Kirk Maldonado

The idea from the consultant is a good compromise. That would work out well if it turns out that the treatment that is now considered experimental proves to have an very high rate of successful outcomes. It also restricts the cost to the plan (somewhat) if it turns out that the drug isn't efficacious.

Thanks to everybody who participated in this thread for brightening my day.

EAKarno: But I think that problem is that you use the term "nonqualified deferred compensation plans" and "split dollar arrangements" interchangeably. In actuality, they are very different types of arrangmeents with different tax consequences.

Steve72: I think your comment applies to all federal agencies other than the IRS, DOL, and the PBGC. But that isn't too surprising, if you ever spent any time working in a federal bureaucracy. They have so many workers that, even within the area that they are responsible for, everybody gets hyper-specialized. Thus, as a general rule, nobody there generally has a good overall picture of the entire area that is subject to the jurisdiction of that agency, let alone other areas of the law.

I don't want to disagree with papogi, but I do want to bring up some other issues that the client may want to consider. First, the fallout in the worksite if the person doesn't get the treatment. Second, there has been a lot of litigation on this topic, and litigation can be very expensive. I would recommend that you get legal counsel to advise you how the courts in your area of the country have come out on this issue.

QDROphile: ERISA precludes reversions to employers unless they fit into a few very narrowly circumscribed exceptions (like mistake of fact). Telling a client to undertake a reversion that violates the express rules of ERISA would result in a breach of fiduciary responsibility, a prohibited transaction, and would disqualify the plan. But if you think that your theories trump the statutory rules of ERISA, the Code, and all of the guidance that has been issued since ERISA, go for it. My recommendation is that you better make sure that your malpractice insurance is current, if you are advising clients to do things that clearly violate the the express terms of ERISA. I'm not saying that I like the result, but I'm not going to tell a client to violate the express rules of ERISA just because I don't like the result that happens when you apply those rules.

QDROphile: Would you please point me to the provision in ERISA that permits a reversion to the employer of amounts that it contributed to a plan because of an "operational failure?"

Steve72: I agree that you are raising a very good point. Further, I want to caveat my remarks with the disclaimer that I am only peripherally involved in HIPAA. But the HIPAA attorneys that I've worked with have indicated that the employer doesn't have to worry about such health information as long as that informtion is in the individual's employement records maintained by that employer, Assuming that is the correct test, then I am skeptical that you argument would prevail. For one thing, by definition those people aren't working any more. Second, I think that is stretching the concept of working on behalf of the employer too far. But I will freely concede that you have a good faith argument.

Wouldn't the safest approach be to add an attachment to the form explaining what actually transpired?

EAKarno: The original posting was how do you get insurance proceeds out tax-free from a nonqualified deferred compenstion plan? Please explain how you can do that without changing the facts so that it involves a split dollar arrangement. Also, please cite any authority that you are aware of that supports your position.

Here's an opposing point of view. This article was in found in WOODY's OFFICE WATCH, 20 January 2004, Vol 9 No 2, located at: http://www.woodyswatch.com/office/archtemplate.asp?v9-n02 1. MS HIDDEN DATA REMOVAL TOOL NOT READY FOR PRIME TIME I warned ya last week. Microsoft's "Remove Hidden Data" add-in is a mess. The add-in is supposed to strip all that potentially embarrassing hidden text out of Office files. In fact, it does a pretty good job most of the time, but it's riddled with errors. Microsoft posted a Knowledge Base article http://woodyswatch.com/kb?834636 with 15 known bugs. You folks have written to me with several more: Dozens of you wrote to say that after installing the tool, Word, on exit, always says that "Changes have been made that affect the global template...", even though no changes were made. WOWser JB went on to say: "now I can't get rid of the "Remove Hidden Data..." item in the File menu (I tried using "ctrl-alt -" to delete the menu item but that didn't work. The menu line doesn't do anything but I just can't seem to get rid of it." JDV: "You have to save the original file immediately before using the removal tool. Even if you have just opened the original file and haven't made any changes. Also, it seems to have a memory leak or something. After about 3 - 5 uses, I usually get an "out of memory or disk space" error message when attempting to name the new file. Restarting Word clears the problem." AS writes that he tried to install it, but got the message "This product cannot be installed on this computer. This product requires Windows 2000 or later." If you check the KB article, you'll see that MS claims "The installation and the use of the Remove Hidden Data add-in on Microsoft Windows 2000 have not been tested by Microsoft." So what is it? CS writes: "Right out of the box it stalled on my first document." And so it goes....

The following article is located at: http://www.woodyswatch.com/office/archtemplate.asp?v7-n53. The main address for Woody's Watch is http://www.woodyswatch.com/index.asp OUTLOOK 2002'S PRIVACY BUSTING "FEATURE" If you've been following along with the privacy revelations in the latest issues of WOW, you know that any Office file sent as an attachment to an Outlook 2002 or Outlook 11 message contains a ten digit number that can be easily traced to the machine on which the message originated. The originating PC has a file called c:\Documents and Settings\\ApplicationData\Microsoft\Office\AdHoc.rcd which contains the ten-digit "brand" number. Outlook 2002 and 11 also put your Email address and your name in the Office file's File | Properties | Custom variables. Outlook 2002 doesn't respect any of Word's settings. That ten digit number, and your email address and name appear even if you've told Word 2002 to remove any personally identifiable information (Tools | Options | Security | "Remove personal information from this file on save"). They appear even if you've told Word 2002 to not assign a merge number (Tools | Options | Security | "Store random number to improve merge accuracy"). Outlook 2002 runs roughshod over your Word settings, and the only way to stop its privacy-busting behavior is by digging down five levels and disabling one of the most obscure options in Outlook (Tools | Options | Preferences | Email Options | Advanced, uncheck "Add properties to attachments to enable Reply with Changes". As far as I can tell, none of this is documented anywhere, so I'm going to give it a shot here in WOW - Let's call it WOW's Security Bulletin WOW02-001. This only happens in Outlook 2002 and Outlook 11. 1. When you compose a message and press Send in Outlook 2002 or Outlook 11, Outlook looks to see if there are any Office files (Word documents, Excel spreadsheets, or PowerPoint presentations) attached to the current message. 2. If there are Office files present, Outlook looks at Tools | Options | Preferences | Email Options | Advanced, and if the box marked "Add properties to attachments to enable Reply with Changes" is checked, it "brands" all of the Office files attached to the message. The "Add properties to attachments to enable Reply with Changes" is checked by default - that is, your files will be branded, unless you specifically go in and turn that setting off. 3. Outlook brands the files by inserting your email address, your email "display" name, and the Subject line of the message into File | Properties | Custom variables. (Valerie Mallinson, Microsoft's planted "Mac to PC Convert" lady, had one of her files branded with her display name.) Then Outlook looks for a File | Properties | Custom variable called _AdHocReviewCycleID. 3.A. If there is no _AdHocReviewCycleID variable, Outlook generates a random 10-digit number, and sets up a variable called _AdHocReviewCycleID, assigning it the value of that 10-digit number. The _AdHocReviewCycleID number and the full file name of the attached file (including its path) is placed in the file AdHoc.rcd. AdHoc.rcd is an old-fashioned INI file that can hold 100 entries, so it keeps track of the last 100 files that have been attached to email messages. 3.B. If there is an _AdHocReviewCycleID variable, Outlook looks to see if the 10-digit _AdHocReviewCycleID value is already in AdHoc.rcd. If it's already there, Outlook doesn't change anything. If the 10-digit number isn't in AdHoc.rcd, Outlook creates a new File| Properties | Custom variable called _PreviousAdHocReviewCycleID and assigns it that 10-digit value. Then Outlook creates a new random 10-digit number, puts it in File | Properties | Custom | _AdHocReviewCycleID inside the file, and adds the10-digit number to AdHoc.rcd. 4. After the Office file is branded with this 10-digit number, the message with attachment gets sent along to the output queue, where it will ultimately go to the intended recipient. 5. When Word opens a file, it immediately looks for a File | Properties | Custom _AdHocReviewCycleID value (or, I assume, a _PreviousAdHocReviewCycleID value). Word looks up the 10-digit number in AdHoc.rcd. If Word finds the value in AdHoc.rcd, it retrieves the original file name and path, and asks if you want to merge changes back into the original file. The rules for branding files that are sent from inside Word, Excel or PowerPoint (using File | Send To | Email recipient as attachment) appear to be different. Not sure what's happening there. Trustworthy computing. "Mitigating factors": Anyone who wants to trace an Office document back to the PC that originally sent it must have access to the AdHoc.rcd file on the originating PC. Outlook only keeps track of the last 100 Office files sent as attachments to email messages. "Unmitigating factors": Ask Valerie Mallinson. Bottom line: This is different from the "unique identifier" problem that Richard Smith discovered in Office 97 (see, e.g., http://news.com.com/2100-1001-223200.html?tag=bplst). But there are a lot of chilling similarities. Microsoft promised it wouldn't permit "unique identifiers" into Office files in Office 2000. Why did it relapse in Office XP? And will the problem continue in Office 11?

I think that BenefitsLawyer is right in about 99% of the cases. But if the fact scenario that kowen suggested actually materializes, then I think you may have a HIPAA question. That is because the COBRA service provider would presumably get a copy of the determination by the Social Security Administration that the person is disabled. It seems to me that is the exact type of information that HIPAA was trying to privacy of. However, I will freely admit that I am a relative novice in the nuances of the Privacy Rule promulgated under HIPAA, so I solicit the views of more knowledgeable persons.

KarinB: I've never seen any authority that says that the employer can't have access to that information. On the other hand, I've never seen anything that says that the employer can have right to it. Thus, it would depend on what the administrative services agreement provides. However, if any of that information would indicate which claims are attributable to specific individuals, you need to get legal counsel to advise both the plan and the employer on the HIPAA implications of compiling and transmiting that information.

EAKarno: Do you have a cite to any IRS ruling, court case, etc. that supports your position?

I haven't worked through one of those, but I've been told that they can be some very nasty tax consequences imposed upon such a conversion at least in some circumstances. My recollection is that these taxes have nothing to do with the fact that the company has an ESOP. My recommendation is that you retain competent tax counsel to advise you on this matter.

QDROphile: Isn't there a Section 411(d)(6) issue if you restrict distributions to terminated participants (who are otherwise entitled to receive an immediate distribution) as a result of the plan termination? It would seem that the plan would have to be amended if you intend to preclude making any new loans while the determination letter is pending. (Although this does not give rise to any Section 411(d)(6) issues.)

I had assumed that the plan wouldn't invest in the contract until the participant vested. Thus, there would necessarily be some decrement, due to commissions, premium taxes, etc. While it is true that tax-qualified retirement plans are required to set forth the actuarial assumptions, that does not apply to nonqualified plans. Of course, you could always ask the plan's actuary for those numbers. However, you would probably need to ask ask for a copy of the mortality table that they used. (I don't know how readily available all of them are.) While it probably could be done by a non-actuary, I don't imagine that it would cost that much to have the actuary do the computations for one individual. I'd rather not be personally on the hook, just to save a few dollars.

Mbozek: If you use the cash surrender value, won't that always be less than the premium paid? So if the premium payments was $100,000, but the cash surrender value is $95,000, are you saying that the participant is only taxed on $95,000? (Of course, that assumes that the annuity contract can be cashed in.) Your approach of using the value of the account balance presupposes that this is a defined contribution plan. Nothing in the original posting indicated that, although that is generally a safe assumption. How would you determne the taxable amount if it were a defined benefit plan with the benefits to be paid directly from the plan? (Admittedly, that wold be an poor designed plan.)

mbozek: How would you propose to determine the value of the annuity that the person is entitled to receive upon vesting without an actuary? Would you simply use the amount of the premium payment?

For what year?

jaemmons: An ESPP is not a tax-qualfied retirement plan; it is an employee stock purchase plan under Section 423. Thus, the rules about dividend deductibility do not apply here. bwhitaker: Off the top of my head, whether the employer contributions are made to the ESPP or to the 401(k) plan shouldn't affect the employer's taxes one way or the other. However, making matching contributions to an ESPP raises several tax and securities issues. You need to retain counsel to advise you on both of those matters.

I believe that those terms (as well as many other related terms) are formally defined in the (revised) Revenue Procedure that the IRS issues at the start of the each year explaining how to get determination letters on tax-qualified retirement plans.

I've worked on many plans filing Form 11-Ks over the years, and nobody has ever voiced a desire for the plan audit to be done by the same firm that does the corporate audit. I don't see any compelling reason to use the same firm. However, the smaller accounting firms may not be as familiar with the Form 11-K, because they may not work with as many plans that need to file a Form 11-K. On the other hand, I don't see this (experience issue) as being something that should be determinative in deciding which firm to use. My experience is that the mid to large size regional accounting firms tend to see audits of retirement plans as a vehicle to get in the door on larger clients. Thus, they tend to have the same people that do these audits every year. Because of their cumulative experience and the desire to use this as a platform for getting more business, I have a preference for using them. My experience (over more than 20 years) is that the people assigned to do the plan audits for the big four accounting firms are always doing it for the first time. This is so that they can have the experience of having done this. Accordingly, they don't have the same depth of experience as the people in the regional firms that have decided to making auditing plans a permanent part of their practice.

Are they limited to covered calls or do they also permit naked calls?