J Simmons

Hi, George, I'll take another stab at wording it. JustWondering has 'family' coverage rather than 'single' (those being the only two options), elected in July (annual enrollment). To have the daughter covered, 'family' coverage was the only option, as 'single' coverage would not have done so. Now the daughter is dropping off the coverage mid-year due to a recognizable change in status. If for the 'family' coverage JustWondering had listed just herself and her daughter (not also her husband), then the daughter's dropping off mid-year ought to permit JustWondering (if plan provisions allow) to go to 'single' coverage. However, if JustWondering had listed for the family coverage herself, her daughter and her husband, then the daughter's dropping off would yet leave listed for the coverage both JustWondering and her husband. That would have to continue as family coverage. So I am curious to know if JustWondering's family coverage had listed her husband as well as her daughter.

JustWondering, Where your husband elected single coverage under his own employer's plan, did your 'family coverage' list and cover just you and your daughter? or did it also list and cover your husband too despite the fact he had his single coverage through his own employer's plan?

Treas Reg § 1.401-1(b)(1)(ii) uses the term 'funds accumulated'. Rev Rul 71-295 talks in terms of 'portion of employer contributions' as what may be withdrawn.

Mary C, do you have a citation to a specific Treas Reg provision or IRS ruling for that proposition?

The state street custodial agreement may be a 90-24 type of agreement between the employee and the custodian for accounts held at a brokerage instead of under agreement between the employer and custodian that would exist if the employer sponsored a plan. (See 1.1, 2.1). A separate account application is signed by the employee (2.2). Also Section 6.5 permits the custodian to resign after giving the employee 30 days notice which confirms my point that custodian always has the right to resign without the consent of the other party to the contract. There exists the possibliity that there is a separate agreement between the custodian and the employer. It could be an old 90-24 agreement, but it does have provisions about salary reduction (i.e., new money). These types of agreements are not uncommon in the context of what many employers have been doing and now need to make effort to bring into compliance with the new regs--and many such employers are hoping to be able after adopting a plan document to terminate. Do you have any comments/concerns about the work-around mentioned in post #10?

Hi, mjb, I have seen 403b custodial agreements that do not give the employer the rights that you mention being in those 403b custodial agreements that you have reviewed. For example, see State Street Bank and Trust Company's 403b Custodial Agreement. Nowhere is the employer so empowered over the agreement or account, and section 10.1 gives the custodian alone the right to make amendments to the agreement. The employer is not even a signatory to that agreement, just the employee and State Street are. These contracts are making it difficult to terminate a 403b plan. Do you happen to have any comments about the word-around described in post #10?

But the employee and spouse could each have elected employee-only coverage during their respective open enrollments, and they may leave the spouse on the employer's coverage as a 'family' configuration despite the dependent daughter marrying and migrating to her new husband's coverage. The only change that is consistent with the daughter's mid-year status change is that her coverage through the employee mid-year ends. A mid-year status change for one person in the covered family does not entitle the employee (or spouse) a complete do-over in their respective elections.

A sole proprietorship does cease upon his/her death, but the business may be continued by his/her probate estate, at least for a time. In any event, the business from January 1 to the date of death would be reported as a Schedule C to Form 1040 for that year for the decedent. The OP asked if the estate, as the successor in interest of the business, could make a DB contribution for that sole proprietor (for January 1 through date of death, I am assuming)? It would seem if there are any death benefits possible for a survivor of the decedent (such as a surviving spouse's annuity or a lump sum to anyone), the answer would be yes to the extent necessary to fund the death benefits in light of the DB plan's existing funding. If there is no death benefit possibility for the sole proprietor's survivors, then I would think the answer is no.

Everett, Suppose that an ER adopts a written 403b plan (regulation compliant) that specifies that only those 403b products subject to distribution upon termination of the 403b plan by the ER are maintained pursuant to the 403b plan. The ER then contacts all 403b vendors to which the ER has sent any contributions since 1/1/2005, asks for info about those contracts, gives the name and contact info of the person at ER for 403b issues, sends a copy of the adopted 403b plan (and proposed info sharing agreement that specifies among other things that the vendor agrees that the 403b product is subject to the ER's 403b plan), and asks the vendor to sign such info sharing agreement. The ER has made, in my opinion in reading section 8.01 of Rev Proc 2007-71, a good faith, reasonable effort to include the 403b products of such vendors. If a vendor refuses, section 8.01 of Rev Proc 2007-71 indicates that the requirement that the contract be maintained pursuant to a 403b plan document of an eligible employer is deemed satisfied so long as the employer made the good faith reasonable effort. The only 403b products maintained pursuant to the ER's 403b plan document are those as to which the vendor signed the info sharing agreement. By the vendor signing such agreement, the ER now has contractual authority to terminate the plan and instruct the distribution of all those 403b products maintained pursuant to the 403b plan. The real question for this workable solution to the termination dilemma where there are mutual fund-only accounts as some of the 403b products part of the ER's 403b program since 2004 is whether the ER's requiring for inclusion in the ER's 403b plan that the vendor agree (in the info sharing agreement) that the 403b products of the vendors will be subject to the 403b plan of the ER (including distribution on plan termination) defeats the notion that the ER has made a good faith, reasonable effort to include those 403b products. My argument is that ER's insisting upon such does not defeat the otherwise good faith, reasonable effort for inclusion of those 403b products because requiring such is necessary to enable the ER, as a practical matter, to someday terminate the 403b plan.

A third thank you is in order, Everett. The snippets you quote do seem consistent with paragraph 15 of the piece that attorney Kristi Cook wrote for Horace Mann on the final 403b regs (https://www.horacemann.com/products/annuity/final-403b-analysis.pdf). I'm still trying to figure out the reason for the different treatment in this respect of annuity contracts and mutual fund-only accounts under 403b plans in the throes of termination.

Treas Reg § 1.125-4©(3)(iii) includes this remark: Treas Reg § 1.125-4©(4), Example 3(ii)

There are several large firms that do, among other things, benefits consulting and actuarial studies on the costs of benefits. Their assumptions for forecasting future costs are based usually on the most recent, reliable usage data available. Collecting and analyzing that data is costly and/or proprietary. I am not aware of such data being published on the internet (but other posters on this board might). Given that you are a student and it is an educational paper you are writing, some of those consulting companies may be willing to share some of the high-level data with you. A few names you could perhaps Google would be Mercer benefits, Hewitt Associates, Aon, and Buck Consulting.

I would think that the plan would fail the permanency requirement if under the circumstances you describe the plan is terminated in its 2nd years of existence. The consequences of terminating would be that the plan was never qualified. A Form 5310 termination application could be made. If you do, make the termination amendment contingent on IRS approval. In that way, if the IRS withholds its approval, the owner can reconsider his next steps. That might not be such a red flag. If the IRS withholds its approval but the owner goes through with terminating the plan, I would suggest that the plan be treated as never having been qualified. This means that the owner (and probably other employees) will have taxable income for 2007 for his benefits accrued during 2007. The 2008 accruals and earnings would be taxable income to them in 2008. The company would need to amend its withholding and payroll reports to the IRS for 2007 and 2008 to date. The company ought to issue amended 2007 Forms W-2. Those affected would need to amend their 2007 tax returns to reflect and pay tax on the greater taxable income.

As you describe the coverage packages, just single and family, if you have your wife on your family package as well as your daughter, your daughter getting married and going onto her new husband's coverage would not necessarily allow you to drop your wife from your coverage mid-year. Mid-year changes to your cafeteria election due to changes in family status are only allowed to the extent consistent with the mid-year family status change. It's not like your daughter's mid-year event reduced you from 2 (family) to just 1 (employee-only). Treas Reg § 1.125-4©(3)(iii) (consistency rule). I think the Section 125 Administrator is correct. Edit was to correct inverted citation.

Thank you, again, Everett. Did BNA report any rationale proferred by Mr Architect for the regs setting forth a manner by which an ER could effect distribution of a 403b annuity contract (i.e., delivering it) incident to plan termination, but should not be able to notify the vendor of a 403b mutual fund-only account that the employer is terminating and "washing its hands" of that account, in order to effect the necessary distributions incident to plan termination? The reason for different regulatory treatment of the two types of 403b products does not seem obvious to me.

Why a rabbi, of course (sorry, couldn't pass up that home run pitch in the banter category).

It's been a while since I dealt with this issue, but if I recall right, its the full vesting occurs retroactively as of the first day of the plan year that no contributions were made.

To correct for past years' improper payments from a flex account, you should see a benefits and compensation attorney.

Thanks, Everett. Follow up questions: Most employers that I'm dealing with re 403b plans that do not want to allow new dollars to go into the contracts after 12/31/2008 are opting to freeze (so as not to force annuity surrender or transfer fees and repayment/taxation of loan balances) rather than explore the possibility of terminating. For an eligible employer that has allowed numerous vendors in the past, do you think that the employer cannot terminate the 403b plan (after, say, adopting a new, regulation-compliant plan document) because of the inability to force the multiple vendors to pay out within a certain time frame of adopting the termination amendment? My take on Treas Reg 1.403(b)-10(a)(1) that requires distribution "as soon as administratively practicable after termination" to allow for payouts when the individual 403b contract between the employee and vendor permits in light of plan termination. The employer is not a party to that contract and thus not able legally to require payout contrary to the terms of the contract. Alternatively, since the regulations speak about the need to be maintained per a 403b plan as a requirement on the contract but section 8.01 of Rev Proc 2007-71 says such is deemed to be satisfied if the employer made a good faith, reasonable effort with the vendor (e.g., asking the vendor for info and giving the name and contact info for the person at the employer responsible for 403b issues), do you think that for termination purposes after the employer makes a good faith effort the only contracts that must be distributed as soon as reasonably practicable are those as to which the vendor (likely with the consent of the employee) agreed to subjugate the contract to the terms of the 403b plan adopted by the employer? Or, could the employer bifurcate its 403b program into two, one for contracts so subjugated and the second for other contracts--and then just terminate the first such 403b plan?

Yes, msmith, my answer was based on the terminology, "co-pay", as described by George Burns.

The health flex account can be tapped for reimbursement of the co-pays.

Is your question whether intent is a requirement for there to be a prohibited transaction?

Is it tested against "nothing (rather than 0)" for NHCEs if you have NHCEs in year 2?

I use Google search, add Benefitslink and whatever I'm looking for. Not case sensitive.

I gotta say, I learn something new on the Board everyday. Today is no exception. I'm sure I'll keep learning something new here everyday until I go TU.