J Simmons

Hi, Don, The type of ERISA discrimination alleged in the McGann case was that prohibited by ERISA section 510. ERISA section 510 discrimination would be problematic for the situation in post #8 reviving this thread that "we know of an employer who is considering reducing the plan life time max. to force a very sick individual off their plan and onto an individual guarantied issue policy. So would exhausting the life time limit qualify him for the individual policy". Consider the following language from the McGann case you cited, discussing Vogel v Independent Federal: For HIPAA nondiscrimination, see ERISA § 702 (added by HIPAA) and DoL Regs § 2590.702 prohibiting discrimination based on a health factor.

Hi, Don, Thanks for the cite regarding ERISA. Do you have one regarding HIPAA nondiscrimination--HIPAA was passed in 1996, five years after the case you cite. Thanks,

Hey, Don, It may be HIPAA permitted to reduce the lifetime max; I don't know off the top; the situation as described gives me the HIPAA 'willies' because there is health information about one employee that is being taken into account in a plan design move that effectively limits that employee's benefits going forward; it's something I'd check out (and get legal opinion on) before going ahead.

Not having a high deductible insurance plan can disqualify you from health savings account (HSA) contributions, but you are yet eligible for employer-only funded health reimbursement arrangements (HRAs). A medical expense reimbursement plan (MERP) is also employer-only funded. No employee contributions--employee contributions requires a cafeteria plan. The prime difference between what are typically referred to a MERP and an HRA is that the benefits accrued to an employee but not used by the end of the plan year carry forward to be available in future plan years by that employee if it is an HRA, not if it is a MERP. Employees that accrue benefits in a MERP or an HRA submit claims for reimbursement, quite similar to how that is handled for a cafeteria's FSA. However, the MERP or HRA reimbursement may be for health insurance premiums as well as out-of-pocket health expenses, to which the cafeteria FSA is limited. A plan document is required, and if you are subject to ERISA, a MERP or HRA documents must meet all those requirements applicable to an employee welfare benefit plan.

HIPAA nondiscrimination ought to be explored before proceeding.

I would list it as a 3H plan for the year for which the 5500 is being prepared because it was part of a control group for part of the year. You are reporting the entire year, and by so coding, you would be disclosing that a potential issue involving control group does pertain to the year, albeit just part of it.

Hi, Masteff, See posts ## 13 and 14 in this thread where Prop Reg 1.125-1(m) was discussed.

The issue I see pertains to the definition of highly compensated. For FSA testing purposes under IRC section 105(h)(5), it is 'highly compensated individuals' with a definition that captures the company's highest paid 25% of employees.

Hey, vebaguru, I agree that the plan should recover the excess payments rather then simply calling the amounts taxable income. But if the excess payments are not returned by the end of 2008, would you report it as taxable income? How and why would an excess payment that is not recoverable be treated differently if it is an excess payment due to failure of substantiation rather than having exceeded the FSA dollars otherwise available for reimbursement. Thanks in advance for your anticipated responses.

TBob, Do all the 5500s in question refer to the identically same plan name and original effective date? Do the 2004 ending values of Schedule I line up with the beginning values of Schedule I on the 2005 Form 5500? Mention all that in and provide both the 2004 and 2005 Forms 5500 with the letter WDIK suggested sending. That will help the IRS reviewer 'connect the dots'.

jkharvey, Make that a four part harmony answer. But please do follow up post in this thread when the drafting attorney calls you back and gives his/her interpretation. Thank you,

Fun, indeed. 0/0 = 19 [= ERISA, according to many]

Does the notice also describe how you may make the election other than elect-by-net, such as a printed election form being filled out, signed and mailed in? If the notice describes a method that is open to you, hard to see how you are harmed because the notice describes a method that you cannot use as well as method that you can use.

In response to item (b), my possibly even foggier recollection from Number Theory in Grad School is that 0/0 is defined as 1. Sorry to contradict your old math teacher...... The math theory I was taught was that 0/0 is either 0, 1 or infinite. Zero being a focus on the numerator; 1 being a focus on the identical aspect of the numerator and denominator; and infinite being a focus on the denominator.

Hi, Don, For purposes of applying the state's own laws that are not preempted by ERISA, the state may set its own definition even if that conflicts with the federal definition of 'group health plan' for HIPAA and COBRA purposes. The federal definition would nevertheless apply to determining if HIPAA and COBRA apply to the specific arrangement.

Both COBRA and HIPAA refer to the same definition of 'group health plan' set forth in IRC § 5000(b)(1). For COBRA and HIPAA to apply, the 'group health plan' must either (a) be contributed to by the employer, or (b) be "of the employer". The COBRA regulations specify that health insurance provided through a cafeteria plan may be a 'group health plan' (Treas Reg § 54.4980B-2, Q&A-1) if the employer makes a contribution toward the premium cost or the insurance is not available to other individuals at the same cost it is to the employer's employees. Thus, even if the employer does not bear any of the premium cost, COBRA (and probably HIPAA too) will apply if the employer negotiates special rates on the premiums (such as price breaks) for its employees. The employer's negotiating a special premium cost would make the policy "of the employer". If not, is an employee-pay-all (through cafeteria plan elected salary reductions) "of the employer"? Maybe, but the implication of the COBRA regulation on it suggests not, and it is the same definition used for HIPAA.

Hi, George, Well, Mr Beker's response was not directly to the HIPAA question I posed. He did not opine either way on it. When he asked specifically what was prompting my question, I explained that it was health insurers refusing employer checks to pay premiums on individual health policies, citing the HIPAA concern. That's when Mr Beker then pointed me to Rev Rul 61-146, and explained that we could simply have the employee pay the premium, bring proof of payment, and then cut a non-payroll check from the employer to the employee to effect the cafeteria plan's payment of the premiums for the individual policies.

It's possible that Mr Beker misunderstood what I was asking about a cafeteria plan, but he volunteered Rev Proc 61-146 as a work-around to the insurance company's refusal when Mr Beker called to reply the following fax I sent to him on May 10, 2000 about HIPAA applicability to individual policies premiums paid through a cafeteria plan:

George, Could you help me understand what you mean by "pre-taxing by the employee of the premium" that is not accomplished under method 1 under Rev Proc 61-146, where the premiums are tax-free under IRC section 106? Harry Beker, the principal author of the 2007 proposed regs, directed me to method 1 of Rev Proc 61-146 as a way to handle cafeteria plan payments of premiums elected by the employee (with a corresponding election for salary reduction) when I explained to Mr Beker that an insurer was refusing direct payment of premiums from the employer on the employee's individual health insurance policy.

George, What are those concerns about what is meant and how it works? Treas Reg § 1.125-1(m)(2) Example (ii) provides that if the employee's individual health premiums are substantiated, payment will be tax free to the employee under IRC § 106 (just as in Rev Rul 61-146) if the employee is reimbursed directly for those premiums--or by a check delivered to the employee that is made payable to the insurance company or jointly to the insurance company and the employee, Treas Reg § 1.125-1(m)(2) Example (iii) and (iv).

I agree, Kevin, but availability is the ultimate touchstone of those regs. I suppose that if that the re-hired employee repays into the plan his $2,500 and gets his $500 forfeited restored, for a total of $3,000 in benefits, the plan could then amend the $10,000 floor for loans to $1,500. In my scenario, no employee would be denied a loan because of the floor amount. It would not be a factor inhibiting availability.

Hey, Kevin C, Suppose that the plan is frozen, the minimum amount of vested benefits that any one employee has is $20,000. Then a $10,000 minimum would make the loans available to all, even if loans are also limited to 1/2 of the vested accrued benefit. Under that scenario, it would look like §2550.408b-1(b)(1) is satisfied.

Hey, David, I've taken it to mean that between the poster and her ex, they had an agreement whereby the ex, as the employee, would put into the 401k plan more out of her paychecks than the ex otherwise would. If that was, say, $350/mo, the poster paid $350 to the ex, all done with the understanding between them that these extra benefits would be the poster's. Nothing that the 401k plan would recognize. These would, from the plan's perspective, be benefits of the employee, the ex.

The mechanics of that are best handled by having the EE pay the premium on the individual policy to the insurance company and then the ER, pursuant to a cafeteria plan that allows and employee election for payroll reduction, reimbursed the EE with a non-payroll check. See Rev Rul 61-146. But do this per such a premium benefit specified in the cafeteria plan and election by the employee, separate and apart from his or her "medical reimbursement account". That type of flex account must be for non-premium medical expenses that the employee would otherwise pay out of his or her pocket. Do vet out the issues mentioned in this thread, however, before doing this.

If it is an ERISA plan, then the fiduciaries--those making decisions about the LI policies--must discharge their "duties with respect to a plan solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries" ERISA § 404(a)(1)(A)(i). Maybe that's what the insurer's attorney is referring to.