Ron Snyder

1. Yes 2. No (at least not on deadline day)

A few years ago IRS announced that it would not accept faxed or copied signatures. They will accept faxed or copied forms with original signatures. Have your client sign and post the forms himself. Rather than faxing we have taken to scanning into a PDF file and emailing to the client to sign and file.

Your "answer" is not correct because section 162 applies to deductions claimed as ordinary and necessary business expenses. Section 404 authorizes tax deductions for contributions to retirement plans. Under that section, employers are allowed tax deductions for contributions to qualified plans within the limitations provided therein. The exclusive benefit rule of IRC 401(a)(2) generally precludes contributions by one employer from going to the employees of another employer. However, when 2 employers are aggregated for tax purposes this requirement is waived. In the case you describe, the employers are NOT aggregated for tax purposes, but would be for testing purposes under IRC 414(b) or ©. Under such circumstances, in order to make sure that you are doing it correctly: 1. Each employer which elects to participate in the plan should separately adopt. 2. Each employer should contrirbute for its own employees and claim its own tax deductions. 3. All employers of the group should be aggregated for testing purposes.

Acne is a skin disease by definition. "ac·ne An inflammatory disease of the sebaceous glands and hair follicles of the skin that is marked by the eruption of pimples or pustules, especially on the face. -------------------------------------------------------------------------------- [New Latin, probably from misreading of Greek akm, point, facial eruption. See acme.] -------------------------------------------------------------------------------- Source: The American Heritage® Dictionary of the English Language, Fourth Edition Copyright © 2000 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved."

Pages 3 and 4 of the instructions for form 5500 are quite explicit about which welfare plans have to file and which ones are excepted.

I believe that the answer would turn on whether the alternate payee is receiving benefits of a participant or of a beneficiary.

Don't listen to SAPs. So long as the GTLI remains in force the excess is taxable and reportable on form W-2. The real interesting question (to me) is: what if an employee is on long-term disability for the entire calendar year. Does the employer have to cut a W-2 simply for the purpose of reporting the imputed income?

Unfortunately there is no black and white answer to your question, partially because you were not specific enough about what you were looking for. You seem to want the definition of "employee" when it is used under IRC 501©(9). 501©(9) doesn't have its own definition, so I referred you to IRC 505, non-discrimination rules for VEBAs because it does contain a definition. Your latest post seems to be more occupied with who is an employer in a multi-employer plan. Of course the answer to that question would be in the collective bargaining agreement. Generally it would be any employer who employs someone subject to the CBA. So bargaining status does matter. Moreover, the CBA will state which employees are considered employees for purposes of the CBA and of the VEBA.

For retirement plans, ERISA pre-empts state laws purporting to address the issues you raise. Since the Secretary of Labor has declined to assert ERISA pre-emption with respect to MEWAs, such state laws are not pre-empted. Multiemployer plans are definitely collectively-bargained plans and would be regulated by the DOL. Multiple-employer plans are not collectively bargained and may be regulated by both the DOL and the states.

401 Chaos- The distinction is not at the DOL level, it is at the state insurance department level. If you are complying with their insurance laws, they don't care whether it is a MEWA or not. G Burns- The legitimacy of the arrangement is irrelevant: ERISA will not pre-empt state laws regulating such plans. While many states exempt single-employer plans from licensing and regulation, I don't know of any that permit a MEWA to offer or provide guaranteed benefits without complying with their state insurance laws. To answer your question directly, many states have enacted new MEWA laws (I have read the statutes from Texas and Indiana and they are very inclusive.) Others have issued regulations, or simply chosen to treat MEWAs as "insurers" and the benefit plan as a "policy"under their insurance code, requiring posting of capital, licensing, filing of products before offering for sale, etc.

My suggestion that obtaining a new D-letter was necessary was based upon an oral representation to me by a senior person at National Office of IRS. He stated to me his view that IRS doesn't consider a D-letter valid if it is over 10 years old, or if there has been a significant amendment to the plan since the letter was issued.

I have a California case where, after the death of the participant in the pension plan, the ex-wife hired a high-powered attorney to go back to the court to ask for a modification of the original judgment in the division of the retirement plan benefits. The participant had been married to the surviving 2nd wife for 5 years. The court took the position that it has a continuing jurisdiction over divorces and has the right to modify prior orders. The case was in San Diego or Imperial county. You need a good attorney to win this.

VEBA eligibility requirements are contained in IRC section 505. The requirement under 501©(9) is that 90% of the participants must be employees. Whether or not they are union, collectively bargained, salaried or hourly-paid is irrelevant. I believe that you are referring to whether or not a plan will be deemed to be collectively-bargained, not a requirement under 501©(9). Collectively-bargained plans have several advantages: 1. They can provide dependent college education benefits. 2. They are exempt from UBIT on retiree medical accumulations. 3. They are exempt from the funding and deduction limitations imposed under IRC sections 419 and 419A. 4. Etc. The separate plan approach will work well. However, in creating the non-collective bargaining plan, you need to accomodate the differences referred to above.

What has happened recently is that the IRS issued Regulations under IRC section 419A(f)(6). Certain 10-or-more employer plans were funded through VEBA Trusts, some with determination letters and others without. The litmus test: does the plan have a recent determination letter from IRS? If so, it is a VEBA; if not, it is likely a taxable trust. It is certainly possible to have a VEBA/MEWA without being hassled by state insurance departments, so long as all benefits are provided through licensed insurance carriers. It is not possible to have a self-funded health plan as a VEBA/MEWA without problems.

It seems to me that your plan documents must be consistent with your practice. If fees are to be withdrawn from the participant's account, the plan documents AND SPD need to reflect that charge and practice. I would go a step further and include the fee disclosure on the enrollment form, so the participant acknowledges it.

Employee leasing arrangements do not stop your client from being the employer. He has simply contracted with another company to prepare paychecks, make tax deposits, etc. All employees will still be considered his employees when it comes to providing retirement benefits, although be can offset the participants' benefits by amounts that they receive through a plan of the employee leasing firm. (Some employee leasing companies provide 401(k) plans with employer contributions.)

Section 412(i) plans are defined benefit plans and are subject to all of the same laws as other DB plans except for: (i) the requirement of an enrolled actuary's statement; (ii) the limits on actuarial assumptions under IRC 412, ,and (iii) the current liability full funding limit. The plan documents need to be drafted consistent with the insurance and annuity contracts used to fund the benefits. The answers for your questions will be the same for a 412(i) plan as for any other DB plan. But as with 401(k) plans, it may be possible to find a carrier that will do the distribution reporting. Or not.

The information is discoverable if the terminated beneficiary chooses to sue. Short of that, the insurance company will not release the information. The best way to find out is to contact the agent who can find out anything from the insurance company.

It states that the plan must cover either (i) 70% of "all employees" or (ii) 80% of all eligible employees, provided that at least 70% of "all employees" are eligible. It is clearer in Regs. 1.105-11©(2)(i). There is an alternative test (the "classification test") if the plan doesn't meet this requirement. "All employees" may exclude those: (i) below a minimum age (of up to age 25); (ii) with insufficient service (up to 3 years of service may be required); (iii) part-time employees working less than 35 hours per year; (iv) those employees with collectively-bargained benefits; (v) non-resident aliens with no US income.

It doesn't make sense to me. If the employee is paying for the premiums, it is generally either on an after-tax basis pursuant to payroll withholding. If the employee has elected life insurance coverage under a Section 125 arrangement, amounts withheld from his paycheck will be pre-tax and the value of coverage by insurance in excess of $50,000 will be imputed to the employee as income. The entire life insurance premium is eligible for payment through the 125 plan. cf, Regs. Sec. 1.125-2T. This cross-references to Section 79, and the Regs. under Sec. 79 permit the purchase of individual policies and cash value policies all within the aegis of "group term life insurance".

The treatment of the benefit is difference between a self-insured plan and a fully-insured plan. Self-Insured - Regs. 1.105-11©(3)(iii) provides: "To the extent that an employer provides benefits under a self-insured medical reimbursement plan to a retired employee that would otherwise be excludible from gross income under section 105(b), determined without regard to section 105(h), such benefits shall not be considered a discriminatory benefit under this paragraph ©. The preceding sentence shall not apply to a retired employee who was a highly compensated individual unless the type, and the dollar limitations, of benefits provided retired employees who were highly compensated individuals are the same for all other retired participants." Fully Insured - Regs. 1.105-11(b)(2): "However, a plan which reimburses employees for premiums paid under an insured plan is not subject to this section." And Regs. 1.106-1: "The gross income of an employee does not include contributions which his employer makes to an accident or health plan for compensation (through insurance or otherwise) to the employee for personal injuries or sickness * * *. The employer may contribute to an accident or health plan either by paying the premium (or a portion of the premium) on a policy of accident or health insurance covering one or more of his employees, or by contributing to a separate trust or fund (including a fund referred to in section 105(e)) which provides accident or health benefits directly or through insurance to one or more of his employees."

Take a look at Revenue Ruling 91-26. I know of attorneys and CPAs who believe that IRS addressed this in a RR because they don't dare try to implement Regulations regarding this issue. Under the Code, if the employee is an employee, the corporation is entitled to a deduction. If the owner is an owner, the deduction is passed through to the 2% owner. The problem exists when a 2% owner is also an employee. In my opinion, IRS is wrong, but they have published their position for many years now (since this ruling was issued and since the repeal of Section 89). The instructions for the LLC's partnership return are clear that IRS tells you to pass through the deductions to the owner's return.

The Regulations under Section 79 permit both individual policies and permanent insurance to be included under the broad definition of "group term life insurance arrangement". And participants in 125 plans and health reimbursement plans may elect to have life insurance as a plan benefit with premiums paid with pre-tax dollars. In each of those cases, the amount of current income imputed to the participant is based on the face amount of insurance in force (in excess of $50,000) and the factor from Table I that corresponds to the participant's age. The actual premium paid does not affect the amount of taxable income imputed to the participant, although I endorsed your logic above. It would be stupid, therefore, if actual premiums are lower than the Table I amounts to purchase the insurance coverage through a tax-deducted arrangements. Such premiums paid by the employer should simply be added to the employee's W-2. This subject is treated in some detail in IRS Publication 525. Sandra is right about 2 things: (1) When contributions are pre-tax they are converted to employer contributiosn, and (2) it is a pain for a payroll system if the employer has another group-term life insurance plan and may not be worth it.

John- It's good to see you back on this board after a considerable absence. When you had someone else post your article, I feared that we wouldn't have your input and response. I serve on the welfare benefit plans subcommittee of the Employee Benefits Committee of the Tax Section of the American Bar Association. Two or three times per year our committee of "real tax attorneys" meets with each other and with IRS, Treasury and DoL officials to discuss issues relevant to our practices, including 419A(f)(6) plans. Our subcommittee provided an official comment on the proposed regulations at IRS's request. Hence, there was no need for oral testimony. I have had several articles published, some scholarly and some for the popular press. However, I don't have enough interest in 419A(f)(6) to spend the hours that would be required, especially when it does not affect my usual practice. Within the past month I received a copy of a form letter from IRS that has been sent to adopters of registered 419A(f)(6) plans. The letter includes a blanket disallowance of deductions and assessment of taxes. I can provide you a fax copy of the letter if you are interested. You state: . I have reviewed my post and cannot even guess where you found this "allegation". If someone called you names, I am unaware of it.I agree with most of your arguments. Clearly, employer-funded life insurance may be tax deducted under various provisions of the IRC. When I met with IRS, I asked whether or not they were prejudiced against life insurance. They were offended at the suggestion, and responded in strong language that they were not against life insurance, but were prejudiced against those who misrepresent the content and purpose of subsection 419A(f)(6) of the Code.

Our firm is a TPA that administers VEBAs. We do not administer self-funded health plans, but are affiliated with another TPA firm who does. You may check our our website at www.bsgbenefits.com/. The health TPA with whom we maintain a strategic alliance may be found at www.smithadmin.com/. We have worked with multiple trustees for trustee services relative to welfare benefit plans, but they are rare and hard to find.