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The proposed 125 regulations specifically allow a spend-down for a DCAP. The regulations appear to be silent on whether a spend-down is permitted for a health FSA. (correct me if I am wrong) I am aware of plans that have spend-downs for both DCAP and Health FSAs. Are they permitted for Health FSAs? If so, are they limited to the amount contributed as of the date participantion ceases or does the normal universal coverage rule apply. BTW - by spend down, I am referring to claims incurred after terminatin of participation but during the period of coverage.

ok - here is my question. What is a plan document allows an employer to termate the plan in connection with a change in control, etc....but the employer does not have sufficient assets (or will not receive sufficient assets in the deal) to pay all benefits due under the plan. Under the exception in the final regs. allowing termination of a plan in connection with a change in control, all amounts under the plan must be paid with 12 months, etc. In a perfect world, this would not be a problem. But we live in an imperfect world. There is another provision of the regs. that says there is no 409A violation when an employer doesn't pay provided that the employees basically sue the employer. What if the individuals entitled to the benefits make up the board, etc. Any thoughts?

Sorry about the above, I presses the send button too soon. I'm curious, when is Hogans leaving, where is he going and when.

The preamble and the regulatios are clear that separation payments made upon an involuntary termination of employment (or a voluntarytermination that is deemed to be involuntary) and qualify for the 2 year/200% of compensation exception are not subject to the 6-month delay for specified employees. What about separation payments that exceed the 200% cap on compensation but are made in a lump sum on the date of an executive's involuntary termination (or qualifying voluntary termination). If I am reading the regulations correctly, that payment is subject to a substantial risk of forfeiture and vesting occurs on the date of the involuntary termination. Thus, this payment qualifies for the short-term deferral exception and can be made without the 6-month delay. Am I reading this right? I have read several commentaries. Very few mention this (Deloitte's does) and several say that the 6-month delay is not available if a severance payment exceeds the 200% cap even if it imade within the 2 and 1/2 month extension. Thoughts are appreciated. Along the same lines, please confirm that the 6-month extension applies to distributions to specified employees who terminate employment voluntarily when the voluntary termination is not deemed to be an involuntary termination. Plan says that employee can elect to terminate his employment anytime within one year beginning on the happening of an event. Payments are made in a lump sum on the date of termination. thanks.

Thanks. I just looked at the regulations. So I have a choice. I can run the ACP both with and without the basic match.

This may be a basic SH match question, but I will ask it anyway. SH 401(k) plan currently uses the basic formula for the SH Match (100% of first 3% and 50% of next 2%). Company wants to add a discretionary match that will be a tiered match that will exceed the 6% deferral limit. Here is my question. I know that the additional discretionary match does not meet the ACP safe harbor. However, when I do the ACP test, do I only use the discretionary match, or do I use both the basic match and the discretionary match. Said another way, does the basic match automatically meet ACP regardless of the additional discretionary match? Thanks.

Thanks for getting back to me. I agree with 1, 3 and 4. With respect to no.2, I know that the recent HSA legislation allows someone who is otherwise HSA eligible to fund for the maximum, even if they do not make the contribution until the end of the year, but doesn't that result require the person to be HSA eligible for the entire year? In my example, I think we agree that the person doesn't become HSA eligible until 9/1. Therefore, isn't the maximum contribution 1/3 of the otherwise maximum? I would love for the answer to be that the person could fund to the maximum for the year, but that conclusion seems inconsistent with the interplay between the HSA and the FSA. Hopefully, I'm wrong and you are right. Also, I'm of the belief (unless someone directs me to the contrary) that an FSA could serve as both a general purpose and a limited purpose FSA - In other words, you don't need a separate document - as long as the FSA includes the correct language. Any thoughts?

Some of this may be basic, but I'm working out the interplay between an HSA and an FSA. Individual began family coverage under an HDHP effective 1/1/07 and intends to set up an HSA for 2007. Individual's spouse is covered by an FSA through her employment. FSA's period of coverage is September 1 to August 31. I assume that the FSA is a general purpose FSA. Question is when is the individual eligible to begin to contribute to an HSA for 2007. Is it September 1, 2007? If so, is the contribution limited to 1/3 of the maximum for 2007? What if the FSA available amount is spent down to zero before Spetember 1, 2007? Is it the first day of the following month? Under the recent legislation, the grace period is disregarded if the balance on the last day of the plan year is zero. This seems to suggest that it cannot be any earlier, but maybe I'm wrong. Could the general purpose FSA be amended to become a limited purpose FSA via a snap on amendment? Any thoughts would be appreciated.

Question for Joinder Junkies - client received a joinder and all related documents from divorce. Client forwarded the joinder to me. I represent plan sponsor. I don't have a problem with returning the notice of appearance, but do I return it to the court, attorney, both attorneys? thanks.

A lot has happened since I began this thread in February. My understanding is that the IRS will not be issuing a model 401(k) amendment. The due date for 12/31 plans is 12/31/06. $400 is a bargain for an amendment, however, in my opinion, you get what you pay for.....why would you want to use a Corbel amendment for an individually designed plan. An individually designed plan is just that - individually designed. the Corbel amendment is for the Corbel plan. I think you owe your client a duty to draft an amendment for the plan.

Client has a non SH plan with a 6/30 year end. ADP test is failed for pye 6/30/06. HCEs' deferrals made during the first 6 months of 2006 - no deferrals were made to this Plan by HCEs between 7/1/05 and 12/30/05. Question 1: If refund is made by 9/15/06, is refund taxable in 2006? Question 2: If answer to question 1 is yes, can HCEs "defer" the amount of the refund during the plan year that began 7/1/06 to enable them to defer the full $15,000 during 2006.

Thank you for the link to the book. It truly is an excellent resource.

The book Qualified Retirement Plans by Canan has an excellent chapter on M&A issues. Also, I think that there is a book entitled Mergers and Acquisitions (how original) by Ilene Fenenczy. I'm not sure of the spelling.

Plan was involuntarily terminated by PBGC during year one and PBGC became trustee of the Plan during the first quarter of year two. It appears to me (unless someone can refer me to an exception) that a Form 5500 is due for both years. Most likely, the audit for year one can be deferred to year two pursuant to the exception for plans with a short plan year, but I cannot locate any general exception for either.

Is anyone aware of any exceptions from the Form 5500 and/or audit requirement for a pension plan that has been involuntary terminated by the PBGC pursuant to Section 4042?

What in the world does "deconvert" mean?

Thanks for getting back to me. The vesting makes sense. Section 1.411(a)-3(a)(2) specifically allows a plan to have more than one vesting sechedule and the separate vesting schedules are BRFs that must be tested accordingly. Is the rationale for eligibility testing the requirement that the plan must pass coverage as a whole and hence, you use the lesser of the eligibility requirements (in my case, 1 YOS), or is there something more specific in the regulations

ok. I should know this, but.......can you use different eligibility provisions for different groups of employees? I'm thinking of one Y of S and 5 year graded vesting for one group and 2 years/100% vesting for another group. First group is predominately NCE - passes 410/401(a)(4). Second group all NCEs.

The IRS said (I think in 2005-66) that they will not be issuing a model amendment for the final 401(k) regulations. I similarly think (or hope) that the IRS will issue a extension b/c it seems crazy to invest the time in a detailed amendment only to have to revise it again when the plan is restated in its entirety for EGTRRA. I don't see why any interim amendment would have to restate what is already in the EGTRRA good faith amendment that was adopted 2 plus years ago. For example, per the EGTRRA good faith amendement, distributions are permitted pursuant to a severance from employment. Why revise it again?

OK, I've been waiting for someone else to ask this question and no one has. Either the answer is obvious or no one is paying attention. The question is when is it necessary to amend an individually designed (non-safe harbor) 401(k) plan to comply with the final 401(k) regulations. Some of the changes in the final 401(k) regulations are EGTRRA changes, and thus, (at least I think) do not have to be made until the end of the applicable EGTRRA remedial amendment period. What about the other changes (i.e., safe-harbor hardship distribution, ability to no longer do bottom-up QNECs, definitiion of successor plan following plan termination, treatment of a participant with 401(k) deferrals as fully vested for 411 purposes, etc). Assuming that a plan did not elect to follow the regulations in 2005, is is necessary to adopt an interim amendment by the end of the current (non-EGTRRA) RAP????? by some other time????? Also, for those of you with M/P plans. Are you providing your adopters with interim amendments while the IRS reviews your restated plan??? Thanks.

Plan has both grandfathered and non-grandfathered amounts. Could I "terminate" the grandfathered portion pursuant to the transition rule and pay only that portion out by the end of 12/31/05 and pay only that portion out? If no, what about bifurcating the plan into 2 plans - grandfathered and non-grandfathered amounts and terminating the "grandfathered" plan. Does that work?

...or being elected.......

Subsection (g)(2) of the proposed regulations appears to say that there is no delay (see language in parenthesis), but the "separation from service" is defined as including death, so it could be interpreted in a circular manner. Any thoughts are appreciated. Thanks.

Does the 6-month delay apply in the case of the death of a key employee of a publicly traded company?