Larry M

you have created a difficult scenario. It is somewhat similar to that which is faced by those who convert to cash balance plans - without modification, the employer dollars are skewed toward the younger employees and, usually, those with fewer years of service. You have to decide whether you want to add some sweetener to mollify the older employees (with either additional cost to employer - or reallocation of some of the profit sharing/401(k) money to the older (through, a profit sharing allocation which gives a higher percentage to older, longer service employees) or face the wrath of the senior employees. It's your money - your employees - your decision.

What does you rplan document say about late enrollments? It will control the issue. Does it allow late enrollments without satisfactory evidence of insurability?

OOPs! [sometimes I shoot the gun before taking it out of the holster and end up shooting myself in the foot.] Yes, subject, of course, to passing 410(B) and 401(a)(4), you can amend theplan prior to the year end if employment at year end is a requirement.

Your question is a puzzling one - as is your use of data. Group term life is a benefit which the employer provides to replace a portion of the income which the family loses when the employee dies. Its price follows the risk - as the probability of an employee dying decreases, so does the premium. For each of us, this is an event which will happen. the employer is insuring against it happening while the employee is working. Your claim that Group Universal Life costs only 10% more than group term is a rather ingenuous statement. By its nature, group universal life can cost almost anything in excess of the term death benefit. The additional cost going into higher insurance company administrative and marketing costs, added cash values and the like. A better question is "why should an employer spend money to have an accumulated cash value in a group plan when the extra money can be put to better use?" - perhaps a qualified retirement plan, a disability income benefit, to help pay for the increase in medical costs, to replace a piece of equipment, to increase salaries, etc.

the advantage of a safe harbor plan is in the eye of the beholder. By promising, well in advance of the start of the plan year, to make a significant contribution on behalf of all those employees who defer a portion of their salaries, the plan sponsor avoids having to make some tests and avoids the problems involved with returning the deferrals of certain highly compensated employees in those cases where the hce's have contributed, on average, more than the law allows. On the other hand, the plan sponsor must make this decision months before it knows whether it will be able to afford this matching contribution. Further, it changes the match from one which can have a slow vesting schedule to one which is non-forfeitable. From the employees view, it may be good - the match is known in advance; the match is non-forfeitable. ..and it may be bad - some sponsors provide matching contributions in excess of those permitted by the safe harbor and some long term employees enjoy the additions to their accounts which come from the forfeitures of departing employees.

The short answers to your questions are for 1 -yes for 2 - yes for 3 - not really, but that may be the result. A somewhat cynical answer would be along the lines of Generally the code sections are driven by two Congressional purposes which are in conflict with a basic Congressional purpose. On one side we have the desire to prevent the employer from unfairly discriminating in favor of himself and other execs. Added to this is the desire to prevent the employers from avoiding the payment of taxes by putting too much money into the plan. [Forget the Biblical suggestion of saving in years of plenty in order to have food for the years of drought.] On the other side of the coin, is the basic purpose to encourage employers to institute retirement plans which will provide the savings of money for retirement to supplement social security, private savings and public assistance. But, whenever Congress encourages anything, it does so with "guidance' as to which kinds of things are "good" and which are "bad". The definitions vary from year to year, dependent upon which presentors of anecdotal experience can guarantee the most media coverage and political hay or can contribute the most toward campaigns and other luxuries. Congress also uses the law to help it justify its annual dance of the balancing budgets. So, section 401 lists many of the basic rules which must be followed and under which the game must be played - if the plan is to provide a tax deduction for the employer (or employee) and the investment income is to be non-taxable while it remains in the plan. Section 415 places rather arbitrary limits on the amounts toward which people can budget (through the qualified plan) or which they can allocate in any year. It might be helpful to review the history of pension plan legislation. You will see how each of the sections grew from relatively short sentences or phrases into extremely complex and convoluted language which require all sorts of explanatory material to follow (regulations, private letter ruling, technical advice memorandums, court decisions, etc.). If it is available to you, review the series of Pension Plan Guides which were published by CCH back in the 70s and early 80s following the passage of ERISA. Many of them were written by Isidore Goodman, former chief, Pension Trust, IRS, and explained the logic behind the various sections. He relates the background, gives the early history and explains the changes.

what do the plans say with respect to forfeitures and excess contributions? How does the money purchase plan handle forfeitures? - an addition to contribution or a reduction? How does it handle contributions in excess of 415 limits? - suspense? return to employer? pay to tpa as aggravation expense ?

[ignore the following - I am in error:] If the plan says anyone who is employed at the end of the year and who has had 1000 hours of service during the year is entitled to an allocation based upon the integrated formula in effect (when he/she reached the 1000 hours), then those people currently employed who remain to the end of the year are entitled to that allocation IF a contribution is made. So, it appears as if you may be too late (assuming a calendar year plan) to change the allocation formula within this plan. [This message has been edited by Larry M (edited 06-09-99).]

Your question is not an easy one to answer by memo. A retirement plan is a long term investment which should be designed properly at the beginning. Because it will accumulate a large amount of assets in a relatively short period of time, you need to be sure you have designed one which best fits your current needs and your ability to pay. Bear in mind, as your needs change, as Congress changes the laws concerning these plans and as the economy changes, you will want to and need to change the plan. There are many web sites, books and other such resources available to give you some of the basic information. They will tell you of the types of plans and some of the advantages and disadvantages of each. BUT - You need and should have information which is pertinent to your firm, your needs and your abiility to pay. [i would not build a home without the help of a good architect and good contractor - both of whom should know what I want in the house and how I will be living in it. A Frank Lloyd Wright house may be an architectural delight, but its ceilings are too low for my comfort. So, too, with a retirement plan. There are all sorts of plans around which are perfect for someone. But this is the one which must fit you.] Therefore, I urge you to meet with a group of people who can help you decide. The group should include persons who are aware of your and your firm's needs and financial status and who have a knowledge of retirement plan laws (ERISA, for short). The ones who should be there are your accountant, the firm's tax attorney (and, if he is not conversant with ERISA, an ERISA attorney) and a consulting actuary. At this meeting, which should take about one hour, tell them what YOU want and you should be able to get an idea as to which types of programs best fit your firm (and, at the same time, you may also get a feeling as to whether you can work comfortably with the new people). Once that is determined, get specific proposals for the one or two plans which seem to fit best. Review the proposals, discuss them with the advisors, make the changes you feel are best for you and choose the plan options which most closely fit all your needs, ability to pay and comfort zone. Bear in mind, although this is a long term investment, things do change. Make sure you can change the plan without too much penalty or heartache. Fortunately, you are in an area where there are a large number of good, knowledgable advisors available who are close to you. If you want some names, send an email to me and I shall respond. good luck - and welcome to our world.

IF the group is large enough, AND IF the employer is willing to allow the costs of the retiree medical to be experience rated with the rest of the group, then many insurance companies will allow the employer to extend coverage to retirees on an employee pay all basis. But those are two very big "IF"s. The current alternative is to have the retiree elect to take a COBRA extension (paying 102% of the premium) but this is limited to no more than 18 months if employment terminated.

It depends. If your current plan provides an allocation for those who have at least 500 hours or 1000 hours of service during the plan year, you will have to amend the plan for class allocations prior to the expiration of the 500 or 1000 hours. Otherwise, the allocation will be on the old basis. If you have passed the hour deadline and still want to have a cross tested plan, adopt a new plan with the class allocation before the year end. Do not terminate the old plan (uless you do not mind 100% vesting. Instead, merge the old plan into the new one early next year.

consider, instead, amending plan to allow in service distributions - much simpler than the process required for hardship withdrawals.

[as pax says, this should be on the health insurance message boards; but, as long as you are here...] try getting individual coverage from one of the Blue shield/Blue Cross companies in your area - or look into individual coverage from an health maintenance organization. The coverage you receive as an individual will be less generous than those of most group plans and will cost much more. [this answer assumes you are not eligible for COBRA coverage. If you are, get thee QUCIKLY to your ex-employer and ask, in writing for COBRA coverage which continues the group coverage at a cost equal to 2% more than the employer's and employee's combined cost]

[i am not an attorney] It is my understanding that a plan will generally recognize under COB, and pay for, only those benefits which are covered by the plan itself. So, for example, if your husband's plan does not cover prescriptions and your plan does, his plan does not have to pickup the excess over what your plan pays. On the other hand, if there are other medical expenses involved and there are unpaid expenses after your plan has paid its portion, then your husband's plan should pay the excess - but no more than what it would have paid w/o COB.

As Keith points out, the definition of disability and the resultant benefits are the end products of what the plan sponsor intends to provide. For tax free distributions, the language must follow certain rigorous regns. For taxable distributions it can be as loose as "can't perform one or more of his or her ordinary functions" or as tight as "..loss of limbs and organs with death imminent". Do you want to provide the normal accrued db benefit? Can benefits start immediately? Is the disability benefit greater than or less than the accrued normal db benefit? Does disability just trigger a continuation of particpation? Therefore, you must decide what you want and then use language which is appropriate.

to nac: my experience has been that employees generally can determine which benefit is worth more - the opt out cash or the reimbursement of medical benefits. If that were to hold true for your plan, then, if those who had opted out had, instead, stayed in your plan, the average cost would have gone down and the total outlay would have stayed the same or gone down. The 1,100 persons who opted out would very likely have incurred medical expenses of less than $300 per year on average. I wonder if you have tracked those who opt out one year and opt in another - do they end up incurring large medical expenses for, say, pregnancy when they return to the medical plan? [This message has been edited by Larry M (edited 05-27-99).]

Seems to me you can do it any way you wish, including: Forfeitures can be added to contributions by class; forfeitures can be allocated, in additon to the employer contribution under a different class formula *VERY complex - but good income for tpa ; forfeitures can be allocated among all particpants in proportion to their salaries;

Just to clarify one of Brigid's comments: If an employer who has at least 15 employees has a plan which covers medical expenses, then that plan must consider pregnancy as if it were an illness and provide the same benefits as any illness. Note, there are some states which elaborate on the mandate.

James, Thank you for the response. Now the "tough" question - what are the cost increases if mental health benefits are required to have the same copays, reimbursements, limitations, etc. as other illnesses? [one jurisdiction has mandated this extremely broad benefit.)

What has been your experience with respect to your group medical costs as a result of the mandated mental haealth parity?

There are all sorts of sources and articles. A few are: EBRI [employee benefit research institute), HCFA (for medicare and medicaid), NIHS, HHS, the Society of Actuaries' reports, HIAA (Health Insurance Association of America), an annual govt publication called "Statistical Data - 19XX", Spencer's Reports and many others. If you could identify the types of costs, I might be able to direct you to specific publications

There may still be some companies who have tried to combine the "normal" non-occupational health care coverages with workers compensation in one package. Usually the arrangement looks seamless to the buyeer but is actually two separate carriers - one licensed for workers comp and the other for A&H. To the best of my knowledge, these have not worked as well as the sales people thought they would.

Kerry, How do you define "the plan's most conservative investment"? How is it defined? Is it cash? government bonds? money market? Since one of the problems with employees' long range investing is their purchase of low yielding items, why not start by placing the money in the equivalent of an index fund (Assuming one is available)? Or, more conservatively, a large cap fund?

Now I am surely confussed. I thought the attribution rules of section 318 apply to 1% owners as well. If so, the spouse of a 1% owner is considered top heavy as well.

Lorraine, Towers Perrin has answered your question. It has published an article, on line, which discusses cash balance plans and some of their variants. Go to http://www.towers.com/cgi-bin/towers.cgi?F...___htcocbp.html or check out benefitslink's what's new site for the easier link.