Kirk Maldonado

In an article in the current edition of the BNA Securities Laws Reporter, free-riding is described as "the practice of purchasing securities without intending to pay for them and using the proceeds of the sale of stock to pay for the purchase." That article describes an individual that was indicted for engaging in free-riding (because it constitutes securities fraud). Fidu: do you think that such conduct would be consistent with ERISA?

I started in 1978 and I've lost track of how many times they've changed the rules.

Tom: I'm pretty sure that it is "de minimis" not "de minimus."

I think that Katherine was right. Here is 1.410(B)-4(B): A classification is established by the employer in accordance with this paragraph (B) if and only if, based on all the facts and circumstances, the classification is reasonable and is established under objective business criteria that identify the category of employees who benefit under the plan. Reasonable classifications generally include specified job categories, nature of compensation (i.e., salaried or hourly), geographic location, and similar bona fide business criteria. An enumeration of employees by name or other specific criteria having substantially the same effect as an enumeration by name is not considered a reasonable classification.

I disagree. The regs are extremely explicit that premiums may not be paid through an FSA, although you could pay those amounts through the premium conversion portion of a cafeteria plan.

A senior DOL official told me on a phone call that they don't make individual exceptions; your choice is DFVC or a fight with the DOL (which you will probably lose). My advice is to cut your losses and take the DFVC.

MWeddell: Why won't the plan satisfy Section 401(a)(4)? Everybody gets the same percentage of pay for each payroll period. Are you saying that Section 401(a)(4) has to be applied on a plan year basis?

Papogi: What premiums can be paid through a health care FSA? I thought that the regs disallowed the payment of any premiums under a health care FSA.

I don't think that they have a "reasonable cause" position; your only choice is the DFVC or fight it out.

AndyH: In your opinion, do those rules significantly enhance the attractiveness of target benefit plans. They were popular many (15 or 20) years ago, but I've not heard of any in many years.

MGB: It's been quite a while since I worked on any coordination of benefits issues, but I thought that those rules don't apply to individual policies. Is my memory faulty?

YOu might want to look at TAM 9635002, November 9, 1995 and PLR 19940043.

No.

Hire competent ERISA counsel. Proceeding without one is absolute insanity.

The contribution of company stock in satisfaction of an obligation to make matching contributions need not be reported. However, the amount of that stock must be included in the person's stockholdings in the subsequent Section 16 reports that the person does file.

I don't think that filing the Form 5500, etc. necessarily involves a fiduciary function.

"Plan Administrator" (as that term is used in ERISA) does not mean the party that administers the plan. That is the "Named Fiduciary." The Plan Administrator is the party that is responsible for satisfyihg the reporting and disclosure obligations. In my documents, I designate the corporation as the "Plan Administrator," but the committee is the Named Fiduciary.

Look at PLR 199942012 (July 20, 1999) for a creative solution to this problem.

I think that would be a prohibited transaction.

I agree with QDROPhile, except that "Plan Administrator" is defined in ERISA as basically the person responsible for satisfying the reporting and disclosure obligations. Because of the significant penalties involved in failing to satisfy the reporting and disclosure rules, I think that those should be borne by the corporation.

Had you considered terminating the existing plan year and starting a new one. (There are complications to this approach.)

Your last comment wasn't specifically limited to the particular facts at hand; I thought it was overbroad.

Given the tax savings involved, it may make sense to set them up for the rank and file employees, if you have some of them. Just because the owners can't participate doesn't mean you should not have one. Remember it saves taxes for the employer as well as the employees.

Jpod: I've worked this through and subsidizing more of the premiums for highly compensated employees does not pose a problem under Section 125.

Q1. I've never heard of such an arrangement, even though I've worked in the area of benefits for almost 25 years. Thus, I doubt that there is any definitive guidance on this point. That being said, I think that it would work because it is virtually the same as electing to receive deferred compensation benefits where termination of employment is not required. However, I'd be interested in hearing the views of others. Q2. You wouldn't want the person to be able to elect to receive the payments in the same calendar year in which the person gives the termination notice, or you would violate the constructive receipt rules.