J Simmons

Yes, loans are not a benefit protected from cutback. 204h notice? No. Those with existing loans would yet payoff as scheduled under the specific loan documents.

There is a question whether such an amendment would meet the 5 year postponement rule. Suppose the employee terminates 1/1/2012. Prior to this proposed amendment, the employee would be paid in 2012. The amendment would delay the payment date to 2015. 1.409A-2(b)(1)(ii) states that the the plan requires that the payment with respect to which such election is made be deferred for a period of not less than five years from the date such payment would otherwise have been paid. Wouldn't that make the earliest payment 2017? Good point. Such an amendment, if yet desired, might have to specify that payout would not begin until the 5th year following termination of employment.

Mr Beker is Chief of the Health and Welfare Branch in the IRS Office of Chief Counsel--and the principal author of the 2007 proposed regs. Prop Treas Reg § 1.125-5(d)(3) applies when "an employee ceases to be a participant". Under the design I described, the employee does not cease to be a participant until the end of the plan year in which his or her employment ends. If the more common plan design applies and participation stops when employment does, i.e. mid-plan year, then Prop Treas Reg § 1.125-5(d)(3) requires any payments for more than the proportion of the plan year before the participation came to an end be refunded to the former participant.

In most cafeteria plans, I do not think there is anything to prevent such gaming of the health flex account by the former EE, at the expense of the ER. However, Harry Beker has informally suggested a plan design that can at least give the ER a legal claim for the balance of the annual cost, if the plan imposes it on all former EEs, whether ahead of or behind the 'game' when employment terminates. COBRA continuation of a health flex account only goes to the end of the plan year of the employment termination or other COBRA qualifying event. According to Beker's informal statements, a cafeteria plan may specify that if employment terminates in the middle of a plan year for which the EE has elected a health flex account, the plan can require that now former EE's participation continues to the end of the plan year despite the employment termination. The EE is obligated to pay the remaining annual cost, and is able to tap the remaining balance of the elected amount for reimbursement of health expenses incurred during the remainder of that plan year. According to Beker, if the cafeteria plan continues the former employee's participation in the health flex account to the end of the year, it must be applied to all who terminate mid-plan year, regardless of how much or little the employee has been reimbursed to the point of termination of employment. Some object to this provision, saying it belies the notion of risk shifting to the ER. However, that line of thinking would suggest that for an EE that remained employed the entire plan year, the health flex account benefit should be taxable for lack of risk shifting. All this plan provision does is puts the situation of the EE whose employment ends mid-plan year on a par with those EEs that remain employed for the entire plan year. Others object saying that such a provision invades the province of the former EE's COBRA election--by, in essence, forcing a positive COBRA election. However, comparing this to the insured health benefit situation, typically health insurance is continued to the end of the calendar month of the employment termination. Is that practice then improperly invading the province of the EE to choose not to continue per COBRA? COBRA allows the qualified beneficiary the choice to continue coverage for a certain length of time rather than the coverage end earlier. This plan provision does not deny the former EE any coverage that COBRA protects. Also, there is nothing in the 2007 proposed 125 regs that would preclude such a provision.

Larry...is that a trick question? I can't imagine an ER that would not be happy to have to pay out $5,600 having collected only $4,500!

I think the spouse is nevertheless a COBRA qualified beneficiary due to coverage, i.e. merely having his/her medical expenses eligible for reimbursement. I do not think it matters that the plan limits to the employee the only one who can make a claim and receive the reimbursement. Or maybe the spouse's COBRA right is to continue his/her coverage in the employee's health flex account to the end of the year of divorce--for which the employee is paying the cost through payroll reductions over the remainder of the plan year, but the ex-spouse now entitled to submit claims and be reimbursed directly.Or maybe the spouse is entitled to pay for a separate, but mirror health flex account for the rest of the plan year. For example, suppose that at the time of the divorce the employee's health flex account may yet reimburse $2,800 of health expenses in the remainder of the year, and the remaining payroll reductions are just $1,700. Is the spouse entitled to COBRA elect a separate health flex account with $2,800 of coverage for the rest of the plan year at just a cost of $1,700? I think that an interpretation that would wipe out the spouse's COBRA rights would be less favored by courts than an equally plausible interpretation that recognizes some continued coverage right for the ex-spouse.

As a general proposition about HCEs, no, but for qualified tuition reduction, yes. For general use of the term HCE, it depends on what makes the parent an HCE. Does the parent have more than 5% stock ownership in the employer? If so, then yes the stock ownership of the parent will attribute to the child, rendering the child to be an HCE as well. Otherwise, no.However use of the qualified tuition reduction by a dependent child of the employee, while the child is under age 25, is considered use by the employee. Thus, I do think that the qualified tuition reduction must not favor HCEs and their under age 25, dependent children. The language of IRC 117(d)(3) suggest nondiscrimination is measured against availability, not actual usage: "available on substantially the same terms".Yes, I think you are on the right track.

You might consider this: CLAIMS PROCESS All insured claims should be made directly to the insurance carrier or company that provides the coverage. All claims for reimbursement under the Plan other than insured claims should be directed to the Claims Administrator. So too, all claims regarding eligibility for or the payment per this Plan for the cost of coverage (insurance or other), such as the payment of insurance premiums, should be made to the Claims Administrator. A form for making a claim is available from the Claims Administrator. The claimant (or his or her authorized representative) may submit the claim and any documents, materials or other information the claimant wishes in support of the claim. The claimant may review any or all prior written claims determinations, which are kept by the Claims Administrator, indexed on the basis of Plan provision and type of expense involved. No claimant will be charged a fee or any other cost by or on behalf of the Plan for making a claim. There will be no hearing before the Claims Administrator as part of the initial determination proceedings. See the section hereinabove entitled Annual Flex Accounts for more information on the timing and process of making a claim for reimbursement. See the section hereinabove entitled Employer Reimbursement of Certain Health Expenses for more information on the timing and process of making a claim for reimbursement. If such a claim under the Plan is denied in whole or in part by the Claims Administrator, the claimant (or his or her authorized representative) will receive a written notification. The notification will include specification of each of the reasons for denial, with references to the specific provisions of and internal rules of the Plan on which the denial was based, an explanation of any scientific or clinical judgment upon which the initial determination was made if it was based on a medical necessity or other similar exclusion or limit (or statement that the claimant can obtain such an explanation free of charge upon request), a description of any additional information needed to complete the claim (and an explanation of why such additional information is needed), an explanation of the claims review procedure and applicable time limits, and a statement about the claimant’s right to file a lawsuit under section 502(a) of Title I of the Employee Retirement Income Security Act of 1974 after the claims review procedure. If the Claims Administrator fails to respond within thirty (30) days after the claim is filed (forty-five (45) days if the claimant received notice of the need for an extension of up to fifteen (15) days before the first thirty (30) days runs out), the claim cannot be denied. Within one hundred eighty (180) days after denial, the claimant (or his or her authorized representative) may submit a written request for a full and fair review to any member of the Review Board (as listed in Basic Plan Information above). The Review Board will provide a notice to the claimant (or his or her authorized representative) explaining that, upon request and free of charge, the claimant can have access to and copies of all documents, records and other information relevant to the claim, and such notice will also identify any medical or vocational experts that advised the Claims Administrator regarding the claim. As part of the review process, the claimant may submit any comments, documents, records or other information relating to the claim, even if such was not submitted to the Claims Administrator. The Review Board will, without a hearing unless the Review Board deems such advisable under the circumstances, review the initial denial by the Claims Administrator, as requested by the claimant. If such a claim under the Plan is denied in whole or in part by the Reviewing Board, the claimant (or his or her authorized representative) will receive a written notification. The notification will include specification of each of the reasons for denial, with references to the specific provisions and any internal rules of the Plan on which the denial was based, a description of any additional information needed to complete the claim (and an explanation of why such additional information is needed), an explanation of any scientific or clinical judgment upon which the review determination was made if it was based on a medical necessity or other similar exclusion or limit (or statement that the claimant can obtain such an explanation free of charge upon request), a statement that the claimant is entitled, upon request and free of charge, to reasonable access and copies of documents, records, and other information relevant to the claim, an explanation that there are other dispute resolution options (such as mediation) that might be available from or through the local US Dept of Labor office or the State’s insurance regulatory agency, and a statement about the claimant’s right to file a lawsuit under section 502(a) of Title I of the Employee Retirement Income Security Act of 1974 after the claims review procedure. If the Review Board fails to respond within sixty (60) days after the claimant’s request for review of the initial denial, the claim will be honored in its entirety.

You make a very logical point. The IRS could take the position, I suppose, that the account was as of the time of the PT yet an IRA, and that those disqualified persons are not absolved of the PT liability merely by operation of the other PT penalty, i.e. the account being stripped of its IRA status retro to January 1 of the year of the PT. I'm not aware of any authority on the issue, but have never heard of the IRS attempting to impose any penalty except the stripping of IRA status from the account.

You might consider Larry's approach

One year, one participant. Probably a very small amount of the plans assets and contributions involved. If you correct rather quickly, yes, I think this would likely be an insignificant operational failure under Rev Proc 2008-50, section 8.02. Given that your plan document permits correction of omissions through additional contributions, or application of forfeitures, I do not think you change others' balances. Nor should you need to change any returns; the employer will take the deduction for an additional contribution for the year in which actually made as part of the correction. As for the Form 5500s involved, if accrual method is used you might need to adjust.

Not necessarily. It depends on what the 'health' insurance actually covers, and how much, if any, death benefit is provided as part of the coverage.

I don't think so. Obviously the drafters of Treas. Reg. § 1.403(b)-5(b)(2) were cognizant of the similar anti-conditioning rule of Treas. Reg. § 1.401(k)-1(e)(6) when drafting. Otherwise, there would have been no mention of any part of Treas. Reg. § 1.401(k)-1(e)(6). Given that there is mention of portions of Treas. Reg. § 1.401(k)-1(e)(6), but not the Treas. Reg. § 1.401(k)-1(e)(6)(iii) exception should suggest that the drafters of Treas. Reg. § 1.403(b)-5(b)(2) did not want the Treas. Reg. § 1.401(k)-1(e)(6)(iii) exception to apply in the 403b context as it does in the 401k context. If the answer to question 1 is yes, then I think that calls for an interpretation of the nonqualified deferred compensation plan's language.

My understanding is 45 days after each calendar quarter ends.

It might be possible to try an amendment now in 2009 that reads something like this: The plan is irrevocably amended now to provide that if the employee is yet employed on January 1, 2011, payout shall not begin until the later of the year after employment terminates or the year 2015. That would meet the the minimum 5 year postponement rule. If yet employed on January 1, 2011, then the amendment was made when at least one full calendar year intervened before payout would be made under the pre-amendment provisions. I would have legal counsel research and give an opinion to such effect before I would try this.

Probably depends on state employment law provisions. I do not see how the employer would be liable if not legally obligated to provide the verification in the first place. Of course, various fact patterns and circumstances could change that, such as perhaps the employee dropped other insurance he had based on representation that the employer would provide a verification but then does not. Yeah, this employer would be setting a very low bar for employer behavior and what not to do in employee relations. For a very minor inconvenience to the employer, the employee has a lot at stake.

Yes. That is because a cafeteria plan with health flex accounts may be terminated mid-year, causing a short plan year, provided there are 'valid business reasons'. There are issues that go along with it, but it may be done. Prop Treas Reg § 1.125-5(e)(1) and -1(d). I would think that if an employer has a valid business reason to change the plan year to run coincident with an insurance policy, coverage under which is offered as a cafeteria plan, you'd have a valid business reason for stopping mid-year and having a short plan year where you are doing to accommodate a different benefit offering. Also, the HSA contribution rules apply on a month by month basis. So beginning with the first full calendar month that there is no health flex account coverage that would disqualify the covered employee from an HSA contribution, there could be an HDHP HSA arrangement.

Don't know of a source for affordable prototypes for self-funded disability benefits. However, I would begin drafting with a disability insurance policy as the model (making sure that I get permission from the copyright holder first). This is the type of benefit you might want to have the plan's governing document and SPD be one and the same document.

The plan only has to allow the change during the annual/open enrollment period given to other, active employees to sign up or make changes to their health coverage. But if the plan would allow the change desired outside of the annual/open enrollment period for active employees otherwise similarly situated, then it should be allowed to the COBRA continuee as well.

Reply posted in your duplicate posting of the question here

I think that you'd want to pursue a remedy through the VFCP of the DoL. You had Plan 2 assets for a time not being held by the trustee of Plan 2. That's a violation of the trust requirement. There is also a possible violation of the 'plan asset' regulation, DoL §2510.3-102. While I suppose possible, I doubt the trustee of Plan 1 is a disqualified person or party in interest with respect to Plan 2. If not, then no PT. If so corrected as a fiduciary obligation breach, then I'd report these contributions as if they had initially been made to and held all along as part of Plan 2, and never having been part of Plan 1.

I would begin researching with Rev Rul 2002-32, 2002-1 CB 1069 (June 6, 2002)

If it's a public school plan, then you do not run the risk of becoming an ERISA 403b plan, due to the governmental plan exception to ERISA. Otherwise, too much involvement by the employer in a plan that only allows employee contributions might push the 403b plan from the non-ERISA into the ERISA arena. In light of DOL FAB 2007-02, I do not think the nonprofit employer can keep its plan from slipping into ERISA territory if the employer makes the hardship decision. Better structure the plan so TIAA-CREF deals directly and solely with the employee re hardship withdrawal, or not allow hardships, or begin complying with ERISA.

No experience, but seeing that no one else has yet posted a reply and you indicate any responses are welcome... Such a segregation from other plan assets should not be required. So I would answer your question, no. COBRA does not require the employer to maintain a separate plan, but rather to allow those losing coverage under the employer's group health plan in certain instances to continue the coverage under that group health plan. In fact, if the employer stops its group health plan altogether, the employer may also stop elected COBRA coverage early. Should be.

Discussed extensively in this thread