Our TPA is asking for data to perform nondiscrimination testing for our medical expense and dependent care FSA plans under sections 105 and 129. I have spent a few days trying to wrap my mind around the IRC and accompanying regulations, including reading a lot of posts here. Our plans are open to all employees on equal terms and are 100% funded from voluntary employee elections. I would appreciate any guidance on the following.

1. Medical Expense Eligibility-It seems that mere eligibility to participate in the FSA is not enough to count toward the 70% threshhold. So, if significantly more of our top 25% decide it is worth the paperwork and use-or-lose risk, even though the program is all voluntary employee elections, can the plan flunk?

2. Excess HCI Reimbursement-If HCIs participate too much and the plan flunks, I assume we would need to make corrections by year end to tax the appropriate disparate share for HCIs. Are plan documents required to notify employee of this risk?

Thank you again for any clarification.

This is a shot in the dark, but can anyone point me in the direction of any analyses of the cafeteria plan provisions (Section 1032.06) of the new Puerto Rico Internal Revenue Code? A lot of the provisions mirror Code Section 125 but not all.

In English, preferably, but not necessarily.

I cannot find anything in the AA or Doc that says I can't do this. Am I missing something?

AA says 1,000 hours for Discretionary Non-elective. Owner told part timers they would get it for 2011. He wants to keep his word.

Can we pay a QNEC instead of a Discretionary Non-Elective to everyone?

Would I have to track this separate from the 3% SHNEC they are getting?

I was contacted by a client with a clear violation of ERISA's trust requirement... 2-3 years ago, they received checks for mutual fund settlement proceeds. The checks were made payble to the plan f/b/o individual participants . The checks were never cashed/deposited. The vast majority of the affected participants no longer work for the company or have an account in the plan.

Pursuant to FAB 2006-01, these were clearly plan assets when distributed to the plan, and were therefore required to be held in trust by ERISA 403. The issue becomes how to correct this violation, now that the checks are stale and the affected participants are out of the plan. This violation doesn't appear to be within the narrowly prescribed failures correctable under VFCP. Any thoughts on how a solution?

Thanks!

Update - Please ignore or delete this topic. Now that they give more information, it turns out they are not a public school system, (but affiliated with one or subcontracted or something, as a 501© (3) organization) and they are in fact subject to ERISA. So now their forms being filed incorrectly is a separate issue, which can be dealt with.

Gosh, I've seen more oddball questions inthe last couple of months than in the last couple of years.

Let's say you have a public school system that mistakenly thought they were subject to Title I of ERISA, and filed 5500 forms. They did them "wrong" if they had actually had to file forms.

Are there any legal ramifications/penalties to filing an incorrect form when you weren't required to file anyway? (I don't see how there could be...) And how does one get the DOL/IRS to stop sending nasty letters for not filing forms when they stop? Is there a premptive communication to the DOL to head it off at the pass? Anyone ever had to deal with this? Anyone have a "contact?" I know they could call the DOL, but that's likely to be a difficult proposition for an unsophisticated benefits administrator at a local school. I suppose I can volunteer to help them out, but I don't want to get sucked into a black hole of red tape...

Muchas Gracias.

Hi,

Can the transition rule for coverage testing be applied to both the seller's controlled group and the buyer's controlled group? For example, if the parent of controlled group A (controlled group A is made up of A and subsidiraries 1 and 2 for which each has its own plan) sells one of its subsidiaries to the parent of controlled group B (controlled group B is made up of B and has subsidiaries 3 and 4) in June of 2011, can both controlled goups A and B apply the transition rule to all of the plans in thier respective controlled groups through 12/31/2012? Assume all of the plans have a calendar year plan.

I did some research and its clear to me that the buyer can apply the transition rule as long as all of the requirements are met but it is not clear to me that the sellers controlled group may use the transition rule, i.e., in the example above the plans of Parent A and subsidiaries 1 and 2 would not require to resume coverage testing until the 2013 plan year.

If the seller is not allowed to consider the transition rule, I assume that the plan that is sold from contolled group A would not have to be taken into account in the coverage testing as of 12/31/2011 for controlled group A since as of that date, the plan was a member of another controlled group.

Thanks in advance for you review and reply.

DB plan - been hard frozen for several years - covers union employees only.

I'm trying to determine if the plan is subject to coverage and/or minimum participation. I'm pretty certain that coverage isn't necessary. No HCE's are benefiting - and union employees are deemed to pass coverage.

But I'm stumped with minimum participation. From what I can tell in the ERISA outline book - frozen plans are "deemed to satisfy §401(a)(26)" but they are still subject to the prior benefit structure test.

I can't really tell if union employees are deemed to pass minimum participation / prior benefit structure - as they are deemed to pass coverage.

Any thoughts?

FACTS: A new employee is hired in May 2010 and becomes eligible to enter the Profit Sharing Plan on July 1, 2011. The plan provides that only his compensation from entry is included in the allocation of profit sharing. The allocation of profit sharing is integrated with social security by allocating 5% of pay above the SSTWB (social security taxable wage base) of $106,800; and then 5% of all pay.

During 2011 his total compensation is $400,000 and from July 1 to Dec 31, 2011 it is $200,000.

Q1: Is his 2011 plan compensation limited to $122,500 (half the statutory limit)?

Q2: If yes, how much is the applicable integration level: $106,800 or half that at $53,400?

Unfortunately the plan document doesn't address this. But I assume it isn't a choice and that there is a regulation that does. If you know which one, please let me know.

Thanks.

Can a plan be amended to allow 2 in-serivce distributions in a12 month period? Would only be for age 591/2 and 100% vested accounts. Thoughts?

We have a S.H. 401(k) that uses the safe harbor match to meet the safe harbor provisions.

This very small plan has 5 NHCEs and 2 HCEs. It has a last day and 1,000 hour provsion for the P.S. contribution.

2 of the 5 NHCEs worked <1,000 hours, but both have entered the plan in years past.

So the plan fails 410(b) coverage testing. It fails the ratio test and the ABT.

Can this plan do an 11g retro amendement to the PS portion to change the allocation requirements to 900 hours for the 2011 plan year, which would get one of the NHCEs a PS cont, and not mess with either the 2011 or 2012 Safe Harbor election?

If I understand an 11g retro amendment correctly by making it now they would be required to keep the 900 hour requirement through the 2012 plan year, so it seem like either the 2011 or 2012 Safe Harbor election could be at risk.

Thanks.

I have a new plan effective 11/01/2011. Short year is 11/01 to 12/31/2011.

Eligibility is 21 and 1 YOS

Scenario One:

Plan entry dates are defined as: First day of the month coinciding with or next following date requirements met

I believe that the entry date for this new plan can be 11/1/2011 or 12/01/2011 if an employee meets the age and service requirement. Am I right?

Scenario Two:

What if plan entry dates are defined as: First day of Plan Year or first day of 7th month of Plan Year coinciding with or next following date requirements met.

In a newly established plan that is effective 11/01, is the entry date 11/01 since the first day of the plan year in this instance is 11/1/2011 and there is no second date since there is not a seventh month in the short plan year? Or are there no newly eligible because no one was able to enter on 1/1 or 7/1 since the plan was not in existence at that time?

And for 2012, the entry dates are then 1/1 and 7/1.

Scenario Three:

What if the plan was effective March 1, 2011 with short plan year 3/1 to 12/31/2011 and the plan entry dates are defined as: First day of Plan Year or first day of 7th month of Plan Year coinciding with or next following date requirements met.

In a newly established plan that is effective 3/01, is the entry date 3/01 since the first day of the plan year in this instance is 3/1/2011is the first day of the plan year and there is a second date of 9/1 since there is a seventh month in the short plan year?

And for 2012, the entry dates are then 1/1 and 7/1.

There are the issues that cause me rethink why our sales force does not make all new plans effective 1/1 and forget about short plan years. The effective date of the deferral and match feature can always have a different date.

Thanks for your help.

An employer has a safe harbor (3% nonelective) 401(k) which allocates additional nonelective contributions utlizing a grouping methodology.

There are 3 HCEs and 6 NHCEs. All NHCEs receive the 3% SH nonelective plus an additional 2% of pay allocation.

If I put 1 HCE and 2 NHCEs in Component Plan A and the remaining 2 HCEs and 4 remaining NHCEs in Component Plan B, both component plans satisfy the 410(b) ratio % test.

Component Plan A satisfies the 401(a)(4) Average Benefits Test and Component Plan B satisfies 401(a)(4) on a contributions basis - the two HCEs in that Component Plan receive NO nonelective contributions -- only deferrals are allocated to their accounts.

Am I missing anything?

Plan has different eligibilities for making elective contributions (date of hire, no age requirement) and profit sharing age 21, 1 yr of service, monthly entry dates.

the plan is a discretionary safe harbor and the client has elected to make the safe harbor contribution to satisfy the ADP test for the '11 plan year

4 people enter the plan during the '11 plan year - satisfying eligibility for 401k - but not for PS since they were all hired in '11 -

The safe harbor contribution goes to ALL participants including the 4 who came in during the '11 PY and were hired in '11.

The plan is also cross tested - if the highest HCE receives 12% and gateway requirements are triggered, must the 4 who enter the plan in '11 also get the 1% PS, if so, wouldn't the plan need to be amended to allow the 4 to receive the allocation of PS since they did not meet PS eligibility requirements?

found my answer further in the doc - gateway is triggered and throws out the other requirements in order that it can be met

Hello Forum

We’ve been going back and forth about this one. ACP is the “exclusive” discrimination test according to the EOB. It is acknowledged that if a match does not pass ACP you can’t use 401(a)(4) general non-discrimination in lieu of ACP.

Question: if a plan wanted to allocate an employer match to 6 separate groups of employees using a different formula for each group (none have union ees) would they need to perform rate group testing (and pass) for each matching formula or would the ACP be the only test that needs to be passed to prove and fix discrimination. One would guess here that if the HCE are being allocated a more generous match, the test would fail proportionally thereby “curing any discrimination”.

Thank you for responding

What do other employers do when an employee does not notify the employer of his/her divorce until 6 months after the effective date?

I understand we are not obligated to offer COBRA to the ex-spouse. Historically we have used the most recent date of notification from the employee as the date we terminate coverage for the ex-spouse and change the premium payment of the employee. We are however considering making the termination date retroactive - either by 60 days (since we know the plans can handle that administratively) or the effective date whichever is the earliest. Anyone see a problem that we have not thought of?

Thanks.

My understanding of the exclusive benefit plan rule is that an employer can not maintain a SIMPLE if they maintain a quailfied paln in the same year for which contributions are made. I realize there are 2 exceptions: possiblity inion and non-union plans and in the event of an acquisition/merger.

Question I have is, does contributions to the qualified plan mean for ANY employee or, that contributions can not be made to both plans for ANY GIVEN eligible employee.

I also posted this under Health Care Policy - but realized it might be more appropriate to post under Cafeteria Plans.

When a participant makes a "mistake" during benefits enrollment - we have the person complete an affidavit describing the mistake in detail and signing the document.

We would like to eliminate the paper - and use our recorded phone lines - using a script and having the person agree that this is a true notation of the enrollment mistake. The calls will be archived and we can pull the recording if audited.

We are getting push back from outside counsel...and I am trying to weigh the risks. If recorded phone lines can be used to accept enrollments - why can't they be used to record a "mistake" in the enrollment?

Any thoughts out there?

Thanks.

My question: Can an expouse's portion of a retirement plan be listed as part of filers assets in a Chapter 13 filing? I have a DRO awarding me 1/2 interest in my ex spouses retirement plan. I have been going back and forth with the plan adminstrator in submitting the QDRO. The judgement was entered in 1994, but the QDRO was never filed by my atty at the time. In 2012 my ex filed Chapter 13 and has listed me as creditor for my portion of his retirement.

I am having a difficult time deciding between Vanguard's Target Retirement 2030 fund and Life Strategy Moderate Growth fund. Any suggestions????? Pros and Cons???

When a participant makes a "mistake" during benefits enrollment - we have the person complete an affidavit describing the mistake in detail and signing the document.

We would like to eliminate the paper - and use our recorded phone lines - using a script and having the person agree that this is a true notation of the enrollment mistake. The calls will be archived and we can pull the recording if audited.

We are getting push back from outside counsel...and I am trying to weigh the risks. If recorded phone lines can be used to accept enrollments - why can't they be used to record a "mistake" in the enrollment?

Any thoughts out there?

Thanks.