J Simmons

If a 401k safe harbor plan calls for 3%-of-pay, non-elective employer contribution and employer also makes non-matching, profit sharing contributions, would those that receive the 401k safe harbor non-elective 3% but no part of the profit sharing contributions be considered as 'benefiting' for purposes of minimum coverage of non-matching employer contributions?

Look for the upcoming decision of the 7th Circuit Court of Appeals in Hecker v Deere. It is one of the EE class action suits against 401k plans/fiduciaries for excessive, hidden investment fees. The federal district court dismissed Hecker v Deere on motion made by Deere. The rationale was that the brokerage window gave 2600+ investment options, although about 18 or 19 were prominently suggested for employees' consideration. The trial judge dismissed noting that among those 2600+ investments available through Fidelity, there had to be some low fee ones. Ergo, the higher fees were the result of employees choosing the higher fee investment options. The Hecker employee class has appealed to the 7th Circuit and the DoL has filed an amicus brief in that appeals process. The DoL is arguing its position as set relayed by Kevin C in his post. It will be interesting to see if the 7th Circuit accepts or rejects the DoL position. In the meantime, they are the DoL... .

ERISAnut is correct. Making employer contributions will subject the 403b plan to ERISA since ABC Company is not, I assume, a public school. As for compliance, you do want to have the plan documented (if it is not already per the new 403b regs set to take effect 1/1/2009), include ERISA provisions such as naming a fiduciary, setting forth the eligibility requirements, when and how contributions may be made and how allocated, claims processing, etc. Also, make sure that you have a summary plan description, etc. An ERISA lawyer should be able to help out.

The anesthesia Corp is a PC and thus could be an FSO. Treas Reg § 1.414(m)-1© does not require that the A Org also be a PC, and it is the A Org that owns part of the FSO, not the FSO that owns part of A Org. IRC § 414(m)(2)(A)(i). So the fact that the not-for-profit hospital is not a PC and not an FSO does not negate that the not-for-profit hospital is perhaps an A Org that owns part of the anesthesia Corp that is the FSO. The not-for-profit hospital is a shareholder of the anesthesia Corp (79%) and the not-for-profit hospital is regularly associated with the the anesthesia Corp in performing services for third persons. Thus, the not-for-profit hospital is an A Org, and the not-for-profit hospital and anesthesia Corp an ASG.

I suppose a typo. Four months plus after posting, can't say whether my intent on April 6 was "1/1/2009" or "12/31/2008".

You need to ask the judge (file a written motion with the court) for an implementing order that you'd have drafted and propose that the judge sign (enter). The order would need to meet the requirements of Internal Revenue Code section 414(p) and probably also ERISA section 206(d)(3). This requires specialized legal knowledge. You want to ask your divorce attorney for a "QDRO", that's what these orders are referred to. Once the court issues the order, you present it to the plan administrator of the 401k plan. Your ex may object to the court, which would then decide whether to enter the order over the objection. The court would be guided by what is in the divorce agreement. Your ex may object to the plan administrator, which would then decide whether the order meets the requirements of Internal Revenue Code section 414(p) (and ERISA section 206(d)(3), applicable to the 401k plan). If the court issues the order and the plan administrator finds that the order is a QDRO, then the plan administrator will separate the 401k benefits and create an account for you, as a 401k beneficiary of that portion.

Focusing on nondiscrimination as to eligibility (Prop Treas Reg § 1.125-7(b)) rather than the nondiscrimination as to contributions and benefits (Prop Treas Reg § 1.125-7©), the examples in the proposed regulations all pose the reverse of your situation (one is neutral on the cost and benefit to employees). Prop Treas Reg § 1.125-7(b)(3)(iv), Examples 2, 3 and 4 each sketch out problematic situations where the cafeteria plan 'cost' for the same coverage is lower for the highly compensated or the highly compensated get a richer coverage. That the highly compensated might be impermissibly favored under the cafeteria plan because they may elect more of the premium cost because the ER pays less of the premium cost for them than for non-highly compensated is not suggested in the fact patterns of those Examples 2, 3 and 4. Note, the ER could side-step the question by cutting the payroll of each of the EEs whose income is at least $75k by $100 a month and pay all but $100 of the premiums for all employees. Or, the ER could boost the payroll to EEs who earn less than $75k by $100 a month, and pay all but $200 of the premiums for all employees. Either of these would treat all EEs the same. Prop Treas Reg § 1.125-7(b)(3)(iv), Example 1. The true uptake of the difference you describe is that the $100/mo/EE in question is that those earning under $75k have no choice of cash (or other cafeteria plan benefit) in lieu of it being applied to health insurance premiums while those earning at least $75k do have that choice.

I don't think so. The 55% average benefits test applies only to the day care flex accounts in a cafeteria plan. IRC § 129(d)(8) provides that the definition of compensation be IRC § 414(q)(4), which keys it to the definition in IRC § 415©(3). IRC § 415©(3)(D) includes in that definition elective deferrals and deductions under IRC § § 125, 132(f)(4), 402(g)(3) and 457. Note also that for cafeteria plan discrimination purposes, Prop Treas Reg § 1.125-7(a)(2) uses the IRC § 415©(3) definition as well.

If you'll be able to get all of the contracts 'distributed' incident to termination before 1/1/09, what you are asking doesn't seem to violate the new 403b regs.

Yes, the value of the coverage provided to a 'dependent' that does not meet the WFTRA-revised tax definition should be included in the taxable income reported to the employee, even though the coverage for that 'dependent' is required under state law.

YES. Treas Reg 1.105-11(b)(1)(i). YES, there would be no non-highly compensated to discriminate it. This is not like the 25% key employee concentration test under IRC section 125. 1. Describe the benefit (e.g., reimburse up to $5,000 of qualifying medical expenses under IRC sec 213(d) per year). 2. Describe eligibility (i.e., you can impose up to 3 years of service for eligibility, age 25, seven to nine months per year, 25 to 35 hours per week) to keep out another employee if hired later. 3. You might add ERISA provisions (plan administrator, claims procedures, etc), again for the possibility that another employee might someday be hired.

Thanks, Tom.

From your scenario, it appears there are differences in employee contributions beyond any for different tier elections or geographical differences. Some employees will be paying $100 while others must pay $200. Let's look at it from the perspective of what the employer pays rather than the employee. Suppose the cost in premiums of health coverage is $500 per employee. For everyone under your scenario, the employer is paying $300. That's one benefit structure. That passes. At this point in our analysis, each employee must pay the other $200. For just those earning under $75k, the employer is paying another $100. That's a second benefits structure. That too should pass. It is only discrimination that would favor the highly compensated participants that must be avoided. Prop Treas Reg sec 1.125-7©. Basically, the highly compensated participants are those eligible employees who are officers, more than 5% shareholder, and those, for 2008, who earned over $100,000 in 2007 (or over $105,000 in 2008 if 2008 is their first year). I suppose it's possible that you could have employee demographics with a concentration of people earning $75k-$100k (or -$105k) but not being an officer or more than 5% shareholder, coupled with an unusually high number of officers and employees that own more than 5% of the company but earn under $75k. If you have this weird demographic, then you may have a problem with the contributions and benefits test. It is unlikely however.

So, per this Q&A, for the self-employed, SECA (the FICA equivalent) applies to employer contributions but not the self-employed's 401k elective deferrals. But for employees, FICA applies to 401k elective deferrals but not employer contributions. I don't get it.

Since each employer participating in a multiple employer plan (MEP) must have its piece of the plan tested separately for nondiscrimination and minimum coverage, and the safe harbor is against testing, it would seem logical that the safe harbor could be applied on an employer-by-employer basis rather than all or nothing, plan-wide. Following this logic, the employer that chooses to go outside the safe harbor would need to have be tested and corrective measures taken to assure it passes. The MEP document should give the Plan Administrator the authority to test and take the remedial steps necessary to assure that the MEP is not disqualified due to one employer's piece of the MEP failing testing.

A plan may meet the distribution-necessary-to-satisfy-financial-need requirement if there are no other currently available distributions or nontaxable loans under any plan maintained by the employer and the plan imposes the 6 month suspension on that employee making 401k elective deferrals. The safe harbor. Or, the F&C requires (a) an employee's representation that the immediate and heavy financial need is not capable of being relieved from other resources reasonably available to the employee, and (b) the employer has no actual knowledge to the contrary or that the need cannot be relieved through (i) reimbursement or compensation (such as insurance), (ii) liquidation of the employee's assets, or (iii) ceasing elective contributions or employee contributions. Does the knowledge of any other employee of the employer, particularly any single member of management, about the hardship applicant having a boat or vacation home that could be sold off blow the facts and circumstances test even though that other, knowledgeable employee or management member didn't even know a hardship withdrawal was applied for? I remain unconvinced that the 6 month suspension is so onerous, either on an employee who truly has a hardship or on the employer in implementing, that it outweighs the vagaries of not knowing what is 'employer knowledge'.

If you have a valid business reason for the change in plan year, it would seem so.

The Prop Treas Regs provide that the FSA must have 12 months coverage. Prop Treas Reg 1.125-5(e)(1). Generally, the plan year is the coverage period. Prop Treas Reg 1.125-1(d)(5). But an FSA's 12-month coverage period may be different than the plan year, or the 12-month coverage period for FSAs of other types (health, day care, or adoption assistance). Prop Treas Reg 1.125-5(e)(3). A change in the plan year must be for a 'valid business reason' such as group policy years changing and not to circumvent the 125 rules. Prop Treas Reg 1.125-1(d)(2). I'm not aware of the Prop Treas Regs addressing the change of a 12 month period for an FSA. There can be a short plan year to accommodate the change in plan year. Prop Treas Reg 1.125-1(d)(3). In the case of a short plan year to accommodate the change in plan year, the period of coverage for the FSA must be the entire short plan year. Prop Treas Reg 1.125-5(e)(1). You would face some logistical problems with the FSA amounts and payroll reductions if you attempted the short plan year after the period of the short plan year had begun. It is better to advertise it in advance to employees so that they know they are electing FSAs for a short plan year, and that payroll reductions are made accordingly over the short plan year.

My experience is like that of Larry Sieve's. Employers do not like having to make hardship determinations. That is a much heavier burden when F&C is used rather than the 6 finite categories of hardship for safe harbor. Implementing the 6 month prohibition on 401k elective deferrals is a relatively small price to pay for a safe harbor.

An order must, among other things, clearly specify the amount or percentage of the participant's benefits to be paid by the plan to each alternate payee, or the manner in which such amount or percentage is to be determined. A formulation that requires the plan administrator find out and use extraneous information seems to go beyond that. It almost looks like the QDRO drafter is trying to push off onto the plan administrator some leg work that the QDRO draft ought to be doing.

ERISAnut, would you elaborate a bit more on this.

That's what the service I have specifies it. If you can't find it, send me your e-mail address and I'll send it to you.

Take a look at IRS' Field Service Advice 9999-9999-97, it lends support to Masteff's answer.

As long as each participant is given the same cash-or-in-kind option, you should avoid discrimination problems. The plan will need to know the value at the time of the in-kind distribution.

Thanks, Masteff!