Christine Roberts

I posed this question during the ALI-ABA Fall Employee Benefits Update webcast and William C. Schmidt, IRS Senior Counsel, Exec. Compensation, basically said its a drafting problem because the plan allows for distribution on the basis of a threatened or imminent change in control, not a CIC as defined in the final regulations (requiring actual >50% ownership by the acquirer). The final regulations still define a distribution due to a CIC as one occuring "within the 30 days preceding or the 12 months following a change in control event " ......so I don't know how the 30-day prior component can be based on anything but an anticipatory CIC, but obviously did not have a chance to pursue this further under the circumstances.

Plan defines CIC as a change in ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation as such terms are defined in Internal Revenue Code Section 409A(a)(2)(v) and Proposed Treasury Regulations Section 1.409A-3(g)(5)(v) through (vii), as such provisions may be amended from time to time or finalized. The applicable final reg provides that a change in the ownership of a corporation occurs on the date that any one person, or more than one person acting as a group (as defined in paragraph (i)(5)(v)(B) of this section), acquires ownership of stock of the corporation that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of such corporation. I don't think that this would ordinarily happen (>50% ownership) before closing. But I am a benefits atty. not an M&A expert...

NQDC plan provides that the plan must terminate within 30 days of a change in control and provides for a benefit to otherwise ineligible employees, upon a change in control. Employer negotiates stock sale of entire company; seller will not exist after sale and buyer will not assume seller's obligations under plan. Plan terminates and benefits are distributed. Change in control transaction falls through. Is this a 409A violation? If so, is it something that foreseeably could be corrected through the proposed 409A voluntary compliance program? Plan also allows for discretionary termination but 409A prevents distribution of benefitsfor 12 months unless benefits would have been distributed had plan not terminated, and in this scenario benefits are already distributed.

California governmental entity sponsors a Section 457 plan and offers investments through one large insurer. Govt. entity wants to offer CalPERS' 457 plan to employees. Per CalPERS reps, gov't. entities commonly do this (maintain "private" 457 plan alongside CalPERS), with each provider's plan document governing only those monies invested with the provider. No "global" plan document is prepared. Participants are notified about keeping deferrals within one single 402(g) annual limit and about making sure beneficiary designations are current under each plan. Also about withdrawal charges if they intend to move money from the insurer to CalPERS. Questions: have any of you seen arrangements like this? Any thoughts or comments as to such an arrangement?

Thank you for that clarification.

Thanks for the comments; I think you are right about that particular Example and I think that my supposition is incorrect. The preamble suggests that the short-term deferral exception applies where the payment is coincedent with the lapsing of the substantial risk of forfeiture regardless of the potential that the event triggering payment/lapse of substantial risk of forfeiture could occur after the 2 1/2 month period. In other words, if entitledment to deferred compensation is conditioned upon an employee's remaining employed on the 6-month anniversary of a change in control, with no date specified, and payment is to be made within 3 business days of that anniversary/lapse of risk of forfeiture, the short-term deferral exception would apply even though the anniversary could occur after the 2 1/2 month period. Let me know if you think that this is on the right track. Thanks.

Is is just me or did the final Sectin 409A regulations significantly curtail the short-term deferral exception? As stated in the proposed regulations the exception applied whenever, absent an election by the employee, deferred compensation was "actually or constructively received by the [employee] by the later of the 15th day of the third month following the [employee's] first taxable year in which the amount is no longer subject to a substantial risk of forfeiture or the 15th day of the third month following the end of of the [employer's] first taxable year in which the amount is no longer subject to a substantial risk of forfeiture." Under the final regulations, there is an additional requirement: in addition to the "timely receipt" requirement above, the deferred compensation plan may not "provide for a deferred payment" - i.e., it may not state that any payment will be made or completed on or after any date, or upon or after the occurence of any event [such as a separation from service or change in control] that will or may occur later than the end of the applicalbe 2 1/2 month period." Example 6 in the Final Regulations (Section 1.401-1(b)(4)(iii)) describes a situation that would qualify for the short-term deferral exception under the Proposed Regs, but not the Final Regs: On November 1, 2008, employee obtains a LBR to severance pay on a separation from service. The example states: "Because the separation from service is an event that may occur after the applicable 2 1/2 month period, the bonus plan provides for a deferred payment and therefore provicdes for a deferral of compensation. Accordingly, the bonus plan will not qualify as a short-term deferral regardless of whether Employee F separates from service and the bonus is paid or maid available on or before March 15, 2009." Any comments appreciated.

Is is just me or did the final Sectin 409A regulations significantly curtail the short-term deferral exception? As stated in the proposed regulations the exception applied whenever, absent an election by the employee, deferred compensation was "actually or constructively received by the [employee] by the later of the 15th day of the third month following the [employee's] first taxable year in which the amount is no longer subject to a substantial risk of forfeiture or the 15th day of the third month following the end of of the [employer's] first taxable year in which the amount is no longer subject to a substantial risk of forfeiture." Under the final regulations, there is an additional requirement: in addition to the "timely receipt" requirement above, the deferred compensation plan may not "provide for a deferred payment" - i.e., it may not state that any payment will be made or completed on or after any date, or upon or after the occurence of any event [such as a separation from service or change in control] that will or may occur later than the end of the applicalbe 2 1/2 month period." Example 6 in the Final Regulations (Section 1.401-1(b)(4)(iii)) describes a situation that would qualify for the short-term deferral exception under the Proposed Regs, but not the Final Regs: On November 1, 2008, employee obtains a LBR to severance pay on a separation from service. The example states: "Because the separation from service is an event that may occur after the applicable 2 1/2 month period, the bonus plan provides for a deferred payment and therefore provicdes for a deferral of compensation. Accordingly, the bonus plan will not qualify as a short-term deferral regardless of whether Employee F separates from service and the bonus is paid or maid available on or before March 15, 2009." Any comments appreciated.

Notice 2007-6 described three safe harbor rates for interest credits, one of which is "the rate of interest on long-term investment grade corporate bonds (as described in § 412(b)(5)(B)(ii)(II) prior to amendment by PPA ’06”. The cited code section in turn refers to "the weighted average of the rates of interest on amounts invested conservatively in long-term investment grade corporate bonds during the 4-year period ending on the last day before the beginning of the plan year." So does the 2007-6 safe harbor refer to actual interest rates on corporate bonds or 4 year averages? Any comments appreciated.

Is there a copy of the final regulations showing only changes from the proposed regulations? If you know of a link, please share it. Thanks.

Last year PLR 200620025 said that a disabled beneficiary of a parent's IRA could essentially re-designate the IRA, naming as beneficiary a newly-created special needs trust (SNT) of which he was the sole beneficiary. The IRS said that (a) the transfer of the IRA to the SNT was not taxable because the SNT was a self-settled "grantor" trust; and (b) the SNT beneficiary's life would be the measuring life for minimum required distributions from the IRA. In the PLR situation the SNT was created after the death of the IRA holder, as a way for the disabled beneficiary to remain qualified for Medicare and other gov't. benefits. So it was not an estate planning technique, per se. My question is the degree to which practitioners are using the PLR as a basis for estate planning, for instance by instructing clients to name SNTs as IRA beneficiaries during life, whether or not the SNT is a grantor trust or third party trust. Would the transfer of the IRA to the SNT on the IRA holder's death under these circumstances still be a nontaxable event under these circumstances? Would the SNT beneficiary still be the measuring life in such circumstances? Just trying to figure out if practitioners are interpreting the PLR aggressively or cautiously, given the eternal provision about applying PLRs to different factual circumstances. I have posted on the "IRA/Estate Planning" board but also interested in opinions shared on this board.

Last year PLR 200620025 said that a disabled beneficiary of a parent's IRA could essentially re-designate the IRA, naming as beneficiary a newly-created special needs trust (SNT) of which he was the sole beneficiary. The IRS said that (a) the transfer of the IRA to the SNT was not taxable because the SNT was a self-settled "grantor" trust; and (b) the SNT beneficiary's life would be the measuring life for minimum required distributions from the IRA. In the PLR situation the SNT was created after the death of the IRA holder, as a way for the disabled beneficiary to remain qualified for Medicare and other gov't. benefits. So it was not an estate planning technique, per se. My question is the degree to which practitioners are using the PLR as a basis for estate planning, for instance by instructing clients to name SNTs as IRA beneficiaries during life, whether or not the SNT is a grantor trust or third party trust. Would the transfer of the IRA to the SNT on the IRA holder's death under these circumstances still be a nontaxable event under these circumstances? Would the SNT beneficiary still be the measuring life in such circumstances? Just trying to figure out if practitioners are interpreting the PLR aggressively or cautiously, given the eternal provision about applying PLRs to different factual circumstances.

This question relates specifically to COBRA third party administrators (TPAs). Typically a COBRA TPA will send out a COBRA qualifying event notice and election form package using its own proprietary COBRA election form. The proprietary form will permit the qualified beneficiary to elect COBRA coverage under all types of group health coverage the employer offers, including for instance dental as well as group health. The problem is that the individual insurance carriers are insisting on timely completion of their own COBRA election forms, and are denying COBRA coverage where, for instance, the qualified beneficiary timely elected COBRA using the TPA's "omnibus" election form, but failed separately to complete and send back the Delta dental election form. Usually the carriers' separate COBRA election form contain self-protective language such as an arbitration agreements, and this self-protective language is the primary feature that sets the carrier's form apart from the TPA's "omnibus" COBRA election form. Keep in mind, the TPA's omnibus election form contains all information required by COBRA regulation to make a timely and informed election, and also permits election of all coverages subject to COBRA. So, in the qualified beneficiary's mind, he or she checked off "Dental" coverage as part of their COBRA election, and understandably are confused when Delta refuses coverage for lack of a timely completed, separate COBRA election form. The question is, can the carrier legitimately deny COBRA coverage to a participant who timely elected COBRA coverage under the carrier's policy, using the "omnibus" TPA election form, but did not sign off on the proprietary election form, where the "omnibus" election form contains all information required under ERISA to make a timely COBRA election? Put another way, can a carrier condition COBRA coverage on a participants' signature on arbitration provisions or other non-COBRA language? Comments are appreciated.

I am looking to contact someone with expertise in the area of disability benefits offered by the Defense Department and the Department of Veterans Affairs, and knowledgable about the differences between the two systems, and about Combat Related Special Compensation. I have posted this message in Health Plans - General, but wanted to post here as well in case anyone had expertise in this particular area.

I am looking to contact someone with expertise in the area of disability benefits offered by the Defense Department and the Department of Veterans Affairs, and knowledgable about the differences between the two systems, and about Combat Related Special Compensation.

Two questions re: 457(f) and 409A "overlapping" compliance: 1) if a 457(f) plan requires immediate distribution upon vesting (assume cliff vesting), or in any event no later than the 2 1/2 month period following the year in which vesting occurs, can the plan still call itself "exempt" from 409A compliance (due to the short-term deferral exception) if the 457(f) plan provides for installment distributions in the event of a participant's disability? 2) if the answer to question (1) is "yes," could the same Section 457(f) plan make a Participant's demotion to a job outside the top-hat group grounds grounds for immediate vesting/distribution? Clearly this is not a recognized distribution event under 409A but possibly would be a sufficient vesting event under Section 83? I personally don't think that the short-term deferral exception is so broad as to completely exempt a Section 457(f) plan from 409A compliance. However I would be interested in hearing other opinions.

I am wondering if any of you could opine as to the Service's level of enforcing nondiscrimination rules under 105(h) - specifically a waiver of eligibility waiting period for employees at the vice-president level or above, most of whom constitute highly compensated individuals. I believe a goodly number of non-profit organizations maintain self-funded plans with provisions like these, which are common and permissible in fully insured arrangements. I am wondering if anyone has ever seen adverse tax consequences befall individuals in such arrangements.

Nonprofit executive enters into a severance agreement in 1997 that provides him with deferred compensation each year for the rest of his life, equalling approximately $4,000/months. Severance agreement does not reserve right to amend or eliminate the benefit. Severance agreement does not require future performance of services other than consulting services for one year following termination. As of one year following formation of the agreement (i.e., December 1998), the promised benefit is completely "earned and vested," and, I would argue, exempt from 409A, but for the following language: "in the event that EMPLOYER discovers that EXECUTIVE, during his term as Executive Director, has engaged in any acts of financial impropriety constituting intentional misconduct or gross neglect, the EMPLOYER reserves the right to terminate any future payments to EXECUTIVE." In other words, this "risk of forfeiture" is based on past acts, whenever discovered by Employer. Is this a "substantial risk of forfeiture" such that 409A applies to the deferred compensation?

I believe a short plan year can also occur when a cafeteria plan year has been changed for legitimate business purposes; i.e., not just to allow a change of election before 12 months has elapsed.

I believe that there is a private letter ruling allowing a non-religious non-profit hospital to provide a parsonage allowance to a hospital chaplain under Section 107. Is anyone aware of other instances in which non-religious, non-profit orgs have made use of the parsonage allowance? I am particularly curious about assisted living/nursing home settings. Thanks much.

Controlled group entity maintains a "mega-wrap" health plan document that covers group health, dental, life insurance, and short and long term disability. Not all participants are enrolled in each component of the mega-wrap plan. Thus, 500 are enrolled in the life insurance component, 325 in group health, 400 in dental, etc. What is the total participant count for the beginning and end of the plan year, for Form 5500 purposes? Do we use the largest number (life insurance) and file an attachment to the Form 5500 showing how many participants are covered under each component of the plan?

I have heard from a very reputable, long-established flex adm'r. in So. Cal that IS imposing the limit pending any corrective legislation. I hope your FSA adm'r has a correction plan in place if, in fact, the limit is never lifted.

They have a successor plan, so COBRA liability exists. They might also have a partial termination of their qualified retirement plan, if any exists.

Check the 125 regulations but I believe the new plan would be a successor plan that would re-trigger COBRA obligations. And the 20 - employee threshold is based on the prior year, not the current year, employee population. I think they are not in compliance, in sum.