J Simmons

A plan might define 'dependent' more broadly than it is defined in the IRC for making the health benefits provided tax-free to the employee. As leevena points out, it is rare for a plan to allow an ineligible dependent, from a tax perspective, to be covered under a plan because of the taxable income issues for the employee and reporting complications.

Tom, I thought EGTRRA requires, post 2001, that 403b benefit accruals count towards the 415 limit on benefits accruals. IRC §415(a)(2)(B); Treas Reg. §1.415-6(e)(1).

Had this been discovered before the DL application or an EP exam, it could have been corrected using the VCP per Rev Proc 2006-27 (sec 12.03) for as little as $375, based on an application using Appendix F for form. Given that the Service discovered the CRA document failure on DL application review, you're remedy is Audit CAP. Sec 14.04 sets forth a table of maximum fees, based on number of employees. EGTRRA/Subsequent Legislation is your category. Sec 14.01 'negotiation' is probably not available.

Another decision worthy of note was handed down on May 7, 2007, by the US Dist Court in Utah, in Hansen v Harper Excavating, Case No 2:05CV940 DAK.

Sec 125 provides an exception to the constructive receipt doctrine. If under all the circumstances, the situation would not show that individual physician was making the decision to have part of his or her pay used instead to pay for long term care premiums for that physician, then constructive receipt (and sec 125) should not be problematic. However, if there are patterns that show that the decision is not being made by the ER, but truly deferring to the wishes of the individual physician, then yes constructive receipt and sec 125 are problematic. Comp agreements that give the ER the right to reduce salary to pay "expenses" could also be problematic if the physician is an owner. Does such a clause blur the distinction between compensation and dividends? It makes what is paid to the physician look like a share of net profits, not a measurement of the value of the physician's services to the employer. If the employer is a C corp (necessary for an owner/employee to be eligible for tax-free LTC premiums), then the Service would have a two-tier taxation motive to recharacterize part of the "compensation" to be dividends--not deductible by the C corp but taxable income to the owner/employee. If the physician is not an owner, then why would he or she agree to such a reduction clause in his or her comp agreement? Another possible theory to tax the LTC premiums to the physician would be for the Service to assert the assignment of income doctrine. The physician would be taxable on the entire, unreduced compensation called for in the agreement. The employer would simply be reduced to the physician's agent for effecting payment of the premiums for LTC on behalf of the physician.

I can fathom no reason for such being treated as NON-related rollovers, given the DBP was itself subject to top-heavy rules. Larry Starr and Criag Hoffman reported the following best recollection (not verbatim) Q&A with Jim Holland and Dick Wickersham from a preliminary 9/25/01 meeting to the ASPA's "2001 Pension Actuaries and Consultants Conference" in Washington, DC:

I'd suggest you give 'em 6 months not just 2 1/2--allow the current PY to run til 12/31/07, and have your short, accommodating plan year be 1/1/08-6/30/2008.

Unlike a decree nisi, the divorce decree you describe will be self-effectuating on the future date (no need for a decree absolute or any other future document--just the passage of time and voila, they'll be divorced). Prior to that specified future date is this divorce decree incidental to divorce, something that will permit an transfer incident to a divorce? I don't think so. The judge could for some reason perhaps revoke or amend it in the meantime in such a way that there would be no divorce for which this decree would be incidental. Before the future date specified for the divorce to take effect, I think it would be premature to act on it in effecting the transfer. I would certainly provide a copy to the IRA custodian so that it is fully aware of the interest to be transferred, so that the IRA custodian is put on notice and does not allow the IRA owner to withdraw from the IRA thwarting the later transfer of the decreed amount. Closest authorities I know of on this are PLRs 9344027 and 9006066.

ERISA Title I, sec 3(1) provides, as part of the definition of an ERISA welfare benefit plan, However, ERISA Opinion Letter 93-25A, 9-3-93 clarifies that if the ER does not provide a day care center and the EE is allowed to choose the care provider the stand-alone DCAP is not an ERISA plan. Also, see ERISA Opinion Letter 91-25A, 7-2-91.

I am not aware of such a ruling on a soft freeze being a NCT. I would not chance it without getting a ruling, or doing the ratio percentage testing and hard freezing as of the day before the first plan year it appears likely the testing would fail. As a policy matter, the IRS might want to deem soft freezes to be NCTs so that it wouldn't inevitably lead to a hard freeze as those in the DB plan before the soft freeze go up the earnings scale and passed the HCE earnings threshold in disproportionate numbers. Some employers might actually be 'looking for cover' from the otherwise inevitable ratio percentage test failure some plan year, to then hard freeze the plan in the face of employee pushback.

A basic concept of the US tax code is that an employee is taxed on value (economic benefit) earned when no longer subject to a substantial risk of forfeiture, and at that time, the employer is allowed a deduction provided it is an 'ordinary and necessary business expense' considering the entire compensation package. A qualified plan breaks apart the timing, allowing the employer a deduction when contributions are made but postponing the employee's taxation until later when withdrawn. That's the advantage gained from complying with the minimum coverage, nondiscrimination and other rules applicable to qualified retirement plans. A nonqualified plan does not break apart the timing. The employer will get a tax deduction when the amount in question is includible in the employee's taxable income. However, the nonqualified plan seeks to manipulate that timing. The employer might be willing to wait years for its deduction, to the time when the employee will have taxable income. In other, rare situations, the design might be to trigger the taxable events sooner rather than later. IRC sec 409A was passed in October 2004, among other things, to try to cause that taxation to occur when the employee first has significant power to affect the timing of the payment (i.e., the taxation of it as income to the employee and correspondingly the tax deduction to the employer).

For more updated regulatory reference (2001 final regs), there's IRS Reg. §1.125-4©(2)(iii). It doesn't define but simply uses the term 'worksite'. I know of no authoritative definition or interpretation. The consistency rule, however, sheds some light on what is meant and is likely problematic for you using the change of worksite provision. For example, IRS Reg. §1.125-4©(4), Example 4 provides "(i) Employer R maintains a calendar year cafeteria plan under which full-time employees may elect coverage under one of three benefit package options provided under an accident or health plan: an indemnity option or either of two HMO options for employees who work in the respective service areas of the two HMOs. Employee A, who works in the service area of HMO #1, elects the HMO #1 option. During the year, A is transferred to another work location which is outside the HMO #1 service area and inside the HMO #2 service area. (ii) The transfer is a change in status under paragraph ©(2)(iii) of this section (relating to a change in worksite), and, under the consistency rule in paragraph ©(3) of this section, the cafeteria plan may permit A to make an election change to elect the indemnity option or HMO #2 or to cancel accident or health coverage. (iii) The change in work location has no effect on A's eligibility under R's health FSA, so no change in A's health FSA is authorized under this paragraph ©." No flex account changes are permitted, because location doesn't have a bearing on the use of them. If the change of geographical locations means that the employee now no longer is eligible for the previously elected coverage, the employee can make a mid-year change to any coverage now available, given his new location. Your situation, as sad and sympathetic as it is, doesn't seem to involve a geographical change that would permit mid-year benefits election changes.

Under the pension law, you only need the consent of a 'spouse' that is such at the time of the annuity starting date. Not a later 'spouse'. There's the possibility of 'polygamy' when it comes to spousal rights. For example, an ex-spouse may yet be a 'spouse' as to part of the EE's benefits pursuant to a QDRO. If the EE marries again and has been so married for a year by the EE's annuity starting date, then the new spouse must consent to a waiver of the QJSA on the part of EE's benefits as to which the ex-spouse is not yet the 'spouse'; and the ex-spouse would have to consent to the waiver of the QJSA on the part of EE's benefits as to which the ex-spouse is, per the QDRO, yet the 'spouse'. The consent by one such 'spouse' does not waive the QJSA as to the benefits that the other is the 'spouse'.

D&C, Try this link http://tinyurl.com/2wz6zm

The QRP must give each EE the opportunity to opt out in advance of the first automatic deferrals of his or her pay; QRP may permit a retroactive opt out for up to 90 days from when the first Automatic Pay Deferrals for a participant occur. In light of this, the 30-day retro opt out ought to be fine; it's within the 90 days allowed to be designed into the automatic enrollment QRP's design. The EE must be given a notice a reasonable time before the first pay of an EE is automatically deferred. IRC sec 401(k)(13)(E)(ii)(III). As for whether giving the EE the notice on his entry date, depending on all the facts and circumstances that might not be a reasonable opportunity. For example, suppose that you pay every other Friday, and entry is January 1 and July 1. On a given year, an EE might enter the QRP on Thursday, July 1 and be given the notice then. What if the next day, Friday, July 2 is a payday that year. Maybe the day before the first automatic deferrals is not a reasonable time.

The pension law (IRC §417(d)(1); ERISA §205(f)(1); Reg. §1.401(a)-20, Q&A-25(b)) substantively only requires the QJSA based on marital status at time of annuity starting date. If the plan document does not specifically give the EE more QJSA rights, then the EE only has the QJSA right required by the pension law.

Hi, Don, I think in that situation each EE would be taxable on $2,000, since the EE will receive at least that much through extra pay or medical expense reimbursement. The other $8,000 is dependent on the EE incurring medical expenses, and so that ought not be taxable. Given what I suspect you are trying to accomplish with the arrangement, this would seem to be a pretty good tweak.

The authority for no cross-pollination of health flex accounts and day care flex accounts is in Prop Treas Reg §1.125-1, Q&A-17 and Prop Treas Reg §1.125-1, Q&A-18

Only if the plan documents say so; pension law only requires the QJSA if married (for at least a year) as of annuity starting date. If he was single on the first day of the period (say the month if his benefits are being paid monthly) for which the first benefits payment was made, then pension law doesn't require that he be given an QJSA when he later marries. The plan document might, however, give him that right.

Don, The arrangement you describe would involve ER reimbursement and so IRC 105h and its nondiscrimination requirement are implicated. Because there is no mention of excluding any EEs, nor any having a lesser max amount of reimbursement for some EEs (assuming there would be eligibility rules that would, in essence, exclude those earning less than $10,000 for the year), there should be no discrimination. I think there would be problems with this arrangement, however, for the EE. That's because this would have the same effect as a $10,000 per EE medical expense reimbursement plan, where the amount an EE doesn't use is paid as additional compensation. This would make the amounts paid in reimbursement for medical expenses taxable income for the EE just as would extra, bonus pay of the unused part of the $10,000. In Rev Rul 2002-41, it is explained: Under the arrangement posited, the EE would be entitled to the entire $10,000 irrespective of whether or not the EE incurs expenses for medical care. It would all be paid as extra pay, bonus if the EE has no qualifying medical care expenses. So that entire $10,000 is taxable to the EE, regardles of how much in medical care expenses the EE might have.

jca123: The opportunities for planning into a given situation are nearly endless, and I would think you'd be best served by having an in-person or telephone conversation with a qualified benefits professional and the health insurance professional--who may be the same person.

Take a look at the two attached Coordinated Issue Papers issued by the IRS that bear on this topic. I do not agree that you and your sister can participate in a Health FSA. Cafeteria plans, including health flex accounts, are only for employees and former employees. Prop Treas Reg 1.125-1, Q&A-4 provides "The term 'employees' does not ... include self-employed individuals described in section 401© of the Code." IRC sec 401© specifies that partners of a partnership are self-employed. IRC sec 1372(a) provides that an S corporation shall be treated as a partnership, and IRC sec 1372(b) makes any 2-percent shareholder of the S corporation 'a partner' of such partnership. IRC sec 1372(b) defines '2-percent shareholder' to be "any person who owns (or is considered as owning within the meaning of section 318) on any day during the taxable year of the S corporation more than 2 percent of the outstanding stock of such corporation or stock possessing more than 2 percent of the total combined voting power of all stock of such corporation". IRC sec 318(a)(1)(A)(ii) attributes to children the stock held by their parents. Thus, if either of your parents have more than 2% of the S corporation stock, and are thereby wired as a 'partner' ineligible for a Health FSA (and cafeteria plan, generally), then you and your sister too are wired as ineligible 'partners'. If the S corp pays health premiums for 2% shareholder/employees, the S corp withholds for income taxes on the amount it so pays. If the S corp does this as part of a plan for its employees (and their dependents) generally or for a class of its employees (and their dependents), then it does not pay FICA on the amount of health premiums paid for 2% shareholder/employees. IRS Announcement 92-16, I.R.B. 1992-5, 2-3-92. The S corp tax deducts the amount so paid but correspondingly includes it in the taxable income reported to the 2% shareholder/employee. The S corp shareholder/employee may then tax deduct health insurance premiums, on his or her own Form 1040. (This tax deduction is not available for any calendar month that the shareholder/employee is eligible to participate in any subsidized health plan maintained by ANY employer of the shareholder/employee or spouse. IRC sec 162(l)(2)(B).) Rather than seek to participate in employer-reimbursement health plans, you and your sister could bulk up on health insurance--extensive coverage, low deductibles, low co-pays, low co-insurance, as well as auxillary health insurance like supplemental health, dental, vision, cancer, etc. The premiums are higher because the out of pocket to you is lower. You then get to deduct the premiums. Had some of those premium dollars saved by having less coverage been paid out of pocket by you, you might not receive any tax benefit. That becauase you may only deduct the out of pocket to the extent it, along with the premiums you pay, exceed 7.5% of your adjusted gross income--and then only if you itemize on Schedule A to your Forms 1040. So from a tax perspective for you and your sister, deemed S corp shareholders/employees, paying premiums for health insurance is likely better than facing health expenses out-of-pocket.

Here's a few websites you might check out: http://www.bls.gov/ncs/ebs/home.htm http://www.bc.edu/centers/crr/ http://www.pensionresearchcouncil.org/ http://www.ebri.org/ (This one charges a relatively minor fee for copies)

Natasa, The 80,000 USD is now, for 2007, up at 100,000 USD. It is subject to annual adjustment but only in $5,000 increments, to reflect changes in a cost of living index. Whether an employee who earns more than 100,000 USD but is not in the top 20% paid by the employer is a highly compensated employee depends on whether the employer wanted that extra criteria in the plan design.

Whoops! I missed that one. Thanks, QDROphile. I guess it's back to Nassau's merger question. You might take a look at Rev. Rul. 90-24, if you felt that the guidance there could be used by analogy given that 401k plans can now receive 403b annuity assets, albeit in 'rollovers' that would not apply in a merger.