Bob R

You are correct on the PPA amendment. The default to the 6-year graded schedule only applies if you had a graded schedule that did not meet PPA. But, for the generation of the SPD, the system doesn't know whether your graded schedule satisfies PPA (because the graded schedule was put in by using an "other" option). That's why the system automatically puts in the 6-year graded schedule into the SPD. And there is a workaround - in the PPA questions there is a question asking whether you are using the default or whether your schedule already satisfies PPA (96a). That option doesn't impact the amendment so the amendment doesn't need to be signed. Instead it allows you to override the default schedule just for the SPD.

That's probably the best advice you can get. I agree that you're on notice and shouldn't pay out the death benefit until this is resolved. You can either spend $$ trying to track down the notary to determine its validity or spend $$$$ using interpleader. And, if you use the interpleader, it could still require spending $$ to track down the notary. So, I'd opt for spending more money trying to track down the notary - one would assume the state would have some info on past notaries - and you use that info to track the person down using a locator service.

The only problem is making sure that what the employer signs is the approved document. The problem is that a plan isn't "final" until the letters are actually issued. While the plan may have "informal" approval and there is no active IRS review of the plan taking place, there is always a chance that something will change at the last minute. You may find that this risk outweighs the advantages of getting them prepared in advance of the actual letters.

The IRS isn't stating that having a person w/earned income in a separate group automatically creates a disguised CODA. Rather, they want a warning in plans that it "may" create a disguised CODA. That will certainly have a chilling effect on doing this. And, even with an owner in a C Corp, they haven't said you're safe (i.e., you can have a disguised CODA there as well). Ultimately it's based on the facts and circumstances. And, in both cases you probably have the effect of a CODA - the owner of the C Corp controls his/her comp while the person w/earned income affects that earned income by contributing to a plan. But, if they attempted to apply this to plans, then every small employer plan would be a disguised CODA. It's been discussed at numerous conferences but has never had been applied (that I'm aware of) in an audit. I suppose that in many cases that's been good for us - what the IRS states at conferences generally comes from those in higher positions and many times doesn't trickle down to those in the IRS who must implement/apply the rules. This may be the start of that communication to those in the field. It will now be a statement in volume submitter and prototypes thus there is a higher liklihood that auditors may actually be alerted to this "potential issue." So, what Mike stated (or sung) may very well be true. We'll have to wait and see how this turns out - and that will be several years down the road.

Not sure if it's a no-brainer or a trick question. I may be missing the issue, but below is text from 1.411(d)-4 and it seems obvious (to me) that you can increase the threshold. One way to view it - you agree that the threshold can be reduced. If you reduce it to $0, then the very first sentence of the reg would permit you to add the involuntary distribution provision with a threshold of $5,000. It's an exception to the anti-cutback rules meaning it can be applied to all amounts regardless of when accrued. v) Involuntary distributions. A plan may be amended to provide for the involuntary distribution of an employee's benefit to the extent such involuntary distribution is permitted under sections 411(a)(11) and 417(e). Thus, for example, an involuntary distribution provision may be amended to require that an employee who terminates from employment with the employer receive a single sum distribution in the event that the present value of the employee's benefit is not more than $3,500, by substituting the cash-out limit in effect under Sec. 1.411(a)- 11T©(3)(ii) for $3,500, without violating section 411(d)(6). In addition, for example, the employer may amend the plan to reduce the involuntary distribution threshold from the cash-out limit in effect under Sec. 1.411(a)-11T©(3)(ii) to any lower amount and to eliminate the involuntary single sum option for employees with benefits between the cash-out limit in effect under Sec. 1.411(a)-11T©(3)(ii) and such lower amount without violating section 411(d)(6). This rule does not permit a plan provision permitting employer discretion with respect to optional forms of benefit for employees the present value of whose benefit is less than the cash-out limit in effect under Sec. 1.411(a)- 11T©(3)(ii).

Not sure I can convince you, but.... The rules on multiple employer plan documents are somewhat confusing. The reason is because you can have a multiple employer plan under a volume submitter plan. If you look at Rev. Proc. 2005-16 and the rules for prototypes (where you are prohibited from having multiple employer plans), you won't see the same prohibition in the rules for volume submitter plans. So, if you happen to use a volume submitter that includes the multiple employer plan provisions that you want, then you have reliance on the plan and don't need to submit for a determination letter. But, unlike the normal volume submitter rules, if you need to deviate from the volume submitter language in any way, should you decide to submit for a determination letter, you must use 5300 with the higher user fee. Normally with a volume submitter you can submit using Form 5307 if the changes you make are minor. It appears that with a multiple employer plan, even a minor change means you have to use 5300 (if you decide to submit).

Thought I'd chime in... 1) Charging an annual doc maintenance fee makes sense these days since interim amendments will continue to be required. 2) I agree with Mike's comments regarding ASPPA - it is a group of individuals and the issues relating to the safe harbor amendment weren't to further the goals of any specific company. As evidenced by this thread, the requirement that a safe harbor plan be specific is obviously something no one wants (other than the IRS). 3) Ellen's comment doesn't appear to be aimed at any specific provider - rather it seems (to me) to be a general response as to "why" documents may vary on what are considered qualification issues where there should be no flexibility. The prior posts seemed to imply that Accudraft had an impermissible provision, and as pointed out by Amy that was an incorrect statement. But, as far as Ellen's comment regarding the review of the plans, inconsistency in the review process is one of the issues the IRS always struggles with. It's not a matter of a good review/bad reviewer. Rather, the reviewers are human and may not catch all of the nuances. It's what happens when the IRS restricts the ability to incorporate the code and regs by reference - attempting to rewrite the regulations to put them into a plan is just begging for errors and/or inconsistencies. 4) As Amy pointed out, the Accudraft doc doesn't have an impermissible provision. There are no prescribed rules on how an amendment must be structured - combining a resolution with an amendment would seem to be acceptable and not in violation of the regs. The resolution would still need to spcificy the safe harbor contribution, etc. (it's just the amendment combined with a resolution in a single document). It would be interesting to see what others have approved in their plans.

No guidance that I've seen. I think you're stuck with quarterly statements for both components of the plan.

The same is probably true with those MP plans that are still in existence. And, we know that in small DB plans that offer a lump-sum, very few elect annuities. So, while I agree it's a waste of resources, perhaps the better solution is just to require spousal consent for any distribution to a participant (and get rid of the J&S requirements for all plans).

I think what Tom was stating is: In order to use a QNEC in the ADP test, the plan must pass 401(a)(4) both with and without the QNEC. That's why you get what may appear to be conflicting info regarding whether the QNEC can be used to satisfy the gateway. In testing for 401(a)(4) by counting the QNEC, you'll be fine because the QNEC plus the NEC is at least 5%. But, in testing under 401(a)(4) without the QNEC, you only have a NEC of 3.5%. That's less than 5% - but if you can pass using the 1/3 gateway, then it's ok (assuming you pass the rest of the nondiscrim testing). I actually think the bigger issue is what Mike was alluding to - the plan must permit this. So, I wouldn't describe this as recharchterizing a ps contribution as a QNEC. Rather, the plan permits a QNEC to correct a failed ADP test - that would go to NHCEs. Then, the plan permits a ps contribution will some allocation method. You then make the profit sharing contribution and allocate it in accordance with the terms of the plan. If that gets you to a point where all NHCEs have 1.5% as a NEC and the QNEC for the failed test is 3.5%, then you only have to worry about the issue above (the 5% gateway effectively is not met). Also, I believe the contribution must be designated as QNEC when it is made to the plan. That shouldn't be an issue assuming the contributions haven't already been made to the plan.

Great questions - and ones where IRS guidance will be needed. However, unlike EGTRRA, PPA includes a provision stating that you there is prohibited cutbacks under 411(d)(6) as a result of implementing PPA provisions (unless the IRS tells us otherwise). So, we get guidance stating that there is a potential cutback, then these may be tough issues. I believe, however, that the IRS will allow you to impose the 2 year schedule on the matching contributions without violating 411(d)(6). I think the PPA anti-cutback relief will be construed very broadly.

Probably not. But it depends on the terms of the limited purpose FSA. It should be limited to items such as dental and/or vision expenses. Accupuncture wouldn't fit under either of these.

Unfortunately, you aren't going to find anything definitive on this. First, the 55% test is not based on other benefits. It's based solely on the dependent care assistance program. Likewise, there is a 25% test that is similar to the concentration test under code section 125, but here it is also based on just the DCAP (the code section 125 test is based on all benefits). There is no guidance on how you handle the situation where the NHCE has no dependents. If the person makes under $25K, then the person can be excluded from the 55% test - then you're left with the question as to whether you automatically pass or automatically fail when there are no other eligible employees. I just don't think it's going to fly in this case. But, it is open to interpretation.

Randy, You're correct - it doesn't make much sense. The spouse is protected in the event of death, but there's nothing preventing the participant from spending everything while alive. Over the years there has been proposed legislation to make the QJSA rules applicable to all plans, not just MP and DB plans. However, that legislation has not gone anywhere. So, we're stuck with the rules today that don't really protect spouses while a participant is living - unless they get divorced and then the QDRO is available.

There is no recent guidance on this. But, I think it's clear you can wait until the next cycle A to submit. One of the unknown issues is whether you can file now, if you want to, and get a letter within a reasonable period of time. Right now an offcycle submission is the lowest priority. The IRS is considering some sort of priority for certain off-cycle submissions such as new plans, rulings (rather than requests to review the plan document), and mergers and acquisitions. This has been a problem for those people who want a letter now rather than waiting until the next cycle. The other issue where guidance is expected fairly soon relates to new plans and the old remedial amendment period rules in the 401(b) regulations. This is an issue when you adopt a new plan during the cycle that applies to the employer. For example, suppose the employer has an EIN ending in 2 (so it's subject to cycle B which ends 1/31/08). The employer adopts a plan on 12/31/07. Does the employer need to submit by 1/31/08 to be timely or does the employer have the old rule whereby it can file by the due date of the tax return for the 2007 year? My guess is the IRS guidance will give us the later date based on the fact that it's regulatory whereas the 5 year approch is by Rev. Proc.

We still have no IRS guidance. So, what's in the book is still accurate - it's open to a reasonable interpretation of the law.

J4FKBC - That's thorough coverage of the topic. 2 minor points: At the very end you state that you can't be in the 6 year cycle if you have a target benefit plan. It is possible to have a pre-approved target plan. Also, your item 3 is correct. But, there's one huge disadvantage to that category. Pursuant to the Rev. Proc., if you fall in that category you must use the plan of that sponsor when you update. The 8905 and prior adopter categories allow you to use any plan when you update. Does it make sense? No - but that's what the rev. proc. provides.

It's rather technical for an employee communication. But, as to substance, I'm not sure about the second to the last bullet. It states that the rollover is available to future fsa participants without regard to the 9/21/06 rule. I believe the 9/21/06 fsa balance is always a limitation on the fsa/hra rollover option.

The requirement to distribute gap period income on 402(g) excess deferrals is found in the proposed regulations dealing with the taxation of Roth distributions. These regulations are only proposed - but may be relied on. So, distribitons in 2007 should be made with gap period income.

Adding them is optional.

It depends on the terms of the plan. Some plans don't permit a change in the health FSA election due to a change in status -- for this exact reason. Others allow an increase in the election but no decrease (i.e., you can't elect to decrease the election to $0 in your example).

Looks like no replied to your question - Your assumptions on the 2 examples are correct. Why is there different treatment of insured vs. self-funded plans under the Code. The only explanation I have is "good lobbyists". TRA '86 enacted Code Section 89 that was meant to address discrimination of insured plans. It was soon repealed. There's not much between a self-insured plan vs. a self-funded reimbursement plan. I think the latter is used to describe those plans where there is a dollar limit and the plan covers any expense not covered by insurance whereas self-insured plan is used to describe a self-funded plan that resembles your typical insured plan (deductibles, co-pays, etc.). All of these are covered by 105(h) regardless of the term you use.

I don't think you lose the TH exemption. The exemption applies if the plan consists solely of deferrals and safe harbor contributions. Under the law, the SH contributions only need to go to NHCEs. Which raises an issue that I hadn't really thought about - it's the reverse of your question. Does providing the SH to the HCEs blow the exemption? Rev. Rul. 2004-13 doesn't address the 3% SH but does address the rate of match for HCEs vs. NHCEs. Thus, I think you are still exempt regardless of whether you give the SH to all employees or to just the NHCEs. But, the prior posts are what you should follow, because if the plan provides the SH to all employees, you may find that your ability to amend the plan during the year to exclude the HCEs is limited.

I'm not aware of anything preventing this. However, it's not something you see in FSA plans because of the use-it-or-lose-it rules. If someone forgets to change his/her election, they are stuck for the entire year. So, this type of "evergreen" election is generally not viewed as a good idea when it comes to FSAs. For insured benefits, it's not as risky.

I agree with QDROphile here. The quote to 213 does point out one practical consideration. As pointed out, the health FSA can only pay "incurred" expenses. Imposing additional requirements generally isn't a problem. Thus, putting a provision in the plan to require that the expense be both incurred and paid seems permissible. It doesn't violate the FSA rules b/c you are not permitting the reimbursement of expenses that have not been incurred. The quote to section 213 does point out one of the basic differences between an FSA and the deduction. The deduction under 213 is based on when the expense is paid whereas the FSA is based on incurred. Suppose an expense is incurred in Dec. 2006 and the bill is paid in January 2007. If an FSA requires that the expense be both incurred and paid, then when the claim is submitted in Jan. (or later) it would need to be treated as an expense for the 2006 FSA year. It could not be treated as an expense, for FSA purposes, for the 2007 year. Other than that practical issue, I see no problem with a plan provision requiring payment of the expense.