Kirk Maldonado

I agree with RLL that you can have both types of plans in a single document. However, you need to scrutinize the plan document carefully to make sure that it makes this point abundantly clear. (Many plans do not.)

Try Tax Management Portfolio #395 - VEBAs and other Self-Insured Arrangements.

I wholeheartedly agree with Harry O. In fact, there is a low of disagreeement among tax and benefits attorneys on what works and what doesn't work in this arcane area.

There are several surveys that show that negative enrollment really works. Check prior message threads for leads. I think that one of them was done by the Profit Sharing Council or an organizations with a similar name.

Harry O: I think it was your statement "The problem is (or maybe *was* since I have not looked at this issue in a few years) that the section 415 definition of compensation only includes income includible in U.S. gross income." Because the thread was originally about US employees transferred abroad, I interpreted that statement as meaning that even US employees transferred abroad couldn't participate (because of the Section 415 limitations). It is true that the next sentence in your message referred to nonresident aliens, but I didn't interpret it as limiting your prior sentence on Section 415; I thought it was merely being illustrative. However, after rereading it, I can see that the sentence I quoted above may have been taken out of context.

Harry O: My rejoinder is the same as PJK; I was focusing upon US employees that are transferred abroad, not nonresident alients. I have no trouble with the conclusion that nonresident aliens with no US source income can't participate. My question to you remains where in the Section 415 regulations does it state that a US citizen (not a nonresident alien) who is transferred abroad cannot continue to participate in a tax-qualified retirement plan?

Harry O: I just read Reg. Section 1.415-2(d) (defining compensation) and I couldn't find anything that supports your position. Could you give us a citation?

Harry O: Do you have a citation for the authority that Section 415 compensation is limited to US-sourced income? I just read 1.415-2(2) (defining compensation), and I didn't see anything there that supports that position.

R. Butler: You might want to read Example 6 of DOL Reg. Section 2550.408b-2(f).

The simple answer is that the person exercising the stock option must recognize income, whether or not the corporation takes the deduction.

I have a client that wants to have its SPD translated into Spanish. Does anyone have a company that they could recommend for this purpose? Ideally, the translator would be located in southern California. P.S. I checked the prior message threads on this topic, and did not find any useful leads.

IRC401: I will be the first to admit that I'm not much of an expert on these matters. Nevertheless, I have had a number of clients over the years whose plans have invested in bank common trust funds. In fact, I seem to recall that an equity fund that Wells Fargo Bank sponsored for qualified plans was one of the biggest funds in the world (at one point in time). However, these bank-sponsored funds have lost their popularity as mutual funds became more popular. That is sad, because the fees charged on the common trust funds are only a small portion of the fees charged by mutual funds. (The difference, I've been told, is principally because the common trust funds aren't registered with the SEC, like mutual funds, and the bank common trust funds don't pay 12b-1 fees, which function somewhat like commissions.) If someone else has a more informed opinion on this point, I'd love to hear it.

Before you buy such a policy, you should read IRS Announcement 88-51 and Notice 89-25, Q&A #10.

Kim C: Why would the bank be precluded from keeping any 12b-1 fees?

Lisa: What do you think about changing the plan year as an alternative approach?

See ERISA Section 209.

What does the Section 401(k) plan say?

Beth: I think you got sidetracked somewhat in your reasoning. Specifically, the question is one of plan design issues; not whether state law or federal law determines whether a party is married or not. I believe that the state laws limiting plan design issues (e.g., mandating that all common law spouses be treated like regular spouses) are preempted by ERISA. ERISA does not preempt state insurance laws, so that fully insured plans have to comply with state laws. Conversely, self-funded plans are exempt from state insurance laws.[Edited by Kirk Maldonado on 08-02-2000 at 05:40 PM]

Beth: My position is that state law on this topic is preempted by ERISA. Thus, self-funded plans can be designed without regard to the state law.

I think that all of the above replies are non-responsive. The question is whether the plan can be drafted in a fashion so as to refuse to provide benefits to a common law spouse. The question is not whether a common law spouse is a valid spouse under state law. I'm not aware of any reason why the plan could not be drafted in that fashion. I think that the plan can define the eligibility conditions in whatever fashion it wants, as long as it does not violate any specific prohibition on discrimination. None of the above responses cited any law that says that a plan cannot discriminate against common law spouses. If somebody is aware of any such rule, I'd be very appreciative if they could bring it to our attention. (I'm not saying that there are no such laws; I'm just not aware of the existence of any.)

What does the plan say?

I think that PJK is right on this one. It isn't a question as to whether the investment in company stock is a protected benefit under Section 411(d)(6); it is whether there is a significant detriment imposed upon individuals who elect not to receive a current distribution following termination of employment, in violation of Treas. Reg. Section 1.411(a)-11|©(2). I seem to recall that this specific question was posed to the IRS by the ABA several years ago, and the unequivocal response that the ABA received was that such mandatory "disinvestment" is prohibited by Section 411(a)(11). While there may be practitioners who are willing to challenge this position of the IRS, I think that we are on notice to expect a fight from the IRS on this point.

My experience has been the same as Fred's. In other words, if you file before the IRS catches you, they will accept (virtually) anything as reasonable cause for not having filed it on time.

You might want to start by reading Code Section 414(m) and the regulations. That's always a good place to start.

How did you talk the insurance company into accepting such an arrangement? Was there full disclosure of all the facts? I cannot conceive of an insurance company consenting to such an adverse selection arrangement if they knew all the facts. Without full disclosure, I think that your client is at serious risk of the insurance company cancelling the policy. The insurance company might even try to do that retroactively, after refunding all premium payments (on the theory that there was a material misrepresentation).