Moe Howard

A non-integrated PSP became effective back in 1995. The GUST adoption agreement, has a section where I must elect ...either Non-integration or Integration. The highly paid owner participant would love to switch the plan to Integrated by use of the GUST adoption agreement ..... but it seems to good to me. Can a non-integrated plan switch to integrated, simply by elceting to do so in the GUST adoption agreement ?? If yes, when is such an election effective? What about the fact that the contributions for years 1995 - 2001 were computed on a non-integration basis. Do any years now have to be retroactively amended ?

The MPPP document defines "compensation" (for computing employer contribution) ... as "W-2 wages subject to federal withholding". The calendar year MPPP decides to terminmate by 12/31 of the current year. In August , the employer notifies participants that ... "all benefit accruals will cease on 09/30 and that the plan will terminate sometime thereafter (but no later than 12/31)". Salary is paid monthly, which means that the salary earned by participants in month of Sept .... will not be paid to them uintil Oct. MY QUESTION: Must the "Salary earned by participants in Sept, be included in eligible COMPENSATION" for determining this short-year MPPP required contribution ?

Employer made a 10% MPPP contribution for each of his plan's four participants (for plan year 2001)..... and then employer realized that the wrong amount of "eligible wages" was used for one of the employees. The employee's "salary for entire year 2001" was $50,000 ....so the employer made a $5,000 [50,000 x 10%] for him. However, this employee did not enter the plan until 07/01/01. His salary during the period 07/01/01 - 12/31/01 was only $30,000. Therefore, only $3,000 should have been contributed for him. $5,000 is presently sitting in the employee's MPPP investment account ..... but $2,000 of it was contributed in error. How can the employer correct this ? Can employer simply order the financial instituition where the investments are held to take $2,000 form this employee's account and return it to the employer?

A MPPP merges into an existing PSP. QUESTION: Is the following statement correct ? The only places on the final 5500 (for MPPP) which will make any reference to the fact that the MPPP was merged out of existence & all its assets transferred to another plan .... will be on Schedule I- line 2k, Schedule I - line 4j, and Schedule I - line 5b.

Colonel Henry Potter

Hey! Although this "John A" question is old (year 1999) .... it's a very good question. Does anyone have any current thoughts on this question ?

A professional actuary has recently allocated a proposed $10,000 contribution among a plan's 3 participants (A, B, and C)under both an age based plan and a new comparability plan. Under the age based: The $10,000 will be allocated ... A=60%, B=15%, and C=25%. [6000+1500+2500 = $10,000]. Under the new comparability: The $10,000 will be allocated ... A=70%, B=10%, and C=20%. [7000+1000+2000 = $10,000]. MY QUESTION: Suppose that the employer NOW decides to contribute an amount OTHER THAN $10,000. And that the employer does not want to pay the actuary to compute a new allocation. Can the employer use the same "allocation PERCENTAGES" that the actuary earlier determined when it was thought that the contribution would be $ 10,000 ?

Blinky: You must be thinking of fact that "years of service prior to adoption of plan" MUST count toward number of years employed for vesting determination. But there is no rule (that I am aware of in either ERISA or IRC) that such period of service must count toward meting the eligibility requirements necessaryto enter the plan.

A PSP is established on 01/01/2001. There is a 2-year service requirement before entey is allowed. Although the employer has many employees employed on 01/01/01 that will most likely meet the 2-year service requirement on 12/31/02 (and thus enter the plan on 01/01/03) ... the plan will have no participants, nor make any contributions, during the plan's first two years of existence (namely: years 2001 and 2002). MY QUESTION: Must a Form 5500 be filed for years 2001 and 2002 ??

Employer's (a LLC) tax year end is 12/31/01. The employer's MPPP and PSP year is also 12/31. The LLC has extended its year 2001 tax return (Form 1065) to October 15, 2002 ....(and will in fact file the Form 1065 on 10/15/02). MY QUESTIONS: 1) What is latest date that the PSP contribution, for year 2001, can be made by employer ? 2) What is latest date that the MPPP contribution, for year 2001, cab be made by employer ?

Sorry I don't have a written source to give you .... but medical science usually separartes types of medical implants into two categories. 1. Those that penetrate and have a physiologic interaction with living tissue. 2. Those that penetrate but do not have a physiologic interaction with living tissue. Keep in mind that federal courts (if your plan is an ERISA plan) usually construe an ambiguous definition by the plan ... to be aganist the Plan. Your plan document/ policy should have done a better job in defining exactly what it means by "medical implant".

papogi: You bring up some good points ..... But I still feel that the above post by "jpod" is exactly right.

GBurns: 1.105-11©(2) "Eligibility to Participate", is a subparagraph of 1.105-11©. There are two tests under 1.105-11©(2) ...... one is the percentage test [1.105-11©(2)(i)] and the other is the classification test [1.105-11©(2)(ii)]. Test (i) states that the requirements of 1.105-11©(2) will be satisfied if (i) [the percentage test] is met. Test (ii) states that the requirements of 1.105-11©(2) will be satisfied if (ii) [the classification test] is met. (i) and (ii) are independent of one another.

mroberts: The tax code does not define "discriminatory", therefore the courts would use Webster's definition. I would say that if the plan even shows "1-day" of favoritism to the highly comps, then the plan discriminates as to eligibility. IRC 105(h)(2)(A) means just what it says.

jpod: I agree. Your conclusion makes perfect sense. IRC 105(h)(2)(A) says it all (short, simple, & basic). The word "unless" that you point out in Treas Reg 1.105-11©, along with your overall interpretation is right on the mark. It really has nothing to do with any smell test. The proof is right there in IRC 105(h)(2)(A) .... Re: discrimination "A plan cannot discriminate in favor of highly compensated individuals as to eligibility to participate" PERIOD.

GBurns: Nope. Kirk is in left field, but you are out in the parking lot. You say that you side with Kirk ? Well, Kirk uses Treas Reg 1.105-11©(3)(ii) [the benefits test] as support .... and you use Treas Reg 1.105-11©(2)(ii) [an eligibility test] as support. The "classification test" , of 1.105-11©(2)(ii), that you refer to...only applies if the plan does not pass the "percentage test" of 1.105-11©(2)(i). In other words, a plan will pass the ELIGIBILITY TEST if it complies with either the "percentage test" or "the classification test". In my initial post I said that the plan passes the 70% percentage test. (Therefore the "classification test" is not even an issue in determining if the plan meets the ELIGIBILITY TEST of IRC 105). Kirk uses Treas Reg 1.105-11©(3)(ii) to support his belief that there is discrimination as to benefits (in the factual situation I presented in my initial post) .... However, 1.105-11©(3)(ii) only applies to participants. An employee that has not met the 12 month service requirement (in my situation) is not yet a participant and therefore can't be discriminated aganist as to benefits. Thanks for both of your help ..... But I'm still looking for the answer.

Kirk: The ole smell test won't get it now days. Clients want proof when they are told that their plan discriminates. The smell test was OK in the ole days, before "employee benefits" was a full-time profession. But now days, clients want to be shown the "written law" that they are claimed to have viloated, not just a good ole hunch. The BENEFITS TEST says that -- All participants must be eligible for the same amount of benefits. Kirk: I can't agree with your statement that 'There is discrimination in benefits because there is disparity in the eligibility criteria'. Because ... an employee is not a participant until he meets the eligibility criteria of the plan ... employees who are not yet participants are excluded from the BENEFITS TEST of IRC 105.

Kirk, thanks anyway .... but Treas Reg 1.105-11 ©(3)(ii) deals only with nondiscrimination of BENEFITS. My question is strictly in regards to nondiscrimination as to ELIGIBILITY to participate. The plan I described in my initial post above passes both the IRC 105 "nondiscrimination ELIGIBILITY test" and the IRC 105 "nondiscrtimination BENEFITS test" ..... it's just that IRC 105 makes no requirements for deeming a self-insured medical plan to be discriminatory if it has unequal "length of service requirements" for highly comps & non-highly comps. Does anyone know if a plan document must have similar "length of service requirements in order to participate", for the highly comps & the non-highly comps ?

Kirk: ..... Nope ! The answer to my question is not in Treas Reg 1.105-11. Treas Reg 1.105-11 makes no mention of a plan's "length of service requirements for eligibility" affecting the nondiscrimination ELIGIBILITY TEST. Does anyone know the answer ???

Let's say that a self-insured (medical reimbursement plan) meets the non-discrimination "ELIGIBILITY TEST" .... because the plan benefits 70% or more of all nonexcludable employees. However, according to the plan document -- the "length of service" requirement to become a participant in the plan is as follows: ** Highly compensated employees must perform only 30 days of employment before they can enter the plan ...... while non-highly compensated employees must perform "12 months" of service" before they can enter the plan. Common sense tells me that since there is such a huge difference between the "length of service" requirements, which clearly is in favor or the highly compensated employees, then this plan must obviously fail some type of eligibility test .... which will cuase the highly comps to have to report their plan-paid medical claims as taxable income. But Nope! ... my common sense logic is wrong, Simply because the ELIGIBILITY TEST for non-discrimination (IRC 105-h) makes no mention of differences in "length of service for eligibility", no matter how bazaar the difference might be. So what am I failing to understand ? Can a medical reimbursement plan really have such a favorable lenghth of service requirement for only the highly comps ?

papogi, Thanks. How about a few more questions: 1) What about if the above plan was fully-insured (Blue Cross). "contributions" would still be the pretax withholding, but what would "benefits" be ?? Would it be the premiums paid by the plan? Or would it be the premiums paid by the plan - less the pretax withholdings ? 2) When does the nondiscrimination testing have to be done on a cafeteria plan ? (Is it only as of the last day of the plan year end date ? ....What if the plan did not discriminate as to eligibility during the year, but then on the last day of the year an eligibilty infraction existed ... would it be deemed to have failed the eligibility nondiscrimination test for the whole year ?) I have not been able to find the answer to any of the above questions in the text of IRC 125. THANKS ____________________________

Employer has a funded self-insured medical plan for its employees. Each employee has $40 withheld from their monthy paychecks (on a pretax basis) which helps provide the employer with funds to pay the participants medical claims. It appears to me that there two catergories of monies in this: 1. Pretax withholdings from employees ($40 each month) 2. $Amount of claims that employer pays to medical providers. __________________________ So, now it comes time to do the Sec 125 "nondiscrimination" BENEFITS and CONTRIBUTION and CONCENTRATION testing. My Question: a) What does benefits mean ? (It's got to be either 1 or 2 above). b) What does contribution mean ? (It's got to be either 1 or 2 above). I'm confused as heck. I wonder why Sec 125 does not define the words "benefits" or "contributions" when it discusses nondiscrimination testing for cafeteria plans ?

Must all 401(k) plans allow an active participant to continue to make elective deferrals after age 70 1/2 ? Under what circumstances might such a participant (over age 70 1/2) be prevented from continuing to make elective deferral contributions ? (Would such prevention be mandated by IRS, ERISA, or simply at the desire of the plan sponsor ?) Is there a tax code section or ERISA section that addresses this matter ?

What is a "Thompson book" ? You mean there is a book about this stuff ? Who sells them ?

slt: Sorry. Rather than saying "Gust determination application due by 02/28/02" ..... I should have said "Certification of intent to adopt a pre-approved volume submitter plan". I was trying to determine if my TPA is on the ball on not. My TPA sent me a "Certification Of Intent To Adopt A Pre-Approved Volume Submiter Plan". The TPA instructed me to sign it and mail it back to the TPA. The certification basically says that I (the plan sponsor) certify that I intend to adopt a volume submitter plan sponsored by the TPA as approved for GUST by a favorable determination letter. Now I have found out that the TPA has already filed the Gust determination letter application to IRS and simply wants me to agree that I will adopt the amended plan once it is approved by the IRS. I was trying to find out (in my prior post) if I had to mail my signed certification to the IRS. I have since found out that I don't. Thanks for your reply and sorry for the confusion.