jpod

Nothing dishonorable or dangerous about being an ERISA plan investment advisor/fiduciary, at least if you're good at it. The potential prohibited transaction issues come into play if the fiduciary is receiving revenue from third parties.

The "bureau chief"? I think that about says it all.

Thanks, WDIK. GBurns, did you mean "Original Post"? If so, what other sections could be pertinent to the original post if the original post concerned 406(b) and only 406(b)? If Mr. Watson was also talking about how real estate could be a bad investment, that would be another story, but evidently he was only talking about the 406(b) implications of the fact pattern described.

Ignoring the top-hat issue for the moment, wouldn't the concerns of these HCEs be addressed by a tandem qualified/nonqualified arrangement?

This is what you said: "Additionally, I thought that Real estate investments, per se, are speculations and speculative investment especially those involving a relative or other party in interest seems to fall in line with the concept of PTs." If you didn't think that a speculative investment would generally "fall in line with the concept of PTs," why did you go on to say "especially . . ."? The facts as stated indicated that there was no 406(a) pt, only a 406(b). I think everyone would agree that if the sister was a pii it would be a per se pt. What is "OP?" Did you mean "QP" for "Qualfied Plan(s)"? If so, what's your point? The original post raised a question about pts.

I'll keep an open mind, but this is news to me. Is anyone reading this interested in explaining to me what provisions of the proposed and final 125 regs. support what LRDG is suggesting? To me this sound very similar to the pre-84 ZEBRAs that prompted the original proposed regulations.

If I were a non-owner employee or a less than 5% owner, I sure as heck wouldn't defer compensation just to move out of HCE status. I might wish to defer comp., but not for that reason.

I think you are correct on both counts. But, a transfer from one employer to another? Is that a strange coincidence or are the entities related in a non-414 sense?

GBurns: Whether or not an investment is "speculative" in and of itself has absolutely no bearing whatsoever on whether there is self-dealing or a conflict prohibited by 406(b). On the other hand, if there are facts suggesting self-dealing, such as the sister being the seller, the added factor of the investment being "speculative" would increase the likelihood that you have a 406(b) transaction.

LDRG: I am not fully grasping your point, but I do know enough to know that the IRS regulations certainly do not allow a refund of previously made contributions, whether the refund is pre-tax or post-tax. The only way you can get your money back is through reimbursement of qualifying expenses incurred while a participant in the DCAP. GBurns: I don't know how to respond other than to say that the only reason a medical fsa participant would elect COBRA in the first place is because he/she has left money on the table and needs to continue to participate in order to get back all the money he/she has in the fsa.

Do you mean audit fees in connection with the 5500? If so, the answer is "yes," assuming the plan document(s) do not require the employer to pay plan expenses.

No. If there is "vesting," then there is no risk of forfeiture for purposes of 3121(v). The existence or non-existence of a Rabbi Trust or any other informal funding vehicle is irrelevant.

My intended meaning of "pre-funding" was the same as crs' meaning. LRDG: Please elaborate. I'm not sure I understand the point you are making.

Doesn't the HCE definition of "compensation" start with taxable comp? What makes you think you would include non-taxable deferred compensation deferrals? Just as an aside, however, if you have people close to the HCE dollar threshold who are participating in a nonqualified plan, you may have ERISA problems (i.e., the nonqualified plan failing to be a top hat plan). This is a facts and circumstances issue dependent upon the people involved, the total number of employees, etc.

no

It is probably not correct to say that the transaction described by Mr. Watson would ALWAYS be a 406(b) prohibited transaction. The example in the regs. cited by Kirk is a good example of a fact pattern that will ALWAYS BE A 406(b) pt, because there are plenty of people/firms that can provide the same administrative services that the son would provide. All real estate is unique, however, so I suppose it might be possible to make the argument that the fact that the purchase may incidentally benefit the fiduciary's sister does not necessarily mean that there was self-dealing involved in the transaction. For example, perhaps the plan owns a contiguous piece of real estate. Nevertheless, if what Mr. Watson was saying is that, absent unusual circumstances, a fiduciary would be a fool to take the risk with the kind of transaction he described, I'd agree with that.

When you say "rest of the year," what do you mean? If you mean expenses incurred after cessation of participation, they would not be reimburseable in any event. The participant can only be reimbursed for dependent care expenses incurred prior to cessation of participation. The participant will come up short only if he/she was "pre-funding" his/her dependent care account.

I've done it, and received a clean Det. Letter.

There is no such thing as a SOL for a plan, because a plan is not a taxpayer. A trust is a taxpayer, but there's no trust here. The employer is a taxpayer, but the employer files its own tax return. Same for the employee/participants who could be liable for back taxes in the event of plan disqualification. If an IRS agent insisted that someone on behalf of the insurance company sign something, I'd say "fine," and keep my mouth shut, because that would not extend or toll the SOL for any taxpayer who could get hurt as a result of plan disqualification.

You may wish to check further into the regulations and other authorities under Sections 105 and 106. I think you may need some sort of written "plan" that becomes enforceable before the COBRA premiums to be reimubursed become due. However, I think you can satisfy this by having a very short and simple letter agreement with the new employee whereby the employer promises to reimburse him/her for the premiums upon receipt of appropriate substantiation.

401(f) has absolutely nothing to do with the issue raised by the original poster.

The plan sponsor needs to make a judgement as to whether there is a fiduciary risk that fits the Rev. Rul. If yes, you know what you can do. If not, you still have three choices (at least). 1. Do nothing; the plan sponsor saves $8,700 because it has nothing to fear. 2. Put the $8,700 in the plan as a contribution. 3. If you don't like 3 because you don't wish to allocate the $8,700 based on compensation (or in accordance with whatever allocation formula the plan contains), give it to the participants in cash, either a flat dollar amount per participant or pro rata based on their relative account balances in the Fund group you're leaving.

While I agree that sometimes it's better just to do what the IRS insists you do in the context of an audit, but just out of curiousity, who had to sign the Schedule P for a trust that didn't exist?

My previous post needs to be clarified. But for the medical reimbursement feature, there would be no ERISA plan here. Therefore, I am suggesting that it is not clear whether we have one ERISA plan that has three components, or one ERISA plan and 2 non-ERISA plans. The methodology for counting the number of participants would differ depending upon how you resolve this issue.

It's not clear from the original posting whether we have one ERISA "plan" with 3 separate features, or one ERISA plan, namely, the medical reimbursement program. If you have one ERISA plan, then I think you'd count the total number of participants in the overall plan, rather than the number of participants in the medical reimbursement program. I can't answer these questions without seeing the documentation (and even then they are likely to be head-scratchers).