J Simmons

Thank you, vebaguru, for posting your comments.

By dual entry dates, are you asking if there would be one entry date into the plan's 401k feature (if it has one) and a later entry date into the plan's profit sharing feature? If so, yes. Otherwise, no.

Mute by choice? (if losses). Rev Proc 2008-50, § 6.02(4)(a) "(a) Corrective allocations under a defined contribution plan should be based upon the terms of the plan and ... should be adjusted for earnings (including losses) and forfeitures that would have been allocated to the participant's account if the failure had not occurred. However, a corrective allocation is not required to be adjusted for losses."

Would a waiver of benefits that relieves the ER of its funding obligation to an otherwise underfunded DB plan generate debt-foregiveness income to the ER under IRC § 108?

There is some wiggle room. This sentence is from § 3.01(1)(a) of Appendix B of Rev Proc 2008-50: "Other earnings adjustment methods, different from those illustrated in this section 3, may also be appropriate for adjusting corrective contributions or allocations to reflect earnings." However, Rev Proc 2008-50, Appendix B, § 3.01(3)(b) provides that "If a plan permits employees to direct the investment of account balances into more than one investment fund, the earnings rate is based on the rate applicable to the employee's investment choices for the period of the failure." It would be a rare circumstance, I would think, that would make a plan-wide rate appropriate as well.

I don't see anything tricky in what the special ARRA COBRA rights notice needs to cover, nor anticipate that DoL's model notice will be earthshattering to any extent. Given the rush job this is at DoL, there likely won't be any requirements beyond what is concretely spelled out in the statute.

It makes sense to me. Plan B will need to have provisions of a loan policy, all except the rules applying to taking new loans. For example, will the loan be considered a directed investment, what are the default rules, etc.

It's a bit like Kafka, isn't it? 'Everyone must be at their desks, ready to work by 8:30 AM; doors will open at 9:00 AM sharp. No exceptions.'

I feel a bit like a square root everday, but today especially so. Now I know why. BTW, is there a day we celebrate Pythagorem's theorem?

What WDIK said; also see Treas Reg § 1.410(a)-4(b)(1). What is often different in plan design when 2 years of service is required rather than 1 are two items. One is the measurement period for eligibility years of service. The first one must be measured as of the first anniversary of date of hire. Succeeding ones may be measured between anniversaries, or "shift" to plan years beginning after the date of hire. The shift is common with plans requiring one eligibility year, but can be counterproductive with those that require two. For example, consider a calendar plan year that requires two eligibility years, but also shifts to the plan year for measurement. An employee hired 12/29/2007 actually enters the plan 1/1/2009. He earned one eligibility year by 12/28/2007 if he had 1,000 hours of service from 12/29/2007-12/28/2008. He'd earn the second required eligibility year on 12/31/2008 if during 2008 he had 1,000 hours of service. 1/1/2009 being the first day of a plan year, it must be an entry date. Had the shift not been elected, the second eligibility year could not have been earned before 12/28/2009 and entry not before 1/1/2010. So even though you might have given up a vesting schedule to be able to require two eligibility years, you can lose much of the benefit of it by also designing in the shift. The other difference is that if the plan also sports a 401k feature, you can only require 1 eligibility year for entry into the 401k feature, although imposing 2 eligibility year requirement for company contributions.

Thanks, Don. I've been wondering where you were hiding out while you weren't posting?

An ER (client) is being pitched a plan that specifies age-weighted HRA accruals into a retiree VEBA. The ER would establish and then fund into a VEBA pursuant to HRA accruals, as permitted by a couple of IRS pronouncements from the 2005-2006 era. These ER contributions (i.e., the HRA accruals) would be separately credited under the VEBA to the benefit of EEs individually. The age-weighting gives each employee an 'equivalent' amount of retiree health benefits for each month of covered service. Of course, the small ER's motivation here is to skew tax-free benefits in favor of the owner/employee and spouse/employee, as they are the two oldest EEs (ER is a C corporation). To the extent that the EE and spouse do not use up the credits under the VEBA by the time both have died, the remainder would be re-allocated to the credit of other VEBA members. The ER is not satisfied with what authority I've found suggesting that HRA accruals may not be age-weighted. IRC § 105(h)(4) provides that-- Treas Reg § 1.105-11©(3)(i) seems to prevent age from being taken into account in a defined benefit HRA, at least for DB health reimbursements: As an aside, the next sentence of Treas Reg § 1.105-11©(3)(i) prevents benefits being made in proportion to employee compensation if the plan covers highly compensated individuals: Treas Reg § 1.105-11©(3)(iii) is as close as I've come in my research to specifically prohibiting age-weighting of the defined contribution HRA accruals into a retiree VEBA. The benefits for retirees are only excludable from taxable income if I've opined that the owner would be better off avoiding this plan, or to redesign it as a defined benefit or if to be a defined contribution, without the age-weighting of HRA accruals into the retiree VEBA fund. The ER is not satisfied, certain that it can be done unless the IRS has specifically ruled that HRA accruals cannot be age weighted. Does anyone know of other authority bearing on the issue of whether HRA accruals into the retiree VEBA could be age-weighted? I've suggested a PLR application might be useful, but is hesitant because of the cost.

Might this be a case of expressio unius est exclusio alterius, as BTG might ask? Does the expression in the regulations allowing for stopping safe harbor mandatory contributions mid-year for terminating plans and how to stop mid-year safe harbor matching contributions for an ongoing plan mean that the IRS implied that there is no way to stop mid-year safe harbor nonelective contributions for an ongoing plan? There are several recent threads on these Boards where there is some speculation but more caution expressed.

No, no. I'm saying the case for ERISA applying is stronger where the coverage at issue is under a group policy than an individual one. Not that ERISA never applies to coverage under individual policies. Certain types of coverage--health and life insurance included--are ERISA governed if provided under a group policy for employees. Maybe not for individual policies for the same type of coverage. There are cases that hold that an individual conversion right incident to ERISA-governed group life coverage is itself ERISA-governed. There's at least one case that cuts the other way, that ERISA does not apply but state law rules do to that individual conversion right. Since COBRA coverage is provided under a group health plan rather than, say, the purchase and delivery of individual policies, your suggestion that ERISA claims procedures ought to apply to COBRA coverage and more particularly the determination of eligibility for COBRA continuation should not be as easy for a court to dismiss as that one court did regarding the individual conversion right for life coverage. ERISA § 602(5) provides that if the group health plan otherwise generally gives individual's losing group coverage the option for individual conversion of health coverage, then that plan must also give the conversion option for 180 days at the end of the COBRA continuation coverage. I.e., a group health plan must postpone any individual conversion right under the group health plan to the end of COBRA continuation--and then keep that option open for 180 days. ERISA makes no mention of individual conversion rights for life coverage. As you pointed out, ERISA does refer to individual conversion rights for health coverage. Thus, the argument that ERISA (and its claims procedures) ought to apply to COBRA continuation coverage and eligibility for it ought to apply to individual conversion is stronger in the health coverage context than the life insurance context.

That COBRA coverage is continuation in group coverage ought to distinguish it from individual conversion rights to group life coverage after employment ends, which individual conversion rights some courts have held are not ERISA-governed because their individual conversion rights. (ERISA preemption thread) So the group aspect of COBRA coverage ought to buttress the notion that ERISA claims procedures and exhaustion of remedies should apply to COBRA eligibility determinations.

Do an ERISA plan's claims procedures apply to COBRA continuation coverage eligibility? Putting the issue to the miscreant former employee by informing him as you suggest certainly puts the employer in a better position than simply deciding he does not qualify, not sending him COBRA notices/election form and making no mention of it to him.

Without a bright line demarcation from the IRS by what is and what is not considered gross misconduct, the employer that denies the former employee the option of COBRA continuation runs the risk of being second guessed by a court (and as you, jpod, point out that risk is being the self-insurer of the former employee's medical costs during what would have been the COBRA continuation period). Even arrested and charged by the police will not be a 'safe harbor'. There are times the police charge the wrong person with a crime. The best prophylactic in this situation is not deny anyone the COBRA continuation opportunity--given even the worst rascal a COBRA notice and election.

Today I received a call back from the voicemail message I left for Stephen Tackney at the IRS Nat'l Office. The message asked for what, if any, informal resolution the IRS might be offering for 409A document failure, pending possible issuance someday of a formal resolution program for 409A document failure. When I mentioned that before ineligible employer failure for 403b plans was added to EPCRS, Bob Architect offered a less formal absolution process, the attorney that called back from Tackney's office seemed somewhat surprised, explaining he'd not heard of that type of relief. He did mention that no resolution short of 409A extra 20% taxation is one possibility under consideration by the Nat'l Office for 409A document failures, but that no decision had yet been made. He did indicate that they would welcome any thoughtful comments, including those that proposed the details for a 409A document failure resolution process. Comments may be sent to them a Notice.comments@irscounsel.treas.gov.

Often 404c plans will expressly prohibit investments that would be 'prohibited transactions', result in unrelated business taxable income, be in collectibles, or be offshore (generally).

I don't think you get to just lump the retiree and Spouse2 together in the analysis because they reside in the same household. Spouse2's rights are very real and distinct from the retiree's--at least that's how REA looks to me.

Internal Revenue Code § 105(h) and Treas Reg § 1.105-11(g). As for incidental benefit to the employee, I know of no code/reg--merely suggested that it might be argued under concepts akin to those for employer provided meals (Internal Revenue Code § 119).

I'll bet the ex-wife and her attorney are expecting, and will try to convince the divorce judge, those numbers to resemble those that would have attained to a timely QDRO.

Let's put some numbers on an example. Suppose during the marriage to ex-spouse, the benefit accrued was a right to $5,000/month (calculated as a single life annuity) after retirement at age 65. In the divorce, ex-spouse is awarded 1/2. A year after the divorce, the employee marries spouse2. A year after that, employee retires when the accrual is now $5,200/month (again for benefit estimate purposes calculated as a single life annuity). Spouse2 refused to waive QJSA, and so the payout is now $4,100/month for retiree's life and $2,050/month to spouse2 thereafter (forgive me, actuaries, these numbers are just for illustration, not intended to be the result of calculations). Now, years later and after benefit commencement (and Spouse2's survivorship right vested), ex-spouse wants to get her 1/2 of accrued benefit at time of divorce, i.e. that 1/2 being $2,500/month. Divorce court awards it. Now, retiree is left with $1,600/month. Had ex-spouse perfected her QDRO back in the day--before the benefit commencement--then retiree's remaining benefits, $2,700/month would have translated into lifetime benefit payout of $2,200/month to retiree and Spouse2's survivor rights would have been about $1,100/month. As a consequence of the ex-spouse's delay (with or without the procratination or indifference of her attorney), retiree has suffered a $600/month loss because Spouse2's now vested survivor rights claim a bigger proportion. Granted this is the laches argument for state divorce court, but mjb's laches argument has real teeth to it due to the consequences to the retiree from the ex-wife's delay.

Usually the person that chooses COBRA continuation has a health condition that would cause other coverage, such as under an individual policy, to cost more than the COBRA continuation coverage. This person yet being in the ER's group insurance policy can cause the group rates to be higher than they would be if this person were not allowed to continue coverage under COBRA. To keep the premium rates under the group policy lower, an ER often would prefer if such a person did not elect COBRA coverage--or if there is 'gross misconduct', this person is not offered COBRA.

Boudreaux v. Rice Palace, Inc., 491 F.Supp.2d 625 (W.D. La., 2007)