KimberlyC

To elaborate, you would need to offer the immediate life annuity for a single participant and both the qualified optional survivor annuity options to a married participant if lump sums valued at more than the cash out amount. You want to ensure you state how lump sums are calculated and actuarial factors. We generally use the actuarial equivalent of the benefit payable at normal retirement date. If you allow for enhancements for those eligible for early retirement subsidies to be taken into account, the lump sums amounts likely will increase.

Thank you for your thoughts. They are moving all plans (dbs, 401(k)) to the new trustee and want these small VEBAs to go with them. I am amending the original trusts to treat the new trust as an amendment, incorporating the provisions of the new trust, and stating the new provisions supersede the old trust provisions to the extent they conflict, except to the extent the new provisions would jeopardize the original trust's status as a VEBA under Section 501(c)(9) and the tax-exempt status under 501(a) or change the rights of VEBA members. I think it is the best I can do under the circumstances. One issue is that original VEBA documents are so old they credit earnings monthly, don't provide for any electronic communication, etc. New trustees want their own documents, and you are correct -- very few financial institutions want to serve as VEBA trustees. This one is doing it only because it is getting the retirement plan business.

I have a client who acquired companies with two very old VEBAs. The VEBAs are trust documents and received favorable IRS determination letters on their Section 501(c)(9) status years ago. The VEBA trusts have been amended from time to time to appoint successor trustees. The client plans to move all retirement and welfare trusts to a new financial institution. The new trustee insists its standard trust document must be used for the VEBAs and will not agree to incorporate or even attach the old VEBA documents that received the IRS ruling. The new trusts are boiler plate and contain no description of the original VEBA members or benefits (e.g., retired union employee; retiree health benefits). The new generic trusts state the trust document plus the employer's welfare plans constitute the entire VEBA. I am concerned that the original IRS letters will no longer govern the VEBA's tax-exempt status if there is no provision of the original trust left and no description of eligible members or benefits in the new trust documents. Note that the employer maintains a retiree health plan document, but the VEBA funds only certain members' (union) benefits. The new trustee insists obliterating the old document will not affect the VEBA's tax-exempt status. I appreciate that a VEBA can be amended and that a new IRS ruling should not be necessary simply to name a new trustee. However, i feel that the original VEBA documents that received the favorable IRS letters should at least be incorporated by reference ( at least to the extent they don't conflict with the new trust provisions). Any thoughts? I have considered amending the original VEBA trusts to incorporate the new trust documents (essentially doing through the back door what the new trustee won't allow through the front door).

Thank you, the biggest area of exposure for not offering COBRA are the penalties associated with not providing notice. Another issue is that the on-site provider is charging a fairly small fee - $275 per participant for on-site services regardless of use. If we used that amount as the premium, the CORBRA cost would not that expensive. Other services are very difficult to replicate if someone elected COBRA - treatment for exposure to chemicals in a lab.

Thank you! the problem is the COBRA and ERISA exceptions were drafted so long ago. The law is far behind what is happening with U.S. employers. In this case, it would be illegal for the employer to provide on-site services to former employees. They did exempt more robust on-site clinics from the ACA and could extend that exception to COBRA and ERISA by regulation.

I have an employer that employs select employees to work in medical and laboratory settings ( small percentage of the employee population). The employer provides vaccinations, TB testing, vision screening, initial health screening, blood pressure checks, first aid for work-related injury and illness evaluation, treatment, and case management, research lab exposure emergency access and follow up; and blood and airborne pathogen exposure valuations. Many of these "health plan" services provided on-site are required under OSHA. The services are not provided to other employees who don't work in the medical and lab settings. Although the services go beyond the limited on-site exception for ERISA, we can take care of documents and Form 500 reporting. I also am fairly comfortable that the services are either preventive or not significant for HSA participation for any of these employees in the HDHP. The critical issue is COBRA. The services go beyond the limited on-site clinic exception for COBRA. By law, the employer cannot provide these services to non-employees. COBRA doesn't specify where services will be performed so for other employers who offer vaccines and limited tests, we offer COBRA and send employees to a drug store. However, in the current situation there are multiple services and referrals to a outside providers would be difficult and expensive. The employees are required to have the services to perform their jobs and many are required by law. From a policy standpoint this makes no sense to require COBRA for health services required for a job when the employees are no longer employed. Any thoughts? Hopefully the agencies will one carve out limited on-site programs.

The IRS did request comments on the use of multiple employer cafeteria plans in 2007, but to my knowledge they didn't include it in the cafeteria plan regulations.

Certain unfunded deferred compensation plans maintained by non-governmental tax-exempt organizations (in existence on and not modified after August 16, 1986) are grandfathered and are not subject to Section 457(b) limits. Does anyone know how deferrals under these grandfathered plans are reported on Form W-2? is it still Code G of Box 12 or another Box and/or Code? Including grandfathered amounts in Box 12, Code G may cause an apparent exceeding of the 457 deferral limits.

A client (an LLC) was entering into discussions to provide a SERP to a top executive. The SERP would provide nonelective deferred compensation (no election by executive or deferred compensation agreement) payable in fixed installments over 5 years (at termination of employment, disability, death, etc.) with death benefits paid in the same form and at the same time for the surviving spouse. Sadly, the executive died before the SERP was executed. The client wants to complete and execute the SERP and provide the death benefits to the surviving spouse. I think this is possible (I have put in non-elective SERPs with effective dates retroactive to the first day of the executive's tax year), but have never come across this issue before. I am a bit concerned that Reg. Section 1.409A-1(b) defines a deferral of compensation plan as a plan where the service provider has a legally binding right during a taxable year to compensation that is payable to or on behalf of the service provider in a subsequent taxable year. Technically, the service provider didn't have a legally binding right to the SERP before death, and is no longer a service provider when the SERP is executed. Any thoughts and comments are welcome!!!

Under the Mental Health Parity and Addiction Act of 2008, a group health plan (or insurer) generally cannot impose a financial requirement (e.g., copayment, deductible, or coinsurance) or a quantitative treatment limitation (e.g., number of inpatient days covered) on mental health or substance abuse benefits that is more restrictive than the requirements or limitations that apply to at least 2/3 of medical/surgical benefits in the same classification (e.g., in-patient, emergency care, prescription drugs). Under these rules, mental health and substance abuse benefits should be subject to the same deductible as comparable medical/surgical benefits. I recently have seen health plans drafted by insurance companies (whether it is an insured or self-insured plan) that provide the same deductibles for mental health and substance abuse benefits as for medical/surgical benefits, but treat the deductibles differently for purposes of rollover. For example, the plan provides that costs incurred in the last two months of the plan year for medical/surgical benefits may be applied toward the deductible in the following plan year, but costs incurred for mental health and substance abuse benefits in the last two months of a plan year will NOT be applied to the deductible in the following plan year. This appears to be illegal to me -- certainly it seems to violate spirit of the Act and guidance issued to date, but I haven't seen anything (such as A FAQ) directly on point. Any thoughts?

Before the EEOC enacted Regulation Section 1625.32, the EEOC and courts took the position that an early retirement incentive plan (ERIP) that uses an upper age limit or age-based window for eligibility violated ADEA. For example, in Jankovitz v. Des Moines Indep. Comty Schools, the court found that an ERIP that paid for retiree health insurance premiums only until age 65 was discriminatory on its face for using an age limiting factor (age 65) and was inconsistent with the purposes of ADEA. This case is still good law and is cited by other courts to strike down age limits. However, in 2007 the EEOC issued Regulation Section 1625.32, which provides a broad exemption for employers to offer different retiree health plans for retired participants that are not eligible for Medicare and retired participants that are eligible for Medicare. This rule allows employers to offer carve out and supplemental plans for Medicare that are not as valuable as the plan for retiree that are not eligible for Medicare. What is not clear, is whether the regulation also applies in the context of an ERIP. Can an employer as part of an ERIP offer employees who retired during the window subsidized retiree medical in the non-Medicare eligible retiree health plan without offering a subsidy to employees that retire during the window and will be eligible for the retiree health plan for Medicare eligible employees. As you can see, I have avoided calling the plans the "under age 65 plan" ) and the "age 65 and older plan". I have a call into EEOC but have not heard back. Any thoughts are welcome!

Thank you! That is where I come out logically. However, I haven't ever seen a plan with a modified catch up rule and I couldn't find any guidance (even unofficial) on point.

I have a client who has a nongovernmental Section 457(b) plan. Under the special "last 3-year catch-up" contribution rule for Section 457(b) plans, a particpant in the last three years before the plan's normal retirement age (age 65), the annual deferral amount is increased to the lesser of (i) twice the annual 457(b) limit ($18,000 for 2016 or $36,000) or (ii) the annual limit ($18,00 for 2016) plus amounts allowed in prior years that weren't utilized. My cllient would like to add the special catch up rule, but is concenred that it can't accurately recordkeep deferral amounts over participants' careers. The catch-up rule is permissive; an employer doesn't have to add it to a plan. Is it possible to include a lesser catch up rule? For example, allow particpants to make up amounts that were not utilized only in the 5, 7, or 10-year period prior to normal retirement age (instead of their entire careers). One part of me feels that since it is permissive, you should be able to do something less than the maximum permitted by law. The other part feels that the IRS may not be flexible -- you other adopt the rule as is or not at all. Any thoughts are welcome

My client terminated its cash balance plan effective December 31, 2014 and received a favorable IRS determination letter. The Plan provides that the applicable interest rate and the applicable mortality table under Section 417(e) are used to convert the participant's cash balance account to his or her accrued benefit (annuity) at normal retirment or the determination date. The mortality table is variable. Only 1 insurance company was willing to bid on annuities for the few participants who did not elect lump sums. That insurance company will bid but only if it can used the 417(e) mortality table for 2015. This is odd since the variable mortality table likely will result in lower payouts -- absent a pandemic or nuclear disaster life expectancy will continue to increase. However, they claim they can't administer the variable mortality table. My concerns are: (i) the annuity K must reflect the Plan and (ii) changing the plan mortality table could result in a Section 411(d)(6) violation. I have considered an amendment using the table that produces the greatest benefit, but I am not sure if the insurer will accept this. I am aware of Treas. Reg. Section 1.411(b)(5)-(e)(ii), which will become effective 1/1/2016. Any ideas on how to complete the termination?

Thank you all for your comments. This was a case where an agreement was signed and then legal counsel was contacted to make the agreement happen. The buyer and seller don't want to change the agreement in any way (won't even prepare a statement of how to construe the agreement). Yes, I like to see the agreement specify who will do what with adjustments to the purchase price. Based on preliminary analyses, they may have trouble with rate groups and general testing since some employees have already earned compensation above the 401(a)(17) limit. There are many other issues ..... like agreeing to transfer certain employee benefit plan assets before rather than as of the closing date. A couple of hours on the Agreement could have saved many hours after signing. The preamble to the final regulations stated that Treasury planned to issue guidance on special issues that arise in sales and acquisitions, but that has never happened. I had hoped that had formally or informally approved a contribution based on part-year compensation due to a deal. Cleary there is no intent to discriminate (although I suppose I could conjure up fact patterns where it could lead to a discriminatory result),

Employer A is selling (stock sale) a number of subsidiaries to an unrelated buyer. The buyer will assume sponsorship of the 401(k) plan in place for employees of the subsidiaries. Employer A typically makes a discretionary contribution based on a % of compensation for participants who are employed on the last day of the plan year. the plan has a calendar-year plan year. The sale is expected to close on 9/30. Due to the sale, Employer A would like to amend the Plan prior to the sale to provide the discretionary contribution to participants who are employed as of the closing date of the sale (9/30). The employees are being hired by the Buyer and will continue to participate in the 401(k) plan after the sale. The employer would like to make the contribution based on 100% compensation earned through the first 9 months of the plan year. Under Treas. Reg. Section 1.401(a)(4)-2(b)(2), employer A can satisfy a safe harbor under an allocation formula that allocates to each participant the same percentage of "plan year compensation". Under Treas.Reg. Section 1.401(a)(4)-2(b)(4)(iv), the allocation formula will not fail to be a safe harbor allocation formula if the allocation formula is limited to a "maximum percentage of plan year compensation." Question: Can the employer make the contribution based on 100% of compensation for the first 8 months of the plan year? Or must the employer make a contribution based on 75% of compensation for the first 8 months? The concern is that an employee who terminates right after the closing date would receive an allocation based on 100% of his/her plan year compensation, whereas an employee who works until year-end will only receive an allocation based on 75% of his/her plan year compensation. Any thoughts are welcome!

I agree, but virtually every college and university in the country invests with TIAA-CREF. DOL is aware of the problem and has infomally said if you are stuck, then distributing certificates may be the prudent thing to do. At least, TIAA-CREF has high ratings from AM BEST etc.. Although i have this issue in a terminating plan, it is an ongoing problem; plan fiduciaries can't move investments from TIAA traditional annuitites if they want to add a different investment option. in addtion, TIAA-CREF issues indivdual contracts to particpants so the participants have control (except they can't get their $ out of TIAA traditional annutiies either). When we draft plans with TIAA-CREF investments, we have to include language stating that the disitribution options (ohter than required QJSA etc.) are those permitted under the annuity contract.

The problem is that TIAA-CREF does not permit lump sums for accounts invested in TIAA traditional annuities, so no one can elect a lump sum if he/she has this invesment and we will need tp purchase annuities. There is no way to terminate the contracts with surrender charges, etc. Once you are in a TIAA traditional annuity, then you are stuck.

I am terminating a money purchase plan for a hospital. The plan invests in TIAA-CREF annuities and annuities with another insurance company. Since this is a money purchase plan, we have to offer the life annuity to single particpants and the QJSA to married particpants. If the Plan assets were invested in mutual funds, etc. the particpatns would chosse between cash or distribution of an annuity contract. We would use the particnat's account balance to pruchase a deferred annuity. We are being told that TIAA-CREF and the other insurer don't have deferred annuity products. However, it is impossible to elect lump sums from many of their existing contracts. TIAA-CREF suggest thta we can just distribute existing certificates to particpants, but I am not sure that satisfies the requirments for a 401(a) plan (it suffices for 403(b) plan terminations). The only thing that i can think of is have all particpants (even retirees in pay status) make an election for cash (if permitted under their contracts) or distribution of their benefits in kind in the form of qualified plan distributed annuity. See Treas.Reg. Section 1.402©-2, Q&A 10.1.4029a)-1(a)(2). Any thoughts? Obviously there are thousands of tax-exempt employers out there who have money purhcase plans with TIAA-CREF as a vendor. Some of those plans are being terminated.

Three years later and this issue is gaining new interest by plans. Treas. Reg. Section 1.401(a)-13©(v) provides that a direct deposit in a bank, savngs and loan ass'n, or credit union is not an"assignement" or "alienation" (provided the arrangment is not part of an arrangement constituting an assignment or alienation). The reg doesn't say that particpant consent is required to make the direct deposit. Many states and other governmental employers are mandating direct deposits for payment of retirement checks and the IRS is making no objection, so it appears that mandating direct deposits may not violate the antialienation rules of the Code. However, the government plans arent subject to ERISA. I still have concerns about mandating direct deposits under ERISA. It makes me nervous to let a plan fidicuiary withhold pension payments until a participant has set up a bank account. What if the particpant doesn't do so? Essentailly he/she would forfeit his/her pension. When a plan participant is missing, DOL rules require the Plan to take approriate steps to locate the missing participant, including mailing notices to the last known address, internet seraches, IRS locator program, DOL locator program, IRS letter forwarding stystem, etc. The DOL states ERISA's prudence requirements requires action particularly where it involves nominal expenses. Somehow I can't see the DOL permitting an employer to whithold a pension becasue it doens't want to incure the cost of curring a check and mailing it when the particpant's location is known and the particpant is demanidng the check. Times are changing and the US government is going to mandatory direct deposits so maybe the DOL is OK with this for ERISA plans. I have seen mandates by multiemployer plans. I would appreciate any one's thoughts.

Thanks, I posted when i saw the MAP-21 thread on 2013 rates, but saw that the discussions all had been in December and that i probably should have posted initially as a new discussion topic. I promise not to do it again!

Thank you. So he didn't say it was reasonable, but didn't say it was totally off. Does anyone have clients who are using the rates for this purpose?

Treasury Regulation Section 1.401(a)(4)-5(b) limits the annual amount of pension payments made to one of the plan sponsor's 25 most highly compensated current or former employees ("restricted employees") in any plan year to the amount that would have been paid to the restricted employee in that year if he or she had received a straight life annuity. This restriction ensures that a pension plan will not discriminate in favor of highly compensated employees by paying out their full benefits, while leaving insufficient plan assets to pay out the benefits of lower-paid employees. The restriction does not apply if (i) the value of the distribution is less than 1% of the value of the plan's current liablilities before distribuion is made, (ii) after the distribution the plan assets will equal or exceed 110% of the plan's current liabilities, or (iii) the plan terminates with sufficient assets to pay out benefits to all participants. Treas Reg. Section 1.401(a)(4)(b)(3)(v) states "any reasonable and consistent method may be used for determining the value of current liabilities and the fhe value of plan assets" for purposes of the high-25 restriction. Guidance issued to date under MAP-21 describes specific cases where MAP-21 rates apply and specific cases where they do not apply. However the guidance does not address whether the modified segment rates under MAP-21 may be used to determine a plan's "current liabilities" for purposes of applying the restriction on lump sum payments to the top 25 most highly compensated employees. Is it reasonable for a plan to use the modified segment rates under MAP-21 for this purposes? Summaries prapred by actuaries and consulting firms list this as an open issue. I heard that either Mike Spaid or Tony Montanaro stated it was reasonable in the course of Qs and As following an IRS phone forum, but can't verify this.

Treasury Regulation Section 1.401(a)(4)-5(b) limits the annual amount of pension payments made to one of the plan sponsor’s 25 most highly compensated current or former employees (“restricted employees”) in any plan year to the amount that would have been paid to the restricted employee in that year if he or she had received a straight life annuity. This restriction ensures that a pension plan will not discriminate in favor of highly compensated employees by paying out their full benefits, while leaving plan assets that may not be sufficient to pay out the benefits of lower-paid employees. The restriction does not apply if (i) the value of the distribution amount is less than 1% of the value of the Plan’s current liabilities before distribution is made, (ii) after the distribution the Plan assets will equal or exceed 110% of the Plan’s current liabilities, or (iii) the Plan terminates with sufficient assets to pay out benefits to all participants. IRS regulation Section 1.401(a)(4)‐5(b)(3)(v) states “any reasonable and consistent method may be used for determining the value of current liabilities and the value of plan assets” for purposes of the high-25 restriction. Guidance issued to date under MAP-21 describes specific cases where MAP-21 rates apply and specific cases where they do not apply. However, the guidance does not address whether the modified segment rates under MAP-21 may be used to determine a plan’s “current liabilities” for purposes of applying the restriction on lump sum payment to the top 25 most highly compensated employees. Is ist reasonable to use the MAP-21 rates? Summaries of MAP-21 prepared by actuaries and consultants list this as an open issue. I heard that either Mike Spaid or Tony Montanaro said informally it was O.K. to use the rates during Qs and As following an IRS phone forum, but have not been able to verify this. I appreciate anyone's thoughts on this.

My friend, a chiropractor, is certain that his services are 'essential health benefits'. I think with the insurance industry going both ways on the issue until regulations are issued, it is probably reasonable and in good faith to consider chiropractic not 'essential health benefits'--at least as long as the insurance industry is not lopsided towards including such benefits. Keep in mind, HHS is under no obligation to give a reasonable good faith pass, and may not do so if it is perceived to result in too much erosion against the purposes of the 2010 Health Care Reform. So the real question is whether imposing this limit would be worth risking the loss of grandfathered status, given the uncertainty. Most employers that I advise are clinging to grandfathered status for dear life. I don't think they'd take the risk, just for the relatively minor benefit that would come with capping or requiring pre-authorization of chiropractic benefits. Thank you for your thoughts on this. I know the various chiropractor groups are lobbying hard on this one, as are other special interest groups. If the standards just applied to employers i expect that HHS would deem most services to be "essential," but the essential health services definition is a major component of the health plan packages to be offered to individuals and small businesses on the health insurance exchanges as well; if the definition is too broad the exchange plans won't be affordable.... so HHS may not be as inclusive when it ultimately issues guidance. I agree that it may not be worth risking grandfathered status over a dollar cap on chiropractic services. Of course, if an employer eliminates a cap they probably can't add it back later when guidance comes out or risk losing grandfathered status....