QDROphile

The post did not say so, but I bet the plan does not prevent an employee from getting individual coverage, paid through the cafeteria plan, because the employee has a domestic partner.

If the new account was not an IRA, you also need an IRS ruling that the repair worked. If the broker was at fault, it should get the ruling for you.

You are way too many steps ahead of me, so back up. The $98,550 is not included in gross income for income tax purposes. The $1450 is gross income, but is obviously not avaible to pay the individual or to charge for contribution to the plan. Most 401(k) plans use some variation of gross income as a base for measuring. To start, the plan could consider the $1450 as part of the available base for deferrals, so if the plan limited the employee's deferrals to x% of compensation, the employee could elect to defer an additiional x% of $1450. An increase in deferral could increase the match as long as the other deferrals had not caused the match to hit the maximum. The plan could also consider the additional $1450 as part of compensation in the match formula, so the maximum match could be greater whether or not the employee defers more based on the the $1450. I do not see how the $1450 itself could be a contribution. Any deferral based on the $1450 would have to come from other dollars. You cannot just call some amount a contribution. Real dollars have to be delivered to the plan/trust.

STP: I was having a little fun in how I answered your post. The problem is that 401(k) plan interests relating to elective deferrals are securities, but almost everyone forgets about this because there is a general exemption from registration requirements for 401(k) plans. The exemption does not apply if employer secuitires are offered as an investment option for elective deferrals -- which is pretty well known. The exemption does not apply to multiple employer plans if the exemption is read literally and carefully. To my knowledge, the SEC has not spoken about its interpretation of the exemption. It is possible that the SEC does not think the exemption was meant to treat multiple employer plans diferently, but I can think of arguments about why multiple employer plans are different from a policy perspective. The solution/requirement is not to guarantee investment returns. The effective guarantee of investment returns comes about because a penalty for violation of the registration requirements is that the investor has a right to rescind (get the invested amount back) and get statutory interest on the amount for the period of investment. Whether or not the SEC thinks the exemption applies to multiple employer plans, the participant can rescind if it can convince a court about the interpretation of the statute. The statute of limitations for rescission is one year, so only the most recent deferrals are subject to the right. If you want to delve into relevant authority, search the securities law board. The issue is discussed in some detail there and some authority is cited.

One reason a multiple employer 401(k) plan is better for participants is that the employer guarantees that each elective deferral will have positive investment earnings for one year. The plan will be in violation of securities laws, so the participants will have a right of rescission until the expiration of the one year statute of limitations. If the participant does not like the investment return during the year following the deferral, the participant can rescind, which will also include interest at the applicable statutory rate. The downside for the plan could be disqualification because the tax laws do not accommodate rescission, and it will be unlikely that a distribution event has occured, unless the particpant just happens to have terminated employment. Disregard if the plan has properly registered.

You have the same deal as everyone else. Get your insurance and the firm will pick up the portion of the cost that it has agreed to pick up. The firm is under no obligation to solve your insurability problems.

Why is this windfall any different from any other mistaken distribution windfall?

Since you asked for "any help," I suggest that Company X should make an informed decision about whether or not it wishes to risk violation of securities laws by participating in a multiple employer 401(k) plan. Several other threads discuss this issue.

Perhaps the fiduciary of the plan would be breaching its duty if it failed to accept payment from another source. I cannot imagine tha ERISA would allow the fiduciary to turn away money to cover amounts owed to the plan even if the plan were drafted as you say. I would not want to be that fiduciary. We sometimes forget that participant loans are loans by the plan and the fiduciary has the obligation to prevent the harm of loan default by taking reasonable actions. Fiduciaries are required to disregard plan terms that are contrary to ERISA. ERISA may not require the fiduciary to take enforcement action (it depends), but when the money is proferred, how can the fiduciary refuse?

The plan had better have some default rules to deal with not enough funds to cover all the specified allocations. Either that, or someone with above average skills will have to review each designation to be sure that the designation itself avoids interpretation problems. In any event, make sure the plan terms are compatible with specification of a dollar amount.

When it comes to labor relations, mendacity, ignorance and foolishness are rampant.

The collective bargaining agreement is separate from the plan. If the plan does not say that a match should be made then the plan has no problems under its regulatory scheme. The employer may have a problem under the labor agreement. Even if the plan calls for a match, failure to contribute could disqualify the plan, but would not be a prohibited transaction. The ERISA regulations specify when elective amounts become plan assets, but there is no similar regulation that applies to nonelective employer contributions. The story about the match seems flawed, which makes your entire post sound like it comes from an assignment or an exam. Why don't you try to answer the questions yourself and then seek comments on your answers, assuming that is within the rules?

Please explain "It seems to me that they can decide to defer 12 months prior to the scheduled payment for 5 years." I can't make out what you are saying. Are you saying that they can elect 12 months before year 5 to take 20% in cash? Or do they elect the 20% 12 months before the initial award that starts the 5-year clock? You have also said nothing about when the election is made to take the phantom stock instead of the cash bonus.

Definitely fiduciariy issues and possibly securities law issues, especially if the converted amount included elective deferrals.

I think #3 is a little weak. The participant cannot adjudicate qualification of medical expenses. The plan administrator will have to decide whether or not the airhead claims for Airborne will be reimbursed. As for #2, it involves making sure that the expense is incurred within the coverage period.

The plan does not have to allow the employee to make changes even if the law allows, so the issue can be avoided if the employer chooses, or managed according to what the employer wants to accomplish. If you are asking about what to do at this moment, follow the plan terms.

Why over NRA? Why not after age 70 1/2?

I did not respond directly to the question of prohibited transactions. I am not doing so now either. If the plan owns the majority of the LLC interests, and the LLC is treated as a partnership, would not the real property owned by the LLC be treated as a plan asset under the ERISA plan asset rules? If the real property is a plan asset, the lease of the property to the plan sponsor would be a transaction between the plan and a disqualfied person. You might not even get by the purchase of LLC interests by the plan, but I have not trudged through the analysis.

A participant is a fiduciary for purposes of section 4975 when the participant directs 401(k) account even though not a fiduciary under ERISA. Flaherty's Arden Bowl, Inc. v. Commissioner, 115 T.C. 269 (2000).

No employee is being excluded. The employee can choose coverage. What is happening is that if the employee wants domestic partner coverage, the employee has to choose to get coverage by means other than through the cafeteria plan (after tax). There is is no discrimination with respect to eligibility.

Maybe no 410(b) failure if new hires are the right mix of HCEs and non HCEs.

I don't see the word "stock" anywhere in section 4975©(1), so I don't see how you can conclude that if stock is not involved, there can be no prohibited transaction. You have to go through the exercise. Start with whether or not the nonprofit is a disqualified person. If not, the more interesting questions probably come from 4975 ©(1)(E) and (F). Those provisions depend very heavily on the specific circumstances. You can't get any help unless you provide a lot more information. The only thing that we can know for sure is the the IRA owner is a fiduciary for purposes of the statute. The nonprofit has its own restrictions on transactions with related parties.

Cafeteria plans are subject to a utilization test, section 125(b)(2), but you would have to have a small company or extreme selection to fail. I don't see how you can fail eligibility requirements. Every employee can have the same pre-tax benefits. There is room for agument about what it takes to "benefit" under the plan, but I don't think the eligibility test is actually a utilization test. If you can identify the third test, maybe someone will comment on it. The fourth test is not a cafeteria plan test. The fourth test is a professional responsibility test. If your client is expecting you to advise on this issue, what are you going to do to provide adequate advice? What if you got four responses and all said it was OK because they do it? Would you put your client on the line on that basis? Or would you act only on a negative stopper?

If the plan was a qualified retirement plan, the surviving spouse is the beneficiary by law unless the spouse consents to designation of a different beneficiary. It does not matter what the actual designation was before or after the marriage. If the spouse does not consent to naming someone else, the spouse gets the benefits upon the participant's death. Once the benefits pass to the spouse, they would not revert to the participant's line unless the spouse arranged for it and the plan allowed it. I don't see much prospect for a different result, but you should not rely on any comments you get from a forum like this one. One more thought. You should have received something more informative than a rabid response when you contacted the plan administrator, if it appeared that the inquiry was from heirs or designated beneficiaries. Ignorant lawyers do not necessarily make the best inquiries.

If your HSA contribution was through a cafeteria plan, you did not make the contribution. You elected to reduce you pay in exchange for your employer's contribution. Your W-2 pay was reduced by the amount you elected, that is why you do not pay tax on the amount -- it is not income to you. You never got it. The employer's contribution is not added to your income. Whether or not you pay taxes eventually depends on the HSA rules about qualifying expenses. The information and disclosure about these types of plans often refer to employee contributions because that is the easiest way for employees to look at their reductions from gross pay. But that is not the reality from the tax perspective. Reality is relative in this case.