Chaz

As I understand it, the third party requesting the information is involved in potential litigation possibly involving the three individuals (that is, if they participated in the plan). The plan wants to inform the third party that the three are not participants to put the matter to bed from the plan's perspective. One solution is to just inform the third party of the eligibility requirements for plan participation (e.g., from which the third party can determine that Donald Trump is not eligible) but I am trying to determine whether telling the third party straight out is okay.

Health plan wishes to tell third party (for other than TPO purposes) that individuals X, Y, and Z are not and never were enrolled in the plan. Health plan has no connection whatsoever with the individuals. I know that information that an individual is enrolled in a plan is PHI, but is information that a person was never enrolled also PHI, subject to HIPAA? For example, if the health plan discloses to a third party that Donald Trump is not and never was a participant in the Plan, has the plan violated HIPAA?

I for one would be interested in knowing if anyone has any thoughts on this. . . .

Basically what they said was ""a fired for cause" clause does not raise a substantial risk of forfeiture." Not sure I understand your distinction. The distinction is that, if a payment will be forfeited ONLY if the service provider terminates for cause (i.e., if the service provider voluntarily terminates, he still gets the payment), as jpod states, there definitely is no SRF per the final regs. And the regs say that a payment payable only upon a termination of employment without cause IS a SRF. My question is whether there is a SRF if the service provider can only forfeit the payment if he voluntarily terminates employment; that is, even if he is terminated for cause, he still get paid. In our case, the employment agreement we are reviewing states that, if the executive is terminated without cause, he is due, say, $500,000, and if he is terminated for "cause" (which is fairly broadly drawn to include general incompetence), he is due, say, $250,000. In response to Harry O's comment, let's assume that the executive is not due a payment if he voluntarily terminates employment without good reason. Otherwise, I believe that the agreement provides that he is due at least something in every other event. Note that we did not draft the agreement in question (god forbid); we are only reviewing for 409A compliance. So any more comments? Does my agreement provide a SRF?

I thought a cafeteria plan can discriminate as long as it doesn't FAVOR HCEs.

If the agreement was in existence before January 1, 2005, and has not been materially modified since, if there is a "bad" good reason definition and thus no SRF, can't the amount be considered accrued and vested before the effective date of 409A and therefore grandfathered?

The employment agreement in question specifies a payment upon the executive's involuntary termination for "cause" (willful misconduct, etc.), albeit a smaller payment than he would get upon an involuntary termination without cause. Is this such a situation? Can we modify the agreement to take advantage of the ST deferral rule as well as the 2x rule?

If an employment agreement provides for a lump sum payment to be made upon an involuntary termination of employment for any reason, is that a substantial risk of forfeiture such that a specified employee would not have to wait six months for payment under the ST deferral exception? The final regs state that "if a service provider's entitlement to the amount is conditioned on the occurrence of the service provider's involuntary separation WITHOUT CAUSE, the right is subject to a substantial risk of forfeiture if the possibility of forfeiture is substantial" (emphasis added). Does this language necessarily mean that it follows that payments made upon ANY involuntary separation are NOT subject to a SRF? If there is no SRF and therefore the ST deferral rule is inapplicable, am I right in concluding that the two-times exception still applies (because the payments are made under a plan "that provides for separation pay only upon an involuntary termination from service"? (There is no mention of "without cause.) Thanks.

Thanks for the clarification. Let's put aside your exempt employee wage payment law issues, which are definitely well taken. Assume that the employees are non-exempt. And assume that the employee is absent for work for a full week other than for disability or sickness (and the absence was approved by the employer). What is your analysis of the W-2 tax consequences of my two scenarios?

How can that be? As another poster to this thread stated: "It would seem that whenever an employee "buys" vacation, the employee is merely decreasing his or her rate of compensation for the right to have a week of paid time off. This is no different than an employee taking a week of unpaid vacation." Why wouldn't the employee's end of year W-2 comp be $51K?

I agree, but a cafeteria plan can include elective PTO as a permitted taxable benefit through the plan and the plan otherwise complies with the requirements set forth in the proposed regs. (See 1.125-1(o)(4)). There really isn't much guidance out there on many aspects of purchased vacation, is there?

I agree about vacation days that can't be carried over being not subject to Section 409A. But regular (unpurchased) vacation that can be carried over is clearly(?) "bona fide vacation leave" under Section 409A. If a policy allowed participants to purchase and carry over, say, six months of vacation, that would probably not be "bona fide" and amounts deferred would be subject to 409A. But what about a policy that permits participants to purchase (outside of a cafeteria plan) and carry over, say, one week of extra vacation? Is THAT subject to Section 409A? We have a number of clients who are struggling with this issue and there doesn't seem to be any guidance on this anywhere.

NO ONE has any comments on this??

Does anyone have any thoughts on this?

In short, yes, in order for employees to pay their premium contributions on a pre-tax basis, the contributions must be made pursuant to a written cafeteria plan document, as per the proposed cafeteria plan regs. There is no exception for small plans. The regs require that the written plan must (at least): -- describe all benefits --set forth the eligibility rules --describe the election procedure --provide details on irrevocability rules --state how contributions are made

What would be the difference in the taxation "pre-tax" and "post-tax" with respect to a purchased week of vacation? Here's the scenario I am struggling with: Employee 1 earns $52K per year and properly elects to purchase 1 week of vacation through a cafeteria plan (which is a qualified 125 plan because it offers nontaxable benefits in addition to the vacation purchase program). As such, each paycheck is reduced by the pro-rated amount totaling $1K per year. Therefore at the end of the year, all other things being equal, Employee 1 has W-2 compensation of $51K for the year. Employee 2 also earns $52K per year but does not elect to purchase any extra vacation time but in November goes to his employer and says "I've used all my vacation this year but I want to take a week off without pay." The employer agrees. At the end of the year, all other things being equal, Employee 2 also has W-2 compensation of $51K. I can't see the difference between the two scenarios. By Employee 2 taking the week off without pay, he effectively "purchased" a week's vacation as did Employee 1. The only difference is that Employee 1 spread the payments out through the entire year while Employee 2 "paid" for the week all at once when he took the week off unpaid. Unless I am missing something, the tax effect is the same even though Employee 1 purchased the week through a cafeteria plan and Employee 2 did not.

Is a vacation purchase program run outside of a cafeteria plan (and thus not subject to Code Section 125) whereby an employee can elect to purchase five additional vacation days considered "bona fide vacation leave" under 1.409-1(a)(5) and thus not deferred compensation?

I am advising a client that, for reasons that are a bit hard to discern, wants to have its plan outside a cafeteria plan. Aside from the cashout issue, I'm trying to find out if there are any reasons NOT to do it outside.

masteff, I think edman was thinking (I know I was) that your original post suggested that only under a cafeteria plan can unused purchased vacation be forfeited. Did you mean that only under a cafeteria plan can an employer have a CASHOUT option? If so, I definitely agree. Do you (or anyone else) have any thoughts about edman's deferred compensation issues? He (or she) raises some interesting questions.

Does anyone have any input on this? There seems to be a dearth of authority regarding vacation purchase plans run outside a cafeteria plan. Does anyone do this?

Employer wants to set up a program under which employees can purchase up to one extra week of vacation to be paid through salary deduction. Employer does not wish to offer the option for employees to "cash out" unused purchased days. Are there any reasons why (or why not) this program should be run through the employer's cafeteria plan? Thanks.

Does anyone have any suggestions for reliable/user friendly software that can be used by a company with approximately 200 employees? Thanks.

Bueller? Bueller?

[WRITTEN BEFORE STEELERFAN'S 3:20 POST] jpod - I agree that the result may be inconsistent with 409A's intent, but I can't find anything in the regs to support the first two sentences of your post. Not to say that there isn't anything there; I just can't find it steelerfan - I think the clause I quoted can be read as protecting a service provider who (i) elects to receive a distribution upon the first to occur of an UE or termination, etc. (ii) experiences a UE, and (iii) chooses not to receive the distribution at that time. 1.409A-2(b)(2)(ii) requires that in the event of a subsequent deferral election OTHER than for death, disability, or UE, requires at least a five year deferral period. 1.490A-2(b)(i) requires all subsequent elections to be effective for 12 months without mention of any exceptions.

The final regs say that "a service provider who has experienced an unforeseeable emergency will not be treated as making a subsequent deferral election under 1.409A-2(b) (subsequent deferral election rules) if the service provider does not apply for or elect to receive a payment available under the plan." I read that as saying that if a service provider DID apply for or elect to receive a payment, absent an initial election, it WOULD be a subsequent deferral election, which would require the election not be effective for 12 months. As such, I think those who say that an initial election (e.g., "first to occur of an unforeseeable emergency or termination of employment") have a strong argument.