Ron Snyder

My company, located in Utah, provides the following: 1 day of personal leave per month for each of the first 5 months of employment, plus an additional day for months 13 through 17 to a maximum of 10 personal days. 1 week vacation after 12 months of service, 2 weeks of vacation after 24 months of service. The following holidays: A floating holiday plus New Years, President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving (2 days) and Christmas. Christmas Eve and New Years Eve are 1/2 days. I suggest that you contact other small or regional airlines for a better comparison.

The broker would not be a fiduciary except under unusual circumstances, but would be a party in interest. However, your inital statement of facts clearly specified that the transaction did not involve "plan assets". A transaction between a broker and an employer is not a transaction between the plan and a party in interest. The only plan asset you have referred to (obtusely) is plan information that the Employer, Administrator and broker are all required to work with in the course of discharging their duties to the Plan. If the asset involved is (properly) seen as the computer software which is used for an appropriate administrative purpose, the only potential problem would be if the broker sold or leased the software to the Plan (not to the Employer nor to the Administrator). That would violate the multiple-services prohibition of ERISA, and no on-point DoL ruling applies.

Do you file a Schedule C for self-employment income? Or is earned income imputed to you under a partnership return?

That Code language predates ERISA. Prior to ERISA there was an actuarial cost method employed called the "Minimum Individual Funding Period" Cost Method, under which costs were spread over the greater of all future years or 5 years (if that was the minimum individual funding period). This paragraph was mooted by permitting the entire amount to be deducted over years of participation through ERISA-approved funding methods and other parts of 404 described above.

I have hypothetically seen the opposite occur: a client changes TPA firms and notifies the new hypothetical TPA firm that a participant was paid out but that the hypothetical prior TPA had those records. The hypothetical release form is either in possession of the prior TPA or the amount was hypothetically less than $3,500. Your post points out the problem with posting an hypothetical question, in that simple modification of facts yields a different conclusion.

This came from the comments made by officials at the LA Benefits Conference last year. I could get into my materials and tell you who it was if necessary. However, I suggest that you contact Harry Becker (familiar with PEO issues) or Jeanne Royal Singley (the author of the RP, phone 202-283-9888) at National office.

I'm having a hard time seeing how the transaction (loaning/providing of software to the employer) involves a "sale or exchange" of plan assets. The situation you described doesn't seem like a PT unless you have left something out. For example, is the software usage worth tens of thousands of dollars? Is this for a qualified plan or a health plan? Does the broker offer levels of perks that relates to the commissions he receives? (Might be rebating under state law, but still not likely an ERISA violation.) And the fiduciary breach analysis is weaker. Which duty might have been breached? The duty to diversify? To act prudently? To operate the plan in accordance with the documents? The transaction you suggest does not involve the plan or the plan's assets.

What would be the purpose of the springing trust? To avoid the loss of deferred comp. benefits in the event of takeover by new owners? That is the usual purpose of a Rabbi Trust. It seems that by the time the trigger event took place, it would be too late to be of any use. The primary value of a Rabbi Trust is that it isolates assets used to fund a DC arrangement, so that those asserts would be protected in the case of the trigger event. An unfunded plan that springs is still an unfunded plan unless the new owners choose to fun it, and then the purpose of the Rabbi Trust has been obviated. Am I missing something?

I "supp hose" so, under the circumstances you describe.

No, IRS is adamant that the deadlines in RP 2002-21 are hard and fast. Moreover, NAPEO put out the word to its members, so even if the TPA firm was negligent the client shares in the problem and should have found its own solution. If I were a TPA contemplating rendering services to such a PEO firm, I would: 1. Say "no, thank you" and refer them to a good tax attorney for clean-up work; or 2. Agree to handle the clean-up work myself only with a very strong disclaimer and waiver of liability for any acts or failures to act by the prior firm. I would also not accept "rollovers" from the now non-qualified plan to a new multiple-employer qualified plan established for the PEO's clients. You are venturing into a mine field: good luck.

The problem with citing Section 1372 is that "fringe benefit" is not defined there. Section 132 deals with fringe benefits (not health or welfare benefits). Regs. section 1.61-21 discuss taxation of fringe benefits and discuss meals, airplanes, automobiles, chauffer services, etc., but not welfare or health benefits. Nothing in either of those sections implies that they apply to health, welfare or retirement plans.

The sole proprietor ("trustee") may establish a retirement plan. The "Chapter 13 Bankruptcy office" sounds like it is supposed to be an entity of some type, but the situation implies a myriad of questions not answered in your bullet points: Does supervision by the DoJ preclude regulation by the IRS and state of domicile? No! Federal laws do not create entities unless the statue specifically does so, like the Federal Reserve Bank. They permit entities to provide certain functions. You state that the "entity" is a "non-profit organization" but not that it is tax exempt. If so, it would need to file 1120 (if a corporation or similar) or 941 (if a trust or similar). On what basis did they claim to be a tax-exempt trust? Trusts are not tax-exempt unless IRS has so ruled. Even if they were a tax-exempt trust, a federal return would be required. A state return may be required depending upon the state. The entity was either created by articles of incorporation, a trust indenture or otherwise. Otherwise it does not exist. It would be unwise to take on any responsibility for a retirement plan of a non-existent entity.

Cash basis taxpayers must pay all expenses by the end of the fiscal year. (Retirement plans may be funded after the end of the year due to a special statutory rule.) Accrual basis taxpayers must pay any liability incurred, including contributions to a VEBA, by the end of the fiscal year prior to filing their tax returns.

"Except for Self-Employeds or discriminatory benefits paid to highly compensated individuals, expenses paid by the employer under a self-insured non-discriminatory Section 105 plan are not taxable to the employees." Section 105 & the Regs thereto do not say anything about taxability of these employer paid expenses for the owners of S-Corp. IRS issued Revenue Ruling 91-26 with respect to this issue. If they had been confident that their position was correct, they should have issued proposed regulations or temporary regulations. Their position is not supported in the Code, but their philosophy is that election of S corporation status is a privilege, and that privilege carries conditions. "If you wish to avoid double taxation like the self-employed, your deductions will be limited as though you were actually self-employed". Is it correct to conclude that S-Corp's 2% or more owners are treated same as Self-Employeds? In IRS's view it is correct. The Code lends them no support. Is there a way to provide an S-Corp owner non-taxable medical benefits with a self-insured plan? Remember that most of the health costs or premiums on behalf of the deemed self-employed person are deductible on the 1040 anyway. Can an insured plan provide these benefits? Yes, but the employer will not receive a deduction for the expense, but will pass such payments through to the 2% shareholder-employee.

The way the question was asked, it sounds as though it is referring to an existing policy outside of the pension plan. If such is the case, the pension cannot pay the premiums. However, as mentioned above, the plan may choose to purchase a LI contract or contract to fund a death benefit under the plan. This would be more appropriate in a defined benefit pension plan (where the effect would be to increase employer contributions, sometimes a desirable end) than it would be in a defined contribution plan (where the effect would be to reduce retirement benefits).

NAPEO puts out a summary of each state's laws.

It appears unanimous. Print out these responses and give them to your client, or email them a link to read for themselves. I had a client who insisted in distributing assets prior to receiving the d-letter from IRS. IRS disagreed with our proposed allocation of excess assets and the client had to come up with additional funds to distribute to the participants they thought had been disadvantaged. Watch out! A client so resolute can easily forget they insisted on filing 5310 against your advice and sue you for malpractice of a correction is needed.

I presume that you know the claims department hates you because they make you go through such claims adjudications on OTC items!

* * * so long as the allocation meets the nondiscrimination requirements.

Remember that the decision to separate or consolidate plans means for nondiscrimination testing purposes, depending upon the plans offered.

Non-standardized and yes, but not much. The options for adopting employers are limited.

PEOs are not considered to be MEWAs, but the self-funded health and welfare plans they sponsor are. Take a look at the EBSA website where M-1 filings are available. About half of the M-1s were filed by PEO firms relative to the plans they provide. THE EBSA regulation of MEWAs is limited to compliance with HIPAA, COBRA, and subsequent enactments. The real potential problem for such plans may occur under state law. Only about 17 states have employee leasing laws that exempt PEO firms from registration of their plans as insurance plans that need to be approved and regulated by the state insurance department. A couple of other states treat PEO plans as single employer plans. The balance, about 30 states require such MEWAs to comply with state insurance laws.

Administering a 401(k) plan for a PEO (employee leasing company) under the current rules amounts to the same thing: a multiple-employer plan for a lot of companies with fewer than 50 employees. We currently administer such 401(k) plans for several PEO firms.

Does the VEBA provide a reimbursement benefit (HRA), or a guaranteed medical (indemnity) benefit? Generally, it the VEBA provides an HRA, the COB rules in both documents need to spell out the order of payments. If the VEBA is simply a self-funded health plan (of the employer, union, etc.) the COB rules in the 401(a) plan should stipulate that those reimbursement amounts are payable only after proceeds from all health plans or health insurance policies.

Think of this as using the 403(b) as similar to a 401(k) account and the MPP as similar to a 401(m) contribution. At the time the plan was drafted there was uncertainty as to the viability of an employer contribution to a TSA.