QDROphile

No mid-year change to the medical FSA under those circumstances. See Treas. Reg. section 1.125-4(f)(1).

Tail distribution.

Generally no registration is required, but the arrangement should be evaluated by someone who understands the rules and issues.

Those are good questions that should be asked before deciding whether or how to proceed with an arrangement, and different circumstances and different people may well come out differently about what is important and acceptable. But those questions will never be asked without first understanding that there is a real issue under the law, and it is a subtle issue that is outside the knowledge and imagination of most of the benefits community.

A multiple employer plan is not exempt from registration even if it does not invest in any employer securities. If the plan allows employee deferrals or contributions, it has to deal with lack of the usual exemption.

My difficulty is that you went out of your way to create the appearance of credibility by seeming to go further with applicable authority to contradict the correct position taken in the thread and reiterated by me. The thread itseld is a strong discussion, conducted by someone with superb credentials (credentials mentioned in the thread, so you did not have to go anywhere else to get the idea that Kirk Maldonado knows what he is talking about). Yet you casually advanced the wrong conclusion. I think you have a responsibility to be more rigorous if you take such pains and create such appearances. It would have been different it you responded to an inquiry soley with a particular recollection, and expressed uncertainty. But you did much more than that. You contradicted a solid, supported conclusion in a misleading way. Although I do not think you were deliberately misleading, under the circumstances you should not have ended with a half-assed effort (if you wish to continue the ass motif).

I am having some difficulty with your response, so I will assume that you are trying to be helpful and simply have faulty recollection and not enough time to confirm.

Green92: You had better read the thread in the Securities Law Aspects, too. If you think "We are also a RIA in 9 states already" is responsive to my comment, you missed the point.

From an earlier post in this thread, " You have no exemption from registration and you will probably find registration to be prohibitive." If you would like a starting point or more details, look at the thread that starts April 28, 2005 in the Securities Law Aspects forum. It is both edifying and amusing.

I doubt that you will have a multiemployer plan of the type you describe if you care about securities law compliance. You have no exemption from registration and you will probably find registration to be prohibitive.

If you are contemplating a multiple employer 401(k) plan you need the advice of a lawyer who understands the securities law issues that are unique to those arrangements.

The signing of a purchase agreement does not necessarily change ownership status. The agreement may provide for the sale to close at later time, when ownership will change. The closing may be contingent on any number of conditions. If the plan is terminated before the sale is effective, the IRS believes that plans of the purchaser's controlled group of businesses are not plans in the same controlled group as the terminated plan, even though the newly purchased corporation is in the controlled group. See sections 401(k)(2)(B)(i) and 401(k)(10) of the tax code for one consequence and Treasury Regulation section 411(a)-11(e) for another consequence of terminating after the effective date of the acquisition.

Start with section 414(t) of the Internal Revenue Code.

If Company A has the better benefits and most of the highly compensated employees, highly compensated individuals and key employees, you could have discrimination problems.

You cannot say for certain that the the design differences will not cause discrimination. The demographics and benefits of one group may be disproportionate to the other and cause failure of certain tests that are applicable to the component plans. Chances are that you will be within the tolerances of the tests if both groups are large.

The employer has nothing to do with it. The fiduciary with resposibility for investments is responsible for such matters. If that happens to be the employer, shame on the employer for accepting the fiduciary mantle. Whether or not 107 basis points is too much depends on the totality of the circumstances.

It is a matter of plan design and I have no idea how it breaks down statistically. I don't recommend a true separate interest for DB plans. The design choice has actuarial implications because the AP' life is injected into a portion of the benefits in a way that is adverse to the plan. I have been told by some actuaries that the effect is so small over all that they make no separate adjustment to benefits. I do not know if this is the universal approach, but it probably does not matter because you cannot change it. You can recognize it and adjust the division formula if the terms of property settlement allow. Even if the plan says that the AP's interst is truly separate, it would be a good idea to make sure the terms of the order make it clear that the AP will be paid the assigned portion of the regular benefit without regard for the death of the participant before the AP. The terms of the settlement agreement also raise an interesting question. Does the AP get the pre-retirement and post-retirement survivor annuity of the portion of the participant's benefits that is not awarded as a separate interest to the AP? Literally, that is what the words mean, whether or not that was intended. The alternate payee could start benefits under the AP's share of regular benefits. The participant would have to take benefits in the form of a 50% J&S annuity. If the participant dies first, the AP continues the AP's regular benedfit and the picks up the survivoar annuity payments from the participant's portion whether or not the particpant has remarried and accrued benefits during the second marriage. This gives the AP further incentive to kill the participant, even if other aspects of the divorce were not sufficient in the first place. Because of this potential confusion of terms, I never let a domestic relations order go by with a simple statement that the AP is to be treated as a suviving spouse. Many of its implication are not intended.

So the employees of this particular employer are worse than average health risks? The world is imperfect, and so are rate setting endeavors, but all things being otherwise equal, a greater number of participants in a health plan tends to make the premiums lower and create more opportunities. Perhaps the other employers are subsidizing health insurance costs and the additional volume means more participants to subsidize. One can only imagine what motivates a decison to subsidize. It would be interesting to know if the fears of additional cost to the other employers are well founded.

Tell us more about the uproar and the unfairness aspects.

Do you want to talk about the difference between signing a purchase agreement and closing the transaction?

Your concerns about how the ESOP acquired the stock are well placed, but it could have been done by a loan to the ESOP, with the proceeds used to buy the stock. The loan gets paid out of future dividends or contributions. Perhaps the loan was at the end of the year and no payments are yet due, so no contributions have been made to cover the loan payments.

Company B employees start to accrue service credit for the plan on January 1, 2007 unless action has been taken to impute service for B for purposes of the service requirements under the plan. Imputed service can be granted for some or all purposes. Company B employees were "hired" by the Company A controlled group upon acquisition of Company B.

It is absolutely reasonable to ask for reassurance that the service provider will suffer no adverse consequences from following an extraordinary order. If service providers did not inappropriately hold themselves out as advisors, they would not have to take such actions, but they do implicitly hold themselves out, so they have to cover themselves when it is clear that they are not taking responsibility.

I agree that it would be a daunting task to describe in detail in the order how to compute a cola or subsidy, but I do not think it would be difficult for the plan to provide a reasonable calculation based on a general description once the terms of the COLA or subsidy are known. Generally, the AP's interest will get its actuarial equivalent proportional share, applied to the form of benefit. It can be tricky if the enhancement applies only to or for benefits accrued after a specified date. Depending on how the division of benefits is framed, the AP's interest may not be eligible at all, or may be limited, under the terms of the enhancement because the interest that was divided was all or partlyaccrued before the specified date. Application to so called "marital portion" divisions could be especially controversial.

Lets look at the dark side for a moment. Your boss is unhappy about the experience loss (paying more in benefits than was covered by salary reduction), so now the boss wants some consolation that the former employee will at least feel the pain of taxes. He must be a peach to work for. If your boss would free his mind from his emotional prison for a moment, it might help to understand how FSAs work. As far as the tax code is concerned, the employer does not use the employee's pay to cover medical expenses, so there is no connection between the cost to the employee and the value of the benefit. This view from the tax code is not intuitive, so I have some sympathey for the boss. The employer promises a certain level of health payments. That level is chosed by the employee, subject to the maximum established by the employer in the plan. The employer is functioning like an insurance company -- it promises benefits. In exchange for the benefits, the employee agrees to a salary reduction -- the employee chooses benefits over cash compensation. If the employee terminates before the full amount of salary reduction is collected, that does not affect the employer's promise to pay benefits. Or, you could look at the salary reduction as the employee's premium for the benefits that the employer (as insurance company) provides. Insurance companies don't collect premiums equal to benefits. They have to provide the promised benefits whether or not the value of benefits exceeds the premium. The difference does not make anything taxable. Employer provided health benefits are not taxed. You could have a plan that provides the FSA benefit with no reduction in salary by the employee. Still not taxable. The cost to the employee has nothing to do with the taxability of benefits. I have not checked the penalties for a deliberate misreporting of income, but that is what it would be. Since correct reporting is the heart of the system, I expect that a deliberate misstatement would have adverse consequences. And it would be very easy for the IRS to conclude that the misreporting was deliberate, given the apparent hostility your boss has shown to life under sectons 125 and 105. Also, since the former employee has a great interest in not paying taxes on nontaxable amounts, you have direct and certain oppositon to bring the issue to the attention of the IRS, if only as self defense. How big a deal it becomes is uncertain. At a minimum, you can expect some effort to reconcile the employer's position and the taxpayer's positon. Is it worth the potential follow-up distraction to make one last dig at the former employee?