QDROphile

It is very popular to erase the distiction between the ESOP shares and shares of employer securities in another plan or the non-ESOP part of the plan. It is also a legal abomination, but the IRS allows it. The usual approach is to define the ESOP to include all the employer securities, whether or not the participant has the right to provide instructions concerning the investment of plan assets into or out of employer securities. The ESOP will not be a separate plan. See Treas. Reg. section 54.4975-11(a)(5). The trend is driven in large part by the desire to be able to deduct dividends on all the employer securities in the plan, not just the real ESOP shares.

One purpose of section 609 was to provide for coverage of children of noncustodial parents. I would not advise a plan administrator to refuse to qualify an order on the basis of section 609(a)(4) unless we have some other authority supporting the refusal. I cannot think of any basis for refusal other than 609(a)(4). Although WFTRA may have changed tax consequences, and plan may have realigned with the amended tax provisions, section 609 appears to be indifferent to tax consequences. If you stand on section 609(a)(4), you need to take into account the state law that may provide an exception.

Redemption fees seem similar to commissions from the IRS perspective for this purpose and the IRS ruled that a commission must be netted and reflected in the value of the asset. Any attempt to treat it as an expense could be viewed as a contribution to the account. I am not aware of any authority that expressly mentions redemption fees.

Don't rely on any of this response, but it looks like the employee was eligible from July through November (Janet M is correct; I misread the facts -- but November coverage is uncertain depending on how the plan handles a partial month). The employee changed to an ineligible class (not employed in a position that is expected to have 1000 hours in a year) for periods after November and was ineligible for any contribution by the employer and ineligible for any health benefits. The health FSA is a plan separate from the cafeteria plan. The annual FSA amount elected was $3180 (12 x $265), so the employee has that much coverage for expenses incurred before December. This is my best guess. It is possible that the plan was designed differently. The health insurance plan is separate from the cafeteria plan. Premiums were paid through November and eligible expenses incurred before December should be covered. The employer probably has the ability to change the employee's status, but that depends on many things. Terms of employment are ripe for dispute. If the employer changed the employee's status for the purpose of preventing the employee from receiving benefits, the employee may have a claim under ERISA with respect to the ERISA plans. The FSA and the insured health plan are ERISA plans. The cafeteria plan is not. Such claims can be very difficult to win.

Are you now saying that X and Y are employees of the partnership and have W-2 income from the partnership?

Not if the corporations are C corporations. Even if they are S corporations, what flows to shareholders is not the partnership income, but corporation income. While that may seem like a fine point, it may determine the matter you are trying to resolve. I don't think "attribution" is really the correct concept when you are tracing the money. Attribution is important when you are analyzing ownership for purposes of controlled business and affiliated service group rules. Edit: This message is not a response to the message of GBurns. The GBurns message is interposed. I am saying pretty much the same thing as GBurns.

I don't understand the question. The partners of A are B and C. Income of the partnership goes to B and C, not X or Y.

You still need to provide a bit more information, especially about the $400 per month amount. Is the $400 amount an employer credit that can be used to fund various benefits through the section 125 plan? Did the $400 amount fund a health flexible spending account? Is there a health fexible spending account, and what was the amount elected or provided for the year? Did the employer $400 fund some other benefit, such as some other health benefit? Did the employee elect to have pay reduced in order to get some benefit? What are the terms of eligibility for the benefit plan (separate from the section 125 plan, although the terms are usually the same). Does any plan provide COBRA rights, even though not required? Don't give up until you figure it out, but it looks like the employee changed to ineligible status as of the end of October and is not entitled to any benefits afterward. That means an expense incurred after October is not covered. Hovever, depending on the terms of the benefit plan, such as the health flexible spending account, expense incurred before November could be covered in amounts greater than $1600. If the employee was covered by a health flexible spending account and the amount for the year is $4800, then eligible expenses (those incurred before November) would be covered up to $4800. But there are other possible benefit designs that would cause health benefits to be limited to $1600. Under the ERISA standards, the denial of claims should have identified the plan terms that control the decision on benefits. It would be appropriate to ask for a step by step explanation if the denial does not adequately explain. or request review of the denial and submit an explantion of why the denial is wrong. The reponse on reivew should explain the decison and identify plan provisions.

First you need to sort out eligibility for benefits from eligibility for the cafeteria plan. They are two different things, although they may be coordinated. The most important source of guidance for answers to your questions are plan documents. You will not find much by way of law that will address the specific facts and questions of your situation. Eligibility is determined mostly by what the employer decided to put in the plan. The plan will probably not provide ready answers at the level of detail in your post, so some interpretation will be required. It is improper to take actions to prevent people from receiving benefits, but changes in employment terms are not necessarily improper, even if they have the effect of making someone ineligible. The timing of submissions of claims is usually not a factor, but the plan documents should specify the deadlines. Most plans allow claims to be submitted even after the end of the plan year. When the costs are incurred relative to when the employee is eligible is most important, which brings you back to eligibility. While the regulatory agencies can help (Deparment of Labor is usually better than IRS), this sort of individual hand holding is not going to be a priority and the DOL is probably not interested in the cafeterial plan at all. Best course of action is to get a lawyer who understands benefits --there are relatively few-- if the disputed amount is big enough to justify the expense. ERISA provides for the award of attorneys fees if the participant wins, but that does not mean fees will be awarded.

The first sentence of the post suggests that any distribution would not be an in-sevice distribution.

Top hat plans are not exempt from Part 5 of ERISA and section 514(b)(7) mentions QDROS and QMCSOs. I don't know what a rigorous analysis would conclude about this, but I am more comfortable when the order meets QDRO requirements and it is usually not much of a burden to achieve that.

Until the plan establishes that it has some rights in the matter, which is questionable at best, the plan had better not withhold or delay benefits or payments or give any "instruction" or threat to the particpant about action that the participant should or must take. The plan can get into big trouble if the plan meddles where it should not or compromises the rights or benefits of the participant when it has no right to do so. I am amazed at the helpful comments of the armchair lawyers out there.

If you choose not to go through the full formalities, would you withhold on the payments? Is someone personally liable for not withholding? What would you say about rollovers? These are items to ponder. I am not necessarily arguing for a full resurrection of the plan.

Were do you find mention of a hardship?

Good luck with state law. When you don't find anything helpful, go back to your plan terms and see what they say. You may be able to reconnect with federal standards for purposes of interpretation.

See IRS Notice 87-13. The exception under section 72(t) applies if the particpant terminates employment in the year the participant attains age 55.

Look at section 414(p)(7) of the tax code. The case law must be considered when applying the statute, but the effect should not be significant. Why isn't your legal department answering your question? Here's is another question for you and your legal department. When you ultimately pay the reserved amount to somebody, are you going to take into account the time value of the money? If so, how?

You might want to get a payroll deduction authorization in advance of the rollover so you can keep the payments on schedule. You want to be sure no loans are in default or that defaults will be cured before the applicable period for cure.

How about the SEP is one of the terms of the offer of employment, is accepted by accepting the offer of employment and the consideration is providing services to the employer? The breach of contract is not getting the SEP benefit when the contract terms say the employee is entitled to the deposit in the employee's account. The employer documents the the terms of offer by the preparing and signing the SEP document. I am making no comment on the proposition about statute of frauds or outcome under a contract theory. There are loots of fun things left to consider under contract law, such as communication, mistake and the effect of ERISA provisions. However, it is helpful to look at a benefit plan as a contract.

Look at the last sentence of section 125(f). See also section 106©.

b2kates: Please explain your answer. A cafeteria plan does not pay anything to anybody except an insurance company or another plan. If a QMCSO required the employee to cover the child under the health plan, then the premium for the child coverage could be paid through the cafeteria plan. If the divorce order made the employee responsible for childcare and otherwise met the requirements to allow the childcare to qualify (e.g. the employee would have to have custody so the childcare would be necessary to allow the employee to work), then the employee could use the childcare spending account to cover qualifying childcare expenses and the contributions to the childcare spending account could come through the cafetria plan. Same for the healthcare FSA. But only qualifying expenses (health or childcare) could be covered and the payments would be from a component plan, not the cafeteria plan.

The advice is so bad that if it is in fact intended by the TPA to be advice about what to do, then the TPA should be fired. However, I suspect that someone is misunderstanding something in the communications.

So what is the qualifying event that triggers the COBRA notice? When does it occur relative to termination of coverage? When is it known, relative to the qualifying event and the termination of coverage, that coverage will be terminated?

Although you can do it, it never made sense to me to dovetail the 401(k) plan with the cafeteria plan.

A 75 percent deferral limit is a safe harbor for assuring that particpants have adequate opportunity to make catch up contributions. See the catch up regulations and the preamble.