JDuns

FYI - On Dec. 8, 2005, the MASS Governor signed House Bill 4169 to become a conforming state. (http://www.mass.gov/legis/laws/seslaw05/sl050163.htm) Moderator's Note: Mass. conformed to the IRC as amended and in effect on Jan. 1, 2005, with Mass St. 2005, c. 163, § 3, An Act Relative to Tax Laws, signed December 8, 2005. Before that, Mass. conformed to the IRC as amended and in effect on Jan. 1, 1998... Thus, HSAs now qualify for the exclusion from gross income. -- by GSL

If the spun individuals do not lose their job in connection with the spin, it is possible to split the plan into two plans without accelerating vesting for either group. Sorry I don't have the time to pull out the cite.

Assume that one spouse got all of the 401(k) plan and the other got everything else. If the 401(k) balance had not existed, the rest of the stuff would have been divided. Going back to the court allows the court to decide if the property award would need to be adjusted. If the employee is not a high level executive and the order was a straight 50% of the account balance, I could probably get comfortable just doing the adjustment.

Whether a judge, under the state domestic relations law, has the authority to require one of the parties to the divorce to trigger a distribution (ie, force retirement) would be a question for a family law lawyer in that jurisdiction. The order would not be binding on the employer or the plan, but the employee would be subject to contempt charges if the order were issued and he failed to retire as required.

It has to be a bona fide termination. Any arrangement with the employer to agree to rehire the employee after a specified period could be treated by the IRS as an impermissible in-service distribution. For example in Q&A 37 from the ABA Joint Committee on Employee Benefits 2005 IRS session, the IRS stated "The IRS was not willing to bless a 30 day rule since they did not believe this situation should have a bright line rule nor to allow the plan to conclusively rely on the employer's representations regarding whether the re-employment is the subject of any pre-arranged agreement. The IRS generally expressed skeptecism regarding rehires of retired employees after a short period of time, but did not opine on what periods would be considered too short."

If you are cancelling deferrals - I agree that the employee receives the amount that would have been deferred as regular compensation (without adjustment). However, if you were terminating participation and accelerating distributions, I would pay the deferrals net of investment gains/losses.

Some caveats to E's answer: (1) accelerating vesting can have significant accounting ramifications for the non-accelerated amounts, (2) if payout is tied to vesting, accelerated vesting will accelerate distribution which is impermissible.

If your plan starts with W-2 comp and an executive wants to defer the maximum possible to the 401(k) plan and then defer the remainder of their compensation to the non-qualified plan, the 401(k) plan must carve back in the amounts deferred or else the executive would have zero 401(k) plan compensation (actually, they always need enough comp to cover SS and perhaps state and local taxes).

Notice 2005-1 Q&A 20(a) allows termination of participation to "be made with respect to elective or nonelective deferred compensation and may be undertaken by the service recipient or at the election of the participant. A termination or cancellation under this paragraph may apply in whole or in part to one or more plans in which a participant participates and to one or more outstanding deferral elections the participant has made with regard to amounts subject to 409A." This is different than the post 2005 plan termination provisions in the proposed regulations. So, yes, the employer could allow a participant (1) to terminate participation in the deferred comp plan without terminating SERP participation, (2) to terminate pre 2006 deferrals in the DC plan while allowing future DC plan deferrals, and (3) there is no terminate both the SERP and DC for all participants and wait 5 years requirement.

HSA contributions are tested at year end based on the total number of months with HDHP coverage on the first of the month and the deductible for that month. If an employee overcontributes to his HSA because he does not have HDHP coverage for enough months, the excess (and applicable earnings) can be withdrawn and included in ordinary income without incurring the excess contribution excise tax. The regulations clearly permit prefunding so I would not worry about this (but you may want to send out a communication about the tax implications of overfunding).

To address Gburns's comment about plan entry: Under the new 415 regs if an employee ever had 401(k) deferrals (even if no other vested money), they are deemed to have had vested employer contributions and must enter the 401(k) plan on their date of rehire regardless of their number of breaks in service. (ie, the rule of parity is not available to disregard their prior service). It is typical that a deferred comp plan applies immediately (since many participants may be drawing compensation deferred from their prior employer and are trying to reduce their immediate tax burden). I agree with Tom that I can think of a few situations where you might be able to amend now, but it is most likely a protected BRF now that can only be amended prospectively.

Assume that married Employee signs up for a health care FSA and elects $2000. Before submitting any claims, Employee and Spouse divorce. If spouse elects COBRA for the FSA, what is her starting balance? I know that the preamble to the Final COBRA regs that took effect 1/1/2001 (54.4980B-5) indicates: If a former employee electing COBRA would start with the account balance ($2000), it seems that this implies that Spouse should also start with $2000 (putting the employer at risk for $4000 in claims for a $2000 election). I have never had a spouse or no-longer dependent child apply for COBRA coverage for the FSA so never thought about it but now that I have I feel compelled to find an answer.

www.onque.com/tips/hras.html The above referenced cite has two methods of allocating the HRA account balances that both increase the employer provided benefit (option 1 doubles the balance and option 2 more than doubles it). I am trying to get a sense of whether the analysis described in this is the common practice.

I am trying to get a sense of what other people are doing with HRA account balances when someone goes on COBRA. Lets say Employee, Spouse and Kids are all covered by a HRA that has a balance of $5000 on the day of the COBRA Qualifying Event. If the Employee terminates and the family elects COBRA, it is clear that the family would start with a $5000 account balance. If Employee and Spouse divorce (or Kid graduates college) and Spouse/Kid elects COBRA, does Spouse/Kid start with a $5000 HRA account balance while Employee's $5000 account remains intact. Any citations would be appreciated.

Under 125 generally the benefits and contributions must be provided on a non-discriminatory basis (note that the HCE definition is not the same as the one used under the current retirement plan rules). Where a benefit is more highly subsidized for a group of employees, it may be possible to argue that the benefit or contribution is discriminatory. For example, the payroll subsidy could be treated as an match that is made available to a potentially discriminatory group. In addition, under 125(g)(2) there are specific rules regarding the amount of subsidy for health benefits. This leads me to the conclusion that there could be tax discrimination issues that should be evaluated. There are also general legal discrimination issues if the premium is subsidized for a white 30 year old male and not for a 50 year old minority female.

Although there is no discrimination testing issue under 105/106 for a fully insured product, as mentioned by a few posters, there are still non-discrimination tests for the 125 cafeteria plan. Providing a discriminatory BRF could cause the cafeteria plan elections to be taxable compensation for the key employees.

If you have amounts direct deposited from your paycheck to your HSA, without running through a plan sponsored by employer (ie, a cafeteria plan), you will be taxed on that income for federal income and FICA tax purposes. You will be able to deduct the contributions on your federal income tax return when you file it in 2006. There is no way to capture any FICA tax savings. If you contribute to an HSA by payroll deduction through your employer's cafeterial plan, you reduce the federal income tax withholding (accelerating the timing of the tax savings) and reduce for FICA tax withholding (permanent tax savings although potentially reducing your net SS benefit)

Your question is actually much too complicated for this board. Yes, 401(k) contributions are deducted from the person's gross pay when calculating federal income tax withholding. So in your example, FIT on $900 and FICA (SS + Medicare) on $1,000 However, there are also state and local income taxes that may have different answers based on the work location (eg, PA taxes 401(k) contributions, some states do not conform to the EGTRAA deductible limits, many local jurisdictions base tax on FICA wages not federal income tax wages .......) You need to get specific advice from someone who specializes in payroll tax issues (attorney or CPA). ASAP.

To give an example, assume an employer offers two HDHPs (plans A and B) each with three levels of coverage (employee only, employee + 1 and family). If Plan A - Employee only coverage has a $1,200 deductible and the company contributes $400 (33%) and the Plan B deductible is $2,700, to meet the comperability rule the employer must contribute either $400 (the same dollar amount) or $900 (same percentage). For the 4 family coverage options, all 4 options must be the either the same dollar amount or same percentage of the deductible but that dollar amount and percentage does not need to have any relationship to the employee amounts/percentages described in the preceding paragraphs. The employer could choose to contribute $0, $400, 100% of the deductible, any other amount.

As described by E, this is most likely deferred comp under 409A. If the contract is terminated before 12/31/05, even if an amount is paid, there would be no penalty due to 409A. In addition, if the individual was fully vested and had terminated as an employee before 1/1/2005, I think you could argue that the grandfather rule applies so that 409A does not apply.

(1) If the acquisition is done by an entity that participates in the first plan, unless that plan provides otherwise (which I have never seen but is possible), all of the otherwise eligible employees of that company (including employees of the new division) would be eligible to participate in the first plan automatically. Any amendment to change that result would blow the transition period (ie a significant change in the plan or the coverage of the plan). (2) Assuming that each plan covers a non-discriminatory group of employees, it can cover separate divisions within a legal entity. This is a common plan design for larger employers.

If the plan doesn't specifically allow in-service distribution of roll-in contributions, no in-service distribution is permitted. So, yes, "it safe to say that [no in-service distributions] includes the rollover contribution that was moved into the plan."

As indicated by Mary, HIPAA does not apply here. Your employer may require the information and you may choose to provide it (and get the paid sick time or other applicable benefit) or to not provide it (and have it treated as unpaid time off). Also, please don't take it personally. HR departments have policies that they must apply equally to all employees. They may have recently revised their policies to require documentation in all cases (usually in response to a few bad apples) and to enforce the rules for anyone they must enforce them for everyone (or else risk discrimination claims).

The provision allowing termination of participation during 2005 is intended to allow an employer to end the plan rather than deal with the new limits in 409A. If the plan is terminated before 1/1/2006, each employee would be taxed on their benefit in 2005. In my opinion, a plan could (but is not required to) accelerate vesting and pay the non-vested portion of the benefits. If the entire plan is terminating, I do not think that there is any 409A issue. However, if you allow participants to elect to terminate their participation in an otherwise grandfathered plan, I think that you have a material modification that would result in a loss of the grandfather status for any non-terminating participants.

Also keep in mind that going onto LTD doesn't necessarily mean a loss of coverage. Some employers allow an individual to continue to participate in the medical plan at employee rates for some period of time and do not begin the COBRA clock until a later termination.