ERISAatty

I'd thought I'd seen it all, but here's a new one: a company and its CEO have a provision in his employment contract that requires him to get a (sizable) contribution to the Company 401(k) plan for the current calendar year. The company does not otherwise offer a match or profit sharing or QNEC contribution. I'm waiting to receive the plan documentation to confirm, but I don't see how this could pass nondiscrimination testing. I'll probably have the company revise the employment agreement contract so that the specified amount can be paid another way - but not in the 401(k). Just wanted to share. Have never seen an outside contract specify a 401(k) contribution before. Do you all generally agree that this is a terrible idea?

Odd situation here. Just wondering if anyone has any insight. Two business partners had a 401(k)/profit sharing plan. The two owners were the only employees/participants. Each owner oversaw the investment of his own plan investments. A couple of years ago, one of the partners had some significant life changes and left the business. (Possible mental health issues present). Business was reorganized to now have only the single, remaining owner. The problem is that the former owner (I'll call him Bob) hasn't provided any detail (and has ignored/rejected multiple requests) on his plan account investments since then. Remaining owner wants to make sure plan is in compliance. Because Bob won't provide info (and has probably spent his assets), we don't know how to handle formalizing the distribution of his plan assets (which are not under the control of remaining owner). Do we 'deem' those amounts distributed at some point? Even if we do that, we don't have the assets from which to take withholding. Do we deem them rolled over? To where/whom? Trying to figure out what to do so that the distribution to Bob can be documented, and because distribution (after termination of employment) is required by plan. I have called around to try to get informal input from DOL and IRS. DOL not interested, since no non-owner participants involved. IRS contacts had varying views. Once said ' get into Audit Cap, like yesterday.' Another said, that it seems more like a tax issue for Bob, and less of a Plan qualification issue. I'm stumped on how to correct. Remaining owner wants to do things right. Any suggestions/insights?

It just keeps getting more interesting. I'd love anyone's thought on the following, which relates to the intersection of the new world of the Affordable Care Act and Health Reimbursement Accounts (HRAs). Here's what I know: 1. HRAs, to comply with the ACA, must be 'integrated' with the health plan. 2. Stand-alone HRAs are out - unless its a retiree-only HRA. I have clients (public sector) who have an Active Employee (integrated) HRA (employer makes contributions to active employees) AND a retiree-only (stand alone) HRA (employer makes specified contributions for a limited number of years to retirees. Here's the the @#%# hits the fan: Client may want to rehire a retired individual (who still receives the retiree HRA contribution in the retiree-only HRA account) for part-time work. In the re-hired position, the individual is eligible for the active employee HRA contribution. Some vendor/promotor types, locally, are scaring a lot of employers by pointing out the conflict here, and saying that the active-employee HRA made for the retiree will "blow up the retiree HRA" (which, if it is not for retirees-only [by receiving a contribution for an 'active', does not satisfy the ACA). I believe that an assumption is being made here that there is only one HRA and that an active-employee's HRA is 'converted' into a retiree-only account when someone retires. In actuality, I believe that we should actually be talking about two separate HRAs here: one for actives (integrated) and one for retirees. Contributions make to a retiree should go into a literally different/segragated account than for when the person was active. Additionally, I would think that the 'problem can be addressed' by adopting a rule under which a person is eligible for only one type, but not both types, of HRA contribution at a time. (Maybe freeze the retiree HRA contribution while the person is a rehired active. Alternately, perhaps the rehired person could simply receive both types of contributions at the same time, so long as the active-portion goes into the active sub-account and the retiree portion goes into the retiree sub-account. (The person did, after all, attain 'retirement' status at some point, and barring plan language to the contrary, arguably remains entitled to a retiree contribution). Hmmmmm..... I imagine this is an area where we'll see more regulation/guidance, but for now - it provides a window for local trouble makers to rattle the nervous employers. Sigh.

This makes a lot of sense to me, and the second approach described above strikes me as the most practical under the facts. Glad I'm not the only one not seeing a BA party here. I appreciate your insights/comment - always nicer to be able to bounce an idea around instead of puzzling at it alone. Thanks.

I am waiting to get a clear answer from the parties on what, exactly, will happen with the screening results. I guess I had been assuming that only the clinic would have them, and that the clinic might notify the students' families' of results specific to a given child. Under that assumption, the school has no involvement with/use of the any protected health information. But you're right. It makes sense to think that a report of some kind may go to the school (I will confirm), in which case, I can see that the school needs to abide by Business Associate-type standards. Thank you.

Hello, I'm stumped and just need a reality check. Here's the pretty simple fact pattern: A public School District and a local Community Clinic (a health care provider) have entered into an arrangement whereby the Clinic will provide a day of health screenings for students in the District. The Clinic has asked the District to sign a Business Associate Agreement. The Agreement identifies the Clinic as the Busniess Associate. The District is referred throughout the agreement as the 'Facility' (where screenings will occur). And the Agreement refers to services provided on for or on behalf of a Covered Entity (which is not defined). I asked them to identify the CE, and the Clinic to me it is the District?!?!?!!? (That must be incorrect - District is not a health care provider, and not a CE). Just to clarify, the District's Health Plan has no involvement here. This is just a Clinic (a CE) coming in to provide student health screenings. It is not clear to me why a business associate agreement is even needed, in that the District won't be providing services for, or on behalf of, the Clinic that require the use or disclosure of information. Do you agree? If the parties insist on having an agreement in place, I want to ask them to clarify that the Clinic is the CE, and that the District is a BA, but only to the extent that it should provide any services for or on behalf of the Clinic. Thoughts? Thank you!

Information is, and different perspectives are, always helpful. It seems to me that the project of determining exactly what interest rate would have applied to the loan, had the individuals involved obtained it from a bank, cannot be determined with precision. Witness the differing views here. (And that, in itself, is helpful to know). Part of the difficulty in determining an analogous rate relates to the required research into the creditworthiness of the specific applicants. Another rate-determining factor relates to how, exactly, the applicants planned to use the loan. In this case, the loans were related to investing in real estate. Don't know of a lot of banks, in 2011, that jumped at those. Witness the differing views here. I question whether the loans at issue would have been underwritten by a bank at all. Since I'm in a corrections stance with the IRS (and they understand that we're recreating wheels that should have first been created in 2011), I have the luxury of knowing, before the correction is completed, whether the IRS will or won't accept a proposed interest rate for the correction purpose. So I'm in suspense as to how those conversations will go. To date, the Agent has only raised the issue (and directed me to the Winter 2012 issue of Retirement News for Employers on the issue). She stated that IRS examiners on audit are seeking "justification" for the rates used. To my thinking, a prudent process, and evidence of having inquired as to current local bank rates, can be part of a justification. Another part can be arguments relating to how a given plan loan is or isn't like those prevailing rates. Like I noted a few posts above, once I have an update on whether we can be allowed to stick with Prime + 2, or not, and/or what other insights I can glean from the discussion, if any.

Thanks for the fascinating responses, everyone! I'll post again if I have any updates on IRS (or DOL, but I hope not) reactions on the interest rate issue, and/or how it goes as I try to argue to stick with my Prime + 2% calculation in the current matter. (After all, the new position on loans is of more recent vintage [2012 is the earliest as far as I know - though I may not know everything] than the Fall 2010 informal Prime+2 IRS guidance. [And yes, I realize that informal guidance can't be officially relied upon. On the other hand, it doesn't seem fair that a plan sponsor should have to incur hundreds of additional dollars in attorney's fees to sort through the interest rate issue, when they/we had already followed what we believed to be an acceptable approach for 2011]. I've obtained some historical consumer loan rates from a local bank for 2011 (the year these plan 'loans' were made), but of course, these rates were for loans not exactly analogous to a plan loan. I'd sure prefer to see the use of a safe-harbor standard (or a range). Still it's helpful for my own comparison purposes. Maybe. And I feel I've at least 'checked the box' on the apparent 'duty' to investigate commercial rates, and obtained documentation of same.

...and yes. Apparently, per DOL Reg. SEction 2550.408b-1(e) (and the examples there), calling banks is exactly what's required. ):

Exactly.... this seems a bit much to ask of a plan administrator, but since I'm in an active correction, I'll do as I'm told....

Oops. I meant to include this link, as well, which is to a BenefitsLink message board thread, in which posters noted hearing that Prime + 2% was the standard, per an early 2012 phone forum: http://benefitslink.com/boards/index.php?/topic/50904-irs-says-prime-is-not-reasonable/ Actually I have now located the actual source and transcript: http://www.irs.gov/pub/irs-tege/loans_phoneforum_transcript.pdf At the bottom of page 10, they say prime + 2 is reasonable. But in any event, it appears that the pendulum has swung back to the DOL reg standard of ensuring commercial rates, so I guess I need to go research what type of interest rate a local similar loan in 2011 would have had...

Hello, all, I am currently working with an IRS VCP examiner to correct some improper plan distributions from a 401(k). The distributions were intended to be loans, but were not properly documented, amortized, etc. IRS has approved correction, under the specific circumstances involved. Part of the correction, of course, is that the Plan will be repaid and made whole, with proper interest, etc. What I'm puzzled about is this: In calculating the proper interest for the loans (taken out in 2011), I used Prime (3.25% in 2011) plus 2%. My understanding, per prior informal IRS guidance, was that this amount of interest would be "reasonable." (Here's a prior discussion on IRS's informal position regarding this: http://www.irs.gov/pub/irs-tege/rne_win12.pdf ) The confusion comes in because the IRS VCP agent, by phone, is now telling me that IRS auditors, on exam, are now seeking "justification" for interest rates used on plan loans, and that we need to ensure that the rate used is what would have been commercially available. See, e.g., this mention of this topic in the IRS Retirement News for Employers - Winter 2012, that the examiner brought to my attention: http://www.irs.gov/pub/irs-tege/rne_win12.pdf ) The IRS VCP agent suggested that my clients were professionals, and I should check to see if 5.25% was the rate they would have gotten. My first thought was that she meant that 5.25% is TOO LOW. On further reflection (and given recently low interest rates), I'm wondering if, instead, she is suggesting (albiet in code), that I should consider using a LOWER interest rate than 5.25% Because I'm thinking that an ACTUAL commercial loan would have been lower for that period. (Was she telling me that 5.25% interest was too high?!)

Thanks!

I'm dealing with similar issue, i.e. need to make corrective contribution to plan (and I agree that there's not a 'de mimimis' exception) for contributions (as there is for corrective distributions). I'm struggling with how employer reports corrective contributions to terminated participants. Any ideas? Box 1099-R, -MISC, W-2? Any thoughts welcome!! Thanks.

Hello all, My (until now) clear understanding of the final service provider disclosure regs (issued July 16, 2010) has been that welfare plans are *exempt* from reporting indirect compensation. At the same time, a service-provider client has received a demand from a welfare fund for indirect compensation information to report on Schedule C. Letter states that the Plan is required to report to DOL any provider that fails to respond. The welfare plan has more than 100 participants, and holds assets in a Trust, so is required to File Schedule C. The DOL has affirmed that if a welfare plan is required to file Schedule C, then indirect compensation must be reported. See Supplemental DOL FAQs About The 2009 Form 5500 Schedule C, Q/A-23, available at http://www.dol.gov/ebsa/faqs/faq-sch-C-supplement.html So... that leaves us... where? There is a requirement that those welfare plans required to file Schedule C must report indirect compensation. Simultaneously, providers to welfare plans are exempt from the requirement to disclose indirect compensation (which has not even been defined for purposes of welfare plans, and will be the subject of future rulemaking). My instinct is to respond in writing the plan (actually the plan's financial auditor) that made the request to say that we fully support compliance with the DOL's requirements but that under currently law our service-provider client is not required to report anything. Does this seem right? Need a reality check. Thanks!!!