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Personally, I'd be reluctant to pay it this year. I'd attempt to have the employer/administrator grant an exception to the run-out period (i.e., time to submit claims after the end of a year) from the prior plan year. Based on the circumstances, I don't think the IRS would object -- especially since there are no prescribed rules on run-out periods.

I agree that it doesn't seem to make sense. But, maybe what's going on is that if someone elects to defer 10% of comp, the bonus is also deferred at 10%. For someone who defers $X, then nothing is taken out of the bonus b/c the election was for a specific amount. In other words, is it just a matter of application of the deferral election or is it an extra deferral procedure that is only available to people who defer a %. Also, you can always take a dollar amount and convert it to a % of pay. If you elect a % of pay, it would automatically apply to fluctuations (such as raises, tips, etc.). But, if comp doesn't vary much and employees can change elections on a fairly frequent basis, it just doesn't make sense to allow this type of variation. But, assuming the employer wants to do this, then I would think that it's o.k. as long as it's nondiscriminatory.

I agree that there isn't anything prohibiting an early payoff. In fact, when plans impose a restriction that there only be 1 loan outstanding then the plan requires the repayment of an existing loan (in a lump-sum) before a new loan can be made. I also think a loan prgram could prohibit the early payment of a loan. It would also need to be in the loan note and would certainly be rather onerous to the participants.

I presume "eunuch plan" was referring to uni-k plan, not a simple plan. The uni-k is another term for a solo k plan.

In the first example, I'm assuming it wasn't provided within a "reasoable" period of time before individuals were first eligible to defer for that year (i.e., the 30 day rule is a safe harbor). Under both cases, I'd say you must apply the ADP test (not may).

What you're getting into are different types of self-funded health plans under 105(h). Essentially, there is much flexiblity in designing them and what you call it doesn't really mean much. If you have an individual account reimbursement plan (each individual has a max amount that can be reimbursed), then the plan could be designed so that unused amounts are lost at the end of each period of coverage or it could be designed so that amounts are carried over (this is the HRA). Ultimately, the plan can be designed any way the employer wants.

Based on the initial question, the VEBA is a health plan b/c it's reimbursing medical expenses. Thus, HIPAA privacy would apply.

Everything is correct as stated. The last item on forfeitures re: 410(b) is the same as the other 410(b) issues. Essentially, 410(b) is the crux of the issue. The person is not a statutorily excludible employee so the person counts in the denominator and is treated as not benefiting. Once you pass 410(b), the person is disregarded for the other tests (e.g., ADP, ACP). If it's an HCE it won't be a problem. If it's an NHCE, then you could flunk 410(b). I've always wondered what would happen in that situation. Since the person elected not to participate, you could certainly argue that the HCEs in the plan pay taxes b/c you can't do a corrective amendment pursuant to 1.401(a)(4)-11(g).

Pursuant to the cited reg, as long as benefits are paid from the general assets of the employer, no bonding is required. Thus, the answer to your question depends on how the plan is structured. Note that unlike the code, under ERISA, employee contributions are still employee contributions and must generally be put into a trust. However, if the employee contributions are pre-tax through a cafe plan, then no trust is required (tech release 92-01). The key is to determine whether or not the plan is funded (or deemed funded) for purposes of ERISA.

O.K. What GBurns stated makes sense - it could be more complicated for payroll, etc. to offer the choice of pre-tax or after-tax. Which goes back to what I had stated earlier. If the employer is mandating that you pay pre-tax or you don't get the benefit at all, then more than likely this isn't a prohibition in the cafe plan or the health plan. It's a policy being imposed by the employer. The place to look would be an employer handbook or something similar.

As long as they get no employer contribution (e.g., a top-heavy or ADP safe harbor contribution), they do not need to get the gateway. I don't understand why you couldn't use the avg. benefits test. But, if you can pass using the ratio % you don't need the avg. benefits test. In many cases, giving NHCEs a 5% gateway causes a plan to pass using the ratio % test.

I wouldn't think it would be an issue with the health plan. It's unlikely the health plan requires everyone to be covered -- and even if it did, the person could pay with after-tax dollars and the insurance company wouldn't care. All they care about is the payment of the premium. And, if it's through a cafeteria plan that means the employee has a choice of compensation or a non-taxable benefit. Thus, by offering it through a cafe plan you're offering a choice of not paying the premium with pre-tax dollars. I suppose you could provide that the premium can only be paid through the cafeteria plan, but I don't know why the employer would do that. But, if it does, you won't find that written in the cafeteria plan or health plan.

As stated earlier, there is a class exemption allowing the sale of the policy from the plan to the individual (assuming it's purchased at the fair market value). However, the class exemption only applies if the plan would have otherwise disposed of the policy. That's never been clear to me and I've told people to be safe the plan should be amended to provide that life insurance can no longer be maintained in the plan. That way it's clear that the plan would otherwise dispose of the policy and the only other concern is making sure you have valued the policy correctly based on the recent IRS rulings - i.e., beware of springing cash values.

The ADP safe harbor only needs to go to those NHCEs who are eligible to defer. If someone isn't eligible to defer b/c of an exclusion and you pass 410(b), then the person is not entitled to the safe harbor contribution.

The nature of the transaction could affect the resolution of the issues that come up with testing, etc. Of course the question raised goes to the heart of this -- who is responsible for dealing with those ugly issues? With a stock sale, the purchaser continues the business and is responsible for the plan. With an asset sale, it depends on the agreement. Typically the seller is responsible for the plan, but in many cases the purchaser will assume the plan.

I've seen the ERISA Outline book on this before and it didn't (and still doesn't) make any sense to me. I'm not sure what it means to treat it like a death benefit. Personally, I'd treat it like an in-service distribution to the participant. Thus, I would take it into account for 5 years. Unfortunately, there is no guidance from the IRS so it's ultimately up to a reasonable interpretation of the rules.

It's not exempt because it is not self-administered. While the employer is the named administrator, a third party has been hired to help administer the plan. Thus, the HIPAA privacy rules apply. The rationale is that protected health information is being sent to a third-party for claims processing.

Agreed. It does no harm to try the submission with the lower fee. I would just let the client know that there is a possibility that the fee will be higher.

No, I don't have cite on that. It's based on an interpretation of the rules. The extension to 9/30 was a limited extension. If you didn't meet the requirements, it seems that the general deadline would apply.

One other point. As stated, the fee is reduced to 50% if you update within one year of the deadline. Unfortunately, if it's a GUST update, you're beyond one year. Even though most pre-approved plans had a deadline of Sept. 30, 2003, when you miss that deadline it relates back to the unextended deadline - the later of 2/28/2002 or the last day of the plan year beginning in 2001. So, for most plans the deadline was 2/28/2002 so the reduction in the sanction can't be used.

Maybe the Treasury can carry the proposed targeted QNEC rules to cross-testing. Wouldn't that be fun. : ) (I can't get those clickable smilies to work) Arguably the entry date could have been carried to the first day of the next plan year. Letting the person in on 12/1 gives the person a 3% TH. That's a good thing for society (just like a targeted QNEC is providing a benefit to NHCEs). I agree, pigs get fat and hogs get slaughtered... and I can't think of any analogy for three-eyed-fish.

The IRS position (in the proposed regs) is that only expenses incurred after adoption of the plan can be covered. As far as who can adopt, that really depends on state law. Who is authorized to take actions on behalf of the employer? One other point -- Section 1372 may prohibit members who own more than 2% from participation in the plan. That depends on how the LLC is taxed (e.g., if it's taxed like a partnership then more than 2% members cannot participate).

This isn't common, but variations on this do occur. See rev. rul. 2000-27 which I've referred to below. Another way to state it (and this may be an over-generalization based on what this specific employer is doing is) -- Everyone gets health coverage from the employer. But, if you certify (or provide proof) that you have other coverage, you can opt out of our coverage and get cash. In this case, you are only allowing an opt-out of the health plan if you have coverage through a spouse's plan (as distinguished from having any other coverage such as an inidividual policy or COBRA from a prior employer). It's similar (but not exactly the same) as Rev. Rul. 2002-27. In that ruling, as long as the employer only required a certification (rather than proof) of other coverage, then it was held that it's not even a cafeteria plan. I never could figure out the distinction between proof vs. certification (maybe there's some older ruling out there dealing with situations where the employer required proof). And, here you are limiting it to spousal coverage. So, your facts may be different than the Rev. Rul. If you determine that you are comfortable relying on that ruling, then you don't even need a cafeteria plan. It's just "an arrangement" that the employer offers to employees.

There are two issues being tossed around. The ADP test is used to test the actual deferrals made to the plan. As pointed out, it is the only test you can use and it must be based on a nondiscriminatory definition of compensation. The other issue (which I think is what the original question was aimed it), is whether you have a discrimination issue if you only allow deferrals out of a portion of compensation. For example, if I only allow deferrals up to 10% of compensation excluding overtime pay, is that a potential discrimination problem? If the NHCEs are the only ones who have overtime, then it "appears" to be discriminatory b/c the HCEs can defer 10% of their total pay and the NHCEs can only defer 10% of only a portion of their compensation. It's a benefits, rights and feature issue. And, for this purpose, the reg specifically states that you don't have to pass the nondiscrimination requirement of 414(s). See (D) below which I copied from the regulation: http://frwebgate.access.gpo.gov/cgi-bin/ge...=2000&TYPE=TEXT iii) Examples. Other rights and features include, but are not limited to-- (A) Plan loan provisions (other than those relating to a distribution of an employee's accrued benefit upon default under a loan); (B) The right to direct investments; © The right to a particular form of investment, including, for example, a particular class or type of employer securities (taking into account, in determining whether different forms of investment exist, any differences in conversion, dividend, voting, liquidation preference, or other rights conferred under the security); (D) The right to make each rate of elective contributions described in Sec. 1.401(k)-1(g)(3) (determining the rate based on the plan's definition of the compensation out of which the elective contributions are made (regardless of whether that definition satisfies section 414(s)), but also treating different rates as existing if they are based on definitions of compensation or other requirements or formulas that are not substantially the same);

You can just add the HSA as an additional benefit election. It would be just like insured benefits - an election is made to have money sent to another vehicle that will provide the benefit. Instead of the vehicle being insurance, it's the HSA. The individual would need to have an HSA established with a qualified financial institution serving as either a trustee or custodian that could accept the contribution being funded through the cafeteria plan.