KIP KRAUS

StephPait When you get it resolved, please let us know the out come.

Kirk: When one reads the paragraphs included in IRS Publication 502 regarding “Unused sick leave to pay premiums” it appears that you may use unused sick pay to pay retiree health premiums, but if you voluntarily apply such sick leave to pay for retiree health premiums it is taxable income. On the other hand, it goes on to say “If you participate in a health plan where your employer automatically applies the value of unused sick leave to the cost of your continuing participation in the health plan (and you do not have the option to receive cash), you do not include the value of the unused sick leave in gross income”. What I am unsure of is, is this the only time you can use unused sick pay to pay premiums, or can you do it as an active employee?

It seems to me that the IRS says a plan can included former employees, but a 125 plan cannot be established predominately for former employees. Thus, because sick pay is not part of the plan for active employees it seems to me that allowing retirees to utilized sick pay within the plan may fall afowl of the regs.

JohnCheek: Very interesting. I think most people know that ERISA was the Accountants, Actuaries and Attorneys relief Act of 1976. ERISA gives very liberal and broad, and even in some respects specific authority to the DOL and other agencies of the government. However, the examples you site seem to be clear examples of total incompetence on the part of the people who designed, funded, administered and audited the plans. Or could it be that the rules and regulations for establishing pension and welfare plans are so convoluted that these kinds of mistakes can be made? There must be more to your examples than meets the eye. I don’t question ERISA’s authority to grant certain powers to the DOL. I guess my question was more rhetorical. I always thought that accountants were governed by the Accounting Standards Board. Is this board governed by the DOL, or am I totally wrong about the ASB?

JohnCreek: With all due respect to the DOL and CPAs, I fail to see what business it is of the DOL to force auditing firms to do better audits. If a Plan is being operated within the limits of the law, the DOL has no business sticking their noses into an auditing firms business. By the way, if they recieve the audited reports with the 5500, they know who the audit firm is. This is just another example of uncle sugar lengthining the arm of government. Just my opinion, but then I'm only a tax payer. I would like someone to point me in the direction of cases where 5500 reports were rejected because of the auditor's report. I would really like to be informed.

RW: Why not contact the insurance agent that sold the policy to the company. They usually know all of the ins and outs of these types of policies?

Who was auditing the claims before you decided to go self-insured? Like G and Greg allude to, yes you can have somone audit the claims, but how much money do you want to spend to ensure that claims are being processed properly? Will it be cost effective? Unless you are dealing with Kamikaze Life, or Six Gun Insurance Company you should have some level of comfortablity with their ability to fairly adjuticate claims. Also, past claims experience, and projected claims when compared to on-going claims should give you an indication of how good they will be doing. I would wait until I had a few months of claims data to review before I'd be concerned about it. If claims start coming in way over projections then I'd start with questioning the insurer as to why. The one thing I would be concerned about is the stop-loss coverage kicking in when it should. You can audit this yourself from claims data.

If premiums are normally due on the First of the month start the 30 day period on the first of the month in which premiums are due.

I'm not aware of any legislation that prohibits an un-married plan participant from nameing anyone he choses as beneficiary to his 401(k)account. I am assuming he was not married to someone else at the time of death? If the plan truly is a plan established under IRC 401(k)any amount that he was 100% vested in should be payable to the benficiary of record. If the plan is not a 401(k) plan then there may not be a death benefit payable to anyone other than a surviving spouse. You need to know, if in fact you are dealing with a 401(k) plan. I also agree with QDROphile that you should contact the DOL and also file a written claim for benfits.

Larry Are there IRS medical plan underwriters who know how to underwrite medical plans?

One of the primary bread winners losing a job and the other needing more cash to help take up the slack makes sense to me. I wouldn't over analyze the intent of the law. Sometimes one needs look at the human side of the situation not the what if IRS side. If it was my employee I'd let her make the change.

I don't know exactly what the purpose of cord blood and stem cell colection and storage is intended to accomplish, but IRS Publication 502 states the following as it relates to qualified medical care, "Medical care expenses include amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, and for treatment affecting any part or function of the body. The expenses must be primarily to alleviate or prevent a physical or mental defect or illness." If this cord blood and stem cell collection and storage is only for a what if situation, and not based on a current defect or illness, I'd agree that it does not qualify. On the other hand, maybe someone out there has seen a court case related to this particular issue.

If the only issue is canceling her payroll deduction to a flexible spending account, I see no reason not to allow it. Her spouses' loss of employment is clearly a qualifying event and I wouldn't get into whether it makes sense to me or not. This of course, is only my opinion and what I'd do.

Paul: In the J.C. Penny case didn’t J.C. Penny require spouses of employees to have coverage at their place of employment in order for the J.C. Penny employee to have spousal coverage? My thoughts are that if a dependent spouse has coverage at his/her place of employment, the family premium should be less because of COB, not more. There are two ways this could save the employer in claims: 1. The dependent spouse’s employer’s plan would be the primary payer for the dependent spouse’s medical claims, and 2. If the dependent spouse’s birth date falls first in the calendar year any dependent children’s claims would be primary under the dependent spouse’s plan. Charging more in your situation doesn’t make sense to me. I agree that what you are saying should be considered non-discriminatory for all classes affected.

On the same line of thought as Mary and Joe, my theroy is that if your COBRA prcedures are not squeaky clean don't deny COBRA benfits using a technicality. Just my theroy

Generally I would agree with Paul. However, in our case, because we us Blue Cross Blue Shield as our TPA we get the discounts from using participating doctors and facilities. Even some insurance companies that offer Administrative Services Only (“ASOs”) contracts, which essentially are self-insured will allow you to avail yourself of their network of doctors and facilities if your ASO is written with them. That being said, I do agree with Paul that your organization is too small for self-insurance. You may be able to find an insurer that will give you a modified self-insured contract such as a minimum premium arrangement with you retaining the run-out liability.

1. If you don’t have current claims experience you’re taking a shot in the dark by going self-insured. 2. The credibility factor on medical claims experience on an insured group of 120 is some where around 60 to 70% credible, which means that predicting future claims is going to be difficult at best. 3. Even though you have a young healthy group of employees, one premature baby can cost a ton. 4. Keep in mind that stop-loss insurance premiums are non-participating so premiums paid are premiums gone forever. 5. If you are coming off a community or pool rated product it is easy to see the first year savings, primarily on claims lag, which could be a 20 to 30% of first year after that you will see mature claims from then on. 6. The grass is not always greener on the self-insured side of the business. We have a self-insured plan for 189 employees in Georgia, which we inherited as a result of a purchase that has paid claims running at $837,000 a year in an area where medical costs are considerably lower than in CA, if this gives you any perspective. I agree with Kirk. Talk to a professional who deals in plan design and self-insured financing.

You can also contact an independent benefits broker in your area and they can tell you. For the most part, you will need to use a broker to purchase these benefits anyway. Some insurers will write direct with employers and some won't. Unless you want to deal with every insurer that offers voluntary benefits, I recommend contacting a broker.

I still want to know what business is it to the SSA? If a plan sends out SARs to former participants with a vested benefit, like they are supposed to do the foremer participant will continue to know that he/she has a deferred vested benefit entitlement. However, I don't think employers are doing the SARs to deferred vesteds. I know one of my former employers doesn't send me one.

MR: I have been filing 5550s since 1977. I have always been under the impression that SSAs where for DB plans or plans that actually had a quote "Deferred Vested Benefit" where actual benefit payments were based on age and service. As is typical with most 401(k) plans when a person terminates he she is entitled to a full distribution of his/her vested account account balance. However, at the insistance of our current auditors, for the past three years I have been filling SSAs. This has already caused confusion to some of our retirees who have been notified by the SS Administration that they are entitled to a deferred vested benefit from our 401(k) plans when in fact they have already taken a distribution. It's just another way for uncle Sugar Daddy to protect your rights from those big bad employers and multiple employee trusts that are out to rip you off.

I just realized that I filed two 401(k) plans and did not put the auditor's EIN on either filing. Oh well, I guess we'll see what the DOL comes back with. I don't really see it as a major problem. The question I have is Why does the DOL need this information? As to your situation, I'd file and let the DOL know that the auditor would not provide the EIN. I wouldn't bust my but trying to find it.

I have never seen a pension plan that had a death benefit to anyone but a surviving spouse. To be honest, I don't know why an employer would want to pay the extra contributions to provide a death benefit to anyone other than a surviving spouse. I speak of course about the typical defined benefit pension plan. In 401(k) plans, a single person can name whom ever he/she wants to as beneficiary.

Just my thoughts, without looking up anything, but if all three plans currently have separate three digit plan numbers I would thank you would have to cancel two of them and then combine the three under one plan number in order not to have to file each plan separately. Once this is done, I agree that each SPD could be separately listed in an appendex to a wrap document, but in my opinion if you maintain three separate plans, even if described in a wrap document, you would still have to file separate 5500s for each plan. That is the way we have ours set up.

Sounds as though it could be considered discriminatory in favor of the HCs, because you are requiring non-HCs to work 25 hours in order to get benefits. This is just my gut feeling. On the otherhand, if you don't or never have Non-HCs who work less than 25 hours why not just make the eligible class all employees of the company? If you are going to be so generous as to allow participation at a level of 25 hours, why not go with it for all employees?

Thanks Kirk, but we already knew that. We wouldn't allow that because we don't consider Medicare group medical coverage anyway. The efficient way Medicare works it's more like confusion coverage.