J Simmons

This situation arises in the 9th Circuit, where the Carmona v Carmona decision was rendered. Here are the facts: Employee 'marries' Spouse. Employee retires and begins taking benefits under a DB plan as a joint and survivor annuity based on the lives of Employee and Spouse. Sometime later, Spouse is diagnosed with a terminal illness and in all likelihood died 15-20 years before Employee. Employee wants plan to recalculate the benefit and henceforth pay it as a higher per month, single life annuity to him. Plan denies the request. Employee and Spouse further obtain a declaration of annulment from a state court--as if, legally, they were never married. Employee presents that decree, along with a waiver signed by the negated 'spouse', to the plan administrator, renewing the request for recalculation and then payment as a single life annuity. Plan administrator is facing the question again. Of course, had the Employee died already the 'Spouse' would be entitled to the survivor annuity from the plan, the administrator of which would not be the wiser about the 'illegality' of the marriage. They would not have gotten an annulment (which are usually granted on trumped up allegations and affidavits of never-intended-to-be-married anyway). The plan could easily be gamed in situations like this, where the benefits obligation has already attached to the two lives and been calculated accordingly. Only after additional facts come to light about perhaps the early demise of the spouse could the employee then want to go back, do an election 'Muligan' at the expense and to the detriment of the plan regarding the extent of its benefits obligations. The Carmona decision is that the rights of a spouse vest when the benefits go into pay status with a survivor annuity for that spouse, and divorce courts cannot make the plan undo it and recalculate the benefits (such as there, in Carmona, in favor of a different, prior spouse per a QDRO order). Plan is considering denying again the request to change to single life annuity. Does anyone know of a situation where a court has ruled on the effect of an annulment on benefits already in pay status with a survivor annuity?

I am new to the topic of qualified charitable distributions (QCDs) where the donor neither has taxable income by reason of the distribution nor is entitled to an income tax deduction. My understanding is that such can be made from an IRA, but not an ongoing SEP or SIMPLE IRA. If benefits are rolled from an ongoing SEP or SIMPLE IRA, or from a 401k plan, into an IRA, may the QCD then be made from the regular, 'rollover' IRA or is such subject to the step-transaction doctrine and treated as if the QCD was made directly out of the 401k plan, ongoing SEP or SIMPLE IRA? Any citations to authority would be greatly appreciated as well.

Now that HRAs have been restricted to retiree health benefits and non-major medical benefits (e.g., dental and/or vision only), and yet extant are IRS rulings from the past decade that allow for funding of HRAs (such as into a VEBA), I've been asked if about funded retiree health HRAs much more than pre-Obamacare. Owners of small business have been reluctant to participate in MEWA VEBAs for HRAs because of the nondiscrimination requirements of section 105(h). The small business owner makes much more than his/her employees, and has benefited from the factoring of those compensation differences in the contributions/allocations/testing when it comes to company contributions to their 401k's. They do not like the idea of the same dollar amount having to be contributed to a funded retiree HRA for the lower paid employees as is contributed for themselves, higher paid. But section 105(h) and regulation 1.105-11 don't allow for differences proportionate to compensation. However, what about taking into account differences in age and thus numbers of years until retirement? Using age weighting concepts allowed for 401(a) plans, can the employer put more in for older employees than younger ones, calculated based on investment earnings assumptions so that presumably from a current contribution both would have the same dollar amount when they reach retirement age and are thus eligible for the benefit from the VEBA?

By 1E for Line 14 coding, I assume that the offer made does not meet the Qualifying Offer (1A). If 1A and 1E both apply, I'd suggest you use 1A rather than 1E. As for Line 16 coding, 2C does not apply because the employee was not enrolled in health coveraged offered by the employer for each day of the month. See page 11 (IRS Instructions for Forms 1094-C and 1095-C (2015)) for the every-day-of-the-month requirement for 2C coding to apply. If you are using the affordability rate of pay safe harbor for the price to employees at which self-only coverage is offered to them (along with coverage offers for spouse and/or dependents at other prices to the employee), then I agree that 2H would be the proper Line 16 coding.

I do not agree that one should measure whether the benefit is payable as of a date later than the effective date of the DRO. When the divorce took place, the participant was alive, and the DRO can certainly provide that the ex-spouse is to be treated, for purposes of the plan, as though still the participant's spouse. Logically, it is not possible to reconcile the sequence of events with the on-point example in the regulations by saying that because the participant died before the DRO was corrected and deemed qualified by the plan administrator, nobody gets anything. The example in the regulations makes it crystal clear that such an interpretation is not acceptable. In the situation I am now dealing with for the employer's benefits department, the only DRO before the death was the decree of divorce which does fail the test to be a QDRO. And in distinction from the example in the regulations, the plan officials were not made aware of the divorce decree (as a DRO but defective as a QDRO) until after the participant died. In that respect the situation I am facing varies from the regulatory example. If it was crystal clear that the Johnny-come-lately QDRO means that the plan must honor it and pay benefits, then why did the example in the regulations give the extra facts about the first QDRO having been rejected by the plan administrator before the death and thus should be allowed to be fixed after the death--unless the fact that the plan administrator was made aware of the QDRO in progress before the death is significant? The example sets forth a very specific sequence that included the plan administrator having notice of the QDRO in progress BEFORE the participant died. Giving significance to that timing fact also helps harmonize the regulatory example with the statute--and statutes trump regulations.

The 2007 regulations (29 CFR sec 2530.206©, particularly Example (1) in paragraph (2) permit divorce courts to enter QDROs post-death: Example (1). Orders issued after death. Participant and Spouse divorce, and the administrator of Participant's plan receives a domestic relations order, but the administrator finds the order deficient and determines that it is not a QDRO. Shortly thereafter, Participant dies while actively employed. A second domestic relations order correcting the defects in the first order is subsequently submitted to the plan. The second order does not fail to be treated as a QDRO solely because it is issued after the death of the Participant. But in the case of a DB plan, does that increase the actuarial benefit payout risk to the plan, i.e., increase the benefit, in contravention of 29 U.S.C. sec. 1056(d)(3)(D)(ii) and 26 U.S.C. sec. 414(p)(3)(B) (QDRO must "not require the plan to provide increased benefits (determined on the basis of actuarial value)")? By reason of the divorce, the participant was single. All the actual risk attached to the life of the participant, no spouse. When the single participant died, so too 'died' all the risk to the plan of benefit payout liability. So, does a post-death QDRO that attempts to give the ex-spouse part or all of the defined benefits that 'died' with the participant violate the clauses of the statutes that do not allow the QDRO to require the plan to provide increased benefits determined on the basis of actuarial value? Had the participant commenced payout after the divorce and before he died (and before the QDRO), then his benefits would have been calculated as a single life annuity. Had the QDRO come in after that, it could only have been a shared payment one--a portion of the payments that would otherwise be made by the plan to the participant and ended on his death--not a separate interest QDRO for which payouts would be based on the life of the ex-wife or extend beyond the death of the participant. Carmona v Carmona, 9th Circuit. In Example (1) in the regulations, at least the plan had notice by virtue of the rejected QDRO before the participant died, and the 2d QDRO is more along the lines of correcting post-death the technical errors in the pre-death one. I have not been able to locate any other authorities that might bear on this. Your comments will be greatly appreciated.

The insurer is the responsible tax filing party for the Forms 1095-B, not the employer. I would suggest you deflect employee questions to the insurer. If it does not like that, then they might be more willing to share the information with you.

Thanks for the Peek v Commissioner reference. It certainly is a tax court precedence, but it does seem rather flimsy by way of reasoning--just concluding that if the personal guaranties (themselves only an indirect "lending") are not extended beyond so guaranteeing loans taken by the plan but also loans taken by a corporation owned in part by the plan, that the obvious intent of Congress in using "direct or indirect" would be thwarted. Essentially, without analysis or applying the federal common law requirements for piercing the corporate veil, the tax court disregarded the corporation's existence in Peek and treated its assets and dealings as if they were those of the Plan itself. Nor did the tax court try to set a perimeter on the reach of this new application of the definition of prohibited transaction. For example, if Z, a participant in a plan, directs investment in 10 shares of GM stock, would there be a prohibited transaction if Z leases an office to GM for its regional service manager to work out of? That would of course be a ridiculous stretch of "indirect", but a logical consequence of the decision in Peek. The Peek court did not explain what level of ownership of the corporation by the plan was required for this disregard of the corporate entity. But, the Peek decision stands for now. I could not see that it was appealed by the taxpayer. But since it did not address these concerns, I am not sure that it would be followed by other courts in the future, even though the IRS has to be bolstered by Peek in its audit and litigating positions.

Situation: A owns 100 shares of C Corp. C Corp sets up plan. A rolls money into the plan from prior employer's plan. Then C Corp sells 900 new shares to plan. A owns LLC that in turn owns a building. LLC leases the building to C Corp. Is that an indirect leasing of property between A, a disqualified person, and the plan? Or since the plan assets, stock of C Corp, is not involved in the lease transaction, it is not a prohibited transaction?

Thanks, jpod. You have a reasonable response. Surprisingly--not--it seems the IRS sees it differently. I have been sent an e-mail offline, and it does appear that the excess contributions do have to be reported on Forms 5329 as improper distributions. The e-mailer thinks that a separate Form 5329 is needed for each year, which also seems to be required. The only question the e-mail seemed not to know was whether the older years are closed per statute of limitations, for this type of matter.

TP and spouse earn too much to make Roth contributions to IRAs, but have for past 7 years. New accountant discovers the problem when preparing their tax return, when they ask about making Roth contributions to IRAs for the 8th tax year. New accountant explains to them that they should not have been making such contributions. TP and spouse want to do whatever is necessary to correct it per IRS guidelines. Is amending their tax returns to take into account the Roth IRA investment earnings each year as additional taxable income in those 7 years, and putting the balance in a regular investment account (not an IRA of any sort) sufficient correction? Would they need to go back more than 3 years in amending returns to pick up the investment income, given the investment income in any of these years is much, much less than 25% of the reported taxable income? Do they have early distributions from a "Roth IRA" for those investment earnings, for which Forms 5329 are required?

I think you have to count the 30 minutes paid for lunch breaks when totaling up the hours of service. Those 30 minutes are time for which paid or entitled to be paid, and as such would be hours of service for determining full-time employee status. I don't think you have to count the 30 unpaid minutes, because the employer is not required under FLSA to pay for lunch breaks that last at least 30 minutes. I think the better approach would be to bump the hourly pay for non-lunch hours worked to offset this and not pay for any part of the 60 minute lunch break. Since it is a school, however, the reason I suspect that the assistants are paid any part of the lunch break (30 of 60 minutes) is because those assistants are in the school cafeteria and expected during the entire 60 minutes to control and discipline the students there as the need might arise. If that's the case, then I think you might have an FLSA duty to pay for all 60 minutes of the lunch break, and if so, then you'd have to count all 60 minutes in the ACA determination of hours/week worked, and thus affecting the classification of full-time employee or not.

My understanding of the "minimum premium arrangement" you describe (and they go by other names too in the broker market) is that the insurance company is fully on the hook for the medical expenses, without being able to assess the employer any more than what it pays upfront and periodically as premiums. However, there is a rebate against the next policy year's premiums based on the ended year's claims experience, so that the net cost to the employer for that ended year was not much more than the actual claims experience. The difference being some extra to the insurance company for it taking what risk it does of paying more. The employer pays a higher upfront amount, so that the insurance company is taking less of a risk. If this is what kind of arrangement you have, I think it is fully insured. If the claims experience exceeds what the insurance company charged the employer, then that is a loss borne by the insurance company (even if for the next year it wants more in premiums than the experience year just ended). On the other hand, if the arrangement calls for the employer to reimburse the insurance company for claims after what was paid previously by the employer has been exhausted, then it is a self-insured arrangement.

There are rulings that go both ways. It is a fact sensitive determination. We've already reviewed more than 15 IRS PLRs and court rulings, sorted the factors and analyzed them. This situation clearly smacks of employment despite the paper proclaiming it to be an "independent contractor" arrangement. That is the conclusion arrived at separately and independently by two benefits attorneys and an employment attorney that have all had the benefit of a complete, exhaustive investigation of all the facts of the particular situation. So, the question is refined down to what tax-advantaged retirement savings options are available to the MD who is a common law employee of the 501c3 hospital, which has excluded this and other "IC" MDs from its 403b and 457b offerings. Do you know of any tax-advantaged retirement savings options are available to the MD?

Yea, in trying to determine the extra reach beyond the literal application of a law, discerning the "spirit" of the law suggests examining the purpose behind the adoption of the written words. But courts don't typically scale back on a literal application of those written words, if unambiguous, just because the abuse sought to be prevented by them is narrower than the words themselves provide. Sound advice to a client usually runs contrary neither to the literal wording or the spirit behind their enactment. I don't know if Microsoft fired those attorneys after getting rapped on the corporate noggin' or not, but it cost Microsoft nonetheless. Have you provided advice or plan services to a client situated like the MD situation I describe? If so, in what plan direction, if any, did you go?

Thanks for your response. This is a situation where the migration is towards a closer relationship with the hospital. The MD had an independent practice, at his own location, with staff and privileges at the hospital, but now he's sold the separate facility, let go of his own staff, is now officed up at the hospital and all assistance to him is provided by staff on the hospital's payroll. All billings and collections are done by the hospital, which makes payment to the MD for his units billed (regardless of collected). About the only things remaining are his independent medical judgment (required by medical board) and that his payments are not run through the hospital's payroll. The arrangement in question points strongly, if not overwhelmingly, to the hospital, in light of the 20 factors, being now the MD's employer and the MD the employee of the hospital, despite the contract's protestations that it is an 'independent contractor' arrangement--much like the failed attempt by FedEx Ground that the 9th Circuit held a year ago in Alexander v FedEx did not overcome the realities that the ground delivery drivers were in fact employees of FedEx.

More and more, I am seeing MDs who close their privately operated practice and become hospital-based. Some outright become employees of the hospital. Others are entering into 'professional services agreements' that pretend the arrangement is independent contractor and the MD gets payments that the MD then claims as self-employed income (or runs through the payroll of the MD's professional corporation). The hospital seems content because the FICA/self-employment taxes are getting paid, even if not off of the hospital's payroll. The hospital also excludes the contracted MD, as a "non-employee", from its employee benefits and retirement plans. The MD is highly compensated and so the MD's exclusion from those plans does not create a coverage or nondiscrimination problem for the hospital. However, such 'contracted' MDs that are in reality employees of the hospital would like their own retirement plans. An employee cannot sponsor his or her own retirement plan, so it appears that such MDs run a risk of having the IRS disqualify a plan if audited and the IRS takes the position that the MD is an employee. Or, if the IRS recognizes the MD as self-employed, then would such a plan have to benefit also those hospital staff paid on the hospital's payroll, but over which the MD primarily directs and controls them, i.e., as employees of the MD? If the hospital is tax-exempt, then it might have a 403b and/or 457b rather than a 401k. So that would make the MD's 401k not permissively aggregable with the hospital's plans, so as to 'piggy back' off of the contributions the hospital makes to the 403b and/or 457b in order to demonstrate nondiscrimination by the MD's 401k. Perhaps a 457f arrangement whereby the 501c3 hospital and the MD would defer part of the MD's compensation, but of course, MDs like other workers don't like the "risk of forfeiture" necessary to delay the taxation. What are others doing with these types of situations?

From the info you have provided, if ABC and XYZ are not already an ASG, they could easily, with little adjustment to ownership and operations become one, so that you'd not have issues of multiple employer plan and be able to perform minimum coverage and nondiscrimination testing as if one employer (which might be an aim of them jointly having a plan rather than each their own separate plan). ABC is a service organization, so it is possible that it and XYZ are an B-Org (414(m)(2)(B)), but only if 10% or more of XYZ is owned by ABC or its HCEs, and in the industry of mechanical, electrical and plumbing contracts in late 1981, the engineering services were of a type performed by employees of the mechanical, electrical and plumbing contractors. If XYZ is thinly capitalized to the point that capital is not a material income producing factor, then there might be an A-Org (414(m)(2)(A)) if ABC owns part of XYZ since ABC regularly performs engineering services for XYZ.

I agree that carving a year-round position into three 4-month positions would not work. But if the position typically lasts six months or less, then I think you are okay. Tax prep season is 3 1/2 months because the necessary data is not known until Dec 31, and returns are due by Apr 15. That's not a manipulation by the accounting firm, but a reality dictated by an outside force (the IRS, for example).

I think for seasonal employees that the 6 month rule applies, hard and fast without a 'season' component. It simply is defined in the regs as "an employee who is hired into a position for which the customary annual employment is six months or less." Your tax-prep season, holiday season, etc hires would fit as seasonal employees for purposes of the Look-back Measurement Method.

Yes. Nothing has changed in that regard. Many of the new PPA '06 restatement documents so specify.

Does anyone know if there's an office of the IRS that entertains requests to allow late starting payouts over the life of the death beneficiary of a nonqualified annuity? Section 72(s) has rules similar, but not the same as the RMD rules under 401(a)(9). If the annuity payout had begun before the contract holder died, then those payouts must continue as rapidly as if the contract holder had not died--unless payouts of the remaining value as an annuity over the life of the beneficiary begin within 1 year of contract holder's death. (Only if the annuity payout had not begun by the time of the contract holder's death must the entire contract value be paid out within 5 years of that death.) I was contacted today by a beneficiary of a contract holder who died in 2013. The 1 year mark passed in 2014, without payout beginning on the life of the beneficiary. If you know of an office of the IRS with authority to waive that, it would be greatly appreciated if you would send information about that office to me at jsimmons@ida.net. Thank you.

I think #(1). With the HRA (hopefully it is 'integrated' with and the HDHP is itself minimum essential coverage), the medical expense is going to be paid by someone other than the employee or the employee will be reimbursed for having paid it. The error is that the payments were not debited from the HRA ledgers and not credited against the deductible obligation. Make those debits and credits and that should resolve it.

EE named her estate as the death beneficiary of QRP benefits. EE's will leaves her entire estate to one person. Can the estate with one beneficiary qualify as a 1-person trust for purposes of paying out the death benefits over the life expectancy of that one estate beneficiary? Can the benefits be rolled into an inherited IRA given that there is just 1 beneficiary of the estate?

To be a PT, the transaction has to involve the Plan and a disqualified person/party in interest. If so, then to meet the exemption, the compensation for services must be "reasonable." Unreasonable compensation would also be a breach of the Plan fiduciary's duties under ERISA 404(a). If the transaction does not involve a DQ/P-i-I, then it is only the Plan fiduciary's duties that are implicated by the unreasonable compensation; not also a PT (unless the Plan fiduciary is deriving some benefit, even indirect and rather intangible in nature, from the excessive compensation payment--then the payment is a PT between the Plan and that Plan fiduciary).