Ron Snyder

The few elected officials plans I have run across are usually in the form of non-qualified deferred compensation arrangements. Maybe you've found an untapped market.

We are in need of providing defined benefit plan documents for governmental employers. We contacted Corbel and they don't supply or support such documents. Are there any prototype or volume submitter plan documents for governmental entities out there?

Under the "check the box" regulations, LLCs may elect to be taxed as corporations or as partnerships. If they elect to be treated as a corporation, they certainly can adopt a 125 plan and all employees may participate. If an LLC elects to be taxed as a partnership, the LLC may still adopt a 125 plan but 2% owners may not participate in the plan.

If premiums are lower than the Table I rates, it would be stupid to try to do it under a section 79 or 125 plan (which also imputes income based on Table I). The actual premiums can be paid by the employer and added to the employee's income for the year without complying with Section 79. And the employer can pick and choose whom to cover. Section 79 does not give a choice, although LLandau's interpretation is reasonable. Section 79 requires that employer-paid life insurance coverage in excess of $50,000 be imputed to the employee as income based on the Table I rate. The employees are responsible for taxes on the income imputed to them, and the income must be disclosed on for W-2.

The proposed regulations don't address abusive welfare benefit plans, but abusive welfare plans purporting to comply with IRC section 419A(f)(6). While Mr. Koresko makes some valid points, he will not get Justice Scalia when he goes to Tax Court. He may get Judge Laro who obviously ran out of patience with such arrangements after hearing the Neonatology case. Even if IRS was "wrong" in going too far, they did not exceed their legal authority. In adopting IRC Sections 6111 and 6112 in the Taxpayer Relief Act of 1997, Congress granted the IRS the authority to carry out the purposes of the statute, specifically, the regulation and registration of tax shelters. In addition, Congress gave powers to IRS to require attachments to tax returns under IRC Section 6011. Incorrect or not, the regulations appear to be a legal exercise of the IRS’s powers. Also note that under IRC Section 6112, a PATS does not need to be a “tax shelter”, as defined above. It only needs to have been determined by the IRS in “regulations as having a potential for tax avoidance or evasion.“ Since IRS has called 419A(f)(6) arrangements listed transactions, their ability to restrict them beyond the statute is relatively clear. After meeting with the drafters of the Regulations last September, I came away convinced that IRS and Treasury have put some of their sharpest minds on this project. They were not cowed by Mr. Koresko's testimony, but bored with his pedantic lecturing and tired of his empty threats. I am convinced that IRS will prevail in against challenges on this issue. Unlike other sponsors of IRC Section 419A(f)(6) plans, Mr. Koresko has notified his clients to disregard the Regulations since they are "illegal", and not to comply with the tax shelter registration requirements. Those clients are in peril. IRS has already begun disallowing tax deductions for those who registered required. Penalties will be much worse for those who refuse to comply with the Regs.

I agree with RTK. IRC 105 prohibits discrimination in favor of highly compensated individuals, not salaried employees. If HCIs are salaried and hourly are not HCIs, the plan will discriminate and the entire premium will be taxed to the HCIs. However, only the excess will be taxed to the HCIs if some of the salaried are non-HCIs, the usual scenario.

This has not been finally determined but is under consideration by the IRS. A committee I serve on made a submission on this topic (and others related to HRAs) that included our suggestions. The following quotation is from our committee's submission: "Any reasonable method of measuring the “value of coverage” is acceptable, so long as the measurement method is consistent from year to year (or is changed for a substantial business reason or in connection with the redesign of the program). In particular, if an employer uses the safe harbor method for determining the applicable premium for a group of HRAs for purposes of COBRA, such an employer should also be permitted to treat this applicable premium (reasonably determined) as the value of coverage under any individual HRA in the group. The employer’s obligation to use this same value under COBRA, combined with the employer’s natural inclination not to understate the COBRA applicable premium, will provide an automatic check on inappropriate valuation. In addition, this avoids the daunting task of valuing each, individual HRA. With respect to HRAs that have received a single lifetime contribution, the value of the HRA at its inception should determine its status as an FSA for the life of the arrangement. This is the same approach that employers apply to major medical plans that have lifetime limits, i.e., the plan does not become treated as an FSA if a particular participant’s lifetime limitation falls to less than 500% of the premium cost of the coverage."

Why are you trying to interject yourself when an attorney is already involved? I suggest that you let them follow their attorney's advice. Be a supportive and sympathetic listener. But don't try to get the insurance company to do anything unless the attorney says so. If she doesn't wish to sue the attorney cannot make her.

Both types of plans are protected from creditors. The real problem occurs in bankruptcy, either voluntary or involuntary. For exemple, in California, an "ERISA-qualified" retirement plan is safe in bankruptcy, while an IRA is not. In Texas, an IRA is safe in bankruptcy while an ERISA-qualified plan is not. The answer to your questions, therefore, depends upon: (1) whether the claims that may be asserted are sufficient to invoke bankruptcy laws, and (2) which jurisdiction is involved and what are their laws. [Note: ERISA-qualified means qualified under IRC section 401(a), benefitting more than owners and HCEs and operated in accordance with the laws and the terms of the plan documents.] If I were the partner and were in the State of Texas, I would roll to an IRA. If I lived in California, I would roll to the 401(k).

I believe that the term used by IRS is "Common/Collective Trust". The purpose for the two words is because some banks use one and some use the other, but IRS lumps them together because to the Service they are the same. Of course, banks may have different meanings for "common" and "collective". If you find a bank that uses both terms (and I doubt one exists), you can ask them. Otherwise the term means the pooled "common" or "collective" investment account offered by the bank trustee.

American Fidelity has a mini-med. There are also a couple of Colonial plans you may wish to look at.

Since I spend a significant amount of my time on setting up these kinds of plans, I would like to tell you to call me and I'll help you out. However it is not appropriate to solicitations, so I'll give you two direct answers: I suggest you read PLR 2003-10132 issued by IRS earlier this year. Many of the "secrets of the castle" are contained in that ruling. 2. We commonly set up such arrangements so that employees have their choice between a 401(a) (profit sharing) plan (or a 457 plan) and a VEBA. In either event both employer and employee save FICA (where applicable) and Medicare taxes. If the participant desires his money in cash and is willing to pay income taxes on it, he can elect to participate in the 401(a) or 457 plan that permits post-termination distributions. If the participant desires to receive his money tax-free he may elect to participate in the VEBA, where funds can be used (pursuant to the new HRA rulings) to reimburse medical expenses. The key here is that the employee does not have to right to choose how much goes where, because that would be a cafeteria plan election and subject the amount to the use it or lose it requirement, or result in immediate taxation. The employer must be the one who changes the policy: "we no longer cash out benefits in excess of $x" and adopts the plans. The employee is limited to a choice: do you wish to participate in plan A, plan B or both. For more info, contact me off board.

The type of insurance you need is called errors and omissions insurance, often referred to as malpractice insurance. There are no more than five insurance companies that offer such insurance for retirement plan administration firms. If your firm is acting as a fiduciary, it would not be a bad idea to be added to the ERISA bond also.

"The question is whether a multiple employer VEBA that provides health and dental benefits to the employees of employers who share a common employment bond in the same geographical area is also a MEWA." Of course such an arrangement is a MEWA. DoL has declined federal pre-emption of state regulation of MEWAs since the mid-1980s. (ERISA left it up to the Secretary of Labor to assert or not to assert federal pre-emption of such laws, unlike retirement plan laws and regulation which do pre-empt state regulation.) There seems to be some misunderstanding of the impact of whether a plan is an ERISA or a non-ERISA plan. A plan is an ERISA plan if it provides an employee benefit covered under ERISA. However, for MEWAs, the states can and do regulate all MEWAs whether covered under ERISA or not. The NAIC has some interesting information on their website, including the following list of state MEWA contacts: http://www.naic.org/state_contacts/docs/me...public_list.pdf It seems to me that an employer who finds itself participating in an illegal MEWA has an affirmative duty to its employees either under state employment law or under ERISA as a co-fiduciary to: (i) get out of the plan ASAP; (ii) ascertain and mitigate damages (losses) to employees; (iii) consult with an attorney regarding its exposure, liability and duties; (iv) potentially, to have its legal counsel report the arrangement to the state insurance department so long as such report is not adverse to the interests of its employees. Finally, the term "bona fide employer association" does not appear in ERISA, in the US Code or in DOL or IRS regulations. The only place I am aware of its usage was in a 2001 advisory opinion from the DOL. That opinion can be found at: http://www.dol.gov/ebsa/programs/ori/advis...01/2001-04A.htm and it relates to an unusual and limited set of facts. Note: even though the DOL holds that the plan may be treated as a single-employer plan for purposes of reporting and disclosure, it acknowledges that the plan is a MEWA.

Q1. Can these assets be transferred into another fund maintained by the Union, also funded solely through employer contributions? A1. Yes. Of course you must assure compliance with plan documents (as amended), collective bargaining agreements and tax laws. Q2. Is there any prohibition on terminating a plan whose assets are above a certain dollar amount? A2. No. Q3. Other than issuing dividends or refunding administrative charges, is there anything else that can be done w/ the $? A3. Yes. I addressed this on another thread today, giving examples. I would apply for a private letter ruling prior to taking any of these steps.

The easy answer is yes they can be merged or assets (and liabilities) be transferred from one plan to another. The harder question is should they be merged? Some issues are: What does the Collective Bargaining Agreement ("CBA") provide? Would the merger violate any of its provisions? Would such a merger or transfer violate the fiduciaries' duties under ERISA? (Is it prudent? Would it benefit one group to the detriment of another?)

Presumably you mean that the employer that established the VEBA no longer has employees. However, the VEBA regs. are relatively clear: the assets of the trust must be used to provide benefits for employees and former employees. IRS has approved a distribution of excess assets upon plan termination to former participants based upon their compensation during years of participation in the plan. In PLR 2001-36028 IRS approved the transfer of excess assets to an educational trust fund. And in PLR 2001-50030 IRS permitted transfer of excess assets to a charity. And in PLR 1999-52094 IRS approved using excess assets to fund benefits for new employees. I have encouraged some clients to do is to use the VEBA (with proper amendments) to pay health insurance premiums for participants or retirees.

I don't believe that an employer's self-funded health plan ever needs a trust. And I believe that there is an exception in the DOL plan asset regulations that generally require employee contributions to retirement plans to be deposited promptly. You can review those regulations yourself. They are found at: http://www.dol.gov/ebsa/regs/fedreg/final/96_19791.pdf While I believe in the use of trusts, they are not required and frequently do little good.

A VEBA is not a funding method. A funding method is individual level premium, aggregate, entry age normal, attained age normal, etc. A VEBA is a funding vehicle or arrangement. VEBAs are a form of tax-exempt trust used to fund welfare benefit plans. They necessarily imply and generally comprise the plan of benefits. Some state laws exempt employers from insurance laws; others do not. Most states regulate MEWAs; a few do not. As to the issue of employer liability: clearly the employer is a named fiduciary under ERISA. As a fiduciary and co-fiduciary the employer may have secondary liability for breaches of duty by other fiduciaries, and primary liability for its own decisions, such as electing to participate in an illegal plan in the first place. All of you immediately jumped to the conclusion that the plan fourohonekay was referring to was an illegal health plan. There are a lot of multiple-employer VEBAs around. Some provide health benefits for association members. Others provide health benefits for PEO firms. Others provide benefits other than health for those who share an employment-related common bond. Rather than jump to an unwarranted conclusion, I am surprised that you did not ask what types of benefits are provided, and whether guaranteed benefits are provided by an insurance company. Those are the issues the state insurance departments are interested in. Typically a MEWA may provide benefits that are guaranteed by an insurance company without having to comply with state insurance laws. Of course all such arrangements are required to file with the DOL and may also have to file with the state insurance department. I note that at least one state's insurance laws are so broadly drafted that a cafeteria plan (and the Administrator) may be deemed to be an "insurer" simply because they reimburse medical benefits.

IRS issued proposed shared employee regs. under Code Section 414 in about 1989 (as I recall). Those were withdrawn 3 or 4 years later. I believe that the correct treatment is to look at each employer-employee relationship separately. The key is tracking the number of hours the employee works for each employer. An employee may work for a hospital half-time and for a doctor at the hospital half-time (for example), but there is no argument that justifies bring such employee into the hospital's plan if he or she doesn't qualify separately. For those who wish to be safe, I suggest that clients in similar situations have the employee on one primary payroll only, and that the other employer reimburse the cost of providing benefits as well as salary. The employee would then be a leased employee vis a vis the second employer, and would be evaluated as to his or her rights under that plan (offset by benefits provided by the primary employer's plan) while receiving benefits from the primary employer's plan. However, the above certainly is not required. If I were an aggresive dentist in the situation of your clients, I would have each of my employees work 900 hours per year and adopt a plan with 1000 hour eligibility and vesting requirement. 2 dental assistants or hygienists working 900 hours per year are cheaper than 1 working 1800 hours.

To clarify GBurns' point: if your client is the employer, under the new privacy rules you may not give them personal health information. So be careful. Did they say why they desire the files back? If I were in this situation and gave a damn about the relationship, I would send them originals of everything they provided me and copies of everything I provided them, while retaining copies of both. I would first make sure that all documents were "scrubbed" clean of PHI.

Not at all. However, benefits described in Sections "sections 79, 106, 117(d), 120, 125, 127, 129, 132, 137, 274(j), 505, or 4980B" must be aggregated for purposes of nondiscrimination testing. Such tests are not difficult to pass, so long as the best benefits are not provided to the HCEs, HCIs and Key employees only.

kredlin- This discussion seems to have gone sideways. Consumer-driven health plans, also called defined contribution health plans, can (and do frequently) "offer health, dental, vision, STD, LTD, health FSA, dependent FSA, term life and AD&D" benefits under a "single welfare plan".

Your questions assumes that there are "funds", when most HRAs are unfunded, "notational" (or phantom) accounts. On termination of an HRA, the termination provisions in the plan documents would apply. If the plan is established pursuant to a collective-bargaining agreement, the CBA may supercede the plan provisions. If the plan is funded through a trust, employees' funds would likely be vested. If funds are left that the employer doesn't wish to appropriate, they should continue to be made available to employees for reimbursements until exhausted. Your concerns are well founded. I believe in an HRA model that is funded through a trust to protect the employees accounts.

It appears to me that health reimbursement arrangements (or employer-funded flex plans) are subject to HIPAA. This is inconvenient, especially to those flex plan administrators who are used to not having to provide a certificate of creditable coverage to terminating employees relative to their participation in the employer's flex plan. The relief granted under DOL's Technical Release No. 97-01 clearly does not apply. 1. Is there another way out of this requirement? 2. Is one certificate of creditable coverage (from the primary health plan) sufficient to meet HIPAA's requirement, or must each plan provide such a certificate? 3. Can the certificate be provided on request only, since the HRA (or flex arrangement) is secondary coverage? 4. Can such a certificate of coverage be used to trick a subsequent employer or insurance company into waiving pre-existing conditions even though the employee wasn't really covered under a group-health plan but merely given an allowance to cover OOP medical expenses up to a certain level? [Note: I am also posting this under health plans - HIPAA.]