KED

Has anyone recently filed Form 5310 for a frozen defined benefit plan after formal action has been taken to terminate the plan but prior to the termination date? We have previously done so, but didn't know if there had been any recent concerns or questions raised by the IRS with this approach.

This process also may have been put in place as another protection against identity fraud, particularly since the Equifax breach. This way the check goes to the employer who sends it to the employee's address that the employer has on file, rather than an address that a fraudster may have requested.

Now I am curious -- what interim amendment is due by February 1, 2016?

Although there has been a disposition of the option, it seems the language in the definition refers to the "disposition of stock acquired under a qualified stock option." No stock was acquired -- so there was no disposition of stock and no basis to exclude the cash payment from the compensation definition?

HIPAA nondiscrimination rules

But don't forget with that even with after-tax contributions, such an arrangement works only if it fits under the special voluntary plans exception under ERISA. That also is in Notice 2013-54.

Employees at a location that is wholly excluded from the Plan.

I have seen this type of provision in various health plans. I think it technically is not a COBRA entitlement vs. eligibility issue or an exclusion under COBRA. Rather, the terms of the Plan provide that if someone on COBRA is eligible for Medicare, then the Plan will pay benefits as if the person has Medicare, regardless of whether or not they actually are enrolled. It may be discussed in another part of the SPD.

No, I don't think the IRS considers anything other than base salary a fringe benefit. For example, I don't think you can exclude a cash bonus under the "fringe benefit" exclusion.

I think you have issues. First, the plan definition of W-2 compensation does not include nonqualified deferred comp deferrals. In addition, as I recall, there are discrimination/401(a)(4)/discriminatory rate of match issues when you include deferred comp deferrals as part of comp since those deferrals generally are made only by HCEs.

Your legal department may be thinking about the nondiscrimination rules for fully insured plans. if you pay COBRA premiums for a highly compensated individual, but not for everyone else, then you could have a discrimination problem. The penalty falls on the Company and would be something like $100 per day per person discriminated against (so $100 times all of the other employees without the benefit times the number of days). We are awaiting regulations for the new rules and the IRS has indicated it will not enforce penalties yet, but many are changing their ways now. Also, it may be hard to change the promise later when the rules are finalized.

I don't think you can exclude the service as a leased employee -- see Code Section 414(n)(4)(B).

What is the COBRA qualifying event?

Don't get me started on this one . . . under the IRS interpretation, someone who is terminated for embezzling from the employer gets rewarded with full vesting. With a Form 5310 application some years back, partial termination issues arose. We argued that participants who were terminated for cause (e.g., failed drug testing, stealing, etc.) should not be considered or fully vested. We provided back-up for the terminations and the IRS did not make us fully vest.

If there will be correction under EPCRS (including Audit CAP), full correction is required, even for closed years. See Section 6.02 -- Correction Principles: "Generally, a failure is not corrected unless full correction is made with respect to all participants and beneficiaries, and for all taxable years (whether or not the taxable year is closed)."