QDROphile

I am interested in VEBAs that provide medical benefits (retiree medical benefits, so much the better) and use life insurance as a funding vehicle. I would like names of providers or consultants that I could contact. I would also welcome general comments on the arrangement.

You might want to read the IRS notice on the subject of automatic rollovers before you reach that conclusion. The notice uses a broad definition of madatorry distribution. Was it intentional? Is it supported by the statute?

There is not an answer that is supported by specific guidance. I would choose to include the reimbursements for the domestic partner in the employee's income. My second choice would be to include all of the FSA amount in the employee's income. Part of the reason is punitive -- the claimant should be certifying that the expenses are eligible. Part of the reason is principle. As you have observed, you cannot know in advance how much of the FSA amount would go to the domestic partner (unlike cost of core health coverage). Therfore, expenses of the the domestic partner could have consumed the entire amount. To enable the domestic partner to have so much covereage, the entire FSA amount could be treated as the cost of coverage. In most FSAs, the cost of coverage is equal to the benefits. If you choose the most gentle approach (my first choice), you are doing nothing to discourage gambles on cheating, which reflects badly on the sponsor and administrator. I vote strongly against the pro rata approach. I don't see any principle behind it. Sounds like an old adage from law school: If we can't be fair or correct, we must be arbitrary.

Section 125 requires that plans be in writing. Self administration is possible.

LRDG's situation was easy. It was impossible for the employee to use the elected benefit, so it was easy to conclude that the election was a mistake. I don't think "belief" in the participant's story is ever enough by itself if the story only relates to intent.

Is he blind, illiterate, or too important to read forms? So far, I'm not convinced. If he elected $5000 of health FSA benefits for the last 5 years and failed to elect any health FSA benefits in the year he first elected $5000 childcare FSA benefits, it would be a better story.

Although you can probably correct mistakes, you have to be convinced to a high degree that the enrollment was really an error and the length of time before the question was raised is not a helpful fact. What other evidence do you have to support the claim of error?

I did not state that allowing the AP to wait until 401(a) (9) requires distribution is a violation or is evil. I think it is not the best way to run a plan because of the administrative complexity. It is simply easier to require the AP to start when the participant starts, which will reduce the chances of violation 401(a) (9) almost to zero. There is nothing to prevent such a plan design because a domestic relations order cannot require a plan to do something that the plan is not designed to do. The plan starts benefits when the participant starts benefits; it does not reserve a portion of the benefit for a later start. Compare Fidelity (talk about evil!). If Fidelity sets up a separate account that is completely under the AP's control, without regard for the age of the participant (which is what Fidelity does), compliance with 401(a)(9) happens only by chance. Lucky for the 900 pound gorilla that most APs do not have the luxury of postponing payments to the point of violation.

As your post notes, the separate account is still based on the participant with the AP treated as the spouse, not independent of the participant. I guess we could discuss degrees of separation, but it is not a completely separate interest if the status of the participant still affects the AP's benefit.

The plan got a stupid start by allowing the AP to postpone start of benefits after the participant started benefits. This is something that Fidelity foists on unsuspecting customers, by the way. Shame on Fidelity for setting up a potential violation. I don't know if you can fix the plan with respect to the AP at this point. Second, there is no such thing a a separate interest. The 401(a)(9) rules do not divide the benefit and apply the rules to each separately. It is all the participant's benefit, but treated as a separate account with the AP as the spouse. Comply accordingly and see section 1.401(a)(9)-8, Q&A(6) of the regulations. You have a right to be Grumpy.

When I see such provisions, I think that the drafter is trying to assure the the AP's interest is not totally lost because of death of the participant before the AP starts benefits. You did not say directly that the plan is a DB plan, but this is a legitimate concern in a DB plan. Since the term "separate interest" does not have an accepted meaning, the drafter cannot be sure of the consequences of its use. A more direct approach to making sure the AP gets a prescribed share of the death benefits is better. I do not presume that the AP intended to get a piece of the participant's remaining interest, but was simply inept. Since I do not believe in separate interst under DB plans. I believe that the portion of the award to the AP can be used to define the dealth benefit payable to the AP if the AP fails to get the portion of the regular benefit becuase of untimmely death of the particpant. While I agree that the plan should not get involved in trying to correct conceptual errors or attempts by one party to fool the other, there is nothing wrong with the plan to say, as a condition of qualification, how the plan interprets the provision, including an example of an outcome that makes the point. The plan has an interest in avoiding later disputes over interpretation, so it is best to get the issues resolved to the plan's satisfaction now, while the plan had total control. You don't have to guess at what was intended -- state how it will be interpreted and let the parties work out what was intended.

Will the amendment break the prototype?

You are probably not dealing with a deemed distribution. You are probably dealing with an offset distribution. The difference does not matter for purposes of your question. The 10% tax under 72(t) applies unless the loan is rolled over.

The plan terms need to fit better. Someone needs to evaluate application of discrimination rules, especially with respect to the health FSA.

Are you referring to real annuities or fake annuities? Any plan asset that is not purchased at the direction of the participant is not covered by 404( c). The fiduciary is responsible for the asset. The plan sponsor should have nothing to do with decisions about investment of plan assets because investment is a fiduciary function. If the sponsor is a fiduciary, serious consideration should be given to identification of the individuals who will have fiduciary responsibility. Any individual who is a fiduciary but takes no action to discharge fiduciary obligations because of ignorance of the fiduciary status is at substantial risk. Any fiduciary who purchases an annuity or makes annuities available as an investment option must be able to explain how the asset works and its value and disadvantages relative to other investment options, including true cost. I challenge most individuals to be able to succeed in that endeavor. Most of those who are able to evaluate annuities would not allow them in a qualified plan except as a distribution option.

I don't see a requirement for an invesment policy, although one would be a good idea.

You still have to fit the standards for medical care. Recommendation by a health professional is very helpful, but how do the books fit with the specific terms of the statute and regulations? I am skeptical.

I would go so far as to say that a corrective contribution by the employer would NOT be be permitted if you were dealing primarily with HCEs.

To clarify, the full amount of the medical spending account coverage elected is available from the first day of coverage. The amount of employer dollars devoted to paying for the coverage is irrelevant, even though it may be identical to the amount elected.

Certain expenses, such as comissions and possibly other investment transaction expenses (not including investment advice) would be treated as contributions if covered by the employer. Most expenses would not be treated as contributions.

You have to follow the terms of the plan. If the plan provides that matching contributions can be made for this employee, then it can be done, subject to the relevant qualification rules. If the plan terms do not provide for the difference in match relative to others, and others don't get the match, then the contribution will disqualify the plan. The wording of the provision for the special match might be interesting. Qualified plans are not bridge games. You don't get to declare trump, even if you win the bid.

Stop with the double tax BS already. Also, the interest can be deductible if you know what you are doing. Not recommended because it is easy to make mistakes and blow the deduction.

#1: If the purchase price of the house is greater than the maximum hardship amount, you have eliminated the uncertainty. If the designated hardship amount is more than is necessary for the minimum down payment, then the down payment will be more than the minium to use up all of the hardship amount. #2: You still have the uncertainty about closing, an all-or-nothing proposition. That is a risk of any house purchase, whether or not plan funds are used for the purchase. It might be well for you to explore whether escrow is a technique that should be used generally by the plan. What would you do with a "normal" house purchase that fell through? Same issue.

401(k) regulations

Issue #1, uncertain amount: Are you suggesting that the full purchase price of the house would be covered by the distribution from the plan? Issue #2, possible failure: All house sales have the possibility of failure of closing, so the issue is not unique to the auction. Consider whether or not escrow solves the problem. Also ask yourself if the escrow agent needs to be bonded.