J Simmons

I think its deductible for the tax year in which made, 2007.

If mid-year the ER offers a LFSA/HSA combo, could the EEs who already have for the year a GFSA choose to limit the unused balance of the GFSA for the rest of the year and then elect HSA contributions as well? If it didn't involve a mid-year change in the amount of the FSA, then mid-year change in status should not be relevant. This would instead merely be the EE agreeing mid-year to a limitation on his or her use of the balance of the FSA benefits during the remainder of the year. If it is by individual choice rather than imposed unilaterally by the ER then there shouldn't be a cutback on promised benefits. However, if any of the GFSA benefits were used earlier in the year in a way that would apply them to the deductible of the HDHP necessary to be eligible for HSA contributions during the balance of the year, then that ought to be problematic--otherwise starting a year with GFSA and then adding the LFSA/HSA combo mid-year would permit an end run around the no-other-coverage requirement.

Is disaggregation of the non-CB EEs from the CB EEs, and then testing of the non-CB EEs portion, required? Or does the fact that the cafeteria plan is the result of CB exempt it entirely from non-discrimination, even the non-CB EEs portion? Would if matter if the CBA spelled out that the cafeteria plan had to be for all EEs, not just the CB EEs?

The bank would be a person providing services to the plan merely by reason of the fact the bank is making the loan to the plan? Is that what you are thinking? Is the bank providing any other services with regards to the plan?

You will have a problem from unrelated business taxable income (UBTI) from so debt-financing the investments. IRC secs 512-514.

If the two EEs are willing, I'd have them pay the ER the amounts that should have been held out of their paychecks per the day care plan, and then amend the 2006 Forms W-2 to show a lesser amount of taxable income by the amount so repaid. The EEs will need to amend their 2006 Forms 1040 to take advantage of the tax savings. It was the ER's error, so the ER ought to be willing to pay the tax-preparation costs of the EEs to do the amended 1040s. If the EEs are not willing, then as taxesquire mentioned As LRDG said, I also agree with LRDG that unless the day care reimbursement plan is part of a cafeteria or other ERISA plan. If the day care program is a stand alone, it should not be subject to ERISA.

Won't meet the safe harbor unless you drop the cap on matching contributions from 7.5% of the EE's pay to 6%. IRC sec 401(m)(12)(B) and 401(m)(11)(B)(i). Can a new EE participate--i.e., make elective deferrals or be auto enrolled--during that first year, the one before qualifying for the match? If so, I think that too would be problematic.

If an EE accrues a benefit under both a DB plan and a DC plan of the ER for the year, the deduction for the ER's contribution is limited to the greater of (1) 25 percent of the compensation paid or accrued for that year to the EEs in all such plans or (2) the amount necessary to meet the minimum funding requirements of the DB plan for the year, but not less than the amount of the DB plan's unfunded current liability (Code Sec. 404(a)(7)(A)). Elective deferrals to the DC plan are not impacted by this limit. PPA now provides that the first 6%-of-pay contributed by the ER to the DC plan are not factored into this limitation. Now with PPA, looking at a SEP-DB combination for a year, the ER could fund the DB plan to the greater of its minimum funding requirement or unfunded current liability. The ER may also contribute 6%-of-pay to the SEP. If the contributions to the DB total less than 25% of the eligible EEs' earnings, then the difference could also be contributed to the SEP. If the DC plan in the combination with the DB is a 401k rather than a DB, then the EE can also make elective deferrals of $15,500 (or $20,500 if at least age 50 by the end of the year), in addition to what is described in the foregoing paragraph for a SEP-DB combo.

Yes, it does if you want to begin annual withdrawals over lifetime rather than have a complete distribution by the end of the 5th year following death.

For future years, using a 401k instead of SEP, in conjunction with the DB, would allow not only 6%-of-pay ER contributions to the DC, but would also allow for 401k elective deferrals that a SEP (unless it is truly a SARSEP) would not provide.

PPA didn't change how distributions "must" be made. It did open up the possibility of a direct rollover from the QRP to an IRA taken in the name of the non-spouse beneficiary, as such of the deceased employee, as an alternate to other payout options in the QRP's documents. See Notice 2007-7 for some IRS Q&A on the topic. There was also a February 13 special Employee Benefits News from the IRS clarifying what the Q&A intended.

I don't think so, but it would need to pass ACP testing, and depending on the mix of HCEs in the differing age groupings, it might not.

mjb, Do you know if that case law that puts limits on the recovery of the mispaid benefits this long after the fact would also prevent the plan from offsetting any future benefits payable to the employee by the over paid amounts? Would it also prevent the plan from correcting at this point the amount payable hereafter?

Thanks, Peter.

Peter, if it is the plan's fiduciary's decision to change from one provider to another, and thereby force the realization of the MVA to the GICs, do you know if the restorative treatment you described could be applied even if the forced MVA does not amount to a fiduciary breach?

rrdenis06, You may want to take a look at Smith v. Wynfield Dev. Co., Inc., Slip Copy, 2007 WL 1654149, C.A.11 (Ga.) (June 08, 2007) (unpublished) and Hopper v. Standard Ins. Co., Slip Copy, 2007 WL 433366 (D.N.H.) (February 07, 2007). These decisions might help you analyze your situation and what to do.

Hey, leevena, When a question pops up, in practice in advising an ER or otherwise, for which the statutes, regs, or administrative pronouncements (like Rev Ruls or DoL Advisory Opinions) provide no guidance, I typically look to the informal statements of IRS or DoL officials for some direction. If and when the agency might promulgate a rule resolving the question, these officials are often involved in the policy discussions that lead to and actually writing the rule. I wouldn't call them 'substantial authority' but I would suggest that these informal statements are informative of what some that will perhaps be at the policy making table are thinking. I think that Jacmo's posting added to the information that is posted in this thread, even if it goes beyond the OP. What's a 'health plan' for purposes of HSA contribution tax deductibility? IRC sec 223 doesn't define the term. Would an on-site medical facility that provides occupational medicine or the most rudimentary first-aid only be problematic? I doubt it. Would an on-site medical clinic for EEs established to provide cholesterol and diabetes diagnosis and treatment to reduce the ERs costs under its traditional indemnity/reimbursement health, as are becoming popular, be problematic? Depends on the definition of 'health plan'--as yet undefined. In that regard, I find Ms Purcell's comments give some direction.

leevena, is there a substantive distinction for the taxable HSA contributions between an arrangement whereby the ER promises to and does pay for medical care services provided to EEs by third-parties and an arrangement whereby the ER pays health care providers as employees to provide identical medical care services to the ER's other EEs? Do you hinge your distinction on the use of the word coverage in 223©(1)(A)(ii)(II)? Whether paying health care providers as third-parties or as employees, it seems to me the ER is paying to have medical services provided to its EEs and that would undermine the purpose for the high-deductible and no other coverage requirements for deductible HSA contributions.

From a public policy perspective, the Purcell comments as reported by Jacmo make sense. The reason for the high deductible requirement is to re-engage people as consumers, balancing the cost of health care against the perceived benefits of it in the process of deciding upon it. If the EE is provided cost-free basic health care on-site at the ER's expense, the desired consumerism is lost. The care may be chosen by the EE with no financial consequence.

A QRP does not have to permit non-spouse rollovers, but may now. So if it's not yet in your QRP documents, you not only don't have to include discussion of it in your 402f notice, but you cannot permit that option--at least until you amend the QRP. I think if you have 401k Roth option, then your 402f notice should include a statement, explaining that any Roth benefits would need to be rolled over into a Roth IRA separate and apart from a rollover IRA for the pre-tax benefits.

A court appointed conservator for the comatose spouse should be able to give the consent, particularly if it is not the participant him/herself.

Tomorrow the ABA's Joint Committee on Employee Benefits is going to have a 90-minute Webcast on these topics in light of the State Street decision and the more recent KSR v Teleflex decision of the Supreme Court. Topics are: Overview of the Patent Process State Street Decision and Business Method Patents Legislative Developments Tax Shelter Issues World of Patenting ERISA Strategies Where do we go from here? This looks to be of interest. http://meetings.abanet.org/meeting/jceb/jceb061407/ Anyone who joins in might want to report here there impressions and what the implications might be for practitioners.

If the ER credits are, as you mentioned, added to each EE's paychecks but the EE can choose which benefits to apply them or simply take the extra cash pay remaining after tax, you might consider this language: "Each worker's needs and situation is different. Rather than choose which benefits will be provided you, we've instead included all compensation for your work in your pay rate and offer a cafeteria plan for you to choose which benefits, if any, you want. Your pay will be deducted--on a tax-free basis--to pay for the benefits you choose. This gives you the flexibility to apply your pay as you see fit, and provides you tax savings if you do choose and pay for certain types of benefits using the cafeteria plan."

The IRS might be, from the first page of the 5500, wanting the most recent contact info regarding the plan sponsor, so that it can contact the plan sponsor if there's any question. That might be why there's no qualifier about 'by the end of the plan year' being reported.

It is so reported as taxable income to the S corp shareholder/EE, but then the shareholder/EE gets a deduction (Line 29 on Form 1040; see pages 29-30 of the Instructions). The S Corp deducts it as employee compensation. So tax free--though subject to FICA/FUTA/SUTA.