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Letter of Determination
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JOHN KORESKO and Other Vebas,419
plan section 79 and Captive Insurance
                                                         A VEBA Plan LLC site

National Office
Cell: 516-236-8440
Managing  Director
Lance Wallach

Member of the  AICPA faculty of
teaching  professionals. AICPA author,
instructor & national speaker National
Society of Accountants.Speaker of the
Year. Writes financial  articles for over
50 national publications.
As an Expert Witness Lance Wallach
Has Never Lost A Case!
Could We Have This Debate Before It Is Too Late?
July 10    
Call (516) 938-5007

Is the use of fully insured group health insurance products as stop-loss coverage for group health plans going
to remain a viable solution?
The obvious question that follows is: Are State Departments of Insurance Compelled by the Affordable Care Act
(ACA) To Limit Fully Insured Health Products to Minimum Essential Benefits?

Short answer is a resounding No. This is an intriguing question which is being hashed out across our land
and I am sad to say that most DOIs are getting it wrong. Section 1301, Paragraph (b), 1, A, the ACA is very clear
in its definition of a health plan:

1) Health Plans—

(A) In General.—the term ‘‘health plan’’ means health insurance coverage and a group health plan.

Did that come through? “And a group health plan”.

One of the things that came out of the ACA, which I only hear complaining about, is the Medical Loss Ratio
(MLR) mandate; 80% of small group (99 and under) and 85% of large group premium dollars must go to fund
patient care. This puts fully insured products in the strange position of being underpriced as a stop-loss

Fully insured as a stop-loss is underpriced for a couple reasons.

1. Traditional stop-loss runs at a Medical Loss Ratio somewhere around 60%. The difference of 20% - 25%
should jump off the page when you think about this.

2. The risk. Specific deductibles of $20K - $50K or more turn into standard deductibles of $5 - $25K. The
biggest thing about this is that we are working with “standard” deductibles which limit deductible count to one
or two per family and I am not speaking of aggregate v. embedded, I am truly speaking of one or two
deductibles per family.

Just when this is dawning on the market and employers are finding ways to offer truly affordable benefits to
their people, some state departments of insurance have disallowed High Deductible Health Plan (HDHPs)
from existing legally in their state. Instead they might consider requiring health plans to comply with the ACA
and keep offerings as diverse as possible to allow the market to function and keep prices down.

Let’s do a quick mental exercise to illustrate my point. Track with me on premium costs for a moment:
Premiums rise exponentially as deductibles go down. If the desired effects are lower costs, then it makes
sense to raise my deductible… But what if I raise only MY deductible and leave my employees with the same
rich benefits that are currently in place? This lowers costs while staying within the bounds of the ACA because I
am doing it all under a “group health plan.” Add to this logic some actuarial data: If 25%-35% of premium costs
are associated with Rx copays and 20%-30% of premium costs are attributable to office visit copays, then I can
lower premium costs by 45%-65% merely by removing them from the insurance and putting them back in as a
“plan” item. My employee enjoys the same benefit and I get to keep what is not spent. This is as much of a win-
win as the market has seen for some time.

This powerful strategy brought to the market by companies like Benefit Plus Plan works and will be much more
difficult to implement when HDHPs are taken away.

This brings us back to the point of this article; the question: is the use of fully insured group health insurance
products as stop-loss coverage for group health plans going to remain a viable solution?

Could we have a debate on this before it is too late?

ABOUT THE AUTHOR: Lance Wallach - Michael J. Meyer
Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of
teaching professionals, is a frequent speaker on retirement plans, abusive tax shelters, financial, international
tax, and estate planning.

Lance Wallach, CLU, CHFC
US health insurance trusts
Published: July 1,  15:05 | Last updated:

As their finances deteriorated, Detroit’s automakers earned the moniker “HMOs on wheels” for crippling
employee healthcare liabilities (Health Maintenance Organisations are a type of insurer). This was worrisome
not only for the companies but also some 850,000 active and retired beneficiaries who feared, with justification,
that carmakers might one day go bust and shed these liabilities. That spurred the United Auto Workers union to
agree in 2007 to Voluntary Employee Beneficiary Associations (VEBA) to absorb these liabilities. When the trusts
were originally negotiated, the carmakers pledged cash contributions of nearly $60bn, somewhat less than their
actual healthcare liabilities. As the crisis hit, they supplanted promised payments with their own equity and debt.

The UAW had little choice, but this partly defeated the purpose of creating the trusts. Not surprisingly, the trusts
have tried to diversify quickly, most recently accepting around $4bn in cash from Ford, a slight discount for notes
receivable, after redeeming stock warrants for $1.8bn earlier this year. General Motors retirees’ healthcare is
backed by $13bn in cash plus $9bn in GM liabilities and up to a fifth of the automakers’ equity. That could fetch
an additional $10bn once a public market exists. Chrysler’s employees are most exposed with only $2bn in
cash plus $4.6bn in notes and up to 68 per cent of illiquid shares in Detroit’s weakest carmaker. Independent
accountant Lance Wallach reckons these assets can never cover an estimated 80 years of full benefits.

But, by shedding exposure to Detroit and giving themselves the option of trimming benefits to conserve assets,
UAW trustees are effectively creating a less-risky defined contribution plan. Beneficiaries may squeal, but
something is better than nothing. America’s car industry might have fared better if only unions had let carmakers
manage their liabilities with similar flexibility.


Lance Wallach

A Pennsylvania federal judge on Wednesday accepted a U.S. Department of Labor-endorsed method of
distributing the assets of employee retirement trusts in a long-running suit against a disbarred Philadelphia
attorney accused of diverting $34 million from 400 plans nationwide.

The order approved a February report and recommendation to apply forensic accounting firm Marcum LLP’s
proposed “unified model” for distributing the assets back to beneficiaries in the eastern district case involving
alleged violations of the Employee Retirement Income Security Act, or ERISA, by former attorney John Koresko.

“Marcum’s unified model has the advantage of ensuring that the plans receive the value of their current
insurance policies associated with each plan, minus appropriate deductions for money the plans owe to the
trusts, including the trusts’ payment of benefits to the plans,” the February report and recommendation stated.

Koresko, of now-defunct Koresko Law Firm PC, and his companies PennMont Benefit Services Inc. and Penn
Public Trust, were found liable in March 2015 for diverting assets from the Regional Employers’ Assurance
Leagues Voluntary Employees’ Beneficiary Association Trust and Single Employer Welfare Benefit Plan Trust
to use for personal purposes like real estate buys and boat rentals.

Koresko, his firm and the retirement benefit companies were found jointly and severally liable to return $38.4
million to more than 400 benefit plans across the U.S. They were sued under ERISA in 2009 by the U.S.
Department of Labor for running a scheme that spanned more than a dozen years and diverted tens of
millions of dollars in plan assets by way of 20 accounts held by several entities at more than eight banks.

In her March 2015 ruling, U.S. District Judge Mary A. McLaughlin ordered Koresko and his co-defendants to
pay $18.4 million in remaining restitution. She said the former attorney led the scheme by establishing a set of
interrelated companies and creating an arrangement that allowed owner-employees of businesses to
purchase cash value life insurance and deduct premiums as business expenses.

Under the scheme, assets from the plans' trusts were used for real estate purchases in South Carolina and
the Caribbean island of Nevis. The money was also used to pay outside attorneys, lobbying expenses,
operational expenses for Koresko's companies and for Koresko's personal expenses, such as boat rentals
and utilities, according to McLaughlin’s decision.

The Third Circuit affirmed the ruling.

The latest twist in the suit came last May, when Koresko was thrown in jail for failing to comply with a court
order to turn over nearly $1.7 million in assets that Judge McLaughlin ordered he turn over prior to entry of her
2015 judgment.

U.S. District Court Judge Wendy Beetlestone — who took over the case when McLaughin took senior judge
status — found Koresko in contempt of court orders last April.

The DOL’s suit against Koresko prompted a separate suit against his attorneys at Montgomery McCracken
Walker & Rhoads LLP, who were accused of billing the two trusts for his defense. The firm agreed to pay
$980,000 to end the lawsuit in April 2016.

Judge McLaughlin had also appointed the forensic accounting firm to determine the total value of distributable
assets in the trusts.

Marcum, the court-appointed accounting firm, proposed their unified model for determining the proportionate
share of the trusts’ assets for each plan, using a cash-in-cash-out accounting for each plan combined with the
value of current insurance policies identified with particular plans.

Last August, the DOL filed a motion for equitab
Fiduciaries to Pay $39M for Raiding Death Benefit Plans;
Outcry Over DOL Rule Continues
Lance Wallach

Law firm Debevoise latest to complain about DOL fiduciary redraft, but AFR’s Stanley says concerns are
‘hypothetical scare stories’

The defendants were found to have improperly transferred money out of employee death benefit plans.

Just as more complaints roll in regarding the Department of Labor’s planned release of revised fiduciary rules for
retirement accounts, a federal district court in Philadelphia has ruled in favor of a DOL fiduciary breach suit brought
in 2009, levying a $39.8 million judgment in the case.

After nearly six years of litigation, the court on Feb. 6 entered a $39.8 million judgment, protecting the rights of
workers who participated in more than 400 death benefit plans mismanaged by lawyer John J. Koresko V and the
companies he controlled, as well as a former associate, Jeanne Bonney.

The judge ruled that Koresko of Bridgeport, Pennsylvania, and other defendants diverted tens of millions of dollars
in plan assets through more than 21 accounts using more than 18 different entities at more than eight different

“Spanning more than 12 years, the scheme saw assets from the plans’ trusts, used for real estate purchases in
South Carolina and the Caribbean island of Nevis, to pay outside attorneys, lobbying expenses, operational
expenses of Penn-Mont Benefit Services Inc., and Koresko’s law firms, and for Koresko’s personal expenses, such
as boat rentals and utilities,” the order states.

“The defendants completely disregarded the duty of loyalty they owed to the employee benefit plans and the
workers who rely on them,” said Phyllis Borzi, Assistant Secretary of Labor for Employee Benefits Security, in a
statement. “In an ideal world, this does not happen. When it does, there is justice in undoing this massive fraud,
and in banning the defendants from coming anywhere near employee benefits again.”

The plans primarily provided death benefits to participants nationwide and were established in connection with
Koresko’s Regional Employers’ Assurance Leagues Voluntary Employees’ Beneficiary Association and Single
Employer Welfare Benefit Plan, the order states.

The court found that Koresko and the following defendants, all fiduciaries, transferred plan assets out of the plans’
trusts, in violation of the Employee Retirement Income Security Act:

Penn-Mont Benefit Services, Inc., of Bridgeport, which is owned by Koresko;
Koresko’s current and former law firms;
Jeanne Bonney, an attorney formerly associated with the law firms; and
Penn Public Trust, a company controlled by Koresko.
Nearly $20 million of the amount due to the plans is frozen in accounts under the control of an independent
fiduciary, after a July 2013 court order. The Feb. 6 decision found the defendants, with the exception of Bonney,
liable for $19,852,114 in restitution for losses and disgorgement of profits, which represents the remaining
balance of the total diverted assets.

The DOL’s redraft of its rule to amend the definition of fiduciary under ERISA is expected to be filed at the Office of
Management and Budget for a 90-day review any day now. Once OMB reviews the redraft, DOL will put it out for
public comment.
John Koresko, Real VEBA, be made
whole, get all your money back from
the insurance company,fight the IRS
Sea Nine FAQs Posted in Response to Legal Developments

In response to recent developments in the U.S. government’s suit to enjoin the promotion of the Sea Nine VEBAs,

Q.1. What action has the US Department of Justice taken against the promoters of the Sea Nine VEBA?

A.1. The US Department of Justice (“DOJ”) has brought an action against Mr. Elliott and other defendants to prevent
further sales and promotion of the Sea Nine VEBAs. One of the other defendants consented to the permanent
injunction and, as part of his settlement, he provided a list of participants in the Sea Nine VEBAs.

Q.2. Will the result of providing the customer list to the government result in the opening of IRS audits?

A.2. Maybe. There is no way to know if the IRS will audit all of the Sea Nine participants. Previously, in auditing
promoters of other 419 plans, the IRS has obtained customer lists and then subsequently audited some percentage
of participating employers. In this case, we understand from court pleadings that the IRS previously audited a
sampling of Sea Nine participants. In those audits, the IRS took the position that the Sea Nine VEBAs were both
noncompliant with the tax code relating to multiple employer plans and also were listed transactions (see below). It
would not be surprising if the IRS chooses to open audits of Sea Nine participants as a result of obtaining the
customer list.

Q.3. If I am not currently under audit, what can I do to minimize my IRS exposure?

A.3. There are several actions you should consider immediately.

Terminate Participation in the Plan. If you haven’t done so already, you should consider terminating your participation
in the Plan and requesting a complete distribution of benefits. There are both tax and legal ramifications of this action,
so you should have legal counsel assistance for this action.
Recognize Income. The IRS has informally recommended that taxpayers not under audit should consider amending
their earliest open return to include the value of the policy and the cost of insurance in income. However, the IRS has
also stated that amending back tax returns will not guarantee that a taxpayer will not be audited nor will it guarantee
that the IRS won’t impose accuracy or listed transaction penalties. Another alternative is to include the value of the
policy in income (together with the cost of insurance) for the year the plan is terminated based on the value received.
Each of these theories of income inclusion has a basis and should be considered carefully with a tax professional.
Disclose Listed Transaction. Congress has enacted laws to help the IRS fight abusive tax shelters. These laws
require taxpayers who participate in potentially abusive tax programs that are identified by the IRS as “listed
transactions” to disclose such participation to the IRS. If a taxpayer is required to make such a disclosure and fails to
do so, the following penalties apply. First, for every year that a taxpayer has an obligation to file a disclosure form (IRS
Form 8886) and fails to do so completely and timely, the IRS shall impose a penalty equal to 75% of the tax benefit as
shown on the return with a minimum penalty of $5,000 for individuals and $10,000 for businesses. There is also a
maximum penalty of $100,000 per return for individuals and $200,000 per return for businesses. For C Corporations,
the penalty generally applies only at the C Corporation level. For S Corporations and other flow-through entities the
minimum ($10,000) penalty applies at the business level and the penalty also applies at the personal level. So, for
example, if an S Corporation deducted $100,000 per year to the Sea Nine VEBA for years 2010 – 2012 and did not file
a Form 8886, the nonreporting penalty that could apply would be $10,000 per year for three years for the business
(total = $30,000) and $26,250 per year for three years for the individual (assuming a tax benefit of 35% for the
individual), for a total penalty of $108,750. Second, the accuracy related penalty that often applies in an audit is 20%
and can be reduced or waived upon a showing of reasonable cause and good faith. If a taxpayer is obligated to file
Form 8886 and does not make that filing, the penalty is 30% and cannot be waived or reduced. Third and perhaps
most important to this case, if neither the taxpayer nor any other party notifies the IRS of participation in the listed
transaction, the statute of limitations does not begin to run. The IRS has used this provision to audit taxpayers for
years that would otherwise be closed. Lastly, unlike other internal revenue laws, a taxpayer may not fight this penalty in
tax court. Instead, a taxpayer must first pay the penalty to fight it in a refund action in Federal District Court.
Q.4. Do I have to file a Form 8886 when I terminate the Plan and include amounts in income personally?

A.4. The IRS Regulations state that every taxpayer who “participates” in a listed transaction for a year has an obligation
to file a Form 8886. The term “participates” is defined to include a transaction that has a tax effect on the taxpayer’s tax
return. Thus, although filing is more normally associated with the business taking deductions, it may also apply when
amounts are included in the taxpayer’s income. A filing can be made on a protective basis if a taxpayer believes the
filing is not required. The Form 8886 must be complete and accurate or it will be disregarded by the IRS.

Q.5. If I file a Form 8886, will that trigger an IRS audit?

A.5. Maybe. As above, it is always possible that filing a Form 8886 will trigger an audit. In my experience, however, I
have generally observed audits to commence after the customer list is obtained and not as a result of filing Forms
8886. Actually, sometimes it appears that filing Forms 8886 reduce the chance of audit as the IRS loses the
opportunity to assess the onerous nonreporting penalties.

Q.6. Is there any reason to file Forms 8886 for back years?

A.6. Yes, although filing a Form 8886 late cannot reduce or eliminate the possible assessment of the nonreporting
penalty, it may serve to start the statute of limitations such that the IRS would have only a year to open an audit on
years otherwise closed by the normal three year statute of limitations. This type of filing is different than a normal filing
and should be considered with experienced tax counsel.
News Release

EBSA News Release: [03/11/2009]

Contact Name: Leni Fortson

Phone Number: (215) 861-5102

Release Number: 09-0229-PHI

U.S. Department of Labor sues Bridgeport, Pa., benefit firms and lawyers to protect welfare benefit plan
participants nationwide

BRIDGEPORT, Pa. – The U.S. Department of Labor has sued Penn-Mont Benefit Services Inc. of Bridgeport;
its owner, John Koresko V; Koresko's law firms; and an attorney for the firms over alleged improper
administration of death benefit plans marketed nationwide. The defendants allegedly underpaid benefits to
participants, improperly withdrew more than $1 million in plan assets from the plans' trust, and illegally used
assets to pay unreasonable and unnecessary lobbying expenses.

The defendants allegedly violated the Employee Retirement Income Security Act (ERISA) regarding more than
100 welfare benefit plans that participated in the Master Trust for the Regional Employers Assurance Leagues
Voluntary Employees’ Beneficiary Association (REAL VEBA) and the Master Trust for the Single Employer
Welfare Benefit Plan (SEP).

Among others, the suit names Jeanne Bonney, an attorney with the law firms, Penn Public Trust, a company
related to Koresko, and the plans' trustee, Community Trust Co. of Camp Hill, Pa. At the time of the alleged
improper actions, Penn-Mont was the plans' administrator. The plans were sponsored by employers
throughout the United States and offered death benefits or other welfare benefits to employees.

An investigation conducted by the Labor Department's Employee Benefits Security Administration (EBSA)
determined that Penn-Mont failed to properly pay full death benefits to the families of deceased participants
and unlawfully withdrew from the trusts more than $1 million, which was subsequently deposited in bank
accounts belonging to Penn-Mont, the law firms and Penn Public Trust. In addition, plan assets were used to
pay for unreasonable and unnecessary lobbying activities.

Filed in the U.S. District Court for the Eastern District of Pennsylvania, the suit seeks full restitution and
accounting of the plan assets by a special master appointed by the court. The suit also asks that the
defendants be removed as fiduciaries and service providers, and replaced by new fiduciaries for the plans.

Workers and employers can contact EBSA's Philadelphia Regional Office at 215-861-5300 or toll-free at 866-
444-3272 for help with problems relating to private sector pension and health plans. In fiscal year 2008, EBSA
achieved monetary results of $1.2 billion related to pension, 401(k), health and other benefits for millions of
American workers and their families. Additional information about the agency is available at

Solis v. Koresko

Civil Action Number 2:09-cv-00988
Court holds promoter of Abusive VEBA penalized for
making false or fraudulent statements

By: Paul

Court holds promoter of abusive VEBA penalized for maked tremendous control over benefits: the source of
benefits, to whom payable, the mechanics of payment; and execution of the claim procedure. Penn-Mont’s
discretion over the benefit claims process was sole and absolute.

The real trigger was whether Penn-Mont thought a claim for benefits should be paid and, in that sense, the
REAL VEBA made no guarantees when benefits would be paid, if at all.

The district court also held that the presence of one of the two characteristics (not providing for a fixed welfare
benefit, using a non-standard trigger for paying benefits) clearly pertained to material matters under Code Sec.
6700(a)(2)(A). Given Koresko’s educational background and own admissions, he knew or had reason to know
that the REAL VEBA was not a TOME and that any statements he made to this effect would be false. He also
clearly organized and participated in the sale of the REAL VEBA arrangement and, thus, the final element for
triggering the Code Sec. 6700(a)(2)(A) penalty was met.
Welfare benefit plans (419), 412i, captive insurance and Section 79 plans are
under intense IRS
scrutiny and no matter what plan you were in, you surely need help now. The
IRS has been
cracking down on 419, 412i, listed transactions and virtually all plans, making
it difficult for
anyone who has been involved with one of these plans. Listed below are
some of the companies
and names of salesmen,and others that you may recognize.

Plan Names:

SADI trust
Beta plan
Millennium plan
Grist Mill trust
Compass welfare benefit plan
Sea Nine veba
Professional Benefits Trust
Integrity 419
Integrity Benefit Plan
Veba Plan
Sterling 419

People, law firms, etc., affiliated with plans:
Doug Williams
Arch Bonnema
Steve Toth
Michael Sonnenberg
Ron Snyder
Brian Cave
Norman Bevan
Dennis Cunning
Williams Coulson
Phil Rowe
Judy Carsrud
Michael Lloyd
Greeberg Tarig

If you need help getting out of a plan, redoing a plan, or reviewing a plan, we can help you.

We have written books about the subject, given hundreds of lectures and have worked on these
problems for many years.

Our team includes ex-IRS agents, tax attorneys, CPAs, Erisa attorneys and others substantially
knowledgeable about these plans.

We have helped many others with these problems and look forward to helping you.