J Simmons

The problem is that flex accounts are only tax free by virtue of IRC § 125. IRC § 125 is only for EEs. An 'EE' that also owns or is deemed to own more than 2% of the stock of the S Corp ER is not an 'EE' for IRC § 125 purposes. See my first post above in this thread. If the S Corp pays the health insurance premiums for an 'EE' who owns or is deemed to own more than 2% of the stock of the S Corp ER pursuant to a plan not subject to IRC § 125 (i.e., a plan that does not give EEs a choice between a taxable benefit like cash and an otherwise tax-free benefit), it is tax-free.

IRC § 5000(b)(1) defines 'group health plan' for purposes of COBRA (and HIPAA). Such ‘group health plan’ must either (a) be contributed to by the ER, 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 either the ER makes a contribution toward the premium cost or the insurance is not available to other individuals at the same cost that it is to the ER's EEs. So, even if an ER does not bear any of the premium cost, COBRA (and probably HIPAA too) will apply if the ER negotiates special rates on the premiums (such as price breaks) for its EEs. Thus to avoid COBRA, (i) the ER must leave it entirely up to the EE to select an individual health policy, (ii) the ER must leave it entirely up to the EE to negotiate the premium price, and (iii) the ER must not bear any of the cost of the coverage. (If the ER also remains completely out of the claims process between the EE and the insurance company, and has no medical information about the EE, then no part of HIPAA should apply either.) If a premium-only cafeteria plan meets the bare minimums of IRC § 125, to the point of truly being a mere payroll practice as described in a couple of DoL Advisory Opinions from the 1990s, and there is a pay reduction in the exact amounts of the total premiums paid by the EE for the individual health policy so that the ER is not bearing any of the cost, then such an arrangement that reimburses EEs for the premiums they pay on such individual health policies may meet these three requirements and 'fly under the radar' of being a 'group health plan' for COBRA purposes. If these three criteria are not met, then the bundle of individual policies coupled with the ER's involvement will be a 'group health plan' subject to COBRA (and HIPAA), and likely not have complying provisions or options--leaving the ER in lurch open to liability to the EE for the COBRA (and HIPAA) rights but without any insurance company contractually obligated to satisfy those rights for the ER.

Randy, I'd suggest you analyze your facts in light of IRS Letter Ruling 200705031, November 9, 2006, and IRS Private Letter Ruling 200213032, January 2, 2002.

While in BenePay's hands, the assets are not 'distributed' but remain part of the plan. In BenePay's hands, the plan assets are in the hands of a custodial agent of the plan trustee which chose to use BenePay, not an agent of the participants/beneficiaries. Exhale.

The nondiscrimination rules applicable to medical reimbursement by an employer (IRC sec 105(h)) apply to self-insured medical reimbursement plans. Treas Reg sec 1.105-11(b)(1)(i) defines that to be From a quick read of the Exec-U-Care brochure, under the heading "Will Employees Pay Taxes on Benefits?" it is provided It's always good to be skeptical and scrutinize a new idea. Here, the use of 'medical reimbursement plan' (albeit right after the word 'insured') instead of simply calling it a specialized, supplemental health insurance policy is what likely brought the discrimination concern to mind. If it's truly insured--and from my quick read I have no reason to doubt that it is--the Exec-U-Care program would be tax-free to the executive under IRC sec 106(a), for which no nondiscrimination requirement applies.

It isn't very clear at all. "Annual additions for a limitation year cannot exceed the currently applicable dollar limitation (as in effect before the January 1 adjustment) prior to January 1. However, after a January 1 adjustment is made, annual additions for the entire limitation year are permitted to reflect the dollar limitation as adjusted on January 1." Does that mean that I could accrue only $44,000 for the period of 6/1-12/31/06, but then could accrue another $1,000 ($45,000-44,000) during the rest of the plan year (1/1-5/31/07)? It seems that Deloitte is interpreting that in a way that bifurcates the plan year, and suggests that if I terminate before 1/1/07 the employer couldn't make that extra $1,000 contribution for me (albeit in 2007) based on my 2006 earnings (on and after 6/1/2006) if they'd otherwise be sufficient to support such a contribution. Since I'd not be employed during the sub-plan year 1/1-5/31/07, according to Deloitte, I'd not be eligible for that other $1,000. I'd disagree with Deloitte on this, because that second sentence spells out that "annual additions for the entire limitations year" are permitted after the January 1 adjustment. So I think that the extra $1,000 could be made for me in 2007, although I terminated before the end of 2006.

Yes, a truly discretionary match can be added to the plan. If the highest 401k deferrals by a key EE for a plan year that the plan might be top heavy is less than 3%, making a discretionary match could trigger a higher top-heavy minimum required contribution. However, that impact could be determined before any discretionary match is in fact declared or made. The ER can make that decision after the plan year has ended, and the actual 401k deferrals by key EEs is then known. "...formula, cap or upper-limit" required? Cap or upper-limit, no. And it doesn't make sense to do so. The match is discretionary. Imposing a cap or upper-limit only hampers that discretion that the ER will have in deciding how much, if any, to discretionarily match for a plan year. As for a formula, yes, you'll need one, and most plans simply specify that the ER's discretionary match is allocated in proportion to the 401k deferrals made for the plan year. Yes, you can amend and add discretionary match as an option mid-year. Check your documents--it might already be in there, just never having been used before.

Don, Your question poses an interesting question. HIPAA nondiscrimination does not allow the ER to charge more of the premium to those with adverse health factors than is required of those without such adverse health factors. Suppose that ER has just EEs A and B in addition to OPoster. A's health premium is $325 a month, and B's $270 per month. The ER reimburses A and B each 100% of those premium costs. OPoster obtains an individual policy at a cost of $1,125 a month. ER decides to reimburse OPoster $325--the most paid in dollars for A or B, the other EEs. Seems equitable, but that's just from the perspective of the ER and just from a dollars perspective. The ER doing so requires A and B bear none of the cost of their health insurance, but requires OPoster to bear the cost of more than 70% of OPoster's health coverage. If the ER's involvement and bearing the cost, or part of it in the case of the OPoster, causes the arrangement to be a group health plan for HIPAA purposes, it would be discriminatory. See DoL Reg sec 2590.702©(1)(i) and (f)(3), Example 2. Your scenario is however slightly different. It is in the vein of an HRA funded by the ER to a dollar amount per EE that the EE might be able to choose to apply towards health premiums or reimbursement of out-of-pocket medical expenses. If the EEs could only apply these dollars to health premiums--it would be an arrangement for tax purposes governed by IRC sec 106--and you'd be in the situation described in the preceding paragraph. But here the EEs may choose reimbursement instead. This is, for tax purposes, governed by IRC sec 105(h). The choice of reimbursement rather than premium payments might be the saving grace for your scenario from the HIPAA nondiscrimination violation. Because the choice might result in some EEs having no premiums paid, but could if they chose to so apply it, it would seem that the ER is not dictating premium payments, which it cannot do discriminatorily based on adverse health factors.

No, that doesn't address health FSAs--but it does describe how you ought to be handling the tax reporting of health insurance premiums.

mjb, I am interested in your comment Could you elaborate on that one, with any cites you might have? Does there have to be a legally binding obligation between the county's taxing authority and geographical election characteristics, on the one hand, and the c3 hospital's financial obligations, on the other, to imbue the c3 hospital with governmental entity status?

Thank you, pax and mjb. It is anticipated that once the issues with the DoL are resolved, the plan will be terminated. Actually, plan termination might be considered a part of DoL resolution process, adding a Form 5310 application to the IRS as part of that overall process. I've not seen the LLC's operating agreement yet--too new into this situation. Because of the liquidation problem, if the deeply discounted interest cannot be sold then there would be the possibility of distributing to the employees--as part of the plan termination--participation certificates representing their respective subinterests in the LLC. Except for those that rollover to an IRA or another QRP, this would be a taxable event on the value. My understanding is that each would also receive enough cash in the termination distributions to cover the income taxes on the entire distribution. Another urgency suggesting the interest in the LLC now held by the Plan be liquidated as soon as possible, even at the deep discount, is the potential of UBTI to the Plan should the LLC realize income from development activities on the R/E held by the LLC. One more reason to .

New client has a PSP that does not permit participant direction of investment. It's self-trusteed. The trustee caused the plan to invest in a closely-held LLC that owns undeveloped land held for speculation purposes. Rather than have an independent appraisal of the value of the LLC interest, the trustee and financial officers, with the assistance of a CPA, set the value each year, and that value was reported on the Forms 5500. The DoL has audited, and the regional investigator in the post-audit report finds the steps taken in that valuation process were not adequate (didn't take the steps an appraiser would, so what was done was imprudent). That is cited as a violation of ERISA's requirement to follow the plan document (which specifies that the trustee will value the assets). The DoL investigator has also notified the Office of Chief Accountant at EBSA, for its consideration of whether the Forms 5500 for the last 4 or 5 years reporting the 'inadequate' values rendered those annual reports materially inadequate and thus exposed to the $1,100/day penalty. Also cited post-audit by the DoL investigator is that the mandatory distributions to former employees (those whose benefits are $1,000 or less since 3/28/05, or are $5,000 or less before that) were not being made. This threshold, and a listing of participating, related employers, in the SPD are outdated--now, erroneous. The DoL is pressing the employer for a corrective action plan and timeline, but offering no suggestions for correction. That's when I'm hired. I'm considering proposing (a) conforming amendment that would provide for no mandatory contributions, regardless of how de minimis, (b) amendment to stop all further contributions, rollovers into the plan and acceptance of plan-to-plan transfers--and thus vest everyone--© an SMM describing these two amendments and naming the sponsoring employer, but instead of naming the current participating employers, including the statement that upon request about an employer, the PA will indicate if then participating and provide address if so, (d) to keep the costs to the plan (and thus the adverse impact on the employees' benefits) to a minimum, just doing a current valuation through independent appraisal or have other vendor follow that methodology, and (e) asking that the Office of Chief Accountant agree not to impose penalties on already filed annual reports, explaining that requiring retro valuations would just run up the cost to the plan, which specifies it pays for the trustee's costs (and imposes the valuation chore on the trustee). I don't like 'bidding against myself' but that's the posture the DoL's request for a corrective action plan without offering any corrective steps puts me in. I don't want to offer more by way of the corrective steps I propose than would be necessary. But I also don't want to be so far afield that we don't move this matter along to resolution. All constructive input will be greatly appreciated.

Don, IRC sec 106(a) provides that except as otherwise provided in IRC sec 106. While certain LTC insurance premiums and other items are addressed in IRC sec 106(b)-(e), there's simply no discrimination requirement for this exclusion from taxable income.Steelerfan is correct that an employer could pay such premiums for just executives, and it would be tax-free to the executives per IRC sec 106(a). You might have to look far and wide to find an insurer willing to issue a 'group policy' to a subset as small as executives-only would likely be of the entire employee population. Steelerfan: As the employer the law firm is responsible for the frailties of the 'plan' that it sets up. That plan is to reimburse employees for individual health coverages each arranges. The employer is paying for health coverage. There's no indication in the OP that this is limited in some way that excludes OPoster by definition that is not health-factor related (i.e., executive only, full-time only, etc). The OPoster explains inability to participate as due to the health factor. If the law firm leaves it up to the employee to acquire individual policies and then reimburse them, but the OPoster cannot because of health factors, the net effect of the employer's group health plan is excluding someone because of a health factor. Hurdles? Yes, but I'd want to know what e-mail the OPoster might have tucked away on the topic and what a former co-worker might have to say before turning the OPoster away as a client.

HIPAA doesn't just require coverage for pre-existing conditions under certain circumstances regarding those allowed to participate. HIPAA goes beyond that, to the issue of eligibility to participate. It prohibits group health plans from establishing DoL Reg §2590.702(b)(1)(i).From the perspective of whether health insurance premiums will be tax-free, an employer can pick and choose who will and who will not be so covered. IRC §106(a). However, if the decision to exclude is based on a health factor, doing so will violate HIPAA, specifically ERISA §702. If the OPoster was not provided the promised health coverage because of the health factor mentioned possibly driving the law firm's costs upwards, then there's prohibited HIPAA discrimination at play. The law firm's involvement with the individual policies, including bearing part or all of the premium cost, could render those policies to be a 'group health plan' and thus subject to HIPAA's requirements.

An HRA may be an integral part of a broader, overarching health 'plan'. If so, then HIPAA compliance and notices by the plan of which the HRA is merely a part would do. An HRA may also be a 'plan' separate and apart from another health plan with which the HRA was designed to work in tandem. If this is the case, then the HRA will have its own, separate HIPAA compliance and notice requirements and challenges. How is this determined? Does the HRA have its own, separate documentation? Does it have a title separate and apart from merely being a provision for reimbursement included in the broader plan? Does the employer use a separate 3-digit number in identifying the HRA in distinguishing it from the broader plan? Is there a separate effective date? Are there separate 'plan administrators', 'named fiduciaries', agents for legal service? This issue surfaced years ago in the context of cafeteria plans with flex accounts. Did the flex accounts amount to a 'plan' separate from the cafeteria plan itself, for purposes of Form 5500 filings? You might want to get a legal opinion on whether your HRA constitutes a separate plan.

It might be simpler to just have the plan have a retro original effective date of 1/1/07 to go along with a 1/1/07 exception to the 21&1 eligibility rules. Otherwise, what you're proposing looks discriminatory to me.

The company that is the employer sponsoring the plan for its employees can write its own SPD. If the same document doesn't do double duty also as the plan's governing document, then you'll only want to change the SPD after you made the same change to the governing document. You might have a problem, though, with administration. Your FSA administrator might not be geared up to administer limited FSAs. That may be why it doesn't offer them. It's definitely an unusual circumstance as of 6/07 for a 'relatively large' FSA administrator not to provide, or be able to provide, limited FSAs.

Self-regulate FSAs? Yes, if that means the employee that wants HSA contributions chooses not to elect for a year the general FSA; no, if that means the employee has a general FSA--but just doesn't seek reimbursement--for the year that the employee wants to be eligible for HSA contributions. It's the general FSA coverage, not whether the employee does or does not seek reimbursement, that is problematic for HSA contribution eligibility. I don't think that you may cancel their FSAs. They elected them. That elected coverage rendered them ineligible for HSA contributions.

Suppose that in a DC plan, EE divorces and ex-spouse is awarded $100,000 of benefits. The plan provides, and thus ex-spouse can take withdraw the $100,000 (as adjusted by any subsequent investment experience) at any time. Ex-spouse chooses to leave the money in the plan. The plan calls for default payout, as a lump sum, at the time participant's reach the later of normal retirement age or age 62. The plan also requires payout by December 31 of the year in which the participant reaches age 70 1/2. Question 1: If there has been no withdrawal or election by the ex-spouse by the time the employee reaches the later of normal retirement age or age 62, does the plan automatically pay the ex-spouse a lump sum? What if the QDRO, as many do, simply provides that the payout of the awarded portion is at any time the ex-spouse elects? Question 2: If the ex-spouse affirmatively elected to postpone payout beyond the time that the employee reaches the later of normal retirement age or age 62, must the plan the plan payout the awarded benefits to the ex-spouse by December 31 of the year in which the employee reaches age 70 1/2? Question 3: If the employee dies earlier than reaching age 70 1/2 and the QDRO did not specify the ex-spouse as the "spouse" of the awarded portion, is the ex-spouse considered a non-spouse death beneficiary as to the awarded portion with MRD either 5th year post death, or over ex-spouse's lifetime beginning the year after death?

The oddity about the results of some of these cases is that it could lead to mischief by plan administrators. Can a plan pay any sum to a participant, label it to be a 'lump sum' and thereby deprive the recipient of any standing to claim that the lump sum should have been more and that he or she has yet more benefits under the plan to be paid to him or her? So before I request a lump sum, I better get the data and make my own computations and only request a lump sum in that amount. Otherwise when the plan pays me a 'lump sum', I lose any right to contest the amount at the first moment in time that I learn what that amount will be. I don't dispute that the results/language of opinions are as mjb describes in his 5th post in this thread, but mjb's generalized response set forth in his 4th post is a much more sensible approach.

Did she actually pay the plan the $10 recited in the deed into the Plan? or what that merely a routine reference ("$10 and other good and valuable consideration") so that the deed cannot be attacked as a gift for lack of valid consideration? It might have been proforma rather than the reality. As you prepared those Forms 5500, what did you put down on the question asking about a current, annual appraisal of the property? Were you basing that simply on the property tax valuation?

A profit sharing plan that permits the P to name anyone other than his spouse as the death beneficiary as to any percent (up to 50%) without the spouse's consent is subject to spousal consent rules, despite what the plan documents might otherwise try to provide. For a profit sharing plan that does not allow the P to name anyone other than his spouse as the death beneficiary as to any percent without the spouse's consent is generally not required by pension law to follow the spousal consent rules. But the plan documents may, as jpod, pointed out require spousal consent anyway and failure to follow such a provision voluntarily written into the plan would be an operational failure and could expose the plan trust to the possibility of having to pay part of the benefits a second time, to the spouse whose consent was not obtained before payout to the P.

If you mean, do the participants of Company A who have at least three years of service at time of merger have the right to remain on the 100% immediate vesting schedule for employer matching contributions post-merger? Yes, but either way, the Company A participants you describe have 3 years of vesting already and thus are 100% vested either by retaining the 100%, immediate vesting or if they went onto the 3 year cliff.

I think that sums it up.

The sum of the existing loan(s) and the new loan cannot be more than the lower limit. So from the lower limit, you deduct the existing loan(s) balance to determine the maximum amount the new loan can be. One of the two limits is, on your scenario, $48,000 ($50,000 - 2,000). $2,000 being $20,000 (highest outstanding balance in past 12 months) less $18,000 (current outstanding balance). But the other limit is lower, $27,500 (1/2 of $55,000 vested benefits balance). So, the new loan amount can be no more than $9,500 ($27,500 lower limit - 18,000 current loan balance).