J Simmons

The TPA may have a fiduciary responsibility to take timely and appropriate steps towards assuring that the ER makes the contributions required.

Have you checked with that major national actuarial firm that presented the technique at the circa 1999 ASPA meeting to see how they are handling situations where the IRS challenges the technique? Often those that promote a novel technique have previously thought through the implications if the IRS were to disapprove, and how then to characterize for tax purposes and ameliorate the situation to minimize the taxes and penalties due.

I agree that if the plan's only health coverage offering is one time changing from non HDHP coverage to an HDHP coverage with an HSA mid-plan year you have a change in coverage that permits a mid-PY election. Also a mid-PY election if you only had one but then added the second in the middle of a PY. However, if the plan has offered and continues to offer both a non HDHP coverage and an HDHP coverage with an HSA, from which the employees choose, employees need to make that choice before the beginning of the PY.

What would be change that "is on account of and corresponds" with the mid-year prospective election? It needs to be a change in coverage, per the title and first clause of Prop Treas Reg §1.125-4(f)(4), not merely one group policy year coming to an end and another one beginning. I don't think you can hang your hat on just Prop Treas Reg §1.125-4(f)(4)(ii) without that introductory clause (and title).

I don't think your mid-year election is allowed unless for each mid-year, the increase in premiums is significant and the choice for employees is between continuing what they had at the higher premium or opting instead for similar coverage. I also think you need to give the plan-eligible employees a December election as to the health insurance premiums as well as the flex accounts for the upcoming calendar plan year.

It is permissible to exclude an employee by name. If it were an NHCE, you'd need to take into account minimum coverage concerns before you did so.

On 8/11/2009, federal district judge David Katz entered an interesting ruling that I thought I would briefly mention. UMB Bank runs a master trust. The Toledo Clinic has a QRP that uses the master trust. The plan and trust documents permit individual direction of investment by plan participants in any investment permitted by law. The plan and trust documents also permit them to appoint anyone as the investment manager and delegate thereto investment direction authority over the participant's plan account. Two MDs, Tullis and Mack, participated in the QRP appointed Wm Davis as their investment manager. It turns out that Davis began instructing trades that were causing losses, were benefiting Davis personally, and otherwise fraudulent and inappropriate. UMB Bank, as trustee, learned about this mischief by Davis and brought suit. In the meantime, UMB continued taking instructions from Davis re the plan accounts of Drs Tullis and Mack as held in the master trust. Judge Katz granted summary judgment to UMB Bank, finding: 1-ERISA 404c provided UMB Bank a defense because it is a directed trustee and Drs Tullis and Mack each had a reasonable opportunity to give investment instruction and had the opportunity to obtain sufficient into to make informed investment decisions. The appointing documents signed by Tullis and Mack spelled out that they understood that it was their sole responsibility to establish, monitor and police limitations and restrictions they each desired regarding the assts which the agent (Davis) was thereby authorized to manage and direct. 2-UMB Bank had not participated in a prohibited transaction by implementing a directive from Davis that benefited Davis. Judge Katz wrote UMB Bank "simply did not cause the plan to engage in those transactions. As Plaintiffs' agent, Mr Davis caused the plan to engage in transaction used for the benefit of a party-in-interest, Mr Davis himself." 3-To the doctors' argument that UMB Bank had a duty to provide a fair and accurate value the assets and that failing to do that caused the doctors their losses, Judge Katz again appealed to ERISA 404© and the provision that a fiduciary shall not be liable for any breach resulting from the beneficiary's exercise of independent control. 4-As for the doctors' claim that UMB Bank had gathered non-public info about the investments during UMB Bank's litigation against Davis but then not turned that info over to the doctors, Judge Katz noted that the only prior cases where courts have found a plan fiduciary had an affirmative duty to disclose and was liable for omitting to do so involved some inquiry initiated by the participant. Since the doctors had never made an inquiry of UMB Bank, UMB Bank had no affirmative duty to disclose the non-public information it learned from its lawsuit against Davis.

A disabled employee is yet an employee, as distinguished from a former employee receiving disability benefits. That is, the fact that the person is disabled and not actively working does not drive the answer. You should look both at the final 415 regs definition of compensation and the terms of your specific plan.

If your health plan coverage is offered to employees as part of a cafeteria plan, then yes, I think you have to have open enrollment preceding each 12 month plan year and allowed shorter plan year. Prop Treas Regs §§ 1.125-1(d) and 1.125-2(a). I would suggest that you have a 3 month short plan year (October - December 2009), and have an enrollment for it in September. You could have that September open enrollment do double duty--it could be your open enrollment for your 2010 calendar plan year. But I think you would have to give employees two choices during the September open enrollment period, one for the October - December 2009 short plan year and a second for the 2010 plan year, and employees would have to be allowed to differ their two choices.

The DB (or money purchase pension benefits) accrued and QJSA rights attached to them, and continue to apply to those benefits, despite the conversion of the plan to a PSP. QJSA continues to apply, so QOSA now applies as well. As for whether QOSA should have been included in a Cycle D plan, I do not know.

Good point, Sieve. After all, severance payments are not paid for services, but to induce the employee to quit, to no longer provide services.

Interesting question. Here are some musings off the top of my head. To be part of his taxable estate, he must have owned the life insurance at the time of his death or had sufficient control over it to render him a de facto owner. He likely has, per the terms of the plan, the right to change who the death benefit is, and may do so right up to the time of death. In fact, the anti-alienation rule may prohibit him from being able not to have that power right up to the time of his death. So I do not think naming an ILIT will work to avoid the value of the life insurance from being in his estate.

Cast my vote with MWeddell.

Hey, Sieve, you could show some real hubris and suggest that severance payment be $670! Even $500 might be problematic as an attempt around the use-it-or-lose-it rule if the only one's getting the severance happen to be those who 'forfeited' a flex account balance equal to or greater than, or approximating, their 'severance' pay.

Thanks, Tom and Bird. The plan and the safe harbor notice language both limit the SH NEC 3%-of-pay contribution to those eligible to make 401k elective deferrals. My question was really whether the regulations might require the SH NEC for such an EE. From both your answers, it appears not--unless the plan language might have extended such to EEs so situated. Again, thank you.

ER sets up a calendar plan year, safe harbor NEC 401k PSP on 6/20/2009, with the PSP effective as of 1/1/2009 but the 401k not effective until 7/1/2009. EE had service (and age) sufficient to enter the PSP on 1/1/2009, but quit on 4/23/2009. Thus, EE was never eligible to make elective deferrals. So it would follow that EE is not entitled to the 3% of pay SH NEC, even though he is eligible to share in a PS contribution for 2009. Is this correct?

For purposes of IRC § 4975 prohibited transactions and determining who is a 'disqualified person', stock ownership is determined by applying IRC § 267© attributions, except that for IRC § 267©(4), family is 'spouse, ancestor, lineal descendant and any spouse of a lineal descendant'. IRC § 4975(e)(4). One is considered as owning stock owned, even indirectly, by his family. No percentage threshold for that attribution. IRC § 267©(2). So I'm not sure how IRC § 1563(e) comes into play (nor for that matter why the Alabama federal court in 1992 applies the regs under IRC § 414©). But your question relates to ERISA § 3(14) definition of a party in interest (very similar but not exactly the same as a 'disqualified person' under IRC § 4975). In this context, as was pointed out by that Alabama federal court, the DoL has not issued any regulations.

yes.

Agreed that the father in law of an owner--without another connection--would not be a party in interest, but due to a bit different analysis. The owner's father in law would actually be an ancestor of the owner's spouse rather than a lineal descendant. But the statute does not snag into the definition of party in interest ancestors of the owner's spouse. Which attribution rules are you using to stain the spouse with the 50% ownership nominally in the name of the owner? Scott v Evins, #91-G-1929-S (ND Alabama August 14, 1992). However, since the authors of ERISA § 3(15) specified that spouse's of lineal descendants are to be considered, they did broach the 'in-law' group, but then did not specify that the spouse's ancestors should be included. So the 'indirect' route through the spouse to her father would, arguably, write more into the statute than its authors and enactors (Congress and the President) chose to put there. It makes sense, but watch out when trying to determine if someone is/is not a party in interest or disqualified person. The father in law might have some other connection to the plan that would render him to be a party in interest, irrespective of whether he can be so tagged by virtue of being the father in law of an owner.

$1,000.

No problem as long as the trust instrument is provided to the plan administrator. Verifying the daughter's age at the time of EE's death is a nice bright line--either she is under age 18 or not on EE's date of death. Should not be a problem to administer.

By creditable coverage for a health plan, I assume you are talking about the HIPAA special enrollment rights against pre-existing condition elimination periods, and prior group coverage that must be taken into account if the gap is not more than 63 days. This would not require an actuary to determine.

Hi, SLuskin, Take a look at what the DoL webpage has to say about charging a lower premium for nonsmokers than for smokers re HIPAA and wellness programs. For example: "The program must accommodate those for whom it is unreasonably difficult to quit using tobacco (for example, due to nicotine addiction) by providing a reasonable alternative standard (such as a discount in return for attending educational classes or for trying a nicotine patch)." Depending on the demographics, you might also have a cafeteria plan discrimination problem as the benefits IRC § § 125(b)(1)(B) and 125©. Finally, you may have state law issues. Take a look at this recently decided case in Massachusetts applying its state privacy law.

Not unless the plan required that. The auto rollover IRA rules apply to force out distributions to those former employees younger than age 62 or if later, NRA, with more than $1,000 but not more than $5,000. As to form of payout--lump sum, direct rollover, QJSA--yes. As to right to postpone payout, not required by pension law. If the plan gives the employee the right to affirmatively postpone payout, such as to one's required beginning date for RMD purposes, it would be good form to give them a notice of that opportunity. Fairly common in my experience, yes.

Yes, unless the plan says otherwise.