J Simmons

How do you know that someone is the spouse of the deceased employee at the time of death? You have that person prove it by a statement signed by them, and perhaps a marriage certificate. But there could have been an intervening divorce. In the end, you are relying on what the person claiming to be the spouse signs to that effect, and plan officials not knowing any facts to the contrary. I would agree with the ERISA counsel you have drafting the plan (but then, hey, I am lawyer too, and just watching the back of another Bar member ). Seriously, I do agree with the ERISA counsel. I would suggest that you (and the recordkeeper) take a look at the U.S. Supreme Court's decision of January 26, 2009 in Kennedy v Plan Administrator for DuPont Savings and Investment Plan. If the plan has a procedure for requiring that the son applying for the death benefits verifies that he is the only child of the deceased employee, then that ought to be sufficient if the plan officials have no reason to know of other children. If it is not, then even elevating the estate ahead of a 'spouse' would follow from the same logic.

I think that the 30 days is a one-time election opportunity after the safe harbor notice is given: Notice 98-52, § V.B.1.c.i.

Yes, it's okay.

No

This client gives off all the signals of someone that will not pay you for taking the steps necessary to fix this situation and "get rid of it". Get a retainer up front for at least 200% of what you think your fees would be, and make sure your engagement letter disclaims any result.

Is there a stop-loss policy involved with the self-funded plan?

Not a distributable event, but I would in re-designating the plan account have some indication that she is a death beneficiary of [name of deceased participant], participant. Since it is not a distributable event, no 1099-R. Check the plan's provisions to see how long she is allowed to leave the benefits in the plan, including RMDs based on her own age and life expectancy. Then calendar accordingly for later distribution.

The HSA is in many ways a hybrid. There are many unexplainables about an HSA if you are trying to reconcile it with previously established benefits tax principles. The only tax advantage to an individual to elect to fund into an HSA through a 125 cafeteria plan is FICA savings. Either through a 125 cafeteria plan or the individual making contributions on his/her own makes those contributions tax free. By having it deducted on the employer's payroll through a 125 cafeteria plan elected paycheck reduction, it is an easy mechanism to exempt such amounts from FICA as well as a tax deduction. It would add further complexities to Form 1040 for contributions by the individual outside of a 125 cafeteria plan to allow a FICA "deduction" too. So such is simply not allowed. Since the individual contributions are tax free either way, perhaps the policy writers thought it would not significantly undermine the 125 prohibition against deferring compensation to allows cafeteria plans to permit employees to elect paycheck reductions and corresponding contributions to an HSA. And since it did provide a nifty mechanism for avoiding FICA on the contributions, the 125 cafeteria plan apparently was chosen for this purpose. These are only my suppositions as to the reason that Congress chose to allow HSA contributions--which do defer compensation--to be made through a 125 cafeteria plan.

410b, I find the exhaustive analysis of the 7th Circuit in Matz v Household International Tax Reduction Investment Plan, 388 F3d 570 (7CA 2004) to be very helpful whenever I'm faced with a question about partial terminations.

George didn't say that 419(e) plans are deferred compensation. He said they were deferred benefits. But for subparagraph (B), section 404(b)(2)(A) would treat deferred benefits as deferred compensation. However, subparagraph (B) exempts the treatment of deferred benefits as deferred compensation if those deferred benefits are provided through a section 419(e) employee welfare fund. The IRS defines the same term differently for different contexts. The 2007 proposed Treas Regs at section 1.125-1(o) defines "deferred compensation" for the general prohibition against such in a 125 cafeteria plan:

The IRS may levy against the 401k benefits for unpaid taxes owed by the owner/employee.

From the IRS, no. As for the state, it would depend on whether the 401k plan also benefits (or possibly has ever benefited) any non-owner employee that is not the spouse of an owner.

I like your initial thinking better than the thinking of Congress and the IRS: to me it seems unreasonable a definition to exclude compensation over a specified dollar amount, including the 401a17 dollar amount.

Take a look at this thread

As the old saying goes, he got what he paid for. Vanguard did not charge for that bit of advice, and it was worth every dime he paid for it. Too bad he didn't talk to you, Earl, before taking that IRA rollover step.

Thanks, Larry, for that insight.

Larry, I'm following your logic and agreeing with it generally. Just one question. Can you help me understand why it follows that 401a17 allows rounding up because 415 does not?

Currently, I'm handling a situation where a sole prop had retired and then a few years later died, without having first term'd the plan. Due to some document failures in its history, we filed for both f5310 determination and VCP to correct interim amendment failures and failure to hold plan assets in trust (some were in IRAs). The sole prop had named his son as a successor sponsoring employer in the event of the sole prop's death. While paying attention that every other i is dotted and t crossed, the Service has not made any issue with the fact that the plan was continued after the sole prop closed his business or that his son is successor sponsor.

The plan would become an orphan when the sole proprietor dies without having named a successor. In dealing with a situation such as this, an IRS agent told me that it is always better to have a contingent successor named for a sole proprietor in the event of death rather than try to 'bank on' the IRS recognizing the probate estate of the sole proprietor as a successor with authority to wrap up the plan. However, in two situations where I have had only a probate estate to lay claim to successor sponsorship, I have not had the IRS give me any pushback.

8/12's

I wonder if the investment company pays it back to the company if the IRS, EEs and/or the DoL will have their own ways of saying that's not acceptable.

I would think that the spouse losing employment would, if the spouse also lost health coverage as a consequence, would permit the employee to add coverage for the spouse mid-plan year. But off the top I do not know how the consistency rule is satisfied by allowing the employee to stop payroll reductions for medical benefits mid-plan year. As to the day care benefits--and maybe that's what your answer, Shot in the Dark, was focusing on--the employee would be allowed a mid-year change to drop these benefits (and payroll reductions for them) because now the spouse can tend the kids and the need for day care to allow the employee to work no longer exists.

Shot in the Dark-- What's the citation for your answer?

Ah, the joys of being an ERISA practitioner!

Within the 240 days, my client sent the IRS a copy of my opinion letter--without the negligible amount of employees' "lost opportunity". A bit different strategy than what I had suggested in an earlier post in this thread. The 240 days ran out in April. To date, no response from the Service Center which issued the letter about a need for correction and which was sent my opinion letter. We do not have a letter closing their investigation, but we've not heard anything for quite some time.