medical treatments that were not covered under the employer's health insurance coverage (but is covered under other health plans offered by the insurer). The participant was directly billed a total of $25,000 plus for the medical expenses by the medical providers. The participant requested the medical providers to submit the claims to the insurance company, which they did. The famous-color insurance company refused to adjudicate the claims, even though it has contracts with the providers that would have reduced the overall billings to approximately $11,000. The insurance company orally represents that its policy is not to adjudicate claims that it "knows" are not covered. The participant believes that the insurer has a duty to adjudicate claims under the health plan, and that failure to do so is a violation of ERISA fiduciary duties. (The employer agrees with the participant.) Does the participant have a right to be a third-party beneficiary of the insurer's contracts with the medical providers? Should I advise the client to sue the insurance company. Is he likely to prevail?

Actually I was thinking of changing my handle to VEBA maven. Post any questions on the VEBA thread, or email through the board if they need confidentiality.

1) "Required to fund" the plan is a concept that does not generally apply to "stock bonus and profit sharing trusts" (other than 401(k)(11) required minimums, which are permitted in excess of the 25% limitation. 2) If this is a consolidated return, either entity can take the entire deduction. 3) If this is not a consolidated return, each employer has its own 25% limit. And since multiplication and addition are commutative, the overall 25% limit will be equal to the sum of the 2 individual 25% limits (and will still be equal to 25% of the combined compensations). 4) If this is a case where the 401(k)(11) required minimums are involved, they are still computed separately, and each entity's deduction is the greater of the 25% limit or the 401(k)(11) required minimums.

You raise a lot more questions that you have asked: 1) A life insurance policy is not a welfare benefit plan. 2) A "419 plan" generally refers to a plan that seeks to be exempt from the tax deduction limitations imposed by IRC sections 419 and 419A by purporting to comply with IRC 419A(f)(5) (collectively bargained plans) or 419A(f)(6) (10 or more employer plans). Which is this? I would run away from either type of plan as fast as possible. 3) 419 says that as long as a deduction may be taken under another section of the IRC, it may be taken under 419 to the extent permitted. Sections 419 and 419A don't authorize tax deductions; they simply limit them. Which IRC section authorizes the deduction for a life insurance policy? 4) The current and guaranteed interest rates may or may not be relevant, subject to the answer to #3) above. 5) An actuary is not required under IRC 419 but is required under IRC 419A to justify the deduction amount claimed. 6) The portion of the premium going to provide current death benefit coverage versus the portion used to build up cash value will vary based on the issue age. 75% will be accurate at one age but not another. 7) The IAM 83 table is an annuity table, not a mortality table. The CSO tables are used for insurance rate calculations (i.e., CSO 2001). 8) I have an opinion on what is an appropriate range of interest rates for such calculations. I currently use assumptions between 5 and 7 percent with the CSO 2001 table.

I see that you posted this twice and received no responses either way. I don't believe that you can have 2 plan years within one plan. Of course you CAN have a plan year and a separate contract year, but that would not apply to your flexible benefits plan, which is not a "contrract" but a plan. You need 2 plans, and keep the flex plan unwrapped, or one plan (12/31) and contract years for the other benefits.

Jay- No, as you suspected. Mary- (1) I don't believe that your approach automatically complies with community property laws, unless, as you imply, a state has adopted regulations requiring spousal consent. Please note that only 7 states are community property states; the rest are separate property states. Application of community property laws depends on the state of residence of the husband and wife, not of the employer. (2) Welfare plan benefits are still ERISA plans and therefore may not be subject to state community property laws due to ERISA pre-emption. I would word my plan document carefully and limit such spousal consent to married residents of state X, and to the condition that the benefits have been found to be subject to regulation by state X. (3) Of course, if the requirement is under state insurance laws and applies to all insurance contracts in the state the result may be different, but that is not the scenario you described.

It really depends on how the plan or plans are drafted. The COBRA requirement applies to both plans, but if A and B are separate parts or coverages under the same plan, only one COBRA requirement. If they are separate, however, a separate COBRA right will attach.

Maybe you could begin the list of pros and cons and put it out there for others to comment on, rather than asking others to do your work.

A "professional" is required to be licensed as such by a professional licensing board. Physicians, veterinarians, dentists, psychologists, etc. are regulated by the various states. Attorneys are regulated by the state supreme court through the state bar association. Actuaries are regulated through the Joint Board for the Enrollment of Actuaries, pre-empting state regulation (at least with respect to licensing with respect to qualified plan work). Professionals are licensed for their post-graduate professional training. Within most professions there are para-professionals. They typically have designations that indicate their training, but those designations are equivalent to certificate programs that do not require a bachelors degree.

Fiduciaries of all ERISA trusts are required to be bonded. This is not related to whether or not the plan or the trust is "qualified" under a section of the Internal Revenue Code.

What about APA from NIPA? (NIPA) Or QPA from ASPPA? [Note: These are not "professional designations", but para-professional (or quasi-professional) designations labeled as professional designations.]

Vizcaino v. Microsoft Corp., 173 F.3d 713 (9th Cir. 1999)

IRC Section 1563(a)(2): "Brother-sister controlled group.--Two or more corporations if 5 or fewer persons who are individuals, estates, or trusts own (within the meaning of subsection (d)(2)) stock possessing-- (A) at least 80 percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the total value of shares of all classes of the stock of each corporation, and (B) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation." [Note: IRC Section 414(b) cross references to 1563(a).]

It doesn't preclude the 401(k) adoption; it does preclude claiming the tax deduction for both plans for the year. Presumably the amounts contributed to the SIMPLE IRA would never become tax deductible to the employer.

The "limitations" that may apply to HCEs are those imposed under Sections 105(h) and 505(b) of the Internal Revenue Code. It looks like I never answered Stephanie: we charge a minimum of $2,500 to draft an HRA document, not really worth it for your client.

Explicit application of controlled group and affiliated service group rules to welfare plans is contained in Section 414(t) of the IRC. Note also 414(n)(3)© with respect to leased employees.

Some of us don't discuss stock option plans because we don't do them. But I'm trying to understand the reasons that "some of us don't discuss what software we use". Maybe we can come up with the "various reasons": Some of us don't use software? Some of us are ashamed of the system we use? Some of us are afraid of a public comparison of our system with other systems? Some of us are so loyal to our brand that we cannot discuss this topic rationally? Some of us detest our own system so much that we can't discuss the topic rationally? I am somwhat familiar with most of the systems extant and am in the process of procuring a new system. I have found no a comparison of the various systems available along with their strengths and weaknesses. We have been building our own comparison spreadsheet. But the items we are comparing may not be the same for another firm. What would you like to compare? We were specifically looking for an (ODBC-compliant) database oriented, networked defined benefit and defined contribution valuation and administration system that operated under Windows XP, employing Windows functionalities. Once we determined which systems met our minimum needs, we compared usability and price.

Yes, although the calculation is under 419, not 419A. Section 419 provides that "[th]e term “qualified direct cost” means * * * the aggregate amount (including administrative expenses) which would have been allowable as a deduction to the employer with respect to the benefits provided during the taxable year, if— (i) such benefits were provided directly by the employer * * *."

To the extent that the owner was a fidiciary of the plan, or a co-fiduciary of the plan and was aware of the compliance failures, he may incur personal liability for the failures.

Do you not still fall under the 50% controlled group standard? If not, you are correct with respect to your conclusions. Answers to your questions: Do we have to perform separate ADP/ACP tests? Yes What about 415 and 402(g) limits if someone transfers in or out of this location? I believe that each participant gets only one limit per plan (despite the brother-sister exception) but am not positive. What else am I missing? You failed to note that the plans will have to be operated as separate plans within a common trust fund. Assets attributable to one employer may not end up in the accounts of another employer's employees under such a plan.