GBurns

I have not seen anything from the IRS that directly addresses this issue other than Treas Regs 1.125-4© 1)(i) which states "...and make a new election for the remaining portion of the period (referred to in this section as an election change) if, under the facts and circumstances-..." Note the "for the remaining portion of the period". To me this goes hand in hand with the general requirement of 125 that the election must be prospective. If the Plan allows the payment of claims that are incurred before the $2,400 election, to me, that would not be prospective. It would be no different from the old Zero Balance MERPs that were outlawed way back at the outset of Cafeteria Plans and FSAs under section 125. As papogi points out a claim incurred in another period and under other terms of coverage would not be allowed in a medical plan. So there should be no different treatment for an FSA which is really just another health plan.

I do not see where the OP said that the Plan was being terminated. Only the employer contribution is. It also does not say what sort of items the employer contribution is being used for. An employer contribution is not exclusively used for out of pocket medical expenses etc. If the employer has promised $450 per year which monthly is $37.50 and the employee used this towards towards paying for Dental and Vision (or whatever), you would have a lapse of coverage for non payment of premium. While provider claims for treatment provided during the period for which premiums were paid, ongoing or continued treatment would be jeopardized. Additionally, there could be a serious problem if the Dental and Vision (or whatever) is a group plan quoted and provided based on an annual contract or high participation % (even 100%) of eligible employees. It is not necessarily a simple matter, but more info is needed.

My interpretation is that the 1099-Rs were correct, it was the payments that were incorrect. I read it to be that the person was short paid, they got 90% of what they should have been paid, but the 1099-R shows the 100%. In other words the 1099-Rs showed more than was actually paid. If this is so, then there would be no corrections to 1099-Rs because the amounts would be the same as before. The extra 10% is due to this person as a short payment that was already reported in previous years. and no further reporting should be made. I cannot even think of how this could even be reported without causing major problems for everyone including the Plan for misreporting. There is also the question of how many years back this goes relative to the statutes of limitation.

An HRA balance that is vested is no different than any other unpaid Payables item. It is just another unpaid liability. An HRA balance that is not vested is just another budget item. If it gets used, it is expensed, if it does not get used, it vanishes like any other budgeted item that does not get used during the budget period.

These are all "after the fact" cases. What I was wondering about was in essence stopping the expense from being assigned to the wrong insurer/payer initially, not trying to collect "after the fact".

For most people the primary expense of medical care is health insurance premiums. See IRC section 213(d)(1)(D): (d) Definitions For purposes of this section— (1) The term “medical care” means amounts paid— (A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, (B) for transportation primarily for and essential to medical care referred to in subparagraph (A), © for qualified long-term care services (as defined in section 7702B ©), or (D) for insurance (including amounts paid as premiums under part B of title XVIII of the Social Security Act, relating to supplementary medical insurance for the aged) covering medical care referred to in subparagraphs (A) and (B) or for any qualified long-term care insurance contract (as defined in section 7702B (b)). In the case of a qualified long-term care insurance contract (as defined in section 7702B (b)), only eligible long-term care premiums (as defined in paragraph (10)) shall be taken into account under subparagraph (D).

I wonder if it is permissable to pre-empt this situation through use of a COB clause or through pre-certification or pre-approval of treatment. If the participant is injured in an accident (this seems like the cause of most if not all claims that could be involved in subrogation) treatment has to be pre-authorized. Could this be used as a way of starting the major part of mediacl treatment with the third party as payer, rather than having the participant obtaining treatment under the employer health plan well knowing that coverage is available elsewhere. It should be no problem with an automobile claim or other PI related injuries in many states, especially those who like Florida have mandatory mediacl coverage built into auto insurance etc. A slip and fall should be no different. If an insurance policy can dictate that you must be pre-approved for specialists and must be pre-approved for major surgery and hospital, I do not see why it should not be possible to "force" pre-approval for accident treatment (other than the initial treatment which could be emergency). Even then there should be a way to use COB to switch the primary payer.

If the dollars that rollover go with the employee at termination, they are already expensed and there is no way to hide them since they are not there as his asset. If the rollovers can be forfeited, then they should be a contingent liability and still be on his books and again there is no way to hide them since they are still there.

Do you know which plans? Or is it only in a particular environment such as a PEO?

While I have not looked up or know the factual answer to your question, logic dictates that is is now a PT. If it were not a PT it would be a perfect way to enter into PTs. Such a loophole would have been closed by now after a few such transactions came to light. Even if not closed it could still be attacked as intent to evade, defraud or something similar. As far as an item like a lease goes, not having been a PT at the start should not matter since either the next periodic payment or next renewal (whichever comes first) would occur with the person now as a party in interest and it should now be a PT. I think the same "upon next payment" or "next cycle" situation applies to any such renewable or periodic transaction. This would fit with your option (2). My logic places the emphasis on the ongoing actions not on the initial action.

I do not disagree but it is also "penny wise but pound foolish." to pay the attorney for "assistance of client in preparing documents" which really the attorney will not be doing but rather some clerical person. Plus we do not know the specifics of the information request or audit list. Admitedly, I would worry more about the nature/scope of and reason for the audit rather than about the payment of legal fees. If it has reached the stage of an actual audit, there should have been previous information requests and correspondence etc which should have already needed the services of a lawyer and the finding and getting together of documents. That the concern is regarding payment and that it is at this rather late stage makes me wonder if the OP gives us enough info for rational opinions.

Now you really have me confused. An HRA is a self insured section 105 Medical Expense Reimbursement Plan with the ability to rollover any unused funds. It is used for medical expenses (such as co-pays, deduxctibles and other out-of-pocket expenses) that are not covered under the major medical plan. It is very unusual for an HRA to have such large amounts. An HRA is very often an alternative to an FSA. Notice that leevena used $1200 and $2400 and referred to "usually to the maximum out of pocket limits of the underlying plan. The major medical plan can be either fully insured (e.g BCBS) or self insured (self funded). This is what usually has a large annual or lifetime limit. The relevance of 106 is so that the employee does not get the employer contribution included in their gross income. 105 is mainly so that the benefits do not get included. The fact that you have such limits suggests to me that what you are referring to is not an HRA but something else. The amount of $100,000 per year seems more like the spending limit in a Benefits Credit arrangement, where the employer is allocating up to $100,000 to cover premium for the plan selected or in this case for the claims incurred for major medical. While it is very possible for it to also state that any amount not used to pay providers will be available to reimburse plan participants for out-of-pocket expenses (as in a 105 MERP) I have never seen such a plan design. Since the disbursements to service providers should be kept separate for auditing and other purposes, from the reimbursements to employees, I doubt that the 2 items are linked in this manner. The "major medical" portion also has different rules than the "expense reimbursement" portion, which makes it more important that the 2 items be separated. I suggest that you recheck your info. See if it is a finite amount or if it is an "up to" amount. Also check to see how and when the money is made available. This should all be in the SPD.

..."old.." ?? I love the ERISACRAT (ERISAcrat). Good play.

I do not understand your issue or terminology. If the money is "rollable" that would mean that it already has been allocated to the employee and already taken as an expense by the employer. So what would be taxable and in what asset account of the employer would you be holding such money that should already be the property of the employee? Unless there is some sort of forfeiture provision that could cause reversion to the employer. If there is the issue should ahve been addressed in the planning stages, otherwise How could a rational decision have been made as to what plan design and features to use?

So since the beneficiary did not get the $10,000 that should mean that the beneficiary does not get the 1099, doesn't it? Or is there some sort of constructive receipt type issue involved? I wonder what the Form instructions say.

Why is there an outstanding loan? I thought that the OP stated that the loan was paid before the $50,000 disbursement. The $50,00 was net balance.

I think you meant that the benefit will be taxed if you paid the premium pre-tax through the section 125 plan. This applies to disability insurance not the other items. For the other items such as Cancer first occurrence, Heart & Stroke, Sickness & Accident and Critical Illness you might want to look at Private Letter Ruling 200339015 and Technical Advice Memorandum 19936046.

So who is going to search for and get out the things that the attorney will review? Is he going to review the originals or is he going to be looking at copies? In other words, it certainly seems like you will have to find and use clerical staff in order to be able to use the attorney's services. Why not use the same clerical staff to search for, find and make copies of whatever it is that is on the DoL request? That is exactly what you will be doing for the attorney isn't it?

I wonder if she had checked the Box for Exempt from Withholding . Apparently she either did not or it is not applicable, so look at her copy or ask Smith Barney what was filled out. I would also question the deducting of FICA by them. Make sure she files her tax returns next year so that she can claim her refund of the statutory withholding (probably no SS refund though). And yes, state taxes are usually withheld also. mjb Shouldn't the payment of FICA be an item for the eventual tax return?

The OP said nothing about medical expenses. The OP did not say what the distributions were for nor the purpose. The headnote to the link does not say that the payment was to a section 125 plan it was for benefits under, which is very often how former employees (retirees) get their health benefits.

Shouldn't it be The IRS treats the Client Organization as the employer generally, so the PEO is really a separate employer?

The OP did not state how the money got to the Plan in the first place did it? As 1 of the links points out there are/ were plans in which the money came from a cafeteria Plan. Isn't it relevant if the money was from a cafeteria plan? Isn't that a fact and circumstance that could affect the issue? How do you determine the taxation without taking into consideration the issues raised by the IRS in their Manual? The Manual section serves as a good summary of the isssues and most likely will answer all the questions and give any needed cites which would relieve/reduce any research time. I do not know all the facts of the issue and I do not know all of what WDIK needs to know. All I can do is point him towards what I think might be helpful. WDIK, Were any of the items of any value to you?

It depends on the facts and circumstances of your plan design and PD. There are a couple PLRs that were issued. These should help you to determine exclusion etc: http://www.irs.gov/pub/irs-utl/cafeteria_p...arrangement.pdf http://www.irs.gov/pub/irs-tege/chap801.pdf

I guess that this is 1 way to try and play the morbidity and mortality tables. Maybe we should call it MAMTA, Morbity and Mortality Arbitrage. I relieve myself of a burdensome obligation but I promise to keep you knowing and hoping that you will not be around to collect. In the meantime I get to use the assets of the burdensome but now frozen obligation to make my balance sheet look better. Look at the middle of this article onwards: http://www.axcessnews.com/modules/wfsectio...?articleid=7804 In the same year of announcing layoffs of over 30,000 employees, look at the reports on the GM pension fund: http://www.theoaklandpress.com/stories/011...006011401.shtml

EBIA Summary: http://www.ebia.com/WeeklyArchives/401k/Statutes/18307 DoL Advisory Opinion: http://www.dol.gov/ebsa/regs/aos/ao2005-23a.html