Moe Howard

It sounds like your client simply does not want to pay the 90% for the doctor. If the doctor/ employee is going to pay 100% of his premium (through payroll withholding) then why would your client care if it's pre-tax to him or not ? Keep in mind that if the doctor/ employee pays 100% of his premium on a pre-tax basis, then your client would match no FICA (which would save your client money). I think that the question you were really trying to ask is .... Can your client pay 90% of each regular employees' premium and pay "nothing for the doctor/ employee" ? The answer is yes .... but it has nothing to do with any cafeteria plan (Sec 125)rules. It has to do with Sec 105 ... which allows employers to choose which employees it will pay medical premiums for and which ones it won't. Under Sec 106 (of the US tax code), an employer can choose any similar group of employees to exclude from paying premiums for. Your client can therefore exclude (from employer paid premiums) all doctor/employees. The doctor can pay his own premiums through the cafeteria plan (pre-tax withholdings of course)... it will cost your client nothing & your client won't have to match FICA taxes on the doctor's pre-tax salary withholdings.

What kind of plan is it ? ....(a Flexible Spending Arrangement, .... ??).

No. Charitable contibutions are not one of the 12 pre-tax benefits that may be offered under a cafeteria plan. I suggest you read Internal Revenue Code Section 125. It clearly defines all rules & aspects of cafeteria plans.

Does the benefit plan have a professional trustee (maybe an inurance company) ? If yes, then I suggest you call him for a stack of claim forms ... that's one of the things that you are paying him for ?

Kip is correct about the summary plan description. The plan's "medical hand-book" (which according to ERISA is part of the SPD, when referenced in the SPD) will state what criteria a medical service or medical condition must meet, in order to be covered by the plan. Also, if the plan is fully insured .... you can have the insurance company write him a letter which references the section of the insurance policy which adresses his specific question.

Three individual registered invesment advisors form an LLC for the purposes of providing investment advice. Those same three individuals are also the only members of another LLC (a large hardware store... which has 25 employees). The hardware store LLC has a 401(k) plan (& employer matching) with 22 participants. All accounts are "participant directed". The three members of the hardware store LLC are participants in the hardware store's 401(k). The hardware store 401(k) needs a trustee and an investment advisor .... so it appoints one of the hardware store LLC members as trustee and he hires the RIA LLC (which he is a member of) as the 401(k) plan's investment advisor. MY QUESTION: Is the fact that the trustee and or RIA, LLC are being paid by the 401(k) considered a prohibited transaction .... or does the fact that all the 401(k) accounts are participant directed prevent this arrangement from being prohibited ?

SMB: The accountant goofed if he issued a W-2 to a partner, unless the partner was an employee before he became a partner. SHP: Eligible compensation of the participant will be comprised of both his W-2 gross and K-1 ordinary income, since the same plan was in effect for the whole year (even though it was restated).

None of the doctors are self-employed. They are simply corporate shareholders that are employed by a corporation that is a member in an LLC. Any of the doctors that does not receive a W-2 from his corporate employer, cannot participate in the plans. The doctors are not LLC members .... but their corporations are. Therefore the doctors are not self-employed. Although self-employment "ordinary income" of an individual partner is deemed eligible Sec 415 compensation.... a corporate partner is not an individual partner, and thus the doctors are not eligible for the plans simply because their corporate employer earns ordinary income from a partnership.

An employer starts a profit-sharing plan, effective 01/01/2001. The adoption agreement states the eligibility requirement to be "age 21 & 2 years of service". On 01/01/2001, one of the employees is 30 years old and has worked full time for the employer since year 1995. Does this mean that he immediately enters the plan on 01/01/2001 (since he has already met the age & service requirements) .... or is there something in ERISA that says employemnt/service prior to the plan's existence is not allowed to be counted toward meeting the "eligibility service requirement" ??

Has anyone heard the phrase "true up transfer" ? I think it has something to do with the improper allocation of a profit sharing plan contribution .... too much is allocated to one participant's account & too little is allocated to another participant's account. As a result, funds have to be transferred from one account to another... (just my guess). Can anyone shed some light on what "true up transer" might mean ?

Does the tax code allow a participant, that is presently taking "required minimum distributions" because of age 70 1/2, to strike a deal with the plan which will allow him to off-set his quarterly loan payments against his required minimum distributions ? For example: He is presently paying $1,000 each quarter to the plan on a plan loan. He is also receiving $800 of required minimum distribution each quarter. Can he pay the plan only $200 each quarter and have the plan keep his $800 distribution & apply it to his loan? I realize that he will still have to report $3,200 of distribution income each year ($800 per qtr x 4 qtr).

I heard a rumor that for year 2000 .... an employee's $10,500 elective deferral does not have to be included in the "Section 415 annual addition limit of $30,000"... Thus, an employer can contribute $30,000 (not including the employee's $10,500 deferral). This would mean an annual addition of $45,000. Has anyone heard of such a thing .... or is it simply nonsense ?? THANKS

I've seen several messages making reference to "new rules/ regs regarding cafeteria plans effective 01/01/2001". What is this all about ? I havn't herad anything about it. Can anyone shed some information on these new rules?

If a CPA performs the compliance testing and issues the report to the plan or plan sponsor.... then the report is known as "an agreed upon procedures report". Also, findings of errors in the plan's operation and recommendations to correct those errors will be stated in a "management letter" report from the CPA to the plan or to the plan sponsor. If a non-CPA performs the compliance testing, then he can name his report anything he wants to call it.

Am I correct in what I am about to say? A Welfare Benefit Plan can never be a "separate legal entity", therefore a group medical Blue Cross insurance policy cannot be issued by Blue Cross to a Welfare Benefit Plan (as owner)..... it can only be issued to the Employer (as owner).

The cafeteria plan does not have to issue SARs to participants (a cafeteria plan is not really a plan in and of itself ... it is simply a "method" by which employees can PAY FOR CERTAIN BENEFITS, offered through employer welfare benefit plans, WITH PRE-TAX $DOLLARS). However, each welfare benefit plan must issue a SAR to participants.

So, after all is said and done .... is it safe to say that 1) Title I of ERISA puts no legal reguirements on insurance policies but does put legal requirements on ERISA plans 2) Insurance policies are not ERISA plans, but insurance policies may be used by ERISA plans to provide medical coverage to employees 3) ERISA requires an ERISA plan to prepare a Summary Plan Description but does not require an insuance policy to have/prepare a SPD and 4) Employee participants in a fully-insured group health ERISA plan can sue the insurance company in state court for breach of their medical coverage rights ... while employee participants in a self-insured group health ERISA plan must sue the employer in federal court under ERISA laws.

Here's a slightly different situation: An employer has 5 employees. The employer has a group Blue Cross medical fully insured policy. The employer pays 100% of the premiums for all 5 employees ...(nothing is paid or withheld from the employees). MY QUESTIONS: 1) Does a welfare benefit plan exist (or is this simply a fringe benefit plan) ? 2) If it is a welfare benefit plan (then I realize that no Form 5500 is required... because less than 100 participants), BUT is a SPD required to be prepared & given to the 5 participants?

Jeanine - Thanks. Can you explain what an "insured product plan" is as compared to a "fully insured insurance policy sold to employer" ?

My Question: An employer offers only fully-insured medical coverage in its cafeteria plan. Does the medical plan have to prepare a Summary Plan Description and issue it to employees ? Before you think about this question .... I found conflicting answers in the Benefits Link Q & A Section as follows: Q&A Section: CAFETERIA PLANS (question # 94 of 12/28/98) answered by R.C. Morris Incorporated. He says NO ! Q&A Section: ERISA (question # 60 of 07/21/99) answered by Royce Charney ...who is some kind of world famous TPA guru. He says YES ! (Does anyone know which of these professionals is correct or am I simply not understanding something ?)

A qualified Profit Sharing plan invests in a limited partnership (as a limited partner). The partnership issues the plan an annual Schedule K-1 (Form 1065). The K-1 shows ordinary income from trade or business to be $ XXXX. My Question: Does the Plan have to file an annual Form 990-T and report that ordinary income as taxable ? (I can easily understand how a general partner would be subject to the 990-T tax in such a situation.... but I have a hard time seeing how a limited partner would be subject to the 990-T tax).

Page 45 (Sch I) of the Form 5500 instruction booklet says you have a choice. You can use either of three methods 1)cash 2) accrual 3) modified cash ..... But you must use the same method each year. What is modified cash method? It's a method in which you report all income and expenses on the cash method ..except for "contribution income" (which you report on the accrual method).

The question of 5/25/2000 appears to say that this is a self insured plan and that no employee contributions are used to pay benefits. If the plan was fully insured then no audit would be required. However, the plan is not fully insured .... but since no employee contributions are used then the plan is not funded nor is a trust required to be used. Since no employee contributions are used, then an audit is not required.

My nonprofit organization sponsors a 403(B) plan with over 200 participants. The year 1998 Form 5500 was easy to complete ...I simply filled in ONLY page 1 of the 1998 Form 5500 (a piece of cake). Is the year 1999 Form 5500 going to be as easy to complete, for a 403(B)? Do I need to consider all the year 1999 Schedules (A,B,C,D,E,G,H,SSA,T)? Or can I simply ignore them and just fill in the basic information (plan name, sponsor name, address, ID#, efective date) on the 1999 Form 5500 (pages 1&2) and then mail in in. I can't find the answer to this in the 1999 Form 5500 instructions.

It is unbelieveable that the Schedule SSA instructions do not define what the phrase "deferred vested benefits" mean. Here's my situation: I am a sole proprietor. My business has a profit sharing plan with 15 employee/ participants. I make discretionary contributions to the plan each year for each participant. The plan has "NO" 401(k) feature and the employees "DO NOT" contribute to the plan on either a pretax or after tax basis. All contributions are from me (the employer). Some participants (with a vested balance) have terminated employment with my business. Their vested account is still in the plan. The plan expects to make a "lump-sum" distribution to them in a couple of years. Here's my questions: 1) Is their vested account balance (which is still held by the plan) deemed a "deferred vested benefit", which requires the plan to attach a Schedule SSA to its Form 5500 until the lumpsum distribution is made ? 2) Since no employee deferred funds were contributed to the plan, does the plan even have to file a Schedule SSA ? 3) What in the world is a "deferred vested benefit ?