KJohnson

If a non-spouse is eligible for distributions prior to '07 I can imagine four scenarios: 1) Any non-spouse who still has an account balance left in a plan as of '07 can make a rollover into an "inherited" IRA no matter whether you are dealing with a life expectancy or 5 year distribution pattern. 2) Only non-spouse of any participant who died in '06 and who did not take a distribution in '06 is eligible to rollover to an inherited IRA (since they would not have to make the "life expectancy" election until the end of '07.) 3) Both the non-spouse in situation 2 and any non-spouse who elected by the end of the calendar year following the year of the particpant's death to receive life expectancy distributions can make a rollover to an inherited IRA of any account balance left as of '07. 4) All non-spouses who were eligible for any distribution prior to '07 are barred from rolling over an account balance into an inherited IRA. If I had to guess, it would seem that (3) would make the most sense since you are preserving the notion that if you are taking life expectancy distributions, those distributions have to begin by the end of the calendar year following the year of the participant's death and it doesn't matter whether these come from the Plan or the inherited IRA. But, we will have to wait and see.

Just wondering how you cover hipaa discrimination and COBRA with such an arrangement. The EBIA manual says not to do this if you are offering major medical coverage. "Bottom Line Don't Include Individual Health Policies That Provide Major Medical Coverage Under a Cafeteria Plan" (p. 247). This is a HIPAA discrimination issue (individual policies will cost employees different prices based on health status) I don't know how you "cover this" with an FSA or any other plan. If you are not dealing with major medical but are dealing with an excepted medical benefit under HIPAA, such as stand alone dental, you still have COBRA concerns. The EBIA manual then advises to contact the individual insurer to make sure that the individual policy has COBRA rights (which I would bet it doesn't) pp. 247-248. Again, don't know how you cover offering COBRA for this type of coverage.

I think as long as there is a group health plan anywhere in the controlled group that the COBRA obligaton still exists under the COBRA regs. I believe that's the legal answer. I am not sure what the practical answer is. If you have an HMO plan in New York, how do you cover your Florida employees in that plan? Do you offer them coverage that is worthless and they have to go to NY for a doctor? Does it mean you have to keep a plan up in Florida? Do you have to modify your New York plan to cover Florida participants. I am not sure that these questions have been answered in anything I have seen. I know when a COBRA beneficiary moves out of a coverage area you only have to provide them coverage if you would provide that coverage to a non-COBRA participant. I believe that the regulations provide that the "type" of coverage you have to provide is that provided to similarly situated nonCOBRA beneficiaries which is ordinarily, the same coverage that the qualified beneficiary had on the day before the qualifying event). See Q&A-3 of Sec. 54.4980B-3 .... If you aren't providing any Florida coverage to nonCOBRA beneficiaries, maybe the answer really is to give them the "worthless" COBRA coverage from the closest plan geographically.

Don't know if this helps, but there was an extensive discussion regarding 415 and other SAG issues back in 2002 and March of '05. http://benefitslink.com/boards/index.php?s...mp;#entry113738 http://benefitslink.com/boards/index.php?s...=14810&st=0

Is the person still working? If so does the Plan have an in-service distribution option? There are at least 2 PLRs where the IRS has said that an in-service distribution does not revoke a TEFRA election since that election just applies to benefits at retirement. If the guy is still working, and the Plan has an in-service provision that provides for partial withdrawals you might see if this would work.

Interesting discussion and link on today's "benefitslink" news.. 11/27/2006: Individual Disability Insurance Policy with Employer-Paid Premiums Is an ERISA Plan (Employee Benefits Institute of America Inc.) Excerpt: "The employee in this case made a claim under an individual disability policy offered by his employer. The employer paid all the premiums for the policy, and the premiums were not included in the employee's income. The insurer stopped paying benefits to the employee after a year and a half, concluding that he was no longer disabled. The employee sued the insurer in state court for benefits, breach of contract, and other claims."

Don, don't know what I was thinking. You are right on health insurance premiums and HSAs. I believe that the only real exceptions is premiums for a policy while receiving unemployment benefits. I don't understand your statement that "Reimbursement of the premium would not be employer-provided coverage, in my opinion...." If that is the case, then are you saying the reimbursement is taxable? To be non-taxable under 106(a) the payment must be "employer-provided coverage under an accident or health plan"

Don, The point I am trying to make is that the only reason you would do this--instead of just giving all employees a taxable "raise" to go out and get their own health insurance-- is that you are trying to do it on a tax favored basis. If you are saying it is not an ERISA plan because it was individual coverage and the employer did not maintain or establish any plan, then how can you, at the same time, say that reimbursement of the premiums is "employer provided coverage under an accident or health plan" so as to be exempt under Code Section 106? Maybe you could, but I have never seen a case that says both that such an arrangement is not maintained by an employer for ERISA purposes but is employer provided coverage under an accident or health plan pursuant to Code Section 106. Once it is an ERISA plan, it seems that it is a group plan for purposes of HIPAA and small market reform. That's why I think if you are going to do this, doing it through an HRA makes the most sense because you have the "coverage" of a vehicle that you openly acknowledge is subject to ERISA and is a 105/106 health plan. You therefore don't have the deductibility issues or ERISA issues. You still get to the question with the state insurance authorities and thorny COBRA and HIPAA issues but you can at least point the insurance commissions to the HRA guidance which says that you can reimburse individual premiums. Also, I think thatthat any insurance commission that takes the position that any employer contribution-- direct or in-direct-- throws the policy into the group market will have to be rethought in light of HSA's and DOL's guidance that these are not ERISA plans even if an employer contributes pursuant to FABs 2004-1 and 2006-2. You should ask them if they are taking the position that an HSA that contains employer contributions cannot be used to by an individual insurance policies. If they say yes, then I would then direct them to 11/2000 directive to insurance commissioners in a prior post (that group plan = ERISA plan) as well as the guidance that says HSAs are not ERISA plans. Finally there is no question as to the non-taxable nature of employer contributions to HSA's. Regardless of whether they are employer provided coverage under the Code Section 106(a) general rule, they will be treated as employer provided coverage under Code Section 106(d) as long as certain other restrictions are met.

1) I have never seen a case that tries to reconclie the notion that it can be tax-free under the Code and still not be a plan under ERISA. I understand the notion that you need some sort of employer administration to have an ERISA plan. However, if you don't have this administration then do you still have "employer provided coverage" which is neccessary to avoid taxation? 2) If it is considered a "group type arrangement" then paying premiums is enought to make it an ERISA Plan. (Of course this begs the question of whether it is a "group type arrantment" in the first instance) DOL Regulation section 2510.3-1(j) provides: (j) Certain group or group-type insurance programs. For purposes of Title I of the Act and this chapter, the terms "employee welfare benefit plan" and "welfare plan" shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which (1) no contributions are made by an employer or employee organization; (2) participation in the program is completely voluntary for employees or members; (3) the sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collectpremiums through payroll deductions or dues checkoffs and to remit them to the insurer; and (4) the employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs. 3. As to Lisa's concern, I don't think the states really care about the taxation angle. What they do care about is an "end run" around HIPAA's small market reforms. They don't want use of multiple individual plans in an employment context to substitute for group plans where there are a host of restricitons regarding offering the plans to all eligible employees, not basing premiums on health status etc. My guess is that this why they are requiring the certification. 4. If you go to the EBIA "green binders" their "bottom line" advice is not to offer individual premium reimbursment for any benefit that is not excepted from HIPAA.

This is from the DOL Regs, Example (6). F, a fiduciary of plan P with discretionary authority respecting the management of P, retains S, the son of F, to provide for a fee various kinds of administrative services necessary for the operation of the plan. F has engaged in an act described in section 406(b)(1) of the Act because S is a person in whom F has an interest which may affect the exercise of F's best judgment as a fiduciary. Such act is not exempt under section 408(b)(2) of the Act irrespective of whether the provision of the services by S is exempt. Thus, while you might avoid a 406(a) PT through a 408(b)(2) statuatory exemption --or possibly because the contract would be with the company where the son-in-law was an employee as opposed to directly with the son-in-law (a party in interest)--I don't see you avoiding the 406(b) PT unless there are other fiduciaries and the father-in-law does not vote and has not power to affect the voting on retaining the son-in-law.

Indeed the Trustees are the "default" administrator if none is specfically designatued under the plan pursuant to 3(16) of ERISA. (16) (A) The term “administrator” means— (i) the person specifically so designated by the terms of the instrument under which the plan is operated; (ii) if an administrator is not so designated, the plan sponsor; or (iii) in the case of a plan for which an administrator is not designated and a plan sponsor cannot be identified, such other person as the Secretary may by regulation prescribe. (B) The term “plan sponsor” means (i) the employer in the case of an employee benefit plan established or maintained by a single employer, (ii) the employee organization in the case of a plan established or maintained by an employee organization, or (iii) in the case of a plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan.

I don't think that advisory opinion automatically disqualifies any co-investing as a prohibited transaction. What they tried to do in that instance is have the IRA lease back the property to the IRA owner attempting to take advantage of the REOC exception with regard to plan assets. The DOL found that even if you avoid technical 406(a) prohibited transactions by using a REOC "a prohibited transaction occurs when a plan invests in a corporation as part of an arrangement or understanding under which it is expected that the corporation will engage in a transaction with a...disqualified person." In other words DOL (and the IRS) will look at why you are structuring an investment this way and what do you do with the property afterwords. If you are trying to provide a benefit to the IRA owner (or plan sponsor) you are going to have issues.

Also see: D. Castillo, M.D., Ltd, Profit Sharing Plan (the Plan), Located in Savoy, Illinois [Prohibited Transaction Exemption 2003-08; Exemption Application Number D-11107] The Commenter seeks clarification from the Department regarding whether the acquisition of the Improved Property by the Plan and Dr. Vraney requires additional exemptive relief. As the Department noted in the preamble to a proposed individual exemption (52 FR 30965, 30973 (August 18, 1987)), section 406(a)(1)(D) of the Act prohibits the transfer to, or use by or for the benefit of, a party in interest (including the daughter of a plan fiduciary), of the assets of a plan. The Department further stated that section 406(a)(1)(D) is not violated merely because the party in interest may derive some incidental benefit from a transaction involving the simultaneous equity investment in an asset with the plan. We are assuming, for purposes of this analysis, that: (1) The fiduciary (or its designee) does not rely upon, and is not otherwise dependent upon, the participation of the plan in order to undertake its share of the investment; and (2) the terms of the transaction that are applicable to the plan are identical to the terms applicable to the party in interest. Thus, with respect to the acquisition of the Improved Property through the co-investment of Plan assets and assets provided by Dr. Vraney, to the extent that the initial co-investment satisfied the criteria described above, it is the view of the Department that such transaction does not require additional relief pursuant to this exemption. Several IRA custodians market this "co-investing" idea-- with the caveat that the IRA holder is not depedent upon the IRA's investment and that he or she should be able to prove that they could have made the investment without the IRA's participation. Of course clearing the hurdle on the initial investment is just the first of many hoops that you will have to jump through to avoid future PTs in such an arrangement.

This came up at the ABA JCEB meeting in May of this year. In Q&A 41 the JCEB gave a proposed answer using the current year comp threshold for determinng an HCE in the lookback year. The IRS/Treasury disagreed with the propsed answer. They did, however, indicate that they would take the proposed answer as a comment to their 414(q) guidance project. The Q&A's are here. (and I realize that the IRS/Treasury's response is non-bidning). http://www.abanet.org/jceb/2006/JCEBQAwithIRSfor2006.pdf

I would be a little more careful here. I agree with the tax analysis. However, to do this on a tax favored basis you are basically stating that reimbursing these premiums falls l under Code Section 106 for the new employer which is "employer provided coverage under an accident or health plan." Then to avoid ERISA, COBRA, HIPAA, FMLA issues etc you have to turn around and argue that it is not an employer plan under those statutes. Arguments can be made that you have a plan for 106 purposes but not for other purposes. But, I know that many advise not to do it because you could have real ERISA, COBRA, and HIPAA problems. In your favor, I know of at least one case where a court rejected the arugment that reimbiursement of COBRA premiums by a new employer created its own health plan which then entailed COBRA obligations for the new employer when the employee was let go while premiums were being reimbursed. While successful in the litigation, the employer did get sued. I would go into this knowing that the ERISA, COBRA and HIPAA issues are unresolved. If you just increased the employees pay and did not claim that you were paying premiums on a tax free basis then you would not be asserting that there was an employer plan under Code Section 106. Then, I think the COBRA, HIPAA and ERISA issues go away. The employer would still get the deduction, the employee would simply have to recognize the income.

http://benefitslink.com/boards/index.php?s...l=cdsc&st=0

8-American Graffiti

I think how Locust desribes it is how it works in some multiemployer (k) settings--the service provider takes the "float" and offsets it against its fee and this formula is specified in the service provider's agreement. Allocations are then only made at specified dates (for example twice a month). You do get into some fine issues such as the fact that the employees of employers who get their money in "early" could be considered to be paying more in administative fees than other employees. On the other hand, the no interest route could raise some fiduciary concerns.

I spoke with the primary drafter of the regulations. The example is an error which he said would be taken care of when the temporary regulations are made final.

Here is the 401(a)(4) reg on when mulitple formulas will fall within a 401(a)(4) safe harbor. I assume that you are not looking to fall within a safe harbor. (vi) Multiple formulas--(A) General rule. The plan provides that an employee's allocation under the plan is the greater of the allocations determined under two or more formulas, or is the sum of the allocations determined under two or more formulas. This paragraph (b)(4)(vi) does not apply to a plan unless each of the formulas under the plan satisfies the requirements of paragraph (b)(4)(vi) (B) through (D) of this section. (B) Sole formulas. The formulas must be the only formulas under the plan. © Separate testing. Each of the formulas must separately satisfy this paragraph (b). A formula that is available solely to some or all NHCEs is deemed to satisfy this paragraph (b)(4)(vi)©. (D) Availability--(1) General rule. All of the formulas must be available on the same terms to all employees

I see your point. When the regulations were originally issued in 12/2004 they contained an additional seciton 1.409(p)-1T(d)(2)(iv) which definitely would have applied 409(p) attribution to the 10% DQP test. The reg was corrected in March 2005 to drop this reference. See: http://benefitslink.com/taxregs/05-4506.htm I wonder if they forgot to correct the example in 1.409(p)-!T(d)(4) or whether this is still intentional. I have a call into the IRS to find out. I agree that if you apply 409(p) attribution to the 10% DQP test it appears that the 20% DQP test would have no purpose.

rcline's solution should work, provided that you document that you gave the opportunity for an in-kind distribution of the lp units to a population that would pass a 401(a)(4) BRF test. You could also have trouble dividing lp units if someone esle whats an in-kind or could have trouble if the owner's benefit is not enough to take care of the entire interest in the lp.

Plans generally are not parties in interest to each other for purposes of a 406(a) PT. However, if the fiduciaries of the two plans are the same, you would have some real 406(b)(2) prohibited transaction issues as well as the fiduciary issues mentioned by PIP.

I guess what I am saying it that they could have an offset. They would set their profit sharing formula for union employees under the (k) as a discretionary contribution on a comp to comp basis offset by any contribution made to the "union" plan. No (a)(4) problem for collectively bargained in the (k) since they exempt from (a)(4), and no problem for non-collectively bargained because of the mandatory disaggregation. Do you agree?

Wouldn't they be disaggregated in the 401(k) Plan as well? So, couldn't you just have two profit sharing contribution formulas--one for the collectively bargained employees and one for the non-collectively bargained and not have any 401(a)(4) issues? I know that there have been discussions regarding if the employer voluntarily does this in the (k), whether they would be treated as collectively bargained for purposes of the 401(k) plan. But as long as retirement benefits were the subject of bargaining (which they obviously were-- but not this specific benefit) then you would seem to meet the language of the regs. Admittedly, setting this up might be a little tough if you are using a prototype.