- Imputed Income Required for Non-Dependents: Where an employer group health plan permits coverage of individuals who are not tax dependents under IRC § 152 (e.g., domestic partners and adult children), even though there is no additional "cost" associate with covering that individual (i.e., the premium does not change with the addition of the domestic partner or adult child) the fair market value of the coverage for the non-tax dependent must be treated as income to the employee.
- Alternate "COBRA Subsidy" Excludable under IRC § 106: Where an involuntarily-terminated employee waives the COBRA premium assistance under the American Recovery and Reinvestment Act of 2009 because at least part of the subsidy will be taxable due to the Act's income limitations, and as a result of the waiver the employer provides a COBRA subsidy under its severance plan that is equal to or greater than what the employee would have received under the Act, the subsidy would be excludable from the employee's income as employer-provided accident or health insurance under IRC § 106.
Cafeteria Plans
- Change in Election Not Permitted if Disability Payments Are Made: The IRC § 125 cafeteria plan rules that allow an election change when the employee is on "unpaid" leave would not apply where the employee is receiving third-party, short-term disability benefits for which the employer paid the premiums.
Qualified Plans
- Deadline for Discretionary HEART Act Amendments: Guidance is expected on the deadline for discretionary HEART Act amendments that implement the Act's changes before the required effective date. The guidance is expected to clarify whether such discretionary amendments are entitled to the extended deadline applicable to the required Heart Act amendments (i.e., the end of the 2010 plan year).
- Hybrid Plans Impacted by 2009 MRD Waiver: A hybrid defined benefit plan under IRC § 414(k) (i.e., which provides a benefit based partly on the separate account of a participant) is treated as two separate plans for purposes of IRC § 401(a)(9). The portion treated as a defined contribution plan, therefore, is subject to the 2009 minimum required distribution relief.
- Deferrals Required on Imputed Income: Where a plan defines compensation for benefit purposes as Form W-2 income and the employer unilaterally provides its employees with group term life insurance coverage in excess of $50,000 so that the excess coverage results in imputed income to the employee, the employee's elected deferrals must be calculated taking into account the imputed income. A distinction is made between the compensation to which a deferral election is applied and the compensation from which the deferrals are actually taken.
- Amendment to Adopt Prior-Year Testing Required by Plan Year End: An amendment to change from current-year to the prior-year ADP/ACP testing method is a discretionary amendment that must be adopted before the end of the plan year to which it will apply. This is the case notwithstanding the fact that the categorization of amendments as "required" or "discretionary" occurred after the method was enacted into law in 1997.
- Prompt Election Requirement Raises Qualification Issues: A defined benefit plan that provides, for participants who terminate after age 55 with 15 years of service, a subsidized immediate lump sum distribution only if the participant submits completed election forms by the last day of the month in which the termination occurs raises qualification issues. At issue is whether the plan is avoiding the consent requirements of IRC § 411(a)(11) by having a significant detriment apply to participants who do not choose to commence distribution immediately.
Nonqualified Plans
- 401(k) Wrap Plans Must Include "Catch-Up" Contributions in Determining Whether IRC § 402(g) Limit Met: Catch-up contributions are considered part of the maximum elective deferrals under IRC § 402(g) for purposes of the carve-out from the contingent benefit rule under Treasury Regulation § 1.401(k)-1(e)(6)(iii). The carve-out allows nonqualified deferred compensation to be dependent on an employee's having made the maximum deferrals under IRC § 402(g), as with certain 401(k) wrap plans. The informal IRS view is that catch-up contributions must be included in determining whether an employee has made the maximum deferrals under IRC § 402(g).
- Arrangement to Acquire Property May Involve IRC § 409A: An arrangement to acquire an interest in property that is to be created by a service provider is exempt from IRC § 409A if the transaction involves a current transfer of property subject to IRC § 83, or involves the sale or acquisition of property where the amount realized is not taxed as compensation. Otherwise, unless another exception applies (e.g., the short-term deferral exception), an arrangement that involves a legally-binding right to future payment, including payment to be made in property, would be subject to IRC § 409A.
- Election to Receive Payment in Restricted Stock Instead of Cash: It is unclear whether IRC § 409A permits a participant to elect (after the deadline for the initial deferral election) to choose to receive payment of a deferred amount in restricted stock instead of cash. The issue is being studied by the IRS.
- Non-Public CEOs May Be Subject to Prefunding Restriction: It is not clear whether the Chief Executive Officer of a non-public entity would be subject to the restrictions of IRC § 409A(b)(3). That section prohibits the set-aside of assets in a trust, or the transfer of assets to a trust, for the benefit of "an applicable covered employee" while the employer's single-employer defined benefit plan is in "at-risk" status under IRC § 430(i) (i.e., generally, where the funding target attainment percentage is less than 80 percent and was less than 70 percent for the prior year). IRS is reportedly studying the issue.
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