Peter Gulia

An individual would like to buy an individual health insurance contract that does not cover physician visits. She pays her physician an annual retainer. Her physician never accepts any payment from a person other than his patient. Is such an insurance contract available now? Will such an insurance contract be available a few years from now? (Assume that a premium tax credit is unavailable. Assume that the individual does not object to incurring the IRC section 5000A tax for failing to maintain minimum essential coverage.)

KJohnson and masteff, thank you for the good help.

sprybe, if you think that there's a plausible argument for why the contribution rate obliged under the rehabilitation schedule should not count in computing the withdrawal liability, consider asking the PBGC for an opinion letter.

If the plan you're thinking of is neither a governmental plan nor a church plan, is unfunded, and is restricted to a select group of top executives, such a plan (if it is not an excess-benefit plan) is governed by Parts 1 and 5 of Subtitle B of Title I of ERISA, but is not governed by Parts 2, 3, and 4. The non-application of Part 2 means that ERISA's anti-cutback rule does not apply. A non-governmental employer's 457(b)-eligible plan need not meet Internal Revenue Code section 401(a) conditions, and so need not meet section 411's anti-cutback rule. Even if you're ready to advise your client that neither ERISA nor the Internal Revenue Code restrains the amendment of payout forms, consider other laws, including the law of contracts. (When I represent an executive, we might seek provisions that disable the employer's power to amend the plan without the executive's assent.) If the employer holds an annuity contract as a way to help the employer meet its obligation, consider that removing the plan's annuity payout forms might make further annuity purchases unsuitable under insurance and securities regulators' rules, including FINRA rules.

If an employer abandons any attempt to avoid ERISA but would do what the IRS now calls an employer-payment plan is the employer's payment excluded from its employee's wages? Even if one accepts the premise that "the plan" (whatever it might be) somehow violates Public Health Service Act section 2711(a) [42 U.S.C. 300gg-11], how exactly does that failure cause the employee to lose the tax treatment recognized by Revenue Ruling 61-46?

Has the employer considered monthly payroll?

Before looking to any law source, why would a lender want to have fiduciary duties to its borrower?

WCC, you might suggest that the plan's administrator read carefully its service agreement with its recordkeeper. Some of these agreements specify some details about obligations and conditions for a change in plan investment alternatives. Along with this, consider the possibility that the service provider's desire for a wait is not necessarily related to a notice that the plan's administrator might or might not send, but rather might relate to the recordkeeper's business operations. Some recordkeepers schedule the touches to the computer systems. Also, understand that some service-agreement provisions might be negotiable (if a plan is big enough, or otherwise a valued customer - including because of a relationship with a lawyer or consultant).

Require the participant to furnish her individual taxpayer identification number. If the payee is a non-resident alien and the distribution is not paid as a direct rollover to a (U.S.) eligible retirement plan, the Federal income tax withholding ordinarily is 30% unless the distributee submits to the plan's administrator a properly completed Form W-8BEN (or other form of the W-8 series) to claim reduced withholding under an income tax treaty, or Form 8233 to claim an exemption from withholding. 26 C.F.R. 1.1441-1 to -9. Report a distribution paid to a foreign person on Form 1042-S.

What if the corporation offers to pay each participant's account a purchase price per share that an independent fiduciary finds is more than what would be the fair market value? Could the corporation offer a purchase price high enough that every participant would be motivated to tender her account's shares?

Does this plan provide participant-directed investment? If so, does a participant's power to direct apply to her whole plan account, or only some portions of it? Did each participant choose to allocate employer securities to her account? Or did another fiduciary decide to contribute employer securities to participants' accounts? Was the investment in employer securities a discretionary fiduciary decision? Or did the plan document mandate investment in employer securities?

CitationSquirrel, for tax rulings that treat a direct payment of an investment adviser's fee from the participant's account as not a distribution that could violate IRC 401(k)(2)(B), 403(b)(7)(A)(ii), or 403(b)(11) (and as not a distribution that could attract the extra 10% tax on a before-retirement distribution), see IRS Letter Rulings 9332040, 9316042, 9047073.

My 2 cents, thank you for your good grace. I understood your observation as 'why would anyone' want to .... I just wanted to help other readers understand that my inquiry really was just an inquiry.

My 2 cents, I don't want to do anything; I asked a question because I remember reading a plan, not one I drafted, that in its definition of excluded employees referred to an alien (and not with the usual lingo from Internal Revenue Code section 410). Kevin C, thank you for the helpful information, which gives me a new way to think about this topic.

GMK, thank you for your further observations. About your last observation, Colorado is an example: It has a statute and a State constitution provision that, if not contrary to the U.S. Constitution, purport to restrict marriage to opposite-sex marriage. But the statutes also provide a civil union. "A party to a civil union has the rights, benefits, protections, duties, obligations, responsibilities, and other incidents under law as are granted to or imposed upon spouses, whether those rights, benefits, protections, duties, obligations, responsibilities, and other incidents derive from statute, administrative or court rule, policy, common law, or any other source of law." Colorado Revised Statutes 14-15-107. In other contexts, when a taxpayer argues for a favorable tax treatment by pointing to the form of a transaction, the Internal Revenue Service often argues substance over form. Could someone who is a party to a Colorado civil union but had taxes withheld on the value of the other party's health coverage argue that a word that describes a legal status must have the meaning that follows the legal consequences of that status? After all, isn't that why law invents categories?

Lou S., thank you for the helpful pointer. The color-coded map gives me a way to think about framing the issues and exposures, while I do the detailed research in States' statutes. About ERISA section 205 provisions, as QDROphile observes, 'anyone can sue for anything'. (And the Labor department's Technical Release is not a rule or regulation to which a court must defer.) Smart fiduciaries understand that even a claim that ultimately doesn't win anything for its claimant might be just plausible enough that a fiduciary must incur attorneys' fees and other expenses to show that there is no claim. But many of those expenses can be avoided or at least lowered by administering a plan in a way that recognizes the potential claims and does so without harming a participant's legitimate interests. I posed my query in this health plans forum because questions about whether an employer should pay over federal tax withholding on coverage that a health plan provides for an everything-but-the-name spouse remain difficult. An employer that wants to help its employees and has a taste for a fight might consider a (disclosed) tax-withholding position that doesn't follow Rev. Proc. 2013-17. An employer, in evaluating whether and how hard it wants to fight, might consider the numbers of employees affected and the amounts involved. I have no fixed idea about what any plan fiduciary or employer ought to decide. I pull together information and analysis so that others can think about it.

Would the analysis be different if the plan document defined an eligible employee to exclude an employee who is alien (even if the alien is admitted as a lawful permanent resident and is fully eligible for any employment)?

Concerning the kinds of everything-but-the-name marriage that some States' laws provide, the Treasury department stated as its view for Federal tax purposes that marriage does not include a relationship that State law does not label as a marriage. That view seems to apply even if State law expressly provides that the relationship gets all the benefits, burdens, and other legal consequences of marriage. I'm trying to size how big the exposures are if a 50+-States employer chooses to treat as not spouse those who have an everything-but-the-name status. Doing so might lead to challenges, legal and otherwise, from participants and beneficiaries. Likewise, I'm trying to size how big a fight such an employer takes on if it asserts, with Form 8275 disclosure, a tax position that an everything-but-the-name relationship that also is recognized under the law of the State in which the participant resides as providing all the legal consequences of marriage is a marriage for Federal tax purposes. Although several States had an everything-but-the-name status, how many of those States still have such a status AND how many of those do not provide with-the-name same-sex marriage?

While my suggestions likely would be different, read Question 14 [pages 17-18] in the 2009 American Bar Association Joint Committee on Employee Benefits Q&As session with EBSA staff. http://www.americanbar.org/content/dam/aba/migrated/2011_build/employee_benefits/dol_2009.authcheckdam.pdf

mal asked for some cases. Here's a selection from the many cases that refer to bigamy and putative-spouse concepts in a context of considering who is or was a retirement plan participant's spouse or surviving spouse. Although one might like to think that ERISA section 205's use of the word "spouse" refers only to someone who is or was the participant's spouse, courts' decisions aren't so simple. Whether a putative spouse, a real spouse, both, or neither is treated as a participant's spouse depends on a plan administrator's, arbitrator's, or judge's thoughts about what might be desirable in the particular circumstances. The courts’ opinions in the following cases state differing reasoning and inconsistent results. In my view, neither court in the first two cases explained the real reason for its decision. A third example illustrates a straightforward application of the law that a person whose marriage has not ended cannot marry another. Example 1. In 1965, John and Susie married in Louisiana. In 1970, a Louisiana court ordered a judgment of separation, but not any divorce or dissolution of John and Susie's marriage. In 1973, Susie, while still married to John, “married” Milton. In 2000, John, while still married to Susie, “married” Gwendolyn in Texas. In 2001, John died (while still married to Susie and “married” to Gwendolyn). He was domiciled in Texas when he died. After John's death, Susie and Gwendolyn each submitted a claim to his pension plan for a survivor annuity; each claimed that she was John's surviving spouse. The pension plan included the following provision: “All questions pertaining to the validity of construction of this Pension Plan shall be determined in accordance with the laws of the State of Illinois and, to the extent of preemption[,] with the laws and regulations of the United States.” (As cited below, these are the relevant facts of a real case.) In resolving the plan administrator's interpleader, the court considered whether to apply Louisiana law, Texas law, Illinois law, or some combination of them in deciding which claimant (if either) was John's surviving spouse. Notwithstanding that neither of the claimants had argued for it, the court chose Texas law. Further, the court used Texas property law to resolve the status question needed to apply an ERISA plan's provision that preempts state law. Following this, the court found that Susie's acceptance of the benefits of her fraudulent “marriage” to Milton precluded her from asserting that she was John's surviving spouse, and recognized Gwendolyn as an innocent putative spouse to be treated as if she had been a spouse. Central States, S.E. & S.W. Areas Pension Fund v. Gray, 31 Employee Benefits Cas. (BNA) 1748, 2003 U.S. LEXIS 18282 (N.D. Ill. Oct. 8, 2003). Example 2. In 1966, Douglas married Ann in Ohio. They lived together in Ohio from 1966 to 1982. In 1972, Douglas began a relationship with Rita. In 1982, Ann left Douglas and moved to Tennessee. In 1985, Douglas and Rita “married” in Nevada. Each of Ann and Rita submitted claims for several benefits to be provided to Douglas' surviving spouse. The pension plan provided that it “shall be construed, governed[,] and administered in accordance with the laws of the State of Michigan[,] except where [sic] otherwise required by Federal law.” In resolving the plan administrator's interpleader, the court considered whether to apply Federal law, Michigan law, or Ohio law, or some combination of them in deciding which claimant (if either) was John's surviving spouse. The court denied summary judgment to allow further development of the facts, and to consider whether laches might estop a claimant from asserting the invalidity of the participant’s “marriage” to the other claimant. Croskey v. Ford Motor Co.-UAW, 28 Employee Benefits Cas. (BNA) 1438, 2002 U.S. Dist. LEXIS 8824 (S.D.N.Y. May 2, 2002). Note 1. In both of these cases, the court did not apply the contractual choice of law and, even further, ignored the plan's provision that the plan be construed using the plan-specified state law. Note 2. Courts' procedures for an interpleader, which focus on the arguments of the competing claimants and often do not require a stakeholder to assert a position, increase the likelihood that a court will render a decision that is unhelpful for future plan administration. Example 3. Philadelphia Eagles running back Thomas Sullivan was a participant under the NFL Player Retirement Plan. Thomas married Lavona in 1979. Thomas and Lavona stopped living together around 1983, and last had contact with one another around 1985. In 1986, Thomas “married” Barbara. Thomas died in 2002. On the plan’s interpleader, the federal court found that neither Barbara’s unawareness of Thomas’s marriage nor an assertion that Lavona “walked out on the marriage,” even if both alleged facts were fully proven, could have changed the fact that Thomas and Lavona remained married until his death. Likewise, Barbara’s belief that she was married to Thomas could not dissolve Thomas’s marriage to Lavona or permit Thomas’s marriage to anyone while he still was married to another. Lavona is entitled to the pension benefits that were the subject of the court proceeding. Hill v. Bell, 50 Employee Benefits Cas. (BNA) 1220 (E.D. Pa. Nov. 4, 2010). The suggestions that a plan's administrator consider claims procedures and experienced employee-benefits lawyers' advice seems apt.

austin3515, a further way to think about the hypothetical situation you described is to ask yourself a rhetorical question: Why did these particular LP interests suddenly become the best thing that the retirement plan could invest in? If there isn't a cogent investment-grounded answer to that internal question, it seems likely that at least one transaction is a prohibited transaction (although perhaps one that might be or become exempt). If you're not sure that everything is perfect, consider suggesting to your client that it engage an independent fiduciary to make the plan's decisions.

Another of the several possible consequences is that a Federal court or State court in proceedings on an ERISA benefit claim could construe the plan as including the provisions the plan is required to provide, and as not including any provision that the plan is precluded from providing. The court could then apply the plan as so reformed, and could decide the claimant's benefits under the reformed plan.

Brenda Wren, has your client asked you to evaluate whether the remaining participant and business owner's tax situation could be improved by deliberately treating the plan as tax-disqualified?

Also, the IRS in 2002 published a Spanish version of the OLD edition of the 402(f) eligible-rollover-distribution explanation. http://www.irs.gov/pub/irs-irbs/irb02-18.pdf

If you go to the IRS's website page for "Forms and Publications" and put "(SP)" in the Find box (and leave the Find function set to "Product Number"), the search retrieves 117 forms and publications. Then, you might scroll through the list to see whether you find anything that might help meet your client's purpose.