Ron Snyder

What are UBIT-ching about? Income interest on obligations of a State or its subdivision (commonly called "municipal bonds") are not subject to taxation and therefore also not subject to UBIT. While this ruling could not be used as a precedent, the fact that inside buildup in life insurance policies is also tax-exempt is sufficient to remove it from UBIT. This would NOT apply to other forms of "insurance income", only the cash value increase that remains in the insurance policy. And the analysis would not apply to annuities inside a VEBA.

A VEBA or welfare benefit plan (WBP) is not a pass-through that gets funds into the hands of the employees for who they are intended. Think of it as being like an insurance policy (life or health). The money can come into the VEBA or WBP but will only be paid out upon the occurrence of the insured event: death, disability, need of long-term care, incurring medical expense, etc. The funds could go into a medical expense (or health) reimbursement account to reimburse the employee for medical expenses incurred over the next several months. This is as close as you can come to achieving your goal using a VEBA or WBP.

While I agree with the Section 106 analysis, don't the nondiscrimination Regs under Section 125 apply to a POP?

I am not sure why this is "fraud". Submitting multiple claims is not inherently fraudulent. The claims administrator should not pay the extra claims either for the doctors nor for the medications. This is not a case that calls for termination, but simply for proper claims adjudication. Proving of fraud would most certainly have to come down to a final judgment in a court of competent jurisdiction, an almost impossible task because either it is dependent on the criminal justice system or because it will cost more money that it is worth to go to court with the fraud allegation. And how do you get the employer on board without sharing PHI? The solution here is not to change the plan but to make sure that the claims adjudication is done properly. Otherwise, you might consider getting the participant to execute a release of PHI form in lieu of prosecution of legal action.

Most plans contain language permitting refund of contributions made by mistake of fact within one year. Correction should be possible, but check enabling plan language or check with the plan's attorney.

How many of us actuaries would rather be serving at Hooters if we just looked good enough?

Sure, but the CPA was too lazy to read and therefore contacted neyrey instead.

I thought I would reply so that everyone would know that we didn't consider you a troll!

I agree wholeheartedly. Get yourself a good lawyer, preferably a good labor lawyer. My business attorney has a partner that was a former Administrator of EBSA (when it was called PWBA). If you could find someone like that it would be ideal.

The status of the TPA as a potential fiduciary is a facts and circumstances test. If the TPA adjudicates the claims and provides a pay list to the employer, it would not likely be a fiduciary. If the TPA adjudicates the claims and writes out checks for the employer to sign, same result. Even if the TPA adjudicates the claims and prints the checks with the employer's signature, it would not likely be a fiduciary. However, it would be very difficult for a TPA who controls plan assets (ie, writes checks out of its own claims payment account over its own signature) not to be deemed a TPA. It would still not be impossible, however, if the TPA could show that it had no discretion or control over plan assets other than simply notifying the employer of the amount to transfer to its claims payment account so that it could release the claims payment checks.

Oh so- This sounds like someone who read one of my articles and decided to go ahead and market an unproven concept. As mentioned by others, there is no problem with individual accounts for all employees. IRS would not be happy about account reallocation: they would believe that this is a way to attempt to get around the account limits imposed under IRC 419A. Forfeitures, therefore, should reduce cost for the concept to pass muster. That also avoids discrimination issues from reallocation on account balances. [see Notice 2007-84.] Althouth HRAs go back several years since they were approved by the IRS, there have been no specific rulings about funded HRAs. IRS has been asked for clarification on this issue on many occasions, but such guidance has not been issued. Please note that PLRs are subject to the usual disclaimers (ie, they apply only to the taxpayer named). Ironically, the nondiscrimination testing provided under Regs 1.105(h) does factor in compensation. A plan cannot discriminate in favor of HCEs, even if the allocation method claimed is based on age rather than compensation. As pointed out, this is not a cross-tested plan. A cross-testing approach would make sense and it is probably only a matter of time until IRS approves it in some form. However, the 105 Regs specifically state that an allocation that is based on compensation IS DISCRIMINATORY. [As an aside, the penalty for such "discrimination" is that the HCEs are to put the excess allocation they receive on their W-2. So, technically, a straight salary allocation would be discriminatory with no penalty.] I would worry about the issues raised in Notice 2007-84, which applies to VEBAs as well as other welfare benefit plans. Don- Please note that IRC section 415 makes no reference to "annual additions" being allocated to HCEs under section 419, so the effect of the cross-reference to sec 415 under sec 419A is to limit contributions to the WBP and not to the DCP. This kind of plan would pair very nicely with a DBP. But even if the employer maintains a DCP, the WBP can simply include failsafe language that limits the WBP allocation to the lesser of the amount the HCE is eligible to receive, or the 415 dollar limit LESS any annual additions allocated under the employer's DC plan or plans. We would all like to see the brochure.

My firm was audited by EBSA a couple of years ago. They required that we make certain changes in our administrative forms and procedures, but otherwise were not particularly difficult to work with. My recommendation is that you try to see from the tenor of the data request and the scope of materials requested whether they are going through the motions, or are intending to go after you for some perceived abuse. If you sense that they are after you, I endorse Suzanne's recommendations. If it is a simple audit of your procedures and forms and you have nothing to hide, you may be able to get by without needing a top-notch ERISA attorney.

rene- On the assumption that you may be exactly who you appear to be, I will answer that there are several good tax litigation firms who represent similarly situated clients. They are likely to prevail in cases that are not egregious. However, IRS is likely to prevail where a plan is clearly abusive. j simmons- Since 412(i) plans necessarily involve at lease 1 life insurance company, one can hardly accuse them of "slash-and-burn" tactics. They do not have the privilege of hiding from the actions of their agents/brokers who are likely to say almost anything to make a good insurance sale. But the carrier inevitably ends up making the client whole after the IRS is through with its own abusive treatment. Just get a good plaintiff's attorney.

lol Better you than me, Mary. By the time you're done, you may be Mary25 or 26.

Having both bought and sold, I will share my thoughts. I have seen sales prices ranging from 60% of annual billings to 200% of billings. Some questions, the answers to which will affect the price, include: 1. Should plan termination fees be included in the valuation? 2. What about new business referrals from existing sources? 3. Will the principals assist with retaining the clientele? 4. Is it an asset sale or the sale of the entity? 5. What indemnities are provided relative to malpractice prior to the sale? 6. Are existing essential personnel staying on, and, if so, for how long? 7. Will payments be cut if the business ends up lower than the amount represented? 8. How large is the down payment? 9. Over what period is the balance payable? 10. Is the business large enough and profitable to sell for a multiple of net profits rather than basing the price on gross revenues? 11. Since many buyers want "non-producing" firms because they consider them to be virgin territory for selling product, what are the primary sources of the business?

Electing not to receive profit sharing contributions seems to be taking a vow of poverty to the extreme.

Everything from low to high. What is a "non-producing" TPA firm?

I have no bias against offshore investments, and currently have non-US investments. However, I do not invest my retirement plan funds in investments which are not US-qualified. As mentioned in my prior post, there are complying both with ERISA and with securities laws. Your argument seems to be that securities attorneys believe that the end justifies the means. While that is not true, qualified plans are generally exempt from US securities laws so securities lawyers don't worry about selling to ERISA plans. They are representing their client, usually the investment manager or the securities issuer. As an ERISA attorney, I don't trust the opinion of securities lawyers who represent the other party in a transaction relative to ERISA issues. (Nor would I consult an ERISA attorney about securities matters.)

If the retiree was an HCE, this may mess up nondiscrimination testing.

We always use them for the Administrator's party fund!

IRS will require the employer to amend the W-2 forms, the HCEs to amend their personal tax returns, and will then collect taxes, penalties and interest.

Whether the funds reduce future contributions or are held in suspense, the plan/employer) would have a liability to the lost participant(s) when they turn up. Simply writing off the amounts would violate the employer's and Administrator's fiduciary duties to the participant. Use of the state escheat laws permits the employer to get the liability off its books, and the participant is more likely to learn of the funds due him/her by going to state unclaimed property website than by remembering that he/she used to work for someone that may owe him/her some money.

Why would this be paid with after-tax amounts rather than through a salary reduction under a 125 premium reduction plan?

As you correctly anticipated, the problem is not prohibited inurement. Since you state that the tax deduction was claimed under IRC section 419A, I presume that the amount of paid-up insurance will not exceed $50,000 per participant, as required under 419A. Otherwise they have a problem also under section 4976. IRS has provided rulings under section 125 that premiums for group-term life insurance under section 79 qualifies as a medical expense under 213(d). In fact, most health insurance policies provide either mandatory or optional amounts of group-term life insurance. You state that the employer is "looking for a way to buy up paid-up life insurance" even though "there is not enough money to cover that in the RLR fund". Will the employer contribute the shortfall? The "problem" you identified under the VEBA Regs. is not so great as you imagine. The Regs under section 79 are not onerous. The problem is with your understanding of permanent insurance. When a defined benefit pension plan terminates, one option it has is to purchase a single-premium paid-up group retirement annuity contract. The contract is individually drafted to provide the benefits promised under the DB plan, and once the contract is purchased, the plan and trust can go out of existence. Similarly, a group-term life insurance contract can be purchased on a single-premium, paid-up basis. Many life companies that sell group term life insurance can do this. although it is not common. This is "permanent" in the sense that it will continue until the deaths of the participants. However, it is still term insurance, in fact, group-term life insurance, and would fit under the VEBA Regs. The VEBA funds can be used for this purpose. An alternative (and this can be an option) is to include a convertibility feature that permits individual participants to elect to convert to a cash-value life insurance contract with the payment of an additional premium. This is also permitted under section 79, but is not the treatment referred to in the VEBA Regs.

As a business owner who offers a group health plan, most of my employees are grateful. I have one employee with serious health problems who is covered under his spouse's health policy, but because he signed the waiver with explanation it does not count against us. Most small group carriers require 100% participation on groups with less than 10 employees (we have 9). However, they count as covered those who are covered through a spouse's health plan. Therefore, your choices are: 1. Make him sign a waiver including a written explanation of his/her refusal in writing. 2. Fire his/her ass.