Christine Roberts

The preamble to the DOL regulations on SPD contents issued in Nov., 2000 state that existing disclosure rules require "a reasonably comprehensive and clear description of the provisions of a cash balance plan and how a prior conversion may have affected benefits that classes of participants may have reasonably expected the plan to provide." 65 Fed. Reg. at 70227. Is anyone making SPD disclosures of this nature? If so, is it only in the case of recent conversions? What about a conversion that took place over 10 years ago? Comments appreciated.

Is anyone aware of an IRS ruling or other pronouncement on whether or not a hospital's 403(B) plan may exclude medical residents from participation, as a class of employees? The residents are W-2 employees, work well in excess of 20 hours per week, and earn well under the HCE threshhold.

Would appreciate any input as to how to obtain one.

Excellent points both. Thanks for the comments.

mroberts - (any relation?) I agree w/your conclusion re: gross misconduct being limited to employees, and the obligation to offer COBRA. As far as denial of treatment (presuming treatment is provided elsewhere), evidently hospitals and medical facilities will "black line" a patient who poses a safety threat. Being a benefits attorney, not a specialist in health care providers, I am not sure if this practice is standard medical protocol. Presumably it is something that may be subject to state insurance laws. It would be interesting to know the answer.

Clinic X, an employer maintaining a self-insured group health plan, has received numerous threats from the estranged husband of a Clinic employee. The husband receives medical treatment at Clinic X, as the spouse of an employee. The husband's highly volatile behavior has raised safety concerns at the Clinic. The employee has asked to terminate the husband's coverage, due to legal separation. Can the Clinic deny COBRA coverage on the basis of the husband's gross misconduct? If not, can the CLinic simply refuse to treat the husband and pay for his coverage at another medical facility, for the COBRA period?

RLL - you are right, you or Kirk mention that the ESOP would become a non ESOP through divestment of Co. stock and would need to be converted or terminated. The new facts are that the employer wants to start a PSP along side the soon-to-be-defunct ESOP, but that raises other ERISA issues that are not specifically relevant to this board. My bad!

Sponsor of a non-leveraged ESOP wants to get stock out of the plan but does not have sufficient cash to terminate the ESOP and buy everyone out at once. Alternate option - freeze the ESOP and periodically buy back stock, hiring an independent fiduciary to represent the interests of the plan participants, and obtaining an annual third-party valuation of the company/stock. Under the frozen plan scenario, though, when the stock repurchases reduce the ESOP's level of company stock to, say, less than 20% of total plan assets, is the plan in disqualified status? If so, can this be cured or prevented by converting the ESOP, either at the time of freezing or thereafter, to a profit sharing plan? The sponsor wants to establish a PSP but intended to do so separately from the ESOP. FYI, this is a follow up to my earlier thread on the topic .... http://benefitslink.com/boards/index.php?showtopic=11995

Are plan document amendments in order, in light of the proposed regulations under 457 and EGTRRA? I am thinking in particular of eligible governmental plans maintained in states that have conformed income tax laws to EGTRRA limits and provisions.

An officer (and less than 10% owner) of a professional partnership also provides professional services to a company that forms a real estate limited partnership (RELP). The officer wants to invest his self-directed 401(k) account in part, in the RELP. The professional partnership's 401(k) plan has a corporate trustee, so the officer is not a fiduciary by virtue of being plan trustee. Is it a PT if the officer invests only for his own account? Is there an unrelated business taxable income issue? Disclosure: this is also posted on the Investments Board.

An officer (and less than 10% owner) of a professional partnership also provides professional services to a company that forms a real estate limited partnership (RELP). The officer wants to invest his self-directed 401(k) account in part, in the RELP. The professional partnership's 401(k) plan has a corporate trustee, so the officer is not a fiduciary by virtue of being plan trustee. Is it a PT if the officer invests only for his own account? Is there an unrelated business taxable income issue?

Thanks for your frank comments. Truth be told, this is in reference to a 403(B) plan but I don't think that really changes the issue in regards to the matching contribution. So, then, if you make a matching contribution on a payroll basis, then at the end of the year you have to have a true-up or a disgorgement to correspond to the participant's satisfaction of (or failure to satisfy) the 1,000 hour requirement.

Plan makes matching contributions on a payroll basis, but requires employees to work 1,000 hours of service in a given year to be eligible for matching contribution. No L/D requirement. Demographics are such that there is only one HCE, and she will consistently meet the 1,000 hour requirement. Of the NHCEs, some will meet the 1,000 hour requirement later in the plan year than others, so their matching contribution will be based on a lower amount of compensation. Dois pose a problem with respect to ACP testing? Employees will receive a uniform PERCENTAGE of compensation, but amount of compensation that match will be based on will vary somewhat due to staggered times at which they satisfy 1,000 hour requirement.

Contribution will be a matching safe harbor. In the case I was asking about the employer will actually switch from a fiscal year ending 8/31 to a calendar year format, with a short plan year of 9/1 - 12/31. I think with timely notice, it will be ok to introduce matching SH as of 9/1.

My understanding from Notice 2000-3 is that an existing 401(k) plan cannot convert to a safe harbor format in the middle of a plan year, but that the employer can create a "new plan" with a short plan year and institute safe harbor testing, SO LONG AS (a) the short plan year is at least 3 months long, and (B) the new plan is not a "successor plan" as defined in Notice 98-1. Now, the definition of successor plan in Notice 98-1 is very broad. I thought I recalled a narrower definition of successor plan that required that the predecessor plan and the successor plan have the same plan year. If this is the case then can't an existing plan with a CODA start a new plan, with a new plan year, and use safe harbor rules for a short plan year of at least 3 months?

I don't think so because a cafeteria plan is not itself an ERISA plan subject to Title I requirements. I would be interested in hearing other opinions.

A private sports club with a "no tip" policy for guests collects contributions from guests towards a Christmas fund and distributes to service personnel who are employed on the last day of the plan year? ERISA plan, or no?

Noted. Thanks very much.

Based on the Notice, the commentary on this Board, and the Corbel/Sunguard clarification, I drafted the following summary. I would appreciate all comments/corrections/questions:' IRS Suspends Form 5500 Filing Requirements for Fringe Benefit Plans, With a Catch The Internal Revenue Service (“IRS”) recently announced a suspension, effective immediately, of the annual reporting (Form 5500) requirements for cafeteria plans, educational assistance programs, and adoption assistance programs. However there is an exception to the suspension which is not immediately apparent in the announcement, set forth in IRS Notice 2002-24, and the IRS has had to make unofficial comments to clarify the Notice since its release. First, a bit of background information is in order. The Employee Retirement Income Security Act of 1974, as amended (“ERISA”) requires pension and most welfare benefit to file a Form 5500 Return/Report for each plan year. However, “small” welfare benefit plans that cover fewer than 100 participants at the beginning of a plan year are exempt from the reporting requirement, provided that the plans are “unfunded,” i.e., plan benefits are either fully insured, or are paid exclusively from the employer’s general assets. Certain fringe benefit plans that would not otherwise be subject to the Form 5500 reporting requirements under ERISA have until recently been required to report certain information on Schedule F to Form 5500, pursuant to a special rule under Code Section 6039D. The fringe benefit plans subject to this special reporting requirement are cafeteria plans, educational assistance programs, and adoption assistance programs. Typically, if an employer sponsored a welfare benefit plan that was subject to filing requirements (such as a group health plan covering 100 or more participants) together with a cafeteria plan or other fringe benefit plan mentioned above, the employer would file Form 5500 for the health plan, and attach Schedule F with information about the fringe benefit plan. By contrast, if an employer’s welfare plan was exempt from Form 5500 reporting requirements because it was unfunded and covered fewer than 100 participants, but the employer also sponsored a fringe benefit plan such as a cafeteria plan, the employer would file Form 5500 solely for the purpose of attaching Schedule F with information about the cafeteria plan. The IRS has now suspended the reporting requirements for the three types of fringe benefit plans mentioned above: cafeteria plans, educational assistance plans, and adoption assistance plans. Because of the way that the IRS worded the Notice, however, confusion arose as to whether the Notice suspended filing requirements only for Schedule F, or also for Form 5500 when it is required in conjunction with Schedule F. The IRS has since clarified that the Notice operates to suspend both filing requirements, when related to one of the three types of fringe benefit plans (cafeteria, education assistance, and adoption assistance). That means that employers whose group health plans are exempt from reporting requirements (e.g., fewer than 100 participants, or a government or church plan) but who have been filing Form 5500 & Schedule F solely for their cafeteria plans, need no longer file either Schedule F or Form 5500 for the welfare plan arrangement. Note, however, that the IRS Notice did not suspend the Form 5500 reporting requirement for welfare benefit plans that, standing alone, are required to file Form 5500 (i.e., must file independent of the fact that the employer maintains a fringe benefit plan subject to reporting under Code Section 6039D). What that means is that an employer who maintains a group health plan with 100 or more participants, together with a cafeteria plan or other fringe benefit plan mentioned above, must continue to file Form 5500 for the health plan only. The employer may stop filing Schedule F to the Form 5500, however, for the fringe benefit plan(s). The IRS Notice also provides relief from failure to file return/reports for fringe benefit plans in prior years. Therefore, employers who owed “delinquent” submissions from prior plan years need no longer prepare and submit the overdue Form 5500 & Schedule F returns for their fringe benefit plans. Again, the exemption does not apply in instances where Form 5500 was required independent of the existence of a fringe benefit plan. For example, if the employer owed a Form 5500 in a prior year because it maintained a group health plan with 100 or more participants, the employer would be required to file the delinquent Form 5500. If the employer maintained a cafeteria plan in the same prior plan year, however, the employer would no longer need to file the delinquent Schedule F. Christine P. Roberts © 2002

Thanks for replying. I posted the applicable terms of the policy on the Miscellaneous Benefits Board - go to this link: http://benefitslink.com/boards/index.php?showtopic=14178

Kip, realizing you are going to have to take a flyer on this, here goes... The LTD policy pays a "Schedule Amount," minus an "Offset Amount." A cap on salary is built in to the "Schedule Amount" definition. Offset Amount is defined to include benefits (whether retirement or disability benefits) from "Retirement Plans" that are derived from employer contributions to such plans (but excluding employee contributions). "Retirement Plans" is defined to EXCLUDE the following: a) a plan the insured pays for entirely b) a qualified profit sharing plan c) a thrift plan c) an IRA d) a TSA e) a stock ownership plan f) a government plan, or g) a 401(k) plan. The insurer has glossed this slightly by stating in writing that the policy does not allow the insured to "waive salary in lieu of all compensation going into an employer funded retirement plan. If a portion of your salary goes into the retirement fund, those funds will be construed as your contributions and may be an offset to your LTD benefits as defined above." Because of the exception made for any type of qualified plan, I am presuming the insurer meant to limit its exclusion for nonqualified deferred compensation types of arrangements, where the employee agrees to reduce salary (so as to avoid a salary offset of the benefit) and received deferred compensation instead.

Employee never enrolled in employer's group health plan for economic reasons. Employee experienced serious medical problems. Employee applied for and eventually obtained catastrophic-only coverage from a state program available to otherwise uninsurable persons. Employer paid for employee's premiums under the state coverage scheme. Employee went on Family and Medical Leave. Twelve-week maximum leave period expired, triggering COBRA obligation. But, is there a COBRA obligation? Even though there is no group health coverage, does employer's payment of premiums for individual policy create an expectation or entitlement to COBRA (presuming employer did not expressly state that it was not bound by COBRA in subsidizing the coverage while the individual was actively employed)?

The LTD policy in question does not offset benefits from most employer sponsored qualified plans (described as 401(k), "thrift," 403(B), governmental plans, plans that the insured "pay for entirely themselves," and IRAs). This is a particular situation where the individual is going to work for a not for profit organization ("NFP org") and the only existing plan is a straight deferral 403(B) plan (no employer match). The NFP org can only pay the individual a relatively small amount without incurring offsets from his disability benefit. In order to make up the difference between his artificially reduced salary, and what he would ordinarily earn, they would like to institute a private pension arrangement for him. Problem is, the only way I know how to do this for a NFP org is through a 457(B) plan, and the LTD policy appears to offset, from the disability benefits, amounts that represent salary deferrals or waivers (other than 401(k)/403(B) contributions), even if the money going into the plan is styled as "employer contributions," Thus, I believe the question is, is there any way to institute a Section 457(B) plan for the individual, without a de facto waiver or deferral of compensation, and, if the answer is "no," are there any other options for a private pension arrangement in this setting?

Kip, thanks for the response. The policy in question does not exclude benefits from most employer sponsored qualified plan. This is a particular situation where the individual is going to work for a not for profit organization ("NFP org") and the only existing plan is a deferral only 403(B) plan. The NFP org can only pay the individual a relatively small amount without incurring offsets from his disability benefit. In order to make up the difference between his artificially reduced salary, and what he would ordinarily earn, they would like to institute a private pension arrangement for him. Problem is, the only way I know how to do this for a NFP org is through a 457(B) plan, and the LTD policy appears to offset, from the disability benefits, amounts that represent deferred salary (other than 401(k)/403(B) contributions). Let me know if you have any comments; I am also going to post to Carol Calhoun as she specializes in the NFP/governmental area. Thanks.

Have any of you "backed into" the terms of a private retirement benefit for an executive, in such a way that the existence of the private retirement plan would not result in offset of long term disability benefits to the executive. Employer in question is not-for-profit, and the private retirement benefit would likely fall under Code Section 457(B).