Christine Roberts

It is common for defined benefit plans to require participants pay $350 to obtain an updated statement of accrued benefits, once one has been provided for free in a given year? Would this constitute good faith compliance with FAB 2006-03?

Does anyone have experience administering a trust (VEBA or taxable) designed to hold COBRA premiums with respect to an unfunded, self-insured group health plan? Is it necessary that trust assets be directly used to pay claims experienced by COBRA recipients (qualified beneficiaries) or is it sufficient that trust assets replenish employer general assets used to pay claims experienced by COBRA recipients (or active participants)? Is the answer any different in instances where the employer heavily subsidizes COBRA premiums? Any comments appreciated.

By the way - staff from EBSA in San Francisco said no second election in this situation.

Individual is involuntarily terminated in November 2008, begins COBRA for himself and his dependent child as of December 1, 2008. Coverage for both is in place on February 17, 2009, but due to costs the individual drops his coverage before receiving COBRA subsidy notice. Dependent's coverage remains in place. Does the individual get a second chance election?

Notice 2009-27 IRS Guidance on COBRA Subsidy in Q&A format including information on "involuntary termination" for purposes of qualifying for same. n_09_27.pdf

Some clarity from today's welfare plan newsletter from Benefitslink: http://www.theworkplace.biz/COBRA_confusin...timulus_nf.html

401(k) Plan using safe harbor hardship withdrawal provisions allows participant to take hardship withdrawal to prevent foreclosure. Validity of financial hardship is not in question however plan administrator approved withdrawal without first requiring participant to take out plan loan. Maximum plan loan available would not alone have been sufficient in amount to prevent foreclosure but taking out maximum loan was not a "counterproductive action" as it might have been if employee needed hardship withdrawal to qualify for first mortgage. See Treas. Reg. 1.401(k)-1(d)(3)(iv)(D). In such an instance what is the correction under VCP? (Plan must submit for other unrelated operational errors.) Does the sponsor have to back the employee out of the hardship distribution to the extent it could have been processed as a plan loan? Isn't the more important task to simply demonstrate that the sponsor/administrator has procedures in place to prevent participants from "skipping" the step of taking out a plan loan to the extent doing so is not 'counterproductive'?? Any comments welcome.

Hi QDROphile thanks for responding. Without stating a default distribution date or event the original plan provides that accounts become fully vested (employer $$) and payable on death, disability, termination of employment or hardship. Precisely my concern. I interpret use of the term "payable" in express conjunction with death, disability, termination of employment as limiting distribution to these events in the absence of a stated date certain.

Hi QDROphile thanks for responding. Without stating a default distribution date or event the original plan provides that accounts become fully vested (employer $$) and payable on death, disability, termination of employment or hardship.

Deferred Compensation plan put in place in 1995 provides that all salary deferrals are 100% vested at all times and eligible for distribution in lump sum or installments "as of January 1 of the year(s) specified in the Participant's applicable Participant Enrollment Form." Some participants designated payment dates in this fashion; most did not. For this latter group, is the "grandfathered amount" - the amount that is earned and vested as of December 31, 2004 - all salary deferrals as of December 31, 2004, plus earnings thereon? Or can it be said that, in the absence of a specified distribution date, distribution is impliedly conditioned upon employment until the first to occur of death, disability, or separation from service? Any and all comments appreciated.

9810005

Has anyone encountered an extant "Maximum Deferred Compensation" or "MDC" program sponsored and sold by MetLife circa 1995 - ?? It appears to have capitalized on PLR 981005 which arose out of a deferred compensation arrangement structured between nonprofit Kaiser HMO, and a for-profit MD corporation (Permanente). Specifically, Kaiser deferred fees for medical services it would otherwise have paid to the MD corp. into a grantor trust, assets of which were ultimately used to satisfy the MD corp's obligations under its own nonqualified deferred compensation plan. The Service ruled that Kaiser was the owner of trust assets for which there was a substantial risk of forfeiture, and the MD corp. would not be taxed on assets until the substantial risk of forfeiture lapsed (i.e,. when individual MDs reached age/service requirements for payout) and benefits were distributed. The Service also ruled that the arrangement would not give rise to any income to the participants and beneficiaries of the MD corp.'s deferred comp arrangement prior to actual receipt of funds.

Yes the exclusive benefit rule violation is a concern; as it happens one avenue "out" may be that the two entities meet the requirements of a management function ASG. I believe a VCP application under such circumstances would be required to include a determination letter application re ASG status. The plan also contains multiple employer language so retro amendment to reflect that status, combined with retro testing on a separate entity basis, is another option. Thanks for offering comments/thoughts.

Two related entities together sponsor a 401(k) plan under the belief that they are in a controlled group relationship. The prototype document defines "Employer" to include controlled group/common controllled entities without separate plan adoption. Entities turn out not to be in a controlled group or common control relationship. Plan is now 2 years old. Can they retroactively revise plan documentation to reflect the multiple employer relationship? Plan document permits related but non-controlled group entities to adopt plan as related employers.

Company leases office space from an LLC that is 50% owned by the company's 401(k) plan. The specific nature of the plan investment is via the individual brokerage accounts of the company's 2 principals. Original plan investment was $150,000; LLC is now worth essentially what the building is worth (approx. $3 million). Total plan assets = about $2 million. Company pays FMV for lease with built-in increases based on area Consumer Price Index. Leased space represents 25% of building space. Other tenant rents on similar terms. Although the lease is not directly between the plan and the plan sponsor, indirect PT would appear to exist under reasoning set forth in DOL Advisory Opinion 2006-01A (which involved IRAs, admittedly). Is it sufficient to cure the PT that the plan sponsor gets out of the lease and leases elsewhere? If so, and presuming FMV rent, what damages to the plan, if any, did the PT cause? Is there any reason the principals should divest their LLC investment, other than to avoid annual cost of an independent appraisal of the LLC interest?

I have received direct but unofficial commentary from the IRS that the DOL letter does not put the plan under examination for EPCRS purposes.

401(k) plan sponsor files Form 5500 for the first plan year without attaching independent auditor's report ("Accountant's Opinion"). Dept. of Labor's EFAST division spits out letter requesting completion of the return. Plan sponsor engages independent auditor and sends several letters to EFAST updating them on progress. No further communication from EFAST is received. Is the plan "under examination" under EPCRS Sec. 5.03? It was always my understanding that the "examination" part of "under examination" was limited to examination or investigation by IRS Employee Plans division and not other agencies. However the model Plan Sponsor's representations in Appendix F are a bit ambiguous: "To the best of my knowledge (1) the subject Plan is not currently under examination of either an Employee Plans Form 5500 series return or other Employee Plans examination." Comments appreciated.

Thank you. I so happens that this issue came up for a client recently, again, so I appreciate the additional input.

The San Francisco Health Care Security Ordinance provides several options to employers to make up the difference between pre-existing health benefit subsidies, and the requirements of the new law, including use of a HSA, or employer reimbursement of health care expenses. The question has arisen, is it sufficient for employer to make the "catch-up" amount available as a health FSA budget, which the employee may or may not use or forfeit, or must the employer actually reimburse medical expenses incurred by the employee, to satisfy the "catch-up" requirement? I.e., is "money on the table" enough or must it actually be in the employees' pockets at the end of the day.

I have hard copy research files on a variety of ERISA issues going back to the early '90s. Nowadays I just save PDF files directly from Benefitslink, to digital files organized according to topic. I am looking for suggestions on what to do with the old hardcopy research files. Discard because they are just so old? Cull the "gems," scan those and save to new digital files, and toss the rest? Just wondering how other attorneys and practitioners have handled this.

Nonprofit agency with 403(b) plans and about 100 employees makes periodic evaluation and assessment of plan investments. Upon advice of broker plan sponsor agrees to make certain plan investment options obsolete and to "map" existing investments in those options to comparable alternative choices. Broker/investment provider (a major national firm) provides a notification letter for the sponsor to distribute to participants, identifying discontinued options and new options that account balances will be transferred to (and that will receive future contributions). Broker/provider gets notification letter to sponsor only a few days before planned investment transfer. Plan sponsor does not understand that notification letter needs to get to participants within the applicable time window. Investments move to new mapped options. How can the employer repair the broken 404© process under this situation? Individual meetings between affected participants (around 36 folks) and the broker, offering to let participants back out transfer and select new options, plus earnings, if any)? And/or detailed disclosure to all about performance/fees of old investment options versus new ones? I would appreciate any suggestions.

This prior thread http://benefitslink.com/boards/index.php?s...p;hl=AFLAC+flex does a good job explaining the compliance issues presented when an employer allows employees to pay for individual health coverage (e.g., cancer coverage, intensive care coverage) on a pre-tax basis through the employer's Section 125 plan. It so happens that AFLAC provides its own Section 125 program - Flex One - which naturally and prominently includes among the list of eligible pre-tax benefits these very types of individual coverage. Has anyone ever looked at whether this type of arrangement would constitute employer "endorsement" of the individual coverage and hence dissolve the "voluntary plan" exception to ERISA that generally applies to these type of individual policies? I would be interested to know. Thanks.

In fact, using the lost opportunity cost correction would likely be available in this situation.

Sponsor of 401(k) plan discovers that in last 18 months it has made salary deferral and matching contributions based on a definition of compensation that is narrower than that provided in the plan document: Contributions were made on base pay & overtime, but not on "other" types of compensation such as PTO, jury duty pay, bereavement pay, etc. Sponsor proceeds to self-correct by calculating additional amounts that would have been deferred and matched on the basis of the excluded compensation amounts. Sponsor calculates earnings on both amounts using best rate method referenced in Rev. Proc. 2006-27, Appendix B, Section 3.01(3)(b). Presume corrective contributions are made/allocated. For overlapping time period Sponsor also had several late deposits of employee salary deferrals. Sponsor identifies payroll periods and amounts involved and calculates earnings using the Dept. of Labor Online Calculator recommended under the Voluntary Fiduciary Correction Program. Sponsor calculates these amounts based on what was actually deposited (late) in the 401(k) plan, NOT on what "should" have been deposited if the Sponsor correctly had calculated deferrals (i.e. base pay & overtime PLUS PTO, jury duty pay, bereavement pay, etc.). Query: if Sponsor calculates earnings on late deferrals based on hypothetically correct deferral amounts (based on total pay not just base pay & overtime) will participants get earnings calculated twice, given the concurrent EPCRS correction? Shouldn't the DOL correction be based on what was actually deposited, and the "incorrect definition of compensation" problem be addressed exclusively under EPCRS? Just wondering if anyone has encountered a similar situation.

My understanding from RP 2006-27 is that making the "lost opportunity" correction (50% of the ADP) is appropriate only when the participant wrongfully has been excluded entirely from making pre-tax deferrals or after-tax contributions to a plan. The exclusive nature of this correction method is stated in RP 2006-27 at Part III, Section 6.02(7), titled "Correction for exclusion of employees for elective contributions or after-tax employee contributions," stating: This correction principle applies solely to this limited circumstance." So I would not apply it if, for instance, an employer was making restorative contributions to reflect that employee salary deferrals were improperly based on a definition of contribution that was narrower than that stated in the plan document. I would apply the employee's actual deferral percentage to the additional compensation to correct that operational failure, and add earnings calculated on the best rate. I would be interested in whether readers agree that the "lost opportunity" correction is as narrow as I read it to be or if people successfully have used it in situations other than total exclusion of a participant from pre-tax deferrals or after-tax contributions. Thanks much.