J Simmons

If an employee applies for an Exchange subsidy and the Exchange determines, based on the application, that the employee is entitled, the Exchange will send the employer a "section 1411 certification". The employer will have 45 days to contest it. The employer will be able to provide information of what MEC (minimum essential coverage) was offered to the employee, at what cost to the employee in share of the premium. The employer will also be able to provide information about what the employee is paid by the employer. The employer will not, of course, be provided information about what the rest of the employee's household might earn. But if the employer has opted for the design-out safe harbor, the question is whether the employee would have to pay more than 9.5% of what the employer paid the employee for employee-only coverage. So the employer could prove that it has offered employee-only coverage at a cost to the employee of no more than 9.5% of what the employer pays that employee. This is the IRC 4980H(b) penalty. As for the IRC 4980H(a) penalty, by March 31 after the end of each calendar year (beginning with 3/31/2016 for 2015), the employer will have to file a new IRS Form 1094-C, giving a month-by-month count of its Full-time Employees (per new federal definition and counting rules, Prop. Treas. Reg. 54.4980H-3). The Forms 1095-C send to individual employees (and copied to the IRS) will report which employees were offered MEC for which months in the reported year. The IRS computers will cross-check to determine if for each calendar month of the reported calendar year that the employer offered MEC to at least 95% or all but 5 of its Full-time Employees. If it has not met that breadth requirement, then if even on Full-time Employee applies and qualifies for Exchange subsidized coverage, the employer will face the 4980H(a) penalty = (# of Full-time Employees - 30)*$167/month. The IRS will calculate such penalties for each month of the closed and reported calendar year, and send the employer a billing for its 'shared responsibility' assessment.

That would be my concern too.

How does the LLC protect the IRAs, assuming that mbozek's suggestion works?

I do not think the Gold memo applies to this issue. It was addressing a plan design that "limit[ed] participation under the plan to highly compensated employees and to rank and file employees with short periods of service (such as periods of a few weeks or even a few days)." It was effectively favoring, among the compensation range of NHCEs, those at the bottom end vis-a-vis those at the top end of the compensation range for NHCEs. Many plans have no minimum service or age requirements for eligibility, and allow immediate entry. Many of these same plans have no end-of-year-employment requirements or minimum hours in the current plan year for benefit accrual requirements. I do not think that a plan that uses a cross-testing allocation is required to avoid these liberal eligibility/entry/benefit accrual rules. The Gold memo, in my opinion, was limited in its reach and indication of the Service's position and thinking about 401(a)(4) to designs that among NHCEs bottom load (either exclude higher earning NHCEs altogether or provide lower rates of company contributions to them as compared to the lower earning NHCEs). Manipulation within the ranks of the NHCEs to leverage further cross-testing results for the HCEs was the focus and import of the Gold memo--not suggesting that you cannot treat all NHCEs similarly because doing so might help the HCEs' accrual levels, and not suggesting that all HCEs that meet the same eligibility/entry/benefit accrual rules also applicable to NHCEs, that such HCEs must accrue a level of benefits or any benefits at all (barring top heavy minimum if an HCE is not also a Key Employee). I am aware of nothing from the Service, not even informal indications, that the Gold memo would extend or be extended to the situation posited in the OP.

I agree with the way J4FKBC articulated this. BTW, I am just wrapping up a VCP application to correct for a profit sharing plan that had an age 55 NRA, but had merged-in MPP benefits to which the age 55 NRA applied and the 1/1/2009 deadline for raising it to age 62 for the MPP benefits was blown. The IRS has been very generous in working with us on a reasonable resolution. Better to spot these situations among your clients and go through the VCP than perhaps have a costly CAP resolution if it is picked up on audit.

Like ERISAtoolkit.com, I think you are firing on all cylinders (have a grasp on the issues). I used this design repeatedly during the GUST II restatements, and submitted for d-letters with Schedule Q and Demos showing how this worked, and that the kids were HCEs. The Service issued the d-letters with no push back on this issue, on any of those applications. (I was pushing the envelope in design on the definitely determinable formula issue then, and had to explain at length the internal IRS memos on that topic to about 6-8 different IRS offices, before they'd back down and issue the d-letters. But never any pushback for relaxed eligibility rules that brought the owners' kids into the plan without accruing anything, benefiting the owner/employees in the testing just the way you are describing.) I did not submit sample Demos for EGTRRA d-letters, just document requests. But I've not heard anything suggesting a change in attitude by the Service regarding this issue since the GUST II era.

I think you should do a VCP submission. Also, if this 52 year old P is an HCE, then you better bend over backwards if necessary to get him or her to put that money back in the plan.

Hey, Austin, The ISA is between the PA for the 403b (usually the ER) and the financial institutions where the investments are held in 403b accounts. The PA can have a model ISA that it proposes to the various financial institutions, if there is more than one. Most financial institutions have a model ISA that they prefer. The ERs that I have advised that deal with more than one financial institution have generally insisted that the ER's/PA's ISA model be used and refused the financial institution's proposed ISAs. The ER's/PA's did this out of a need for uniformity in operating their 403b plans. Those that took this stance found that each investment house that accepted the "invitation" under section 8.01 of Rev. Proc. 2007-71 to be part of the ER's 403b plan eventually accepted and signed the model ISA proposed by the ER.

Me too.

Is the third-party warehouse responsible to the ER for making sure that "all ERISA and Code record retention requirements" are met, or is the ER merely leasing regular storage space that the ER has vetted as suitable for the record retention requirements and the ER is itself making sure that all the record retention requirements are met?

Hey, K2, it sounds like you've been around the block, or the back end of a donkey, a time or two.

Rocky, What is your objective? Is it to get your benefits from contributions that should have been made? Then I'd try to leverage it out of the ER (but do not cross the line of extortion/black mail--check the criminal laws of the states where you are located and where the ER is located). Is it to get for the entire Plan the amounts due from the ER? Then the DoL is a good suggestion. However, if your concern is your own benefits being paid, you'll likely get more blood for yourself from this turnip of an ER if you deal with the ER and not the DoL. To satisfy you, the ER might contribute to the Plan what is owed to you, so that the Plan can pay you out. If the DoL get contributions out of the ER and all it can get is some of the money, the allocation will result in you only getting so many cents on the dollar.

If the TPA is not the named "Plan Administrator" in the plan documents and has no discretion over whether contributions are made or discretion over how any remitted contributions are allocated, then I agree with toolkit that there is no claim by the EE against the TPA, and the only proper target is the ER and possibly the Plan Trustees. If the Plan Trustees were aware of the 3% of pay 401k safe harbor non-elective contribution hard wired into the plan, then I think the Plan Trustees had an obligation to take steps to collect it from the ER when not made by the proper deadlines.

Hi, Tom, FYI. I've been dealing with an audit the last two years of this issue and run all these sources and arguments, including the irs.gov website Rainbow Company example passed the IRS auditors. They're having none of it. They've dug their heels in at insisting on the 3% of pay, and ADP/ACP testing.

The contribution would be due for all eligible employees, even if they did not get a notice. The notice failure means that the plan is not 401k safe harbored for the year. So even though the 3% of pay is a required contribution per plan and notice terms, the plan is subject to ADP and ACP testing for the plan year.

Demand the benefits quickly, and demand that they be paid from the plan (requiring him to contribute them to the Plan). I'd give him no more than 5 business days given the situation.

And the question pertains to the father's plan, and there's been no mid-year cessation or first satisfaction of the eligibility requirements under it. The child was and continues, per the facts given in the OP, eligible under the father's plan. Yes, but (f)(4) is substantively talking about a 'change in coverage' under another employer plan, not a mere change in eligibility. (f)(4) procedurally permits a corresponding change under a plan if the other plan permits a change in election by reason of a ©, (d), (e), (f)(1), (f)(2), (f)(3), (f)(5) or (g) situation, disregarding (f)(4) to avoid a circuity between the two for which none of those situations applies.(f)(4) is addressing a change of coverage, not mere eligibility. The OP does not fit that. The OP does not fit any of the ©, (d), (e), (f)(1), (f)(2), (f)(3), (f)(5) or (g) situations, either.

Deposit them where? Most dependent care plans are funded out of the general assets of the ER. That is, no separate fund. The ER's general assets are enhanced by not having to pay the EE by the measure of the salary reduction elected to pay for the elected day care benefits. When a claim for day care expenses is submitted, the ER pays it out of its general assets. You ought to look at the plan terms to see what is said about the timing intervals (if any are imposed) for submitting claims and what the time lines are for paying them. If there is a separate fund being used as contemplated by your OP, then there might be a problem. DoL Reg 2510.3-102(a)(1) provides DoL Reg 2510.3-102© provides They are depositing them into a checking account used for the reimbursements. However, until they actually deposit the deferrals into the checking account they will not pay out any reimbursements. The ER might have inadvertently (and voluntarily) created an ERISA trust by using that separate account. It depends much on how that account is titled. If it has created an ERISA trust, then that plan needs to be reported on a Form 5500 each year even if it is under 100 employees, and it will need to have an annual independent audit performed. An ER that is a laggard in paying claims or transmitting to a separate fund those salary deduction amounts is often someone that also overlooks these audit and reporting requirements as well. Looks like this ER could be especially vulnerable to a DoL audit, initiated by just one upset EE complaining to the DoL's regional offices. DCAPs are not mentioned in ERISA Section 3(1) as employee welfare benefit plans. How then do the plan asset rules apply? And why would it be within the DOL's jurisdiction? Good point, chaz. DoL Advisory Opinion 93-25A spells out that if the employee has choice in selecting which day care center at which the services will be provided, then it is not subject to ERISA Title I.

And specifically, then, among the (b) through (g) situations (sans (f)(4)) which would apply to the OP situation?

Deposit them where? Most dependent care plans are funded out of the general assets of the ER. That is, no separate fund. The ER's general assets are enhanced by not having to pay the EE by the measure of the salary reduction elected to pay for the elected day care benefits. When a claim for day care expenses is submitted, the ER pays it out of its general assets. You ought to look at the plan terms to see what is said about the timing intervals (if any are imposed) for submitting claims and what the time lines are for paying them. If there is a separate fund being used as contemplated by your OP, then there might be a problem. DoL Reg 2510.3-102(a)(1) provides DoL Reg 2510.3-102© provides They are depositing them into a checking account used for the reimbursements. However, until they actually deposit the deferrals into the checking account they will not pay out any reimbursements. The ER might have inadvertently (and voluntarily) created an ERISA trust by using that separate account. It depends much on how that account is titled. If it has created an ERISA trust, then that plan needs to be reported on a Form 5500 each year even if it is under 100 employees, and it will need to have an annual independent audit performed. An ER that is a laggard in paying claims or transmitting to a separate fund those salary deduction amounts is often someone that also overlooks these audit and reporting requirements as well. Looks like this ER could be especially vulnerable to a DoL audit, initiated by just one upset EE complaining to the DoL's regional offices.

Deposit them where? Most dependent care plans are funded out of the general assets of the ER. That is, no separate fund. The ER's general assets are enhanced by not having to pay the EE by the measure of the salary reduction elected to pay for the elected day care benefits. When a claim for day care expenses is submitted, the ER pays it out of its general assets. You ought to look at the plan terms to see what is said about the timing intervals (if any are imposed) for submitting claims and what the time lines are for paying them. If there is a separate fund being used as contemplated by your OP, then there might be a problem. DoL Reg 2510.3-102(a)(1) provides DoL Reg 2510.3-102© provides

Sorry I'm feeling thickheaded this week but what am I missing for why it doesn't fit? The above quoted regulation does not include any requirement that the child must lose eligiblity in the current plan (which you appear to have added as a requirement in your post yesterday), only a permitted change in coverage in the other plan. If and only if the child was added to the other plan in accordance w/ paragraphs (b) through (g) of 1.125-4, then I read that the employee should be allowed a corresponding change in the current plan. Or please be more detailed about what I'm missing. Edit: (f)(6) Example 3 supports that loss of eligibility in the current plan is not required for the application of the rule under (f)(4). What new coverage option is the mother's plan in the OP making available mid-year? None. The same coverages are continued. (f)(6) Example 3 mentions a mid-plan year change of the mother's plan to allow for the first time family coverage (previously employee only). The child's eligiblity based on a move of residence is all. You are conflating the notions of a plan design change in coverage options available with eligibility. Going from non-eligible to eligible under the mother's plan would permit her to add that child under her plan mid-year. It would not allow the father to discontinue mid-year the coverage previously elected for that child for the plan year.

You might be thinking of "Change in coverage under another employer plan" and "Loss of coverage under other group health coverage", Treas Reg sec 1.125-4(f)(4) and (5), respectively. They don't quite fit this situation.

No. They used up some of the deductible contribution, IRC sec 404(a)(3), "room" for the year they were contributed. So they don't again take up that room in the year of reallocation. Now, as to 415© limits on beneit accruals for individuals for the year of reallocation, the amount another employee receives of the re-allocation counts against that individual benefit accrual limitation.

The child is yet eligible as a dependent of the child's father, as when the coverage for the year was elected. So the father's number of dependents has not changed mid-year. There is no mid-year employment change for the child or the father's spouse with an attendant change in eligibility of the child for health coverage. The change in the child's residence has no effect on his continuing eligibility under the father's coverage. So Example 4 of Treas Reg sec 1.125-4©(2)(4) would overide the oblique statement in Treas Reg sec 1.125-4©(2)(v) ("A change in the place of residence of the ... dependent.") Was the child eligible under the mother's coverage, even though not living with her, at the time the coverage for the child was elected by the father? If so, I'd definitely say no. If the child's move gained eligibility under the mother's coverage, then I think the mother's plan could permit her a mid-year addition of what would be duplicative coverage for the child, but I do not think that the father's plan could allow him to stop the child's coverage since the child is yet an eligible dependent of the father.