Kirk Maldonado

Blinky: To respond to your first question, I don't see how the use of individual aggregate method would be a reasonable funding method under these circumstances.

Check these out (to see if they are right): Rev. Rul. 56-693, 1956-2 CB 282, as modified by Rev. Rul. 60-323. 1960-2 CB 148.

If a regular consequence of filing under the DFVC program was a follow-up audit, then everybody would stop using it, which would defeat the purpose of establishing the program in the first place. Accordingly, I don't think that there is a legitimate concern about follow-on audits.

It's not bad math if you are the one with the winning ticket! But if people actually computed the odds against winning the lottery, few would buy them.

dcoderre: This is not an issue affecting the tax-qualified status of the plan. The fact that the IRS approved a plan document containing that language is irrelevant. My belief is that if the DOL had a strong argument against it, they would rule against it. Because they don't, that is evidence that they don't like it, but don't have the requisite authority to prohibit that practice.

I think that taking the position that the exclusion applies to the beneficiary is a very aggressive position. If the people thought that the IRS would approve such an arrangement, they would have gotten a private letter ruling on this point, instead of an opinion letter from a law firm.

COBRA is generally, but not universally, cheaper. I've had clients with horrific claims experience where the COBRA costs were higher than individual coverage.

I think that there are fiduciary issue implicated here, so that seeking DOL guidance would be appropriate. However, there are also plan qualification issues here. I generally agree with the analysis stated by rcline46.

QDROPhile is right; you need competent counsel to advise you. There are a number of different interpretations given by competent attorneys. You need somebody with experience to explain the different approaches, their advantages and disadvantages, etc.

My clients are opting for negative elections rather than safe harbor contributions.

I think you have a potential fiduciary issue here. You need to know why the person (technically) defaulted before you renegotiate the loan. If it appears that the person will not be able to make the new loan payments, it doesn't seem to make sense for the fiduciary to enter into the agreement.

Look at ERISA Section 407.

Julie: My understanding is that the DOL has stated that an EAP that consists of solely of referral services is not subject to ERISA. On the other hand, the DOL apparently ruled that providing counseling for health related problems under the EAP caused it to be subject to ERISA.

KJohnson: You bring up a very valid point; literally, Section 408(e) would not apply (because the stock would not be "employer stock"). Curiously enough, I think that means that you get to the same conclusion. Namely, you don't need an exemption because there isn't an prohibited transaction. This assumes, of course, that the stock is being purchased in "blind transactions" (i.e., where neither the buyer nor the seller know the identity of the other party) in the open market. Stated in a different fashion, if the shares were purchased directly from the bank, you might have a prohibited transaction.

KJohnson: As for the location of the exemption from the prohibited transaction rules, look at ERISA Section 408(e).

Isn't there an exemption that would apply even here, provided certain conditions are met?

KJohnson: What would be the rationale supporting a conclusion that there is a prohibited transaction?

I think that you have a serious Section 411(a)(11) issue.

Look at IRS Publication 502.

Here is the language from the regulation: A profit-sharing plan within the meaning of section 401 is primarily a plan of deferred compensation, but the amounts allocated to the account of a participant may be used to provide for him or his family incidental life or accident or health insurance.

Kristen: Every ESPP that I've seen provides that the participant contributions become the assets of the corporation, and that the corporation is free to use those assets in whatever means it desires. That means, if the company goes bankrupt (before the stock is purchased), then participants lose all of their contributions. I recommend you revise the plan to use similar language.

My guess is that the test is that no fees, etc. are imposed by the plan (on the participant).

Kristen: I worked on many ESPPs and never seen language like that. Nor can I understand why anybody would draft language like that. Also, ESPPs should not funded. But, because they aren't subject to ERISA, the issue of "funded v. unfunded" isn't of major importance.

Scuba 401: Wouldn't allocating a contribution using a formula that is not set forth in the plan be a separate violation of the qualification requirements? (Failing to operate a plan in accordance with its terms?)

Thompson Publishing has a treatise called "Coordination of Benefits Handbook." It costs $349 per year. Their number is (800) 424-2959. By way of clarification, I have no relationship with Thompson. I just happen to have received a catalog in the mail from them yesterday. By the way, you have my sympathies. I've done some Coordination of Benefits work over the years, and it is pretty technical stuff.