Moe Howard

No. Since the partnership is not a member of either a controlled group or affiliated service group , in which another group member has a 401(k) plan.

Are you saying that you pay 1/2 the premiums via after-tax withholding and your employer pays 1/2 ? Are you also saying that the 1/2 paid by your employer is not reported as taxable income to you on your W-2 ? If the above are both true, then you are taxed on 1/2 of the LTD disability payments that you receive. Even if paid to you in settlement or under court order.

What exactly do you mean by "Plan Fiduciary" ? A welfare benefit plan may have several different types of fiduciaries (each having a different function). You seem to be concerned about your employer being the one who will sit in judgement to approve or deny the disability claims of its employees. The plan document will state who the "Claims Fiduciary" is. The claim fiduciary is usually the insurance company (when the plan is fully insured) and usually the employer (when the plan is self-insured ...which is rare). It will be to your employer's advantage for employees not to receive LTD benefits... if it results in the employer having to pay something (such as continued premiums). I suggest that you find out who has to pay the continued premiums once an employee begins drawing LTD. (There may be no premium charge if the LTD policy is the kind in which future premiums are waived once LTD coverage begins). It will always be advantageous to the insurance company to deny disability claims (no matter if premiums are required or not). Since the plan has informed you that the plan policy prevails over the booklet that you were given, then the employer is protected. However, a federal court could decide differently -- depending on the facts and circumstances of the difference between the plan policy and the booklet. If I were you, I would educate myself about the plan and obtain all the documents that the plan administrator is legally required to give you. (Namely: Summary Plan Description, Summary Annual Report and a copy of the policy).

A company offers fully-insured medical coverage to certain classes of its employees. The company pays some of the medical premiums and the remainder of the premiums are withheld from covered employees via pre-tax withholdings (cafeteria plan). I realize that the cafeteria plan must pass three types of discrimination tests ....1) Eligibility test 2) Benefits test and 3) Concentration test. I understand what the Eligibility test & Concentration test are ..... BUT What is the Benefits test ? How does the Benefits tests work? .... and what is meant by the word "benefits"?

R.Butler is correct. In fact everyone that posted a reply to this thread is correct ... except me. The requirement of "regularly performs services for the FSO or regularly associated with the FSO in providing services to third parties" requirement is NOT met simply because the doctor might be a major fee producing employee for both corporations. Sorry. There is an old saying ..."opinions are personal but knowledge isn't". My previous replys to this thread were based on my opinion (not my knowledge). I now know the difference.

RBeck: Your first message implies that the TPA has deposited the excess into the trust but your second message says that the TPA has not posted the excess to the trust. What exactly do you mean ? The TPA must follow the direction of the trustee, or risk being fired as TPA. Keep in mind that a TPA is only a service provider. A TPA is not the plan's administrator. Your second post says that the TPA does not forward excess amounts to the employer. Well, TPA's do not have ESP ...they are not mind-readers. The trustee must tell the TPA to forward all excess amounts to the employer. Keep in mind that the plan's trustee can withdraw any amount from the plan that he wants ... when ever he wants. He does not need the TPA's permission. The second part of your question inquires about how the excess is returned to the employee. I would suggest a check (sorry for my odd sense of humor). If the error is realized prior to Dec 31, then the trust should issue a check to the employer for the excess and then the employer should issue a company check (net of fed & state income tax withholding) to the participant. The excess would then be included on the employee's W-2 as regular salary. If the excess funds are not paid to the participant until afer Dec 31 ... then no fed & state income tax would be withheld, the entire amount would be reported to the employee on Form 1099-R and the employee could avoid the 10% early distribution penalty by reporting the distribution on his individual tax return for the year that the excess arose in. Since the TPA is the record keeper, then the TPA is probably the first to realize that an excess deferral was withheld by the employer. Big deal, who cares. The only question is ... when do you want to correct the error (before Dec 31 or after Dec 31) ? Forget about trying to word the plan to handle a smart-ass TPA. Just have the trustee call (or write) the TPA and tell him that in the future he is to contact the Trustee as soon as TPA is aware of an excess contribution and then the trustee will direct the TPA on what he is to do (namely: transfer the excess to the trustee before Dec 31 or after). Is this a self-trusted plan ? Maybe the employer is also the trustee. And oh yea, elective deferrals are plan assets at the time they are withheld ... but excess elective deferrals are never plan assets until they are deposited into the trust. Elective deferrals (by definition) are not included in participant's income. Excess elective deferrals (by definition) are included in participant's income. Therefore excess elective deferrals are never owed to the trust when they are withheld (they are owed to the employee).

The employer always denies claims ??? That makes no sense. Why then even have a plan ? The answer to that question is probably because ... only the owner's claims are paid. It sounds to me like your client has a bogus self-insured medical plan, that he just happened to have never told the employees about. I'll bet that the only employee that is aware of the plan is the owner/employee himself. Am I right? Is this a bogus plan? I'll also bet that the owner's claims are paid timely at 100%.... and of course he does not report those payments as income on his individual tax return (because he is willing to take the risks which you described). As far as penalties ? How about criminal penalties for intentional disregard of the US Tax Code. Do you prepare his individual or business income tax returns? If you keep that jerk as a client ... then that says volumes about you.

Gibson: It depends on how the employer's "Sec 125 plan document" is worded. You are correct in thinking that the IRS allows a terminated employee to pre-pay some or all of his Cobra premiums via pre-tax wtihholdings from his paycheck(s), prior to his termination. Your belief is supported by IRC regulation 1.125-4 ©B(3)(iv). However, "the IRS does not require the employer" to allow the employee to pre-pay the Cobra premiums (either pretax or after tax). That's why it is important to read the employer's "Sec 125 plan document" ... to see if this specific employer plan even allows any pre-payment. I know of no welfare benefit DOL law that prevents the pre-payment (either pretax or after-tax) of medical premimus beyond the end of the plan year in which the premiums are paid. (Note: There are IRS rules which prevent some cash basis business tax payers from deducting prepaid insurance premiums ... but that is unrelated to your terminated employee's concern). Your question concerns the terminated employee's right to pre-pay his Cobra premiums on a pretax basis beyound the end of the plan year. I know of no IRS rule that prevents such a pre-payment of a "premium only" type plan. However, I do know that pre-tax "FSA flexible spending arrangement" contributions cannot be paid in advance (But a FSA plan does not fall under COBRA). You simply need to read the employer's cafeteria plan documnent to get a proper answer to your question.

Do all members of a controled group have to offer a medical plan to its employees ... just because the parent corp offers its employees a self-insured medical plan ? I realize that a self-insured medical welfare benefit plan can't discriminate ... but what does that have to do with subsidiary employees not having medical coverage ? I always thought that there were no "controlled group" effects, rules, requirements etc .... in regards to welfare benefit plans. (I realize that there are always important controlled group aspects regarding retirement plans).

pat metallic: Yes ... only one company (of a controlled group) can adopt a plan, but only if the plan is a non-standarized plan. However, keep in mind that if that non-standarized plan fails the 410(B) coverage test (when the coverage test is performed only on the one adopting employer) then the plan will not be qualifed. If such a situation arises, then the only way to force the plan to pass the coverage test (and thus maintain plan qualification) is to allow some of the employees of the second corporation into the plan.

Corp P (parent) owns 100% of Corp S (subsidiary), an obvious controlled group. Corp P has a retirement plan.... Corp S has no retirement plan. In which of the following type plans of Corp P may the Corp P's "plan document" exclude employees of Corp S from eligibility in P's plan ? 1) Standardized profit sharing plan 2) NonStandardized profit sharing plan 3) Standardized profit sharing plan -- with 401(k) feature 4) NonStandardized profit sharing plan - with 401(k) feature

Each corp has its own self-insured medical plan. My question is ... Does the subsidiary corp have to file a Form 5500 for its "Welfare Benefit Plan" ?? Keep in mind that the subsidiary plan has LESS than 100 participants. I'm not asking if the subsidiary has to file a Form 5500 for its "fringe benefit plan" ... I know that it has to because there are pre-tax withholdings.

Parent corp owns 100% of its Subsidiary corp. Both corporations offer their employees medical coverage through pre-tax withholdings. Neither of the corporations offer fully insured coverage. Both corporations have only self-insured medical plans (with employees contributing only a small $amount through pre-tax withholdings). Medical providers file claims directly to the corporate employer and then the corporate employer pays 100% of those claims from its corporate general assets. The pre-tax withholdings from employees is only a nominal $amount. Parent corp has over 100 participants in its medical plan and therefore the parent's "welfare benefit medical plan" is required to file a Form 5500 each year and have the plan audited by a CPA... plus the parent must file a "fringe benefit Form 5500 & Schedule F", because of pre-tax withholdings. The subsidiary has less than 100 participants. I realize that the subsudiary must file a "fringe benefit Form 5500 and Schedule F", because of pre-tax withholdings. MY QUESTION: Does the Subsidiary's "welfare benefit plan" have to file a Form 5500 just because its parent is required to ??

I think this is a good question. The plan's fiduciary is lord & master over determining if he feels that the hardship request is legitimate. He can reject a hardship request if he feels that the funds won't be used to finance the proclaimed hardship or if he feels that the hardship does not really exist. If the participant is unable to give the fiduciary a reasonable answer as to how he expects to meet a $7000 hardship obligation with only $1500 .... then that is probably justification for the participant to get nothing (in the eyes of the fiduciary). Hardship distributions are not given out simply by requesting them. The participant can be grilled and question about the need.... a lot of discussion is usually involved.

The S-corp IS "regularly associated" with the FSO C-corp in providing services to third persons. The "third persons" are the patients of the C-corp. The event(s) of "regular association" between the two corporations is the simple fact that both corporations have a common employee that produces a substantial portion of each corporations' medical fees ... namely Doctor B. Assuming that Doctor B, in his individual capacity as an employee of the FSO C-corp employer, regurally performs substantial services for the FSO C-corp and assuming that he is not simply a passive investor in the FSO C-corp. That is more than sufficient association to satisfy the association requirement of Section 414(m). Someone in an earlier message has already correctly stated that the S-corp is an owner in the FSO C-corp via Section 318(a)(3)© attribution. So, aggregation of the two plans is required.

rcline46: The C-corp does not have to do anything for the S-corp in order to force plan aggregation. The fact that B is 100% owner of the S-corp coupled by the fact that he performs substantial employee services for the C-corp (& owns at least 50% of the C-corp) ... is all it takes to force plan aggregation.

The C-corp plan and the S-corp plan have to be aggregated under Code Sec 414(m) as a classic A-Org type Affiliated Service Organization. Under Code Section 414(m)(1), the employees of the two businesses are treated as employed by a single employer for mutiple purposes including compliance with the Code Sec 415 compensation limit. Therefore he WILL NOT be allowed two $35,000 (for a total $70,000) contributions. He will only be allowed one max $35,000.

Your client needs to read his FSA plan's summary plan description. I'll bet you a shrimp po-boy sandwich that it says "all claims for plan year ended 12/31/2000 must be submitted by him to the FSA administrator by 03/31/2001.... and that only his contributions during year 2000 can be used to pay those claims".

The service provider (investment advisor)of the 401(k) plan also happens to be a participant in the plan & a LLC member of the plan's employer. He charges the plan a fee for his investment advisory services. It seems to me like he is "two types of fiduciary" ....1) He selected the trustee and 2) He is a service provider to the plan. All accounts are participant directed... which probably means that he has little of no liability as a fiduciary in 1) above. But it is also my understanding that because he is a "party in interest" in 2) above ....plus he receives regular compensation/salary from the employer (as a full time employee/LLC member) .... then, his providing of investment advice to the plan (as a service provider) is a conflict of interest & prohibited under ERISA section 406. What would the DOL do about this conflict? Could the DOL charge him a $$penalty? Or does his conflict first have to result in a monetary harm to the plan or a participant before he could be penalized? He seems to be doing a good job, no one has complained and he charges only a nominal fee.

Yes you are correct. The MPPP may be merged into the PS Plan rather than terminating the MPPP. However, merger (as opposed to termination) could not be allowed if the PSP document allows "in service distributions". I'm not sure what you mean by "restated".

Your client will have to adopt a new profit sharing plan (with a 401-k feature in the profit sharing plan). If client no longer wants the MPPP, then client should terminate the MPPP.... However, all MPPP participants will automatically be 100% vested upon termination of the MPPP.

Is the irrate employee covered by a fully-insured medical group policy that is in the name of his employer (even though his claim in question is not covered by the insurance company because he has not yet met his deductible) and he wants his employer to pay the claim under the employer's supplemental self-insured medical reimbursement plan ?? If yes ... then, the definitions of "medically necessary & proper claim" as defined in the medical policy (which the insurance company sent to the employer) will rule. Read the policy and see what it says about medical necessity & proper documentation required for a claim. Once you determine that the policy would allow (or not allow the claim) if he had already met his deductible.... then photo-copy that portion of the policy and give it to the employee.

If your SPD is too vague, then you should hire a professional TPA (more experienced than your employer) to draft a new SPD.

You have no legal recourse .... unless the employer over-withheld from YOU or if YOUR legitimate claims were refused for processing, when you had balance in the FSA.

All medical plans are welfare benefit plans ... which are required to have a SPD. The SPD is required by ERISA to explain what is covered and how claims are to be filed & presented for processing. If the plan has no SPD, then the plan is in violation of ERISA. If the plan has a SPD but it does not explain what kind of proof must be attached to a claim ... then the plan is in violation of ERISA. Now might be a good time for the employer to hire a TPA to design a good SPD.