elmobob14

Employer offers coverage to everyone regardless of hours worked. If you work 20hr/week, you get coverage. If you work 40hrs/week, you get coverage. Because of this, the employer isn't applying a measurement period. But is a measurement period and a stability period applying in the background? So, if an employee works in year one and goes on leave of absence in year two, is the employee entitled to an offer of coverage throughout the entire period of absence because an imputed stability period requires it? Is there a measurement period/stability period operating in the background even though the employer isn't using this for plan eligibility purposes? Employer doesn't want to give benefits on an extended leave of absence.

It's a 403(b) DC plan. The connections that the organization once had with a church were severed long ago, but no one thought about the impact of this separation on the plan. It's clear that it doesn't qualify for church plan status anymore. It has 100+ participants.

So, if I've been sponsoring a church plan and upon review determine that I'm not eligible for church plan status am I able to use EPCRS to fix it retroactively? I assume I would also need past 5500s and plan audits? If anyone has experience with this, and in particular, with how the IRS responded to someone applying to correct under EPCRS, please share. Thanks!

Thanks guys. I talked to someone at the IRS and they said that separate amendments, retroactively amended, are required. Time to track down that old GUST document.

If a plan hasn't been amended for GUST and EGTRRA--using App. C, Part II Sch. 2--must a filer send (1) a GUST amendment and an EGTRRA amendment (i.e., two amendments), each retroactive to the applicable effective date, or (2) may the filer simply send a restatement with everything? Thanks!

Exequity sells a product that performs the Code Section 280G calculations required for parachute payments triggered by a change in control. Does anyone have any experience with this tool? Can anyone recommend other programs (applications--I don't know which term the kids use these days) that can do this? Thanks!

Thanks Flyboyjohn. Do you know of guidance that spells out how verification is going to work or that shows that the Marketplace has the responsibility to contact the employer? I don't doubt you, I'm just trying to get more information to see how it works. Ivena, you note that the employer could challenge the $3k/year fine if it believes that it's incorrectly assessed. This is what I'm interested in. Has there been any guidance that tells the employer how to go about doing this?

Do employer have a right to object or challenge an individual's claims to a subsidy on the exchange? As you know, individuals are eligible for a subsidy if, among other things, they weren't offer coverage by an employer or if the coverage that was offered didn't provide minimum essential coverage or wasn't affordable. Is there guidance or has anyone addressed whether the employer can contest an individual's claims for coverage or what the process would look like?

Thanks Everett. It certainly seems like we're screwed based on the quality assurance bulletin.

The IRS asks for plan documentation when reviewing an application for a favorable determination letter and we don't have it. Section 5.09(3) of the Rev. Proc. 2013-12 says that we are "under investigation" and thus, ineligible for VCP. Are we just screwed or do any of you have any suggestions of how to correct these issues without going into Audit CAP?

This is exactly how I read Treas. Reg. 1.409A-3(j)(4)(v) is supposed to work. As you know, it's listed as an exception to the accelerated payments section of 409A. So, I think you're green lit for take off.

Thanks guys. That's what I thought, but BNA isn't a fly-by-night publication, so I thought I'd double check with everybody here. Weird though.

As you all know, guidance (and enforcement) is forthcoming for fully-insured plans on nondiscrimination. Notice 2011-1 indicates that a fully insured plan that discriminates against non-highly compensated employees will be subject to civil monetary penalties of $100/day multiplied by each non-highly compensated employee that was discriminated against. For self-insured plans, however, violating 105(h) only results in the HCEs losing a tax benefit. Or so I thought. The BNA Benefits Guide states: Self-insured health benefits plans that discriminate in favor of HCEs are subject to a less onerous tax regime. Such plans that violate tax code Section 105(h) must pay a $100 excise tax per day on each beneficiary who receives discriminatory benefits in their favor, rather than the $100 per day penalty that applies to an insured plan for each individual discriminated against. Is this correct? I can't find any supporting authority for it and there's no citation. I thought loss of tax benefits was the only consequence for fully funded plans.

Here's what I've found: PLRs 8411050, 8411051 (substantially similar), and 8336065, hold that waiting periods are benefits under Code Section 105(h). So, if HCEs get in immediately and NHCEs have to wait, say 90 days, then the benefits are discriminatory. Importantly, 8411051 notes "the above ruling is based upon the assumption that the employee contributions required under the Plan will not result in those employees who are not highly compensated individuals within the meaning of section 105(h)(5) of the Code being excluded in greater proportion than highly compensated individuals." This implies that if disparate employee contributions were required under the plan, it could (or would) make the arrangement discriminatory. PLR 8328065 holds that requiring a participant's survivor to pay a monthly contribution to continue in the plan is nondiscriminatory, but "if the contributions required of a survivor result in the survivors of highly compensated individuals being able to continue coverage in a manner that discriminates in their favor, as opposed to the survivors of other participants . . . " then the arrangement could violate Treas. Reg. 1.105-11©(3)(ii). These PLRs, from the early 80s (thank you Chaz), could be more explicit, but seem sufficiently clear to show that the IRS would frown on different premiums for HCEs and NHCEs. If anyone has clearer guidance on this point, I'd appreciate you pointing me if its direction.

Thanks Chaz. I'll try to track down the PLRs. I thought about the 125 angle too. In my scenario, the employer is contemplating paying 100% for HCEs and 80% for NHCEs. Since the HCEs wouldn't be using the cafeteria plan to pay premiums -- since they would pay nothing -- I think this would work under the cafeteria plan rules.

Thanks Ivena, but I don't see under Treas. Reg. 1.105-11©(3) -- the Reg on the Benefits Test -- where is says that employee contributions must be the same for HCEs and NHCEs. The Reg states: A plan that provides optional benefits to participants will be treated as providing a single benefit with respect to the benefits covered by the option provided that (A) all eligible participants may elect any of the benefits covered by the option and (B) there are either no required employee contributions or the required employee contributions are the same amount. Treas. Reg. 1.105-11©(3)(i) (emphasis added). Clearly optional benefits, which I read as claims-made benefits provided under the plan, cannot be made available to HCEs and NHCEs at different prices, but does this extend to all benefits under a plan? It seems logical that it would, but I wonder why the Reg is limited to optional benefits. Why not simply state that premiums for HCEs and NHCEs must be identical. Are premiums benefits that are provided under the plan? Thanks.

Can an employer pay disparate premiums for highly compensated and nonhighly compensated under a self-insured plan? That is, contributing a higher percentage of premiums for the highly paid? I've read Treas. Reg. 1.105-11, but it reads like it applies only to the actual benefits paid under the plan on claims made. I've also read a number of white papers that suggest that paying more premiums for the highly compensated violates Code Section 105, but I can't see where this follows in the Regs.

Can an employer pay disparate premiums for highly compensated and nonhighly compensated under a self-insured plan? That is, contributing a higher percentage of premiums for the highly paid? I've read Treas. Reg. 1.105-11, but it reads like it applies only to the actual benefits paid under the plan on claims made. I've also read a number of white papers that suggest that paying more premiums for the highly compensated violates Code Section 105, but I can't see where this follows in the Regs.

Sorry, it looks like Simmons answered the question above. Thanks for the cite!

On a related question, how do you test employees that switch back and forth between the two plans within the same year?

I don't know that I would lump in the ambiguities of 457(f) with scumbag behavior. 457(f) is more difficult than corporate nonqualified deferred compensation, because taxation is dependent on the substantial risk of forfeiture. In addition to a substantial risk of forfeiture, corporate nonqualified deferred compensation can defer compensation if the arrangment is an unfunded promise to pay, regardless of whether a substantial risk of forfeiture exists. Tax-exempts don't have this option, because 457 requires a substantial risk of forfeiture. Without the use of rolling risks or forfeiture, or covenants not to compete, tax-exempt entities are much more limited with the types of deferred compensation they can offer their highly compensated employees than their corporate counterparts. The IRS "tsk, tsking" without offering a viable alternative and without explicitly repudiating its prior guidance leaves employers scratching their heads with what to do. I don't think it's shady to regard an approach as possibly still viable because the IRS says that will one day in the future it will be unacceptable. Especially if there is explicit authority to the contrary. Bottom line, it's clear that the IRS disfavors rolling risks of forfeiture and covenants not to compete, but they are still used by many tax-exempts because it has been 4 years since the IRS said they were going to expressly repudiate them and give guidance, but we're still waiting. Meanwhile, employers want to provide benefits to their employees within the IRS's guidelines. Sometimes those guidelines are not crystal clear.

The 457 treasury regs give you a grace period for refunding excess contributions, I think it's April 15 of the year following, but you would need to confirm. If you correct after this time, then you are screwed. If the Plan retains excess contributions after this grace period deadline, then the IRS views the Plan as having converted from an eligible 457(b) plan to an ineligible 457(f) plan. Since the two plans are structured differently, you'll have immediate taxation on all amounts in the plan from the date of the error. This means that all amounts deferred thereafter will also be subject to taxation. I would make the correction as you suggest, but wouldn't count on mercy. I would institute a new plan as part of the correction in case the IRS comes poking around to limit the amounts on which they can ding you. In our case, the plan had been in existence for decades and involved a very small excess (under $2,000) and it took almost a year to find someone within the IRS to show mercy. And their mercy was very expensive (relative to the amount of the error).

Notice 2007-62 said that they IRS will release guidance on this issue. As of 2011, the IRS hasn't explicitly repudiated their use, so until such time there is an argument that they can be used, given previous PLR rulings.

The end resolutions was that we did an informal appeal by basically calling one IRS supervisor after another (e.g., can I speak to your superior). (We had to do informal appeal, rather than formal appeals process, because the plan participants, not the plan sponsor, would have appeal rights.) We coupled this with pressure from our state senator. We finally got a hold of the VP for the TE/GE group in Washington, who agreed that it wasn't a big deal, but extracted a big penalty (way in excess of VCP), to keep the plan eligible. In addition, we created a new 457(b) plan to wall of the tainted plan from new monies. I've heard that these types of audits are on the rise, so good luck.

I'll let you know. Voluntary correction is unavailable for nongovernmental 457(b) plans. It's looking like we are going to try to settle it in the closing agreement for the audit, but we're basically at the mercy of the IRS.