Kirk Maldonado

Bill Mahoney: What is the authority for your assertion that you cannot rollover money from one type of plan to another?

You might want to look at DOL Ad Op 77-66, DOL Ad Op 78-29, and Packer Engineering v. Kratville, 965 F.2d 174 (7th Cir. 1992).

I would like to add a bit of additional clarification to Carol's response. I agree that if the plan pays for the expense, there is no attorney-client privilege. However, that does not mean that if the employer pays the expense, then the attorney-client privilege is available. It only applies in very limited circumstances. To be on the safe side, it is a good practice to assume that nothing is protected by the privilege. (I realize that this assertion involves a degree of overstatement, but not that much.)

Unfortunately, I had to deal with that exact same situation before, and there are no good (i.e., practical) answers that comply with the law. Fortunately, I lost the client, so we never resolved exactly what to do with the money. My condolences to you.

I have seen some situations where the amount of fees taken out by the service providers was unconscionable. In one case, involving a plan with approximately $50,000,000 in assets, the annual fees exceeded 4% of the total assets of the plan. Unbelievably, in this case the client wouldn't listen to my ERISA concerns about the excessive nature of the fees because his attitude was, since the employer wasn't writing a check for the amount of the fees, there were no fees. It may also have something to do with the fact that the person gaining the benefit from those fees was a personal friend of his.

I think that people are going astray because they are thinking of the persons who are receiving the coverage are non-employees. I think that they are more appropriately characterized as former employees. That changes the analysis (and result) dramatically.

Are there any income in respect of a decedent issues present here?

Christine: Have you checked thought about changing the plan year? That technique can be used to solve a lot of problems with a cafeteria plan.

WWorden: My recollection is that those regulations predate the enactment of ERISA (in 1974). If Congress believed that those regulations were overbroad an oppressive, they had plenty of opportunities to legislatively nullify them in the past quarter of a century. Obviously, rightly or wrongly, a lot of people on Capitol Hill disagree with your position.

rcline46: I agree with you on points 1 through three. But what is your authority for point #4, which is ""The remaining money after distribution of the PS-58 costs must be paid in an eligible rollover distribution?"

I seem to recall that the recently issued loan regulations take that same position; that the amount of a defaulted loan is taken into account in determining the maximum amount that a participant can borrow (in the form of a new loan).

I have a question for 33fan. Do those regulations apply to TPAs or just to employers?

BNA Tax Management Portfolio #397 also has an excellent, in-depth discussion of cafeteria plans. I have the EBIA book, but I much prefer the portfolio.

Lisa: Would your recommendation change if the person handling the cafeteria plan were an employee of the plan sponsor instead of a third party administrator?

In my opinion, for there to be a prohibited transaction, the plan must be involved. If the employer or plan service provider pays for the trinkets (with its own funds), that shouldn't be a PT as long as the gratuity is not purchased with plan assets. Are there any contrary opinions out there?

I seem to recall that there was an article on that topic about 10 years ago. If my memory is right, it was published by CCH in connection with their Pension Plan Guide. However, it has been so long, that I'm not certain of that.

Make sure that you have competent counsel advise you on the securities laws consequences of adding that investment option.

I wrote one a number of years ago. It was entitled "Using Multiple Plans to Ease Nondiscrimination Rules of Medical Expense Reimbursement Plans," 30 Taxation for Accountants 198 (1983), reprinted in 11 Taxation for Lawyers 360 (1983).

Have you verified that there aren't any prohibited transaction issues with this arrangement?

If it wasn't for that complexity, a lot of us wouldn't have jobs.

Have you considered simply reading the statute and regulations yourself? That would be the cheapest.

Kip: The newborn must be a child of the employee (not a grandchild of the employee). IRC § 4980B(g)(1)(A)).

I disagree with the following statement by John Koresko: Interestingly, IRS uses the term VEBA in the generic sense to describe taxable welfare plans. See, Notice 95-34. Set forth below is the actual wording from Notice 95-34: Finally, in response to questions raised by taxpayers and their representatives, we note that the Service has never issued a letter ruling approving the deductibility of contributions to a welfare benefit fund under section 419A(f)(6). Although a trust used to provide benefits under an arrangement of the type discussed in this Notice may have received a determination letter stating that the trust is exempt under section 501©(9), a letter of this type does not address the tax deductibility of contributions to such a trust. I don't think that the IRS is guilty of mischaracterization alleged by John Koresko. The IRS just said that some of these trusts may be VEBAs. I don't see how anybody could attack that statement by the IRS.

The affiliated service group rules are in Code Section 414(m).

Have you tried reading Code Section 125 and the regulations? That's always a good place to start.