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Company X maintains a safe harbor 401(k) plan in which the matching contribution is structure to satisfy the safe harbor of Code Section 401(k)(12) (i.e., 100% match on elective deferrals up to 3% of compensation and 50% match on elective deferrals greater than 3% but not in excess of 5% of compensation). Employer X wants to amend the safe harbor 401(k) plan to allow for suspension of the safe harbor match by one or more subsidiaries or divisions. While it is clear that, subject to complying with the rules set forth in the regulations including the content and timing of the notice requirement and any supplemental notice requirement as applied to all participants, can the employer limit the suspension to one subsidiary and not lose safe harbor status?

HATFA section 2003©(1) amended Section 436(d)(2) of the Code to provide that if an employer sponsoring a defined benefit plan is in bankruptcy, no prohibited payment may be made unless the plan's actuary certifies that the AFTAP of the Plan is not less than 100%. For this purpose, the determination is to be made without regard to the amendment to extend the minimum and maximum percentages of the segment rate to 90% and 110% from merely 2012 to 2012 through and including 2017 (a subsequent amendment extended the application of such percentages through to 2020). In working on a sale of the employer, the lawyer for the buyer suggested that the plan has to be amended prior to closing to provide for such an amendment. The proposed amendment seems to be merely parroting the statutory change made by HATFA and not adding anything to facilitate the implementation of such change. I looked further into this. While IRS Notice 2015-84, which contains the 2015 cumulative list, references certain changes to Code Section 436, there is no direct reference in the Cumulative List to the HATFA changes, other than a cross-reference to a 2014 notice dealing with the HATFA changes. Since the proposed amendment appears to be merely parroting the statutory change, I would conclude that such an amendment would not be required since it would already apply by statutory operation. Any thoughts either way on this?

Company X has entered into a contract with Provider Y to provide recordkeeping services with respect to its 401(k) plan. For years, it has arranged for revenue sharing through investments in mutual funds not affiliated with Y which provide a rebate of a specified number of basis points. To continue with the trend of DC plans to shun revenue sharing arrangements, X would like to determine Y's fees on some basis other than revenue sharing. Some obvious ones that come to mind are a flat dollar fee per participant, a flat dollar fee per transaction (e.g., a loan) and a set amount per hour in connection with the performance of other services. Does anyone have any other alternative methods of arriving at fees that they have seen or encountered? Thanks.

Company X is a corporation organized and operating in the US. It maintains a number of subs in the US and abroad, including one in Chile. P is a US citizen and is working in Chile (having been transferred there by X). X has a self-insured medical plan. Assuming that P will be retained on the Chilean payroll, how can X arrange to cover P under its medical plan?

Company X, a US Company, maintains its headquarters and the bulk of its employees in the US. It has a Chilean sub to which a number of US citizen employees have been assigned. What are X's options for covering these employees in the US benefit plans (viz., 401(k) and medical plan)?

Does anyone have a tool that can make an easier calculation of the maximum payment amount for purposes of Audit CAP. We have been asked to prepare a position paper and propose a base amount to enter into negotiations with the IRS over the fee amount. Does anyone have an app or tool that simplifies the calculation of the maximum payment amount? I would be most appreciative if you could either share a sample or provide me a link to access it.

I am representing a client going through Audit CAP. Of course, the 800-pound gorilla in the room is the Maximum Payment Amount and how to calculate it. The IRS agent is asking us to prepare a position paper which sets out a recommendation of the audit CAP sanction amount, which would be a starting point in the negotiation. Two things: (1) Does anyone have access to a simple tool to calculate the Maximum Payment Amount that they could with post or provide the web address for? (2) Can anyone provide a CAP position paper (feel free to redact whatever information or details you consider necessary)? Either or both of these would be MOST helpful.

I would like to make one thing very clear regarding the prior posts: 105(h) does NOT use a 414(q) definition of HCE (unless the IRS guidance on insured health plans does so and provides guidance with respect to self-insured plans as well). Instead, discrimination in favor of highly compensated individuals is prohibited. A highly compensated individual is defined as one of the five highest paid owners, a shareholder who owns more than 10% of the employer's stock; or is included among the highest paid 25% of all employees (other than employees who can be excluded for purposes of the test, such as employees with less than 3 years of service, employees who have not attained age 25, part-time or seasonal employees or collectively bargained employees). This determination, from the Code's actual language does not appear to support a look-back determination. Therefore, do not assume that you will not be a highly compensated individual merely because you are newly hired. I have also seen authority that if the amounts are paid with after-tax amounts that they will not be taken into account for purposes of 105(h) nondiscrimination testing.

Company X maintains a QACA safe harbor plan for its employees. All employees must be at least age 21 to participate. Those employees who are classified as interns, seasonal employees and part-time employees, are eligible to participate if they completed at least 1,000 hours of service. During 2014, certain employees who had not attained age 21 and certain interns, seasonals and part-timers who had not completed at least one year of service are permitted to participate prior to satisfying applicable age and service requirements. The employer has two options here: (1) treat the premature participation as an overpayment and reduce the account balances of the affected participants with earnings by the amounts prematurely contributed. If the amounts prematurely contributed were elective deferrals, they would be refunded to the affected employees. If matching or other employer contributions were allocated, such amounts plus earnings would have to be held in an unallocated account to reduce future employer contributions or (2) adopt a retroactive amendment eliminating the age and/or service requirement for eligibility for the year the affected employees started participating going forward. As to option (2), Rev. Proc. 2013-12, App. B, Section 2.07(3) says that if an employee is prematurely allowed to participate in the plan, the retroactive amendment may change the eligibility requirements with respect to only those ineligible employees that were wrongly included, and only to those ineligible employees." This seems to suggest that the amendment could be adopted solely to let those participants prematurely in and no one else provided that the other requirements specified in the Rev. Proc are met. It seems that this option would be the cleanest for an employer to adopt if it is in fact permitted. Does anyone else read this language as narrowly as I am?

Thanks, Stacey. It turns out that employer 1 is continuing her coverage until the day she starts with employer 2, which is the day her health coverage with her new employer starts. Consequently, there is no gap in coverage for her to worry about.

Thanks, GMK and SHerpa. While expensive, at least she gets the benefit of 20/20 hindsight.

Although I am a seasoned benefits practitioner, there is a personal question based on a personal situation that is about to be raised in the next couple of weeks. I have a daughter who is no longer a tax dependent of mine and she has health insurance coverage through her employer. She is going to be starting a job with a new employer in a couple of weeks, and it occurred to me that she might have a gap in coverage, even if it is over a weekend. If her last day with employer 1 is a Friday (which coincides with the last day she has medical coverage with employer 1) and her first day with employer 2 is the following Monday, in which case she will become covered under employer 2's medical plan as of either that Monday or not until the first day of the following month, what happens if she gets injured during the period when she is uncovered? A couple of possible responses might be COBRA, but she would likely not get the election until after she starts working for employer 2 and possibly after she has medical coverage with employer 2. Another possibility might be the exchange, but what if it is not an open enrollment period and what if she is not able to limit her medical coverage to the period when she needs it? I would greatly appreciate any thoughts you might have.

Employer X offers its employees group medical coverage. For purposes of the employer mandate, it has elected the monthly measurement method. Let's say an employee has satisfied the waiting period and is eligible for coverage as of July 1, 2016. Because the employee is actively working during July, and it cannot accurately predict whether the employee would be credited with at least 120 hours of service in July, does the employee get coverage regardless of whether the employee is credited with the minimum number of hours in July? In that case, would the employee then lose coverage for August? Or, does the employer provide the employee with provisional coverage during July and if s/he fails to be credited with at least 120 hours of service during July, does the employer then slip the July 2016 medical coverage rug out from under the employee at the end of July? What if the employee has incurred claims in the month of July?

Employer X offers its employees group medical coverage. For purposes of the employer mandate, it has elected the monthly measurement method. Let's say an employee has satisfied the waiting period and is eligible for coverage as of July 1, 2016. Because the employee is actively working during July, and it cannot accurately predict whether the employee would be credited with at least 120 hours of service in July, does the employee get coverage regardless of whether the employee is credited with the minimum number of hours in July? In that case, would the employee then lose coverage for August? Or, does the employer provide the employee with provisional coverage during July and if s/he fails to be credited with at least 120 hours of service during July, does the employer then slip the July 2016 medical coverage rug out from under the employee at the end of July? What if the employee has incurred claims in the month of July?

If it is set up as a taxable trust rather than a grantor trust, the grantor's intention should generally be controlling. I know that in 2013, the IRS concluded that a grantor trust did not constitute a welfare benefit fund and that there are certain retained powers, such as the power to amend or revoke the trust as well as the application of the corpus to satisfy a legal obligation of the grantor, which could be viewed as making the trust a grantor trust, which would negate the reason for having a taxablewelfare benefit trust in the first place. While one cannot be sure of what position the IRS will take in a private letter ruling, I think the trust would have to have the grantor retained less ambiguous powers for the taxable trust to become taxable to the grantor under the grantor trust rules.

Let's say employer X creates trust T to fund medical and disability benefits. If the benefits are partly insured, some of the assets of T may be used to pay for premiums under the medical and disability plans. The IRS instructions to Form 1041 say that a K-1 has to be issued to each beneficiary in the year in which a trust makes a potentially deductible distribution from its assets. In this scenario, assuming all of X's active employees (let's say, a nice round number, like 10,000) were covered by its medical and disability plans, would a Schedule K-1 have to be issued to each employee participating in X's medical and disability plans based on the payment of premiums by T, the payment of benefits by T, or at some other time? This reporting requirement appears to be sufficiently onerous as to make a non-exempt trust a definite non-starter for any employer who is considering one. If issued in connection with the payment of premiums, would a K-1 be issued to each employee for which T paid premiums showing a $0 taxable amount, based on excludable health and accident coverage? Thoughts, anyone?

Employer A is a very large 501©(3) and maintains a 403(b) plan for all of its affiliates. Affiliate P has participated in A's 403(b) for a number of years. Last fall, P's executive director complained about A's arrangement with provider M and wanted to have a 403(b) with Provider N instead, so it set up its own 403(b) with Provider N. Now, P wants to have amounts contributed on behalf of its employees while participating under A's 403(b) plan transferred in a plan to plan transfer to P's 403(b) plan with Provider N. Are the plan-to-plan transfer provisions in the 403(b) regulations participant-initiated, employer-initiated or can they be either or both? It is not at all clear from the text of the regulations. I know that in the qualified plan context, the employer can arrange for a plan merger or spinoff without even informing the participants or seeking their consent. Is there an analogous concept in the world of 403(b) plans?

Company B is merged into a subsidiary of Company A in January 2015. For the employees whose employment is terminated as of the closing date in mid-January, is there an obligation to do 1095-C reporting as to them?

Look at IRS Notice 2015-87, Q&A-13, which confirms that the dollar amounts for 2015 are $2,080 and $3,120, respectively. For 2016, the dollar amounts are $2,160 and $3,240, respectively. Not only are the dollar amounts for the excise tax amount adjusted for inflation but the percentage used to determine the threshold of affordability (i.e., the 9.5%) is also subject to adjustments for inflation. For 2015, the percentage is increased to 9.56%. For 2016, the percentage becomes 9.66%. The official source for this can be found in Notice 2015-87, Q&A-12.

Company X has historically paid those of its employees who went out on short-term disability a percentage of their salary during the period of disability out of its payroll, and it deducted 401(k) contributions and included the benefits received in the employee's compensation. Company X has decided to provide short-term disability on an insured basis or a self-insured basis administered by an insurer. Employees on short-term disability receive payments from the insurer and the insurer issues a Form 1099 to reflect the amount of benefits that were taxable (all of them since it is provided on a noncontributory basis). Is there any way that 401(k) contributions can be deducted from these amounts, albeit in arrears and not violate the requirement that deferrals have to be made from prospectively received compensation?lllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllll

Company X is publicly traded and maintains Plan A, a 401(k) plan. Company Y is not public traded and maintains Plan B, a 401(k) plan. Company Y is merged into Company X in January, 2015. Assume that both plans have calendar plan years and that Plan B is merged into Plan A effective December 1, 2015. Plan B uses the look-back rule for purposes of the ADP test and applies the top-paid group election in determining HCEs. For testing Plan B for ADP compliance purposes, would the employees of Company X be taken into account in applying the top-paid group rule since Company Y was merged into Company X effective in January 2015? Could Company X apply the transition rule in delaying the application of Plan B's top-paid group rule in determining highly compensated employees? I would be most interested in your observations on these questions.

Employer X maintains group health plans for its employees. For 2015, it chose to offer affordable coverage providing minimum value to 70% of its otherwise eligible full-time employees, choosing reasonable classifications to exclude as part of the 30%. X applies the look-back measurement method for purposes of determining the amount of any penalties under Code Section 4980H. For 2016, X is extending coverage to the other 30% due to its awareness that the rule requires it to offer coverage to 95% of its otherwise full-time employees. For purposes of applying 4980H to 2016, would the newly eligible ongoing full-time employees, how would Employer X treat them? Are they treated as newly eligible full-time employees, even though they are in fact ongoing employees? Or would it not be able to do anything but treat them as ongoing full-time employees since 4980H is applied on an ALEM by ALEM basis? I would be most interested in getting your thoughts on this. Thank you.

For purposes of determining whether an employee is a full-time employee (for purposes of determining liability for the excise tax), while payment for hours in which an employee is entitled to payment for a period of time in which no duties are performed (such as vacation or holiday) have to be included in hours, if the employee receives pay in lieu of vacation or holiday, is that taken into account as hours of service? The employee is getting the pay but is not taking the hours for which the employee is entitled not to perform services. It seems to me that the answer should be no. Does anyone have a different view? If so, what are your reasons for taking that view?

Employer X maintains an HDHP and contributes to HSAs it has set up for its employees. If an employee is eligible for and enrolled in Medicaid, does this cause the employee to cease to be an eligible individual who would no longer be able to contribute to or have contributions made to an HSA?

Employer X is offering to provide medical coverage to its part-time employees. Does it have to be affordable for purposes of health care reform? I am inclined to say no since the employer responsibility provisions and taxes apply solely with respect to full-time employees of the employer. Am I missing anything?