Company pays executive different lump sum amounts for separation of service: (1) 2x salary upon separation, or (2) 2x salary plus pro rated bonus upon separation within 18 months of a CIC. The alternative time for payment upon separation of service appears to work because it's within two years of a CIC, and the form of payment is the same for both (lump sum). Does having a different amount violate 409A? Thanks in advance.

I dont believe we have done any plan terminations for PBGC covered plans yet. We are familiar with the process (notices, timing etc), but don't completely understand ERISA 4044.

ERISA 4044 deals with the allocation of assets upon plan termination. "Allocation priorities" seems to mean you do not have sufficient assets to pay all liabilities and therefore you allocate scarce assets based on certain priorities. We understand this for a non-covered plan, but a covered plan only has two options:

1 Standard termination - in this case assets must be sufficient to pay benefits and then why would you need allocation priorities?

2 Distress termination - in this case the PBGC takes over the plan and pays benefits up to the guaranteed level.

Any enlightenment would be greatly appreciated.

If I understand correctly, a self employed person can have an HSA, but can not deduct the contributions from taxes. Is that correct?

I am technically self employed even though I work for one client. I am a contractor and get a 1099, not a W-2. Is an HSA a good idea for me?

I understand (from IRS pub 503) that the educational level for qualifying care is kindergarten and below such as, for example, a nursery or pre-school.

However, what about private schools that don't have a system that distinguishes from kindergarten and above or kindergarten and below. How can we tell if it's qualifying care? Is there an age at which we will say, your child is in kindergarten, it is not qualifying care? Do we just fudge it?

Thanks for all your help so far.

The IRS Dec. 5 released proposed rules (REG-148326-05) on the calculation of amounts includible in income under tax code Section 409A and the additional taxes imposed by that section with respect to service providers participating in certain nonqualified DCPs.

Text of REG-148326-05 is available at http://www.federalregister.gov/OFRUpload/O...08-28894_PI.pdf.

I was just wondering what might happen in this scenario:

Person is 75 and is retired. Not finding retirement life satisfactory, she decides to get a part-time job. As fate would have it, her new employer is very generous in its eligibility for the retirement plan: immediate eligibility, monthly entry. So our restless retiree starts working on Feb 15 and enters the plan on March 1. Being fiscally responsible, she decides to take advantage of the plan's salary deferral feature. She contributes $200 a month to the 401(k) plan.

In October, her husband wins the lottery, and they move to the Bahamas so he can fulfill his lifelong dream of being a scuba instructor. She quits her job and sets up a shop selling overpriced beer to tourists next to her husband's scuba shop.

My question is: does she have a RMD for that year? I would think not, but you never know.

Here's the situation: I generally have high medical expenses, and my husband has relatively none. So, to get the best plan for each of us, I am going to sign up for the normal PPO plan through my employer, and he is going to sign up for the HSA / High Deductible PPO through his employer. He will get an employer contribution and make his own employee contributions.

I know that I can not have an FSA with my employer (which would make him ineligible to contribute to his HSA).

I know that normally an HSA account could be used to cover expenses for the account holder, spouse, or dependents. Is this still true (we could use funds from his HSA to cover my medical expenses) even if I am under a different PPO plan under my employer?

Any guidance would be helpful.

I have a self-insured medical practice client with 450 insured employees. 150 or so are physicians who are also owners/partners. They want to extend health & welfare benefits for non-married Domestic Partners (DPs) of the opposite or same sex, but only for the owners/partners. I have researched the DOL, ERISA, IRS and OHIO ORC and other than perhaps running afoul of non-discrimination rules under IRC Section 105(h), I cannot find any language anywhere else that would label this practice as discriminatory nor prevent them from adopting such a policy. My understanding, based on hours of research, is that they can in fact adopt such a policy and even if it were discriminatory in favor of the Highly Compensated Employees (HCEs), the only consequence is that the employer would be required to include the value of the benefits paid in the employee's gross taxable pay.

However, I'm not sure this is even a point worth making since under current IRS rules, the value of the benefits paid to a non-spouse or, non-married domestic partner are taxable anyway.

If anybody has any insight to this with legislative reference, I would greatly appreciate it!

Thanks!

Mark

The Corbel volume submitter with an Adoption Agreement has the option of "blank" hours in "blank" months starting with the employees date of hire...but then goes on to say that if the employee does not satisfy the initial period the requirements change to a year of service listed above. I would like it to stay at 500 hours in 6 months.

Does anyone know why I could not write into the "other" block "six months of service and 500 hours in a six months measuring period."?

I would appreciate others' thoughts on this scenario. Company has an existing self-insured group health plan. It now wishes to contract with a group that will establish an on-site nurse practioner clinic at the company in order to provide general medical services for minor illnesses and injuries for employees. The clinic will also serve to operate a wellness program conducting detailed health risk assessments and interventions, counseling, and education and other management of participants with various risk factors in an effort to reduce or better manage claims under the plan.

Question is how best to integrate and incorporate this new benefit into the plan? (Or maybe the bigger question is should this really be done as part of the existing plan versus being done as a separate plan.) The group which is contracting to set up and staff the clinic appears to intend (and has drafted their contract) so that the clinic (and all related activities) appear to be conducted as an additional benefit under the existing group health plan.

I assume one key reason for this is that they prefer to piggyback off of the existing plan's ERISA and HIPAA compliance efforts rather than viewing the clinic as a separate plan or program which might raise its own compliance issues. (I know there are exceptions from HIPAA and ERISA for certain on-site clinics but given the nature of activities to be performed here, I'm not sure this clinic would qualify for those exemptions even if set up as a plan or arrangement separate and apart from the group health plan. If it is part of the existing plan though, I assume all activities under it are generally subject to everything the group plan is subject to so full blown ERISA and HIPAA.)

Would appreciate any thoughts or words of wisdom from others that have set up similar clincs or programs. In particular, I would welcome thoughts on what sorts of changes to the plan's existing HIPAA Privacy procedures are likely required to ensure HIPAA Privacy compliance if the clinic is viewed as part of the existing group plan and the information flow is all arguably within the "plan" even though the clinic / nurse practioner is getting claims information from the insurance company providing administrative services to the plan.)

We found a prospect with a money purchase plan (10% of pay). They want to add a DB plan, provide large HCE benefits and small NHCE benefits in the DB by cross-testing the DB with the money purchase plan to pass 401(a)(4).

We've only used volume submitter cross-tested Profit Sharing plans with gateway language for this thus far. Is it allowable to use a money purchase plan for this? If so, is extra plan language needed to allow it (such as gateway language)?

Lately, I've been struggling with the two-year rule for SIMPLE IRA rollovers (i.e., the prohibition on rolling over amounts in a SIMPLE IRA to a plan other than a SIMPLE IRA within the first two years). Is anyone aware of any waiver of this rule where the SIMPLE IRA is terminating because the employer is disolving? For employees who are younger than 59 1/2, this rule kicks the early distribution penalty up to 25%. These employees end up losing a quarter of their accounts in a forced distribution, because the plan had to be terminated based on a dissolution they had no control over. This doesn't seem fair, but I can't find anything that would alter the result. Any thoughts?

In recently was asked the following what if scenario:

Doctor owns a corporation and has a current profit sharing plan with one other employee. Doctor also owns real estate in a living trust, has his real estate license and manages the properties. Cash flow from properties is $150-200 k annually.

Generally real estate income is not considered earned income and therefore no contributions to a qualified plan are allowed.

Can a plan be set up as a sole propreitor to shelter some of the real estate income?

I know there are a number of issues here, but the two I am having trouble with are: the real estate being held in a trust (but income and taxes go to individual), and the earned income issue.

Any insights would be appreciated. Thanks.

Has anybody delt with the issue of hardship distributions due to hardship of primary beneficiary? I have read PPA and Notice 2007-7. It says that if a plan permits hardship distributions of elective contributions for safe harbor reasons, the plan can permit distribtuions for a few reasons for hardship of a primary beneficiary. What I am having trouble with is what sources are allowed for the hardship of beneficiary. Is it just elective contributions or all sources allowed by the plan?

Thanks

I saw in the preamble to the 415 final regs that stated that government plans still have to amend for 415(b)(2)(E)(ii) even though gov't plans are not subject to 417 and it says "the final regulations provide that these rules also apply to plans that are not subject to the requirements of 417." However, I could not find that in the actual regs. themselves. Does anyone have any further guidance or authority on the applicability of the PFEA amendment to 415(b)(2)(E) for gov't plans?

Thank you and I hope you are having a nice holiday season this year.

In IRS Notice 2005-5, a footnote indicates that the CIP compliance pursuant to the Patriot Act is not required at the time an IRA is established when a trustee forces a participant out of a plan. I do not see a similar note regarding OFAC compliance. Does anyone know if the OFAC screening is necessary or if this can also be deferred until the individual decides to claim the funds? It would make sense that this is deferred too, but I can't find information to that effect and know better to assume things work the way I think they should.

A company would like to change the Plan Sponsor of a 401(k) Plan, and the former Plan Sponsor will also become one of the Adopoting Employers of the Amended and Restated Plan.

Is is possible to change the Plan Sponsor without terminating the exsisting Plan?

Would we have to merge the old plan into a new Plan?

Any help would be greatly appreciated.

ALEX

BOB ARCHITECT, 12/4/2008:

Stay tuned over next 2 to 3 weeks for further guidance re 1/1/2009 effective date regarding requirement for written 403b plan document and perhaps a RAP (remedial amendment period).

New control group rules for tax exempt entities take effect 1/1/2009, and apply to all employee benefit plans sponsored by such entities, including 403b plans.

Rev Proc 2007-71 with "model" plan language for use by public schools, "sample" plan language for other 403b eligible employers. There will be no further model/sample plan language to address any other issues, such as employer contributions.

IRS is prepping a 403b prototype plan document program (expected sometime in 1st half of 2009), and a determination letter program for individually designed 403b plan documents (later). The IRS will publish 65-70 pages of suggested language, first for the prototype plans and then for individual designs, as part of a Rev Proc--hopefully in the next few weeks (hopefully before the end of 2008). Such will address Roth deferrals and tax-exempt orgs structuring non-elective matching and non-matching contributions from the ER. There will be a 45 day public comment period.

EPCRS (Rev Proc 2008-50) will be updated for 403b plans, for failures to comply with the new 403b regs taking effect 1/1/2009. None of the current EPCRS procedures apply to failures re the new 403b regs.

MYTH BUSTING: MYTH #1: Info Sharing Agreement-if ER doesn't have an ISA in place with the vendor of an EE's 403b contract, the 403b contract will be taxable or subject to other problems. ISAs only appear in one reference in the new Treas Reg § 1.403(b)-10, in addressing 90-24 in-service, under age 59 1/2 exchanges. Only a 403b plan that permits such exchanges would need any ISAs from vendors approved to receive such exchanges.

Section 6.04(a)-(d) of the model plan language (Rev Proc 2007-71) is an example of in-service exchanges. A 403b plan need not allow such in-service exchanges. If a 403b plan does not, then that 403b plan needs no ISAs.

Treas Reg § 1.403(b)-3(b) allows a 403b plan document to specify the allocation of compliance responsibilities. The ER can infuse such allocation language in an ISA, but it could be by other agreements and documents.

MYTH #2: If an ER is parsing down the # of vendors incident to its compliance efforts, some 'approved' vendors are sending EEs letters that they must exchange their 403b contracts to an 'approved' vendor by 12/31/2008 or else their 403b contracts will be taxable. Truth: Only future contributions need to go to an 'approved' vendor to avoid income taxation.

MYTH #3: Public schools (K-12 and public colleges, universities) will become ERISA fiduciaries and must file f5500s. Truth: State or local law, possibly, but not under ERISA.

MYTH #4: An ER that freezes contributions (not terminate the plan) does not need a written 403b plan. Truth: A written 403b plan document is needed for a 403b plan on the effective date of the new 403b regs. This is true even if the 403b plan has only previously accepted salary reductions.

MYTH #5: The 403b regs restrict EEs' right to rollover their benefits. Truth: In-service exchanges are now limited (as 90-24 exchanges were made obsolete by the new 403b regs), but rollovers following an access event remains the same.

MYTH #6: Treas Reg § 1.403(b)-11, delayed effective dates apply to any church or to any public school with a CBA. Truth: the only time a church 403b plan effective date only is delayed if the 403b plan is a product of a church "convention" (not for independent churches). Only public schools with a CBA in place on 7/24/2007 that called for the maintenance of the 403b plan by the public school get the delayed effective date.

LOOMING PITFALLS

Adopting 403b plan document. Memorializing in writing the formulation or putting into effect the plan. There needs to be language and signatures by which the ER adopts the plan document.

Bad Terminations. For the first time, the new 403b regs describe favorable tax consequences of terminating a plan 'if you can go down that road'. Plan termination is administratively and timely liquidation and distribution of all plan assets. Problem for 403b plans with individual custodial accounts (403b7 accounts): the ER is not in a position to require the payout of the assets held in those custodial accounts. The ER may have no power to force the payout, and ALL of the plan assets must be liquidated/distributed in order to terminate the 403b plan. What is the favorable tax consequence of being able to terminate a 403b plan? It makes eligible for rollover the 403b contract benefits of those active employees under age 59 1/2. If you cannot terminate, those active employees under age 59 1/2 may not roll their 403b benefits outside the context of a 403b contract. Section 8.03 of the model plan language (Rev Proc 2007-71) reflects this reality that termination is subject to the terms of the individual 403b contracts. 'Your structure of 403b plan may not permit you logistically to pursue a termination.'

The big 403b unique advantage: 403b permits the ER to make non-elective ER contributions into a former EE's 403b contract for five years after employment terminated, up to the 415c limit (e.g., $49,000). This must be non-elective by the EE. E.g., EE cannot receive such contributions in lieu of unused vacation pay at the time of termination. That would be a cash or deferred election by the EE, and that is not possible to do so post-employment. The 5-year provision is limited to non-elective, ER contributions.

Q&A:

#1: Large ERISA plans are subject to audit.

#2: SD has 4 vendors, not going to use any of the 4 after 2008. Going instead with a new vendor for 2009 and beyond. What are 403b plan document requirements re the 4 disenfranchised vendors? Section 8.01 of Rev Proc 2007-71. As to vendors 'dismissed' in 2004-08, ERs need to make a minimalist, 'reasonable, good faith effort' (whether successful or not) by exchanging contact info between the ER and vendor. That brings the vendor within the 'new, shiny plan'. Plan need not list the vendors, but may simply refer to separate listing that is updated as needed.

#3: Post-2008 contract exchanges. Contract from non-approved to an approved vendor. EEs may certainly do so. Section 6.04 of Rev Proc 2007-71.

#4: What is a church "convention"? Periodic meetings, such as once or twice a year, and the delayed effective date is to accommodate possible meeting schedules.

#5: Consequences of failure. Treas Reg § 1.403(b)-3 Plan-wide failures; individual employee failures.

INFORMATION DISSEMINATION "TOOLS"

Two resources. www.irg.gov, then Retirement Plans Community, then Types of Plans, then 403b Plans.

Newsletter: Employee Plans News, www.irg.gov, then Retirement Plans Community, click on newsletters and then subscribe.

Individual terminated employment from Co. A less than 100% vested, forfeiture then created and rolled over the distribution to Co. B's plan.

Individual is reemployed by Co. A and wants to buy back and restore his account, recontributing the amount of the distribution ('ER $).

When the individual recontributes to Co. A's plan is that amount placed in the employer contributions source? Or would it be considered a rollover from Co. B's plan and placed in that source and would it satisfy the buy-back?

Do the regs define what "immediate" need is? We have always used the "must have bill or threatening letter in hand" approach, but does the law further address what an immediate financial need is?