J Simmons

ERISA plan is most certainly defined by federal law. But what about a state law that might by reference use that definition for then imposing some state requirement? I'm not familiar with Texas state laws. My comment was not about any specific state law or the laws of any specific state. Many provisions of various state's laws simply refer to concepts already defined by federal law rather than going to the trouble of creating a new, separate definition. The passage you quoted me as having written was "if" some state law in essence borrows a definition provided under ERISA, then... . I don't know that whatever state law you have in mind does or does not do so.

"If it is not part of an ERISA plan, how can an individual policy be subject to the state's group laws?" It depends on the state's definition of group plan. An arrangement with individual policies could fall within the ambit of 'group plan' of a state's insurance laws, independently of whether apply does or does not apply. If the state law says to be 'group plan' subject to some state law requirement the arrangement must be an ERISA plan, then the state law is aimed at ERISA plans and likely pre-empted by ERISA. To apply and not be ERISA preempted, the state law must apply more broadly than just to ERISA plans. Thus, an individual policy arrangement that ERISA might not apply to could yet be subject to that state's 'group laws'.

I would ask for the actual bill (with description of the types of repairs made) and proof of payment. Casualty loss on a tax return is not necessarily the same as a hardship under the plan in question and the regs. In a prior life when I was a benefits manager for a medium sized company, one employee received a hardship payout for casualty repairs to his primary residence. The next year, he brought the same bill from the contractor in, with the date whited out and updated, wanting to tap his benefits again. He must have thought we were brain dead--he didn't get the second hardship withdrawal.

The ultimate question of whether a plan is governed by ERISA, and thus if a single-employer plan preempts state law, rests with federal courts. (If originally litigated in a state court that made the decision that ERISA did not apply to a plan and thus was subject to state insurance laws, the plan's administrator could petition a federal court to make its own determination.) Many state insurance departments will have their own internal guides for when they will not touch a plan, deeming from that department's perspective that ERISA does apply. Under such circumstances, the department's agents are instructed to take no action to enforce certain state insurance laws in regards to such plans. However, there are many aspects of state insurance laws that survive preemption and thus apply to ERISA plans under the savings clause. As to some non-preempted state insurance laws, those state laws could be keyed by that state to apply whenever a cafeteria plan is used to pay premiums. That wouldn't change the federal tax effect of using a cafeteria plan--that's federal law, as George explains. However since not all cafeteria plans are ERISA plans, such a state rule would have a broader-than-just-ERISA-plan application and thus might survive a preemption challenge under the savings clause.

Only problem I see is the universal availability rule. See Treas Reg sec 1.403(b)-5(a)(4) for employer aggregation rules and -(5)(b) for the universal availability rule.

There could easily be problems, though not with discrimination. Without the choice, then the employer is considered bearing the expense rather the employee. While discrimination is avoided, the fact that the employer's bearing the cost makes it more difficult to avoid ERISA, COBRA, HIPAA, PDA, etc.

An employer's payment of premiums for health insurance may be done on a discriminatory basis, and yet be tax-free to the employee. IRC sec 106(a) (containing no nondiscrimination requirement). The employer's right to a tax deduction is provided under IRC sec 162. There are some ripple effects to consider. If you are allowing the employee the choice of the employer's payment of the health insurance premiums rather than additional pay, you have a constructive receipt of taxable income issue of what would've been tax-free but for the choice (that is, if the employer offered to pay the premiums, take it or leave but not get extra income in lieu thereof). If you give the employee the choice, then you must meet the requirements of section 125 of the IRC. That can be a problem if this one employee is either a key employee or a highly compensated employee. If not, you might be able to craft a payroll practice that meets 125 but does not amount to an ERISA plan (or when a second employee is given a similar choice, not be a 'group health plan' or benefit). Should it become an ERISA plan, a group health plan or a group health benefit, then the individual policies will not include 'bells and whistles' required by federal mandates, and the employer will be exposed to liability for the lack of those extra features.

For the QDIA protection, they would need to select only one managed fund, balanced fund or life-cycle fund that meets the QDIA requirements and then 'map' as you say all the benefits of all the employees who've not given an investment directive (i.e., in the money market fund) into the selected QDIA. You would not need to select more than one QDIA. You do not need to select a QDIA from each of the 3 providers.

Mid-year significant change in cost/coverage latitude does not apply to FSAs. Treas Reg 1.125-4(f)(1).

So the amendment to grant full vesting to participants as of 1/1/2008 would benefit 2 of 2 HCEs and, if counting the NHCE expected to enter on 7/1/2008, only 2 of 3 NHCEs. The timining of this amendment doesn't smell good to me.

Proper in what context? I think it is more a matter of contract than government regulation. Depending on what the collective bargaining agreement provides, it is possibly a violation of the CBA to give existing DROP members a 6th year, with or without the medical supplement. It is possible that the CBA requires they be given that 6th year and the medical supplement.

IRC sec 403(b)(12)(A)(i) specifies that IRC sec 401(m) applies. IRC sec 401(m) is satisfied by definition if there are no HCEs. So I do not think you have a discrimination problem.

I would think the plan, since they ought to be 1099-Rs for the years of ADP failure, not when the dollars come out of the IRA.

I think he was offered the opportunity. He made an election for the period in question, it simply wasn't implemented. If not given an opportunity to make an election, the match is treated as a QNEC. Here, the employee's deferral desires were known through the election. The match should be a match.

For purposes of your second question, take a look at IRC section 410(b)(6)© and regs

I don't think there's a clear cut answer in the regs. I'd be nervous about this because you've already given the EEs an FSA election opportunity for the year, a full 12 months. What is being considered would (a) allow for a second, mid-year opportunity and (b) create a shorter than 12 month period for the new FSAs. If you proceed, I would at least limit the amount of the new FSA to each EE's potential additional financial exposure that the new health plan being added mid-year would pose, and definitely not allow any expenses that were incurred prior to the mid-year addition and election.

How many new HCEs and new NHCEs are slated to come into the plan on 7/1/2008?

It might be a 'severance from employment' (ceasing to be an employee of the plan-sponsoring employer). Is this a full-time teacher paid a salary that is now going to go into the 'substitutes' pool, and only called up for a day (and paid a per diem) when needed? If so, then employment has likely ended. On the other hand, if the change is to give the employee a greater flexibility in scheduling (working most, but not all), then employment might not have severed. See Treas Reg 1.403(b)-2(b)(19), 1.401(k)-1(d), and 1.403(b)-6(h).

That's an issue I've not faced before. But I suspect you are right.

"some participants are contributing" to the 401k--the are considered 'employer contributions'. IRC section 401(k)(2)(A) and (B). Can't have a SIMPLE in a calendar year during to which contributions were made to a qualified plan. IRC section 408(p)(2)(D)(i); IRS Notice 98-4, Q&A B-3 and A-3;

ERISA section 107 specifies retention "for a period of not less than six years after the filing date of the documents based on the information which they contain, or six years after the date on which such documents would have been filed but for an exemption or simplified reporting requirement"--just like Jim Chad recalls the DoL official explaining.

Plan Sponsor (www.plansponsor.com) is one.

It's a feline v canine thing! My avatar is what provoked it.

Situation: ER is "plan administrator" of a self-funded health plan. The cost of coverage borne by the EEs is elected and then effected through a cafeteria plan. The ER pays monthly to a TPA the amount invoiced to cover approved claims. The ER also pays an Admin Fee, out of which the TPA pays certain expenses like the cost of PPO participation. The ER also pays the TPA a lump sum month for the cost of stop-loss coverage. Out of that, the TPA pays the insurer a net premium (no commissions component). The TPA keeps the rest--an amount not disclosed to the ER. The ER has discovered this situation, and is in the process of investigating further before it works towards recouping the undisclosed amount. The TPA appears to have become an ERISA fiduciary by reason of not having specified in its annual renewal proposals, invoicing or elsewhere how much the TPA was keeping as a 'stop-loss placement fee'. And for the same reason, to have breached that fiduciary duty. Patelco Credit Union v Sahni, 262 F3d 897 (9th Cir 2001) and Chao v Crouse, 346 FSupp2d 975, 988 (SD Ind 2004). Despite the billing problems, the ER is asking if it exposes itself to any fiduciary, co-fiduciary or other liaibilities by reason of continuing with the TPA if the stop-loss placement fee is returned and the ER hereafter monitors the TPA more closely. The ER has not decided if it even wants to continue with the TPA on those terms, but wants to know if that's an option. Initially, my thoughts are that if the ER ever becomes unable to cover the cost of any health benefits promised and at that time the ER's assets have been improperly depleted by amounts collected by the TPA, the CEO, president and board of directors might be held personally liable to the employees for having caused the ER to continue using the TPA knowing of the fiduciary breaches uncovered at this time. Any other thoughts?

I'm glad Jim Chad mentioned the paperwork to get the $ out of the paying plan as well as the paperwork on the receiving IRA/plan end, and that JanetM pointed out the concers she did about the payment checks. The paying plan too has a verification issue, that the recipient of the direct rollover is or is intended to be a 408 IRA, 401a plan or some other tax-advantaged vehicle. Otherwise, there should be mandatory 20% tax withholding. In advising the paying plan, there is sometimes resistance by the receiving vehicle's trustee/custodian to verify the nature of the receiving vehicle in a simple, reasonable format being requested by the paying plan. There are truly legitimate concerns from both ends of the direct rollver.