Christine Roberts

An employee is covered as a dependent under his spouse's group health plan. He now wants to switch to his own employer's group health plan. Can he do so (and add his wife as a dependent) without any change in status other than dissatisfaction with wife's insurance? The example in the Sec. 125 regulation refers to different plan years for the spousal and employee plans - is this a prerequisite for the change??

Kip - your point is well taken in that, without loss of coverage, there is no triggering event for COBRA. I can imagine a scenario where the "spouse" meets the definition of a dependent for purposes of Code Section 152, and in such a situation it could be argued that the prior coverage was warranted. Loss of such coverage due to job termination for the participant "spouse" could arguably lead to COBRA coverage for the dependent spouse.

Kip, I would agree that terminating coverage to which an individual was not entitled to begin with, is not a qualifying event for COBRA purposes.

As I understand it the employee had a good faith belief that he was in a common law marriage and that his partner in that marriage was a "spouse" for purposes of employment benefits.

Kirk, I think that you are right in that the concept of a "legal union" in the Defense of Marriage Act must, by definition, refer back to a state law standard, as it is a legal transaction goverened by state law. So a common law spouse could be covered as a spouse under COBRA if he or she meets the state law definition of a spouse. To the best of my recollection (and this has been some time) in California that means that the common law marriage arose in some other state that does define common law marriage under law.

Kirk, it was my understanding that the state law definitions of marriage received no deference after the Defense of Marriage Act was enacted in 1996 - however perhaps you are saying that "legal union" for purposes of the Defense of Marriage Act has built into it a state law definition of marriage. In California, there is no statutory definition of a common law marriage but it is my understanding that Calfornia "recognizes" a common law marriage formed in another state that DOES have such a statutory definition.

I am going to take a stab at answering my own question . . here goes. COBRA continuation coverage is limited to "qualified beneficiaries," which is a term that the COBRA regulations define as including (a) the former employee; and; (B) his or her spouse and dependent children (including children born or adopted during the period of COBRA coverage). A "spouse" for these purposes is a spouse as defined under federal law. Originally, the IRS rule was that the status of someone as a "spouse" under federal tax law was governed by applicable state law. However, in 1996 Congress enacted the "Defense of Marriage Act," which provides that, for purposes of interpreting application of federal laws, the term "marriage" is limited to a legal union between one man and one woman as husband and wife, and the word "spouse" refers only to a person of the opposite sex who is a husband or wife. Based on this law the IRS has concluded that domestic partners (i.e., same-sex spouses) do not qualify as apouses under federal tax law. Therefore, for a non-spouse partner (whether same sex, or opposite sex but not partner to a "marriage") to receive COBRA benefits, he or she would have to qualify as an employee's dependent as defined in Internal Revenue Code Section 152. That definition in turn is limited to domestic partners who (a) receive more than half of his or her financial support in a calendar year from the employee; (B) the domestic partner has the employee's home as his or her principal place of residence and is a member of the employee's household; and © the relationship between the employee and the domestic partner is one that is not in violation of local law. If a common-law spouse fulfills the Section 152 definition of a dependent, he or she can receive COBRA benefits on the basis of that status, and not as a spouse. Any comments, questions, or criticisms are welcome.

Employer sponsors two group health plans: one for part time employees, and one for full time employees. Assume part time plan is not identical in terms of benefits, to full time plan. When employee drops from full time to part time status, is COBRA triggered even though the employee would be eligible under the part time plan? And if the employer normally subsidizes individual premiums for part time employees, must it subidize COBRA premiums for the employees who switch to part time?

Employee who is getting "divorced" revealed to employer that he had never actually been married but had assumed he had a common law marriage. Employee is in state that does not allow common law marriage but that recognizes common law marriages from other states. Presuming employer offers COBRA to employee and to his three children (who had been covered as dependents), what does the employer offer the "common law" spouse??

Thanks for the cite. In this arrangement, the NQ benefit is dependent upon the employee maxing out his 401(k) deferral (and hence receiving the maximum matching contribution) which, per the last sentence of the reg subsection cited above, seems to be permissible.

An employer offers subsidized health club membership and massage benefits, as a wellness benefit. Health club is NOT onsite. They are not in the business of providing health clubs/massages, so is not an "employee discount." The subsidy is included in taxable income, no?

Are homeopathic treatments reimbursable/excludible from income under flex or 105(h) plans? I cannot find them list in IRS Pub. 502.

No integration; sketchy plan document (silent on eligibility requirements). If decision is made to recharacterize deferrals as employer contributions and repay compensation that was deferred, do the tax reporting requirements permit this to happen after year-end??

Is it sufficient for NQ deferred compensation plan drafting purposes that the contribution formula be defined as an amount equal to the difference between (1) 10% of the participant's compensation, and (2)the percentage of compensation allocated on the participant's behalf as a matching contribution under the employer's qualified 401(k) PSP [irrespective of any later corrections or changes to the match as a result of ACP testing]? Can an employee enter into a sufficently specific salary deferral agreement prior to each plan year, with the contribution expressed in such terms??

Has anyone heard of the practice of state insurance commissioners requiring COBRA administrators to obtain third party administrator certificates? I believe this is required here in California.

Employer purchases business and agrees to continue SARSEP retirement benefits employees had received with predecessor company: 5% salary deferral and 10% employer matching contribution. However, employer later learns that predecessor maintained only a SEP, not a SARSEP. IRA custodian has been depositing deferrals and matches into IRA as undifferentiated lump sums. Is there any way to convert this arrangement to a SIMPLE IRA so as to preserve the salary deferral feature? If not, and employer maintains SEP, what is the best way, from a tax reporting standpoint, to make the employee whole?

This question has probably been asked and answered before, but please humour me - if a 401(k) participant maxes out his or her deferral limit early in the year - and the employer is allocating the matching contribution each payroll period, must the matching allocations stop as soon as the deferrals stop, even if the matching allocation formula would entitle the participant to more money if the deferrals took place over a longer period? Example: Employee 1 earns $170K, defers 15% or $1,062.50 per payroll period; maxes out at end of 9.88 pay periods. Matching formula is 50% up to first 6% of compensation - matching contributions total $2,100 at the time employee must stop deferrals. Employee 2 also earns $170K but defers at 6%. He receives full $5,100 matching contribution because he is not required to stop deferring, prematurely. Presuming the plan document allows the employer to fund the match at the end of the plan year (or by applicable tax return deadline), can the employer can fund the additional matching contribution for Employee 1, after he or she must stop deferring??

Thanks, Kip -- I agree those are the current rules. I could swear, though, that I just read something about proposed changes to (i.e., relaxation of) the "use it or lose it rule" in this context. If I recall correctly it was mentioned in conjunction with finalization of the proposed flex plan regulations. If you (or anyone else) encounters this in your circulating material or otherwise, please post accordingly.

During open enrollment, cafeteria plan participant elects to contribute $3,000 per year towards Medical FSA, due to planned LASIK surgery. Surgery was to occur towards end of year but now physician says participant is ineligible for treatment. No change in status events are relevant. Is there ANY way to avoid having her forfeit the $3,000, other than buying LOTS of eyeglasses?? I have heard that there is some support for the practice of allowing unused FSA money to carry over to FSA account for the following plan year . . .

Can an employer of less than 20 employees, and which offers group health coverage that coordinates with Medicare (i.e., pays only what Medicare does not pay, for Medicare-entitled individuals) simply terminate group health coverage of active employees and their dependents who reach age 65? The small employer exemption from the Medicare Secondary Payer Act says that Medicare can be primary payer for eligible employees, but I don't think it also creates an exemption from the ADEA as far as who gets offered benefits. . . .

Have we heard anything about extension of the 9/30/01 sunset deadline on the Mental health Parity Act?

An employer purchases a professional practice in an asset sale and inherits two employees from the old practice, with the promise that they would continue to benefit under the SARSEP established by the old practice (prior to 1997). After the asset sale is complete the employer forwards salary deferrals to the "inherited" employees' IRAs, AND continues to match the deferrals under the old practice's generous matching formula. However the employer never formally adopts or executes anything in relation to the SARSEP, nor do the asset sale documents address the SARSEP. Is it necessary to "unwind" all of the new employer's contributions (and the post-asset sale deferrals)?

Gary, is your response conditioned upon a situation in which a sale of stock, not just assets, took place? I.e, do you agree w/actuarysmith that there is no grandfathering absent a sale of stock? And, finally, if the purchaser of assets did make SARSEP contributions (deferrals and match) on behalf of employees who continued to work after the asset sale, is it necessary to "unwind" those contributions?

If a participant in a self-directed 401(k)/PSP decides to loan money from his or her plan account to a third party who is not a disqualified person or party-in-interest, is the loan subject to the "qualified loan" provisions, such as 5 year repayment and reasonable rate of interest?

Employer wants to offer extended COBRA benefits to retirees through its cafeteria plan. Employer's group health benefits are self-funded; active employees pay their portion of coverage through salary deferrals. Employer wants to allow retirees to pay for extended COBRA by allocating accrued, unused sick pay to the plan. Can it do so through the cafeteria plan? Sick pay is not on the "menu" of benefits under the plan for active employees.