Company reimbursement of pre-tax employee contributions- Redux (Origin

[card]

The thread originally begun by Garnett in January has been closed. Garnett- were you able to find out any additional information about these arrangements? I've seen similar marketing materials, and they do imply a double dipping if the intent is to reimburse the employee for the insurance premiums they've paid on a pre-tax basis. Are they instead suggesting the employer reimburse for other medical expenses?

thanks.

rob

[GBurns]

What sort of materials and on which plans have you seen? How did you find or get them?

[card]

I've seen the simplified program overview of the Healthcare Incentive Plan written by one of the major consulting groups. Was asked by a client to review.

I noticed in your (GBurns) 4/1 note you suggested this was the most supportable of the three programs you listed. However, the overview is just that- and it is impossible to tell the legal analysis behind their proposal.

The plan is basically a method of saving FICA taxes by reallocating the payment of health insurance premiums to the employee, and offsetting this additional cost by an "incentive payment." It is this incentive payment that is most ambiguous in the materials.

rob

[EGB]

I have also recently been asked by a client to review the Healthcare Incentive Plan. I would appreciate any comments on whether this works.

[GBurns]

I suggest that you make sure that you are getting the authentic HI Plan and not the "bootleg" plan that is coming out of a Chicago TPA. The Plan should not use a TPA unless you are trying to calculate the "give back" of the amount pre-taxed by the employee. That is illegal.

The IRS started a formal investigation into the plans but nothing has yet surfaced. You could get an opinion from Mr. Beker or Mr Zech at the IRS but their opinion is based on very limited knowledge and dated information.

[EGB]

Take a look at PLRs 8918030, 8918043 and 8942062 which are being cited by the HI Plan as support for its program. In particular, the last two PLRs are being cited as support for allowing premiums to be reimbursed (tax-free) to an employee when those premiums were originally paid on a pre-tax basis by the employee under a cafeteria plan. Any thoughts on these PLRs (other than that they only apply to the companies to which they were issued)?

[GBurns]

If these are the main PLRs being used as support you no doubt are looking at the main "bootleg" version. The PLRs that you listed all show the standard Section 125 Plan with a FSA. All are funded by the employee's pre-tax salary reduction plus an allowance or benefit credit from the employer to the FSA.The only difference that is stated by these PLRs is that the FSA amount can be applied to insurance premiums. I think that the only premiums that would be allowed would be for anny supplemental or add-on coverage such as vision, dental or dependent coverage.

None of these PLRs give anything to the employee's paycheck as is shown in the HI Plan illustrations. I do not see where these are applicable or different from most existing 125 Plans.Please note the requirement for claims submission. Is this required in the plan that you are looking at?

[EGB]

Gburns- what is the problem with the "bootleg" plan as opposed to the HI Plan? How are they different? What is the true HI Plan and who is offering it? You mentioned the use of a TPA with the bootleg plan and that it "is illegal" (except in calculating the incentive payment). Can you expand on the illegality of the TPA? Thanks.

[GBurns]

I did not say that the TPA is illegal. I said the giving back of the amount that was deducted on a pre-tax basis was illegal.The difference between the plans is that one gives back the pre-tax deduction and the other does not.The "bootleg" plan is a re-naming of their old MR106 Plan that Mercer, in their Grist Report, said "Beware the MR106 - It makes snake oil look good".The other HI Plan operates in an entirely different manner.Unfortunately both are named the Health Incentive Plan so it will be up to the buyer and their advisors to decide which is which. Check the referrals that are being used (even though these are usually selected Yes men) find out when they got their plan,under what name did they get their plan, what references were in use at that time (as opposed to the current best list), what support material was used (who wrote it and what was cited), what or who convinced them as to the legality etc. Dont forget to ask Mr. Beker at the IRS about the investigation, his opinion, and the promoters.

[card]

In the third note on this thread I said the materials were prepared by a major consulting firm. This is inaccurate. The material was prepared by an insurance agency that goes by a name very similar to a major consulting group.

rob

[GBurns]

What was the outcome ? Did any of you resolve the issues of legality, patent infringement etc ?

[GBurns]

I hated to reopen this thread but I have no other way of getting to card, beth beaube and SLuskin. So I do apologize to all.

card, beth ans SLuskin,

What was the final outcome regarding the plan that you were looking at? Did the promoter provide enough documentation to prove their point? Did any clients take the plan ?

[card]

I'm still trying to figure out how both of your messages above say 150 messages posted...

I never was able to get any additional material. We expressed our serious misgivings about the program as described in the limited material we did have, and actually referred the client to these threads. They decided not to pursue this any further...

Would also be interested in knowing if anyone else has updated info...

card

[Guest Shelton]

card,

I think the last message posted automatically updates all your messages to show the total posted

[Guest Shelton]

Lets check it- mine just said 10 messages before I posted. Lets see what it says now

[card]

shelton-

I guess that makes very good sense... I think I'm running on empty today...

card

[Guest Shelton]

There ya go- now they all say 11, and they will all say 12 after I post this message

Makes sense?

[GBurns]

I have quite a lot of info but I have no way of relaying it to those with no email addresses.

Re the message count, remember its only human to err, how much better can a machine be. Can it count a chad etc.?

[Guest 2ronto]

Att'n GBurns:

Please let us know which are "Bootleg" and which are real.

We have seen the due diligence from one group and everything seems in order.

We want to proceed but are curious as to your knowledge.

Thank-you

Ross

[GBurns]

The amount of material that is available on the “bootleg” version of the Health Incentive Plan (HI Plan) is too extensive to be posted. I have been giving various pieces to some who have contacted me. The pieces vary by the reason that they need the info, prospective user, agent, advisor etc.

The decision as to which is “bootleg” or not will be up to the individual who looks at the facts etc.

I do not know what “due diligence” material you looked at or from whom, but I do suggest that you investigate and verify ALL claims thoroughly.

1. When, how and by whom was the plan developed?

2. When and how did the promoter, legal advisor, agent etc get involved?

3. What is the plan reimbursing or making the payment (the Incentive Allowance) for?

If the claim being made that the tax free payment is not a reimbursement for the expenses of medical care, What is the process for claims submission, claim substantiation and claims adjudication?

Is the claim being made that there does not have to be such claims processes because the pre-tax salary reduction is an expense of medical care as per the wording in Section 213(d)? This is one of the main false claims of the “bootleg” plan. Section 213(d) is in Part VII which is titled “ Addition Itemized Deductions…. “ whereas Sections 105, 106 and 125 are in Part III which is titled “Items Specifically Excluded from Gross Income”. Deductions are taken on a tax return and cannot be pre-taxed. Exclusions are taken pre-tax. The pre-tax deduction cannot be a reimbursable expense. There are many other reasons why the pre tax deduction (reduction) cannot be an employee amount. One is that 105(B) and 106 allows exclusion from the employee’s gross income of the premiums paid and the benefits received, but only if paid by employer contributions. That is why the amount has to be treated as employer contributions. In addition the amount of the salary reduction was never constructively received by the employee and therefore was ans has never been employee money. To treat it as employee money cause a whole new set of problems. I would hate to be taxed on the economic value of the medical treatment etc received.

4. Who is the TPA or Claims Administrator? Are they licensed in your state or any state for that matter?

5. Have you checked with your state DOI regarding any current ongoing investigations involving the promoter or that plan? Currently I am aware of 15 states that are investigating for unlicensed entities and insurance fraud violations. Georgia is not yet one of them.

6. Have you checked with the specialists (not the telephone reps) at the IRS. Mr. Beker or Mr. Zech will speak to legal representatives only regarding their investigation that has led so far to the inclusion of the plan in the Treasury Dept/IRS 2001 Priority Guidance Plan for the issuing of guidance as to why that plan does not work.

7. Have you read the numerous industry newsletters that have addressed that plan and its predecessor the MR106? The May 14, Grist Report by William M. Mercer addressed the plan and the promoter www.theredwoodgroup.com. While these articles have not been very good or accurate they should still serve to warn prospective users to investigate thoroughly ALL claims made by agents and the promoter.

The sales literature etc all outline an Accident and Health Plan/Medical Reimbursement Plan that reimburses the expenses of medical care but in operation the “bootleg” plan has no expenses that are reimbursed. The only thing that is done is a payroll recalculation to reimburse the pre-tax deduction which, for many reasons, is not a reimbursable expense.

There is much more to the issue, but I don’t think that I should take any more space. The point is What you see in the presentation etc is not what you get. Many clients have their legal advisors okay the concept, which is quite legal, but then they never get them to look at what is delivered.

How do I know all this?

I developed the original plan and filed the patent applications. That is why I am the central figure in the investigations by the IRS, the DOL, the FBI, the USPS and some of the state DOI.

[Guest help-others]

I have seen the E & Y Tax Alert regarding section 106 double-dipping, and have been asked to evaluate the specific HI material on which E & Y based their alert, but I haven't been able to find it. If E & Y was able to get a copy, it must be available. Can anyone tell me where I can download it, or if anyone has already downloaded it, can anyone email or fax it to me? Thanks.

T. Sketch, help-others@mailandnews.com, toll-free fax 877-268-8232

[GBurns]

The E&Y Tax Alert and the William M. Mercer Grist Report debunking the Redwood Group, Inc, "version" of the Health Incentive Plan (HI Plan) are now only available from their subscription only sites, However, I do have these and previous articles available.

[card]

The IRS made short work of this (at least the "bootleg" version) this week in Rev. Rul. 2002-3.

"HOLDING

The exclusions from gross income under ß ß 106(a) and 105(B) do not apply to amounts that an employer pays to employees to reimburse the employees for amounts paid by an employer for health insurance coverage that are excluded from gross income under ß 106(a) (including salary reduction amounts pursuant to a cafeteria plan under ß 125 that are applied to pay for such coverage). Accordingly, the reimbursement amounts that the employer pays to the employees are included in the employees' gross income under ß 61 and are subject to employment taxes under ß ß 3401, 3121(a), and 3306(B)."

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