Has anyone seen a good discussion or any guidance on what makes a business associate an agent vs. an independent contractor under the HIPAA breach notification rules? I know that the preamble is replete with references to the federal common law of agency, but that is a huge field. The Restatement of Agency focuses on the right to control the actions of the business associate, which in the agreements I have seen is almost never present. I mostly work with group health plans, and the last thing they want is control over the business associate--performance standards, yes, but not control over performance of services.

On the other hand, many of these business associates are held out to participants and beneficiares as authorized to act on behalf of the plan, e.g., EAP provider, third party claims administrator, COBRA administrator. Is that sufficient to make them an "agent?" That's different from the control test--they are acting on behalf of a disclosed entity, but does not fact make them an agent?

I'm interested in other views on this question. Thanks.

I have a plan that has 1 year of service, date-of-event entry dates for deferral & Safe Harbor. For Profit Sharing it is 1 YOS and semi-annual entry date.

Compensation used for each source is that earned while a participant in that source. So, I will be having different compensations for SH and PS.

My question is, which comp do I use in my gateway and average benefit tests?

Say, for example person makes $60,000 in the year. She enters the plan for SH on 4/1, and makes $45,000 from then, and $30,000 after 7/1, when she was eligible for the PS. Her SH will be 1,350 and her PS will be 450 (gateway is 4.5%). But when I run my tests, what comp should be in there? Her 401(a) allocation % would be 4% using the 4/1 comp, and 6% using the 7/1 comp.

If an ESOP permits participants to diversify 100% of their account prior to becoming a qualified participant under Code Section 401(a)(28)(B) and a participant elects to do so, what consequences could there be once the participant becomes a qualified participant upon attaining age 55? See below for background and some hypotheticals to introduce the question in more detail.

Background

A client is considering amending their stand-alone ESOP (no outstanding loans and no active contributions) to permit all participants to diversify their entire account balance invested in employer securities by transferring the portion the participant elects to diversify to the client's 401(k) plan, which is subject to ERISA 404©.

Notice 88-56, A-11 generally permits excess diversification (diversification of amounts beyond what is required pursuant to Code Section 401(a)(28)(B)), subject to certain stipulations. Specifically, the excess diversified amounts are not treated as (i) available for diversification or (ii) diversified pursuant to Code Section 401(a)(28)(B). A simple take-away from this is that a participant would still be entitled to receive a distribution in the form of employer securities pursuant to Code Section 409(h) of the excess diversified amounts. This is not a concern. We are, however, somewhat concerned about a different situation.

Hypotheticals

In this regard, let me propose two hypotheticals. For both hypotheticals, assume that all shares in the ESOP are post-86 shares and that no contributions or dividends have been made for the past 10 years.

Hypothetical 1: Participant A has 100 shares in his account and is 50 years old and has never had more than 100 shares of employer securities in his account. Participant A elects to diversify 10% of his account (10 shares). The cash value of such shares are transferred to the 401(k) plan and invested pursuant to the participant's investment elections in the 401(k) plan. When Participant A attains age 55 he becomes a qualified participant. Since the 10 shares he previously diversified are not treated as available for diversification or as diversified, the participant is still entitled to diversify 25% of the 100 shares that were previously in his account. Accordingly, Participant A is now entitled to diversify an additional 25 shares and elects to do so, thereby bringing his total diversified shares to 35 (25 of which are diversified pursuant to Code Section 401(a)(28)(B) and 10 of which are an excess diversification).

Hypothetical 2: Participant B also has 100 shares in his account and is 50 years old and has never had more than 100 shares of employer securities in his account. Participant B elects to diversify 100% of his account (all 100 shares). The shares are sold and the cash is transferred to the 401(k) plan and invested pursuant to the participant's investment elections in the 401(k) plan. When Participant B attains age 55 he becomes a qualified participant. Since the 100 shares he previously diversified are not treated as available for diversification or as diversified, the participant is still entitled to diversify 25% of the 100 shares that were previously in his account. Accordingly, Participant B is now entitled to diversify 25 shares. Participant B, however, does not have any shares in his account because he previously elected to diversify the entire balance of his account. In this hypothetical, can the administrator re-classify 25 of the previously diversified shares as diversified pursuant to Code Section 401(a)(28)(B) with the remaining 75 as excess diversification? Or, is the amendment permitting 100% diversification a qualification failure with respect to Code Section 401(a)(28)?

Any thoughts would be appreciated. Thanks.

Hi I am looking for information concerning concurrent individual and group LTD policies. What kind of limits are placed on benefit payout if an individual has both group and indv. policies in place? Is there any important factor in regard to which policy will begin payout first?

I am interested in referencing sources of this material if anyone has any suggestions.

THANKS.

A company laid off workers in Dec 2008. They have a policy that is the employee is not rehired within 90 days they are considered terminated and give a termination date at that time. I have about 10 partipants that are in this state. They have March 2009 termination dates, no hours, no compensation for 2009. Since they could not defer since they didn't work, can I keep them out of the test or do I have to put in with zero compensation?

Thanks

Pat

A company laid off workers in Dec 2008. They have a policy that is the employee is not rehired within 90 days they are considered terminated and give a termination date at that time. I have about 10 partipants that are in this state. They have March 2009 termination dates, no hours, no compensation for 2009. Since they could not defer since they didn't work, can I keep them out of the test or do I have to put in with zero compensation?

Thanks

Pat

Ok, needs some opinions! I'm driving myself crazy trying to decide how to proceed.

1. Scenario #1: Calendar year plan with safe harbor nonelective feature. Amended out of safe harbor noneletive 8/31/2009 as allowed by the proposed regulations.

Participants received an allocation of 3% of their compensation for the period 1/1/2009-8/31/2009. (The $245,000 compensation limit for 2009 was pro-rated for the safe harbor nonelective calculation to $163,333.32.).

No other employer contributions allocated for the plan year.

If I calculate the percentage of plan year compensation (1/1/2009-12/31/2009) that was allocated, participants have non-uniform percentages and would not satisfy the 401(a)(4) safe harbor.

Does the plan need a 401(a)(4) test? Or for purposes of determining if the 401(a)(4) safe harbor was satisfied, do I only consider the percentage that was allocated based on compensation for the period 1/1/2009-8/31/2009, which would produce a uniform allocation?

2. Scenario #2: Same as above except there are profit sharing forfeitures as of 12/31/2009 that the document says are reallocated based on plan year (1/1/2009-12/31/2009) compensation. No accrual requirements on the forfeiture reallocation. The same participants who received the safe harbor nonelective will receive an allocation of approximately 1% of their plan year compensation due to the forfeitures.

Does the plan satisfy the multiple formula safe harbor under 401(a)(4)?

I say yes, if the answer to #1 was that when determining if the allocation of the safe harbor nonelective was uniform we only have to consider compensation from 1/1/2009-8/31/2009.

3. Scenario #3: Same as #2 except the safe harbor nonelective contribution is based on compensation paid for the plan year after the participant's date of entry. A non-highly compensated employee became a participant on 10/1/2009, so he did not receive an allocation of safe harbor nonelective. But he did receive an allocation of the profit sharing forfeitures.

My thought is that in this scenario the multiple formula rule would not be satisfied because both allocations are not available to the same group of non-highly compensated employees.

Any thoughts? Has anyone else dealt with similar situations?

Thanks!

Laura

What is the PPA remedial amendment period for an employer to adopt the adoption agreement of a prototype sponsor that adopted a PPA interim amendment onto its EGTRRA restatement? The vendor is telling my client they need to adopt its own PPA amendment even though they adopted an interim amendment on behalf of all plans.

It seems to me if my client has to do that now, it is too late. Rather, it seems to me that the interim amendment covers it.

Prototypes don't have a PPA RAP that is different from 12/31/09 do they?

Thanks.

Does anyone have any citation to statute, regulation, or case law concerning the right of an employer or union to provide additional compensation to one of its full time employees or members for undertaling the role of a trustee on a multi-employer pension fund? I can't find any prohibition on doing so. Section 408 seems to deal only with a fund paying trustees compensation.

Will a service agreement with an insurance company or custodian that provides investment products to a non-governmental voluntary 403(b) plan cause the plan to become subject to ERISA? DOL FAB 2010-01 makes it clear that a non-governmental voluntary plan is not eligible for the non-ERISA safe-harbor if the employer hires a TPA to administer the plan. I guess selecting a TPA is a discretionary determination that causes the plan to become subject to ERISA. However, insurance companies and custodians also want employers to sign agrements that allocate responsibilities and liabilites with respect to thier investment products. Is signing these agreements a discretionary determination that triggers ERISA?

Could the controlled group and affiliated service group rules be combined to create a group of related entities? For example, would a subsidiary in a parent/subsidiary controlled group be part the affiliated service group to which the parent company belongs (even if the subsidiary does not perform or receive any services from the ASG?)

Trying to apply the Final 415 regs section 1.415(a)-1(g)(4) regarding grandfathered benefits and would appreciate any input.

I have an HCE with over 20 years of service as of 12/31/07 and compensation greater than the 401(a)(17) Comp limits in just one big year (2006) with the following history:

2007: $210,000 (comp limit $235,000)

2006: $250,000 (comp limit $220,000)

2005: $210,000 (comp limit $210,000)

2004: $200,000 (comp limit $205,000)

This is a calendar year plan so I "think" I have a grandfathered 415 limited AB on 12/31/07 of:

($210,000 + $250,000 + $210,000) / 36 = $18,611.11

The final regs state I can grandfathered the AB as of the end of the limitation year that ends immediately prior to the effective date of the final regs. Based on the calendar year the application date of the final regs would start 1/1/08 so I can see an interpretation that allows me to grandfather as of 12/31/07 (i.e., $18,611).

However, the formal effective date of the regs is 4/5/07 which if I use the end of the limitation year that ends before THAT date I can only grandfather as of 12/31/06.

Either approach will cover my big 2006 year but since 2007 comp was larger than 2004 comp I'd like to be able to do my High-3 for the 2005-2007 years and grandfather as of 12/31/07 if that is a reasonable interpretation.

Any thoughts opinions ? Is this a grey area of intepretation or is it black-and-white to most of you out there.

Hi. Does anyone know how the successor plan rules apply to a 403(b) plan? I was under the impression that you could terminate a 403(b) and allow participation in a new 403(b) and not violate the successor plan rules if the new 403(b) was a deferral-only plan (i.e., no employer contributions). Does anyone know if this is correct?

Hi,

Plan has a fixed match formula of 50% of deferrals up to 7% of compensation. For 2009 the ADP failed, my question is do I calculate the match on the entire deferral amount (before the failure) or do I reduce the deferral amount by the distribution amount needed and calculate match?

I believe I need to calculate on the entire deferral amount that failed, then calculate match, run ACP and see if it passes and how much associated match needs to be forfeited, good times!

Also, on side note, when there is a matching forfeiture, these forfeitures only go to those that deferred for that year in the same manner as the match allocation? My system seems to allocating it to all eligible even if not deferring but it might be a spec I overlooked....or perhaps the system is smarter than me which is usually the case.... yup I am losing it already.

Thanks for the help.

Employer wishes to roll out a plan that will allow employees to purchase stock at a deep discount; purchase price is $1 and FMV is a few dollars more than that. The stock, if purchased, will be subject to vesting conditions. If shares are forfeited, employee gets his/her $1 back, and nothing more. The window for exercising the "option" to purchase the stock will be very short: only a couple of months from the time that the program is announced, and the entire "option" period is within a single calendar year. There is no other feature that would provide for the deferral of compensation. Although this does not satisfy the exemption in the regs for stock options, isn't it exempt because there is no deferral of compensation involved?

I have a client that terminated their defined benefit plan a few months ago and is now looking to start a new one. Is there any issues with this?

Does a 30 day notice period apply to terminating safe harbor plans under mergers or business hardship (i.e., under bullet point ii below). The 30 day notice requirement arises from the reference in (i) that the requirements of paragrpah (g) are satsifed. So it seems to me that when temrinating a plan under mergers and/or business hardship, no 30 day notice is required (whether it's a SHMAC or a SHNEC). Does anyone agree/disagree?

(i) The plan would satisfy the requirements of paragraph (g) of this section, treating the termination of the plan as a reduction or suspension of safe harbor matching contributions, other than the requirement that employees have a reasonable opportunity to change their cash or deferred elections and, if applicable, employee contribution elections; or

(ii) The plan termination is in connection with a transaction described in section 410(b)(6)© or the employer incurs a substantial business hardship comparable to a substantial business hardship described in section 412(d)

Employee is covered for medical and pays a percentage of premium, taken out of pay on a pre-tax basis per their Sec 125 plan. Employee is also covered on spouse's medical plan at her employer. Open enrollment was Jan 1, and employee maintained past election. Effective April, employee is receiving pay cut, and wants to drop medical plan.

While not directly a "significant increase in cost" to medical, the employee's take home pay is changing 4/1, and he sees the double coverage at this time to be less attractive, thereby his request to drop coverage. If he had known the pay cut was coming prior to the 1/1 open enrollment, he probably would have made the change then.

I can see where a mid year pay adjustment, could greatly affect a person's ability to pay. But, I haven't found anything in the regulations that would address this. Have any of you run into a similar situation or can you site a section of the law that I missing that would allow this type of mid year change?

Thanks

Today a practitioner/friend of mine who is handling a field audit explained that the plan under audit has k safe harbor language, but ER never provided the annual k safe harbor notice and did not make any k safe harbor contributions, as the plan provision called for. The ER and practitioner had thought that the plan would not be safe harbored, but would be subject to ADP/ACP testing for each plan year for which no k safe harbor notice was timely provided. The document was not one that so provided, it simply said that the plan is k safe harbored and that the k safe harbor contribution would be the match.

Auditor was considering insisting that the ER make the k safe harbor contribution described in the plan provision. Here's how this situation was resolved that that specific IRS auditor:

"The owner/employees did not have any 401k deferrals for the year being audited, and hardly any for other years. The agent could see basically how we were interpreting the document and then closed the audit. She did recommend we fix that part of the plan with an amendment."

Whenever I am involved in a plan audit, I'd like to be able to call and request this particular agent be assigned. But this is a second such situation where I've seen the IRS auditor start off wanting (a) the plan provision described k safe harbor contribution made, but (b) the plan to demonstrate ADP testing to pass. In both, the auditor closed the audit without the k safe harbor contribution being required. In this one, there wasn't even a need for any QNECs corrections.

Calendar year DB plan freezes 5/31/2009.

Benefits accrue on elapsed time.

The annual method is being used for 410(b) testing, i.e. the measurement period is calendar 2009.

1. What is testing service, 5/12 or 1?

2. What are the options for testing comp other than an average of 3 or more years, i.e. is calendar 2009 ok despite the freeze?

Some very different results will occur depending on the choice. I don't see anything in the regs that helps with these issues.

I suppose this could be viewed as a change to a 0% benefit formua and under that approach the accrual divided by the full year comp could be used, and since benefit service is capped at 5/9 that could and perhaps should be the testing service.

Opinions?

(5/9 changed to 5/12)