Moe Howard

A partnership has a profit sharing plan. Each partner participant makes his own Keogh contribution. Each partner participant is free to find & use any broker and investments that he so chooses. The partnership makes a annual discretionary PSP contribution for the regular employee participants..... however, the regular employee participants are not allowed to choose where their share of the discretionary contribution will be invested (the partnership decides where to contribute the discretionary contribution). Is this an ERISA violation? Can it disqualify the plan ?

To what address is a GUST determination letter application (for a volume submitter plan) supposed to be mailed to (by 02/28/02) ?? What about the actual amendment ? ..... To what address is it supposed to be mailed to (by 12/31/2002) ??

I want to personally set up a 529 plan for my son's college education expenses. I'll be the sponsor and trustee. I'll hire an attorney to set up a trust. The trust will be named "Sec 529 Plan for Moe Howard, Jr". My family and I will make contributions to the trust. I'll choose the investments. I'll do all the accounting for the trust & I'll keep up with how $much of the trust's assets are owned by each contributor. The contributors will get full benefit of all income and gift tax breaks allowed under IRC 529. I'll get the trust an EIN and I'll make sure that contributors are informed that earning withdrawls not used for college education expenses are taxable. In other words, I'll set up the plan myself and not use a "state-sponsored plan". My Ouestion: Where can I get a generic "529 plan document" to use as a guide in designing my 529 plan document? .... and does the IRS have to approve my plan document (do I have to request something like a determination letter ?). Do I need to get permission from my state ? ************************************************** This is not a nonsense question. I actually have clients that want to do this. I have told them that only a state can sponsor a 529 plan and that although banks, insurance companies, brokers, and others can sell mutual funds (on behalf of state sponsored 529 plans) .... no bank, insurance company, broker, or other individual can SPONSOR a 529 plan. Am I right or wrong? I can't find this in IRC 529. Does anyone know what sentence in IRC 529 says that a 529 plan can only be sponsored by a state ? THANKS ***************************************************

Jeanine, OK I see your point. The participant is not a party to the contract, so he cannot sue anyone for breaching the contract. But, you do admit that he has the right to sue the insurance company to pay the claim ..... right ? So, rather than calling it a breach .... let's call it a dispute over benefit determination. What court will preside over the dispute (state or federa) ? I thought that federal court was only for ERISA violations. Do you know of any cases or web.sites I can read regarding jurisdiction over group medical plans ? THANKS

Jeanine, a dispute between insurance company & insured participant over their conflicting interpretations of a benefit provision (or any other terms) in the policy contract .... is grounds for a breach of contract suit. For example: The insurance company refuses to cover a medical fee, because it believes that the illness was a pre-existing condition. Both the participant & insurance company realize that the terms of the policy prohibit coverage for a pre-existing condition. The participant believes that his condition was NOT pre-existing ..... and he goes through all the proper administrative steps to convince the insurance company that his condition was not pre-existing. But the insurance company refuses to change its mind. The participant wants to sue the insurance company in a court of law and have the court order the insurance company to pay the claim. He has a medical expert witness and other proof that he feels will convince a judge or jury that his condition was not pre-existing ? The fully-insured medical plan is an ERISA plan because it covers employees. MY QUESTION: "MUST" he sue in STATE court or FEDERAL court ? (Which court has jurisdiction ?).

Kip & Jeanine, thanks for the comments ..... but neither answers my question. I'm not looking for general advice on what to do if a medical claim is denied. Here's a short version of my question: What court (state or federal ?) has jurisdiction over a breach of policy contract by Blue Cross, regarding a fully insured group medical plan ?

An employee has medical coverage under his employer's fully-insured group medical insurance plan (Blue Cross). I realize that the plan is an ERISA plan, because it covers employees. Here's my Question: If Blue Cross informs the employee that it will not pay his entire medical claim for "any" of the following reasons ..... then can the employee sue Blue Cross (for payment of the actual medical charges) in state court -or- "must" he only sue under ERISA in federal court ? 1. Not medically necessary. 2. The medical fees are excessive and far above the usual fees charged by other medical providers. 3. The medical services are for a pre-existing condition, not covered by the employer's policy. Note: The employee only wants to sue Blue Cross for actual medical charges (not any punitive damages, nor pain & suffering).

I realize that: An employer cannot have a SIMPLE plan, if the employer also currently "maintains" a SARSEP. But, I'm not sure that I know what "maintains" means. Here's my actual situation: Years ago, an S-Corp established a SARSEP. It completely stopped using the SARSEP a couple of years ago and established a SIMPLE-IRA. It never took any formal steps to terminate the SARSEP (because a SARSEP is not a trust plan). All it did was set up SIMPLE-IRA accounts for each of its employees, started making SIMPLE contributions to those SIMPLE-IRA accounts and ignored the fact that the employees still have SARSEP-IRA accounts. Now the S-Corp wants to switch back to the SARSEP. It wants to stop using the SIMPLE-IRA and start withholding SARSEP elective deferrals and making discretionary contributions to the SARSEP and do away with the SIMPLE-IRA. The reason why is...because the business is making a good profit now and it wants to take advantage of the $35,000 max contribution limits (allowed by SARSEP rules) .... rather than the measly max contribution allowed by its SIMPLE. 1. Since the SARSEP never died (terminated) .... can the corp begin using it again ? 2. What does "maintain" mean ? The corp never contributed to both the SARSEP and SIMPLE in the same year. Did it "maintain" a SIMPLE, while it also had an inactive SARSEP, because the SARSEP was still "available" for use ? Does "maintain" mean "available" ? 3. Can the corporation alternate (every other year) between the SIMPLE and SARSEP, as long as it maintains separate SIMPLE-IRA accounts and separate SARSEP-IRA accounts .... or is it now forced to continue with only the SIMPLE because it allowed the SARSEP to go inactive for a couple of years?

1. Is a Simple-401(k) plan a qualified plan? (I thought that a qualified plan had to be either a defined benefit plan or a defined contribution plan. A Simple-401(k) plan is neither ...right ??) 2. Do the Simple-401(k) plan assets have to be held in a trust ? 3. Does a Simple-401(k) have to have a plan document, adoption agreement, and determination letter ? 4. It's my understanding that a Simple-401(k) that has participants other than the employer/owner must file a Form 5500. 5. Can a Form 5304-Simple or Form 5305-Simple be used to set up a Simple-401(k) plan ? 6. Do participants have to be given a Summary Plan Description? 7. In order to terminate a Simple-401(k) plan, must all the regular termination steps involved in terminating a qualified plan be followed .... or can the employer simply tell the participants that the plan has terminated and then disburse all the account balances ? Oh my, that was a lot of questions. I'm tired.

I realize how a nonqualified deferred comp plan basically works. A business sets aside monies in an investment account with the intent of giving those monies to an employee someday. The business owns the investment until the day that it gives those invested funds to the employee ....at which time the business deducts the payment as salary and reports it to the employee as W-2 gross. What about a partnership ??? Are partners allowed to participate in such a plan? A partner does not get a W-2.

Yes. Read IRC 125.

Am I correct in thinking that when Pax says "sponsor" ... he is referring to the plan's employer... and when Appleby says "sponsor" he is referring to a service provider that sells its IRS approved prototype plans ? I thought that the plan sponsor (employer) remains constant and has the duty to make sure that a legit plan document is always in place .... but that a plan's prototype plan service provider is not the sponsor and has no such fiduciary duty.

Belgarath, according to 404(j) you are CORRECT.

No. If the $amount deducted is in compliance with IRC 404 then the deduction is allowed by IRS and it doesn't matter that it caused the participant's account to have an excess annual addition. However the excess annual addition would have to be corrected and the excess annual addition could cause the plan to lose its qualified status.

What about this ...... Is a participant entitled to have a copy of the "service contract" between the PLAN & the plan's registered investment advisor (RIA) ?

Joe - Effective for years beginning after 12/31/01. the definition of "compensation for purposes of the deduction rules" has changed. For Year 2002: Your sole proprietor will NOT EXCLUDE the elective deferrals of his employees when he determines "aggregate compensation" on which to base his Sch C deduction. Nor will he exclude his own elective deferral when he determines his own "aggregate compensation/ earnings" on which he will base his Keogh contribution. The rule in year 2001, is that elective deferrals are excluded from eligible compensation.

Tom - Where did the 1.085 come from ?

What are the current differences between an Age Weighted DC plan --and-- a New Comparability DC plan ? I realize that new comparability plans will be subject to new rules in year 2002 ... but that's not my concern at the moment. I thought that for years prior to 2002, an age weighted plan and a new comparability plan were exactly the same thing. But a year 2001 adoption agreement (which I just saw) gives a choice of either an age-weighted allocation OR a new comparability allocation. Please don't laugh at my ignorance (I'm just confused ... very confused!) THANKS

All the replys were great. Thanks.

Jon - I would think that somewhere in IRC or ERISA it says that (as you say) ... That "there is no prohibited transaction if the service provider is independent from the plan". Where might I find that quote ? Also, Where might I find (in IRC or ERISA) the definition of "independent from the plan" ? Or are those "comments" simply your good logic ?

Benefits Lawyer --- What about if the 401(k) hires a professional outside TRUSTEE ? That person will be a fiduciary. Based on what you claim, a conflict of interest will exist if the TRUSTEE (a fiduciary " party in interest") is paid by the plan. I don't know of any professsional trustees that will work for free. A trustee is not a mere service providor ... a trustee is a fiduciary. Anyone have any IRC or ERISA sections that can clear this matter up ?

Jon, if "anyone providing services to the plan" is a party in interest .... then that would mean that even the plan's TPA would be a party in interest (because the TPA provides services to the plan). If the IRS and ERISA say that paying "a party in interest" for any reason is a conflict of interest .... then paying a TPA represents a conflict of interest. I CAN see how a conflict in interest would exist if the plan pays a service provider "party in interest" (who happens to be one of the plan's fiduciaries) .... but why in the world would a conflict of interest exist simply because a plan pays an independent TPA service provider (a party in interest based on what you claim) for the TPA's administrative services? I don't kmow of any TPA firms that will work for free. Are you sure that "anyone providing services to the plan" is a party in interest? Now I'm really confused.

An INSURANCE AGENCY partnership (with 3 partners) has a 401(k) plan for its employees. The same three guys are also the partners of another partnership (INVESTMENT ADVISORY FIRM XX). All three of them are registered investment advisors. The "Administrator" of the insurance agency's 401(k) is the INSURANCE AGENCY PARTNERSHIP (the employer itself). The "Administrator" appointed one of the insurance agency partners as the "Trustee" of the insurance agency's 401(k) plan. The "Trustee" then hired the INVESTMENT ADVISORY FIRM XX, to perform the investment advisory services for the insurance agency's 401(k) plan. QUESTIONS: 1) Is there a conflict of interest in the above example? 2) If there is a conflict of interest ... then is it a conflict violation under the Internal Revenue Code --or-- a conflict under ERISA ? 3) Who is the "party in interest" in the above example?

Gary - My point is that the offset is allowed if specifically provided for in the plan document. It doesn't matter if the lessee's plan is a SEP or a trust plan (qualified). The offset is allowed whenever it is provided in the plan document (regardless of 415). However, the most common use of the offset is to force 415 compliance. SEPs (just as a qualified plan) can use either a prototype or an individually designed document. I've never knew that having leased employees required a plan to adopt a prototype. There is not much more I can say on the matter. Maybe Mr. Derrin Watson (a guru that used to post replys) will come to my rescue ( or maybe he'll disagree with me). Anyway I'm just a country boy trying my best, although I would feel bad if I gave Nancy bad info.

Bob - I guess I'm one of those folks that use the term "qualified" rather freely. You may be right. A SEP can only be rolled over into an IRA, so I guess that's a good sign that a SEP is not a qualified plan.