Ron Snyder

I would review the plan language (whether is says "paid" or "worked" or similar language) and apply it literally. The statute can go either way. Note: I would NOT leave this to the boss' discretion, since failure to operate the plan as written may result in plan disqualification. Only if the plan is silent or too ambiguous to be interpreted clearly can the boss decide how he wants the plan interpreted. Then an amendment (or, in the alternative, an interpretation) should be drafted consistent with the determined result to avoid future problems.

The coordination rules are under IRC section 402(g).

Of course they want to negotiate a 401(k) plan with the employer; it will force the employer to fully fund the DB plan up to guaranteed benefit levels, as well as provide current ongoing contributions. Kind of a "have my cake and eat it too approach". The comments by both PAX and SOCAL are correct. The PBGC will come after the employer even to the point of forcing it into bankruptcy if necessary in order to obtain funding of the benefits or to place liens on the company's assets. The employer should consult a corporate reorganization attorney (in addition to an ERISA attorney) about its legal and financial exposure and how to get out from under (the CBA as well as the Plan) in the event that the union does not agree to a workable solution. Since you serve the participants in the plan, you should not get in the middle of this situation. If asked, you shoud tell both the employer and the employees to consult legal counsel. Another option might be: (1) add a 410(k) plan for employee contributions and (2) convert the DB plan to a cash balance plan. This will avoid immediate recognition of the liability and permit the employees to put away some savings.

On page 18 of the "Instructions for forms 1099 et al" located at 1099 Instructions under the instructions for form 1099-MISC. It states that "Payments to a physician, physicians’ corporation, or other supplier of health and medical services. Issued mainly by medical assistance programs or health and accident insurance plans." Such payments must be reported if they equal $600 or more.

Disability premiums (along with life insurance premiums and long-term care premiums) are permitted benefits under HRAs. I don't believe in using the board as a place to sell oneself or one's services. If anyone wishes to discuss a potentially representation, it is more appropriate off board rather than on. In his initial post, smhjr indicated that he wished to discuss these matters. I simply gave him an opportunity. I am an ERISA attorney and an enrolled actuary. In each capacity I am bound by a code of ethics with respect to consulting services that I may provide to others. Our welfare benefit plans have been reviewed and approved by the legal departments of several governmental entities and insurance companies. Rather than protect "intellectual property" I have published many articles in national publications, including the Life Insurance Answer Book.

I work regularly with welfare benefit plans. However, the term "419 plan" usually applies to plans seeking to be exempt from the deduction limitations imposed by IRC sections 419 & 419A by complying with 419A(f)(5) (collectively bargained plans) and 419A(f)(6) (10-or-more employer plans). It is my impression that most of the 419A(f)(5) and (6) plans are promoted through errors, misstatements and outright lies. I can provide you with lots of information, including Chapter 39 of the Life Insurance Answer Book which I co-wrote. Our welfare benefit plans that offer disability insurance comply with the HRA regulations. "Access" to the funds is similar to access to funds in a 125 plan: medical claims are submitted and are paid or reimbursed. This can be done with a medical debit or credit card. Medical expenses include all 213(d) medical expenses, including LTC premium and out of pocket medical expenses. Your post implies that the the entire trust fund is invested into a life insurance cash value. This is not the case with our plans; the medical amounts are held and invested separately from the life insurance benefits. I have never paid a claim for a swimming pool, although if it were a medical necessity it is theoritically possible. Don't count on it. Contributions are not unlimited to any welfare benefit plan. If a plan falls under 419A(f)(5) or (6), it is exempt from IRC Sections 419 and 419A but is still subject to the limitations in effect in 1983. [Note: 419 and 419A were largely a codification of the law at the time.] It is not possible to "build near complete discrimination between classes"? That is one of the misrepresentations or lies I referred to above. Under IRC 414(t) all employees of all entities have to be considered for nondiscrimination testing. That includes the nondiscrimination requirements of IRC sections 79, 105 and 505. If you desire more information, email me off board.

GBurns- The IRS requires reporting payments to medical providers in excess of $600. This is covered in the 1099 instruction booklet. The instructions do not require that payments to medical providers be reported to 2 recipients. To the extent that a payment is taxable to the employee, it is reported on W-2.

Notational accounts is the most common approach to HRAs. However your initial post posited a funded approach. Of course such assets are subject to ERISA. The audit requirement may or may not apply, as with retirement plans. The rule of thumb is that medical claims that are incurred and unpaid as of the end of the year will be approximately equal to 3 months of claims. However, the safe harbor limitation provided in IRC 419A©(5)(B)(ii) is a more liberal 35%, so it is possible to exceed the 3-month reserve at least once. (In subsequent years the calculation is the new 35% less the prior 35% plus claims incurred.)

Don L- Your understanding that an HRA is considered unfunded even if it is funded is incorrect. I don't know what you mean by "set aside", but amounts added to a "qualified asset account" are tax-deductible within the limitations provided in IRC section 419A. IRC sections 419 and 419A impose tax deduction limitations on ALL welfare benefit plans, not "multiple employer plans" as you aver. The employer would prefund an HRA into a trust because the deduction IS available. G Burns- You are correct that "The setting aside for or pre-funding of an HRA is not subject to 419." However, the set aside/carryover portion is subject to 419A limitations.

Pata-Of course it is a PT. Austin correctly suggested waiving the commission. Lori-Find a haiku thread to post on. Your post is inappropriate here.

Why would such a sole prop. still have a MP pension plan? Failure to meet the minimum funding standards is addressed on form 5330 by application of an excise tax.

The DoL regulations address alternative methods of determining hours of service. Why give a client a prototype plan document that offers options one cannot administer? It seems to beg for the kind of problem encountered here.

Others have responded appropriately to your question. Of course a DB plan can purchase and hold land/other real estate. But how is a "restaurant franchise" an investment in land? It seems that more than prudence and diversification issues are presented by your facts.

No official guidance has been provided on this issue; however, I believe that the answer would depend on what additional amounts will be in the account in 2005 that are not there now, and under what conditions they are available. In general the answer would be "no" because reimbursements would need to be for the same year in which the expense is incurred. An exception would include a plan that credits additional amounts, for example, on 12-31-04 (rather than as of 01-01-05). The HRA carryover feature only applies to amounts actually credited and not used, not the other way around.

A vesting schedule can be amended retroactive to the beginning of the year in which the amendment is adopted (a retroactive "remedial" amendment may be adopted up until the return is filed for the year). However, the anti-cutback rules preclude reducing someone's vested interest retroactively in either event, but that does not appear to be the case here. You refer to changing to a 12-month period ending on each employee's anniversary date as though it would be a hardship. In fact, it should be a simple coding matter in your computer software. You're not really doing this all by hand are you? To change "midstream", you would run the val with the old vesting method, freeze the vested percent as an override, and then run the val with the new vesting method. It seems to me that you may be the one with a knot in your tail.

I wonder if I could ignore what the traffic cop says to me and not get arrested.

Code Section 105(h)(5) specifically refers to the attribution rules under Section 318. (Section 414(m)(6) also refers to Section 318 with respect to affiliated service groups.)

You answered your own question: because of the rollover feature. A bookkeeping entry would not be deductible, but an HRA for current contributions to provide future medical benefits can be deducted within the limits provided under 419A.

We Americans speak pretty freely. Ask vendors for a handful of user references.

In researching and dealing with the same situation, we came to the conclusion that the plan would have to issue a form W-2 to the participant if the employer was unavailable to do so. Our conclusions as to the taxable benefits reportable on forms 1099 are: 1. Death proceeds that do not qualify under IRC 101(a) (form 1099-R); 2. Disability income payments (form 1099-R); 3. Education expenses not eligible for exclusion under IRC 127 (form 1099-MISC); 4. Excess assets distributed in connection with a trust liquidation (form 1099-MISC). 5. Medical, legal and other professional services paid from the trust are reported as paid to the payee (not the participant or beneficiary) on form 1099-MISC. Hope this help.

States regulate insurance contracts. The US DoL regulates ERISA plans. To the extent that an insurance contract may also be an ERISA plan, it may be regulated by both federal and state laws and regulations. No state may impose a regulation that is less than the minimum standards imposed by ERISA; such would be pre-empted by ERISA. Self-funded (and partially self-funded) health plans of individual employers or of controlled groups of employers are generally exempt from state insurance laws, and are therefore regulated by the US DoL under ERISA. Self-funded (and partially self-funded) health plans of other groups are called MEWAs and are regulated both by the US DoL and the states. ERISA does not pre-empt state regulation of MEWAs.

The employer can fund and deduct the current year service cost plus a 90-day reserve under IRC 419. In addition, the employer can fund and deduct in the same year an additional amount under Section 419A up to the account limit provided. It may require an actuarial calculation/certification to obtain a significant deduction.

My suggestion: establish the 401(k) plan separately and then merge the PS plan into the 401(k) plan as of the 401(k) effective date. That clarifies each of the issues.

Your question ("Is this an affiliated service group?") is a trick question. In fact, as pointed out above, it may not be an affiliated service group under IRC 414(m). However, it may still be a controlled group under IRC 414(b) or ©, an employee leasing arrangement under IRC 414(n), or an "other arrangement" under IRC 414(o)(3). I also recommend that an attorney or CPA who is expert in such issues review the facts and provide an opinion.

The total amount distributed may be included in the T/H calcs for up to 5 years from the date of distribution if it is a related transfer. (However, this is only 1 year in the case of death.) Usually the Key employee should roll the distrib over to an IRA.