JDuns

Technically, at least in Ohio, the pre marriage account balance ($100,000 in your example) and its earnings and the post-marriage contributions and earnings are not marital property. With that said, as noted by mbozek, most orders take the end of marriage account balance minus the beginning of marriage account balance and divide that amount (giving the ex a portion of the earnings on the pre-marriage account balance) for ease of communication and calculation. I have seen some orders that calculate marital property based on the ratio of the dollar amount of contributions during the marriage to the total amount of contributions.

You may also want to consider applying the default rate of deferral to non-participating employees at a later date. For example, make the default election effective (a) upon match eligibility if the plan allows unmatched contributions at day 1 and matches at a later date or (b) upon the entry date following 1 YOS and age 21 (as described by Tippy, this may help your testing results). Generally, you want to tie the default deferral election to a future point that will make sense to the employee, satisfy internal HR policy goals, help testing and provide sufficient opportunity/incentive for positive action by the employee.

Tom's post hits on one of my hot buttons, what if the only violation of the safe harbor is that notice was not actually provided. If the plan contains the safe harbor language and makes the safe harbor contributions but the notice is not, in fact, provided, it is my understanding that the plan would have to run the ADP/ACP test. I do not see the point of removing language that sets forth how the ADP/ACP tests will be run and how HCE excess deferrals would be returned if the plan fails to distribute the notice (since that is what happens under the regs if an error occurs.) Can anyone explain what I am missing here?

A new participant may make elections within 30 days and by definition all of the employees would be new participants. However, there is no guidance on the interaction between the new participant election and the performance based bonus election periods. I have heard "experts" assert with equal confidence that (1) no deferral election may be made within the 6 month window, (2) a deferral election may be made so long as it is within the 30 day window (even if that happens shortly before the benefit would be payable), (3) the participant may elect to defer a pro-rated portion of the bonus. Until there is guidance, we are all just speculating. (Personally, I think option 3 puts the plan in a very defensible position.) I just can't wait until 409A guidance is finally released. Good luck.

I heard that the IRS had been targeting a 9/15 release date (before the ABA annual meeting). Does anyone have any recent intelligence?

I agree that the Plan or Provider could not give the information directly to the employer without the employee's consent. But we are not talking about disclosures by the plan or provider; we are talking about disclosures by the employee (or with the employee's consent) in connection with a claim for paid sick leave, unpaid FMLA leave, or otherwise permitted un-excused absence. Nothing in HIPAA (or any state law of which I am aware) prohibits the employer from requiring an employee to provide documentation supporting a sick day, FMLA or disability leave. If the employee chooses not to provide the information to support the application for paid sick time, unpaid FMLA leave ..., the employer is clearly permitted to take employment action. State laws may protect the employee from certain other uses of the information (like sending a broadcast message to co-workers about the employee's medical status).

The SSN is not a required element under 414(q). Therefore, a plan could approve an order that did not contain the SSN so long as the AP provided that information directly to the Plan (for example, in a cover letter to the Plan or on a W-4P).

To pile on with the other commenters. If the 1099 recipients are actually common law employees, unless the plan terms specifically exclude reclassified employees they will be entitled to retroactive contributions under case law. In addition, even if the plan excludes them from participation, they would count as eligible but non-participating employees in the coverage and non-discrimination tests. If the only participant is the (HCE) business owner, the plan would likely fail if there is even one misclassified (NHCE) individual. On the other side, as QDROPhile noted, a plan cannot cover independent contractors so, if the classification is correct, extending plan participation is not permitted. Given the stakes, a prudent advisor would recommend taking a long and hard look at the classification question. If I recall there is even a process to raise the question before the service (I don't have time to look it up now though). Good luck

I think that Tom's question is centered on whether the participant's death impacts the pending distribution. I think that the answer is that it depends entirely on the wording in the plan and its administrative procedures. If the distribution is in process (for example, the participant dies after the plan has instructed the trustee to cut the check but before it has been sent), many plans would continue the distribution in the name of the participant (which would then become an asset of the participant's estate). If the distribution process has not yet begun, many plans disregard the elected form of distribution and provide the death benefit. In that case, the benefit would be payable to the designated beneficiary (if any) or according to the plan's terms where no beneficiary had been designated.

While I agree with Lori that a legal separation is a qualifying status change, I think that "legal separation" does not refer to the interim separation agreement status that is part of many divorce / dissolution proceedings. From prior conversations with divorce attorney's, the legal separation process generally takes as long and costs as much as a full divorce.

Careful though, if the child is back with the original provider, it is hard to argue now that a change in status now is justifiable.

Many employers self administer the STD Plan as a salary continuation through their regular payroll processes. Even if it is the Plan and not the employer making the decision, a salary continuation STD plan would NOT be a health plan under the HIPAA rules and therefor would not be subject to the HIPAA non-disclosure rules. There are many reasons that it may be unwise for the employer to ask for medical information that is not needed, but it is clearly possible to argue that medical information is needed to validate sick leave, FMLA leave, disability leaves ... An employee may refuse to provide information (resulting in a denial of the claim for benefits due to an incomplete application); but the employee may not claim that the employer is prohibited under HIPAA from requesting the information and that their claim must be approved without documentation.

As mentioned previously HIPAA governs the release of PHI from plans, providers and clearinghouses. HIPAA would prevent the Dr from giving the information directly to the employer without the employee's consent but HIPAA does not prevent the employee from providing the information. HIPAA does not prevent the employer from requiring certain medical information to support certain HR programs. For example, if an employee refuses to provide medical information in connection with a STD leave of absence, he/she would lose eligiblity for the benefits.

See Reg 1.401(a)-20 Q&A 27 Under this reg a plan may provide that spousal consent is not required if the participant submits a court order demonstrating that he/she is legally separated. It is not the beneficiary designation forms that will govern but the portion of the plan document that sets the process for designating beneficiaries. By the way, many individuals (especially those whose faith does not permit a divorce) will legally separate. By going through this process, they cease to be responsible for each other's debts after the separation but are not legally free to remarry. Hope this helps.

This restriction has no basis in the code. It is based solely on 1.401(a)(4)-5(b) that requires "A plan must provide that, in any year, the payment of benefits to or on behalf of a restricted employee shall not exceed an amount equal to the payments that would be made to or on behalf of the restricted employee in that year under a [straight life annuity and SS supplement]" To me at least, it is clear that an Alternate Payee's benefit is on behalf of a restricted employee and therefore should be subject to the same payment restrictions as the participant's payment would have been. I would refer the AP to RR 92-76 for alternatives that would enable a lump sum (if the plan is amended to accomodate them).

I saw that the IRS planned to issue more guidance on the interaction of FSAs and HSAs during the grace period. It is my understanding that, under the guidance to date, if a person had elected to participate in a full service FSA for 2005 and the FSA sponsor amends the program to allow reimbursements during the first 2.5 months of 2006, neither that person nor their spouse would be eligible to contribute to a HSA for the first 3 months of 2006 because they had disqualifying coverage (even if they had used their entire account balance before year end). Does anyone have any insight into what the guidance might say?

I have no idea of the fees involved the one time I had to look at this issue. If the account balance is small, I would push strongly to divide the other assets so that the participant keeps the entire US plan benefit. It is only where the assets are a significant portion of the marital estate that the additional expense is worth it. My answer was focused on the costs to the AP/P and not to the plan. I agree with QDROphile that the plan's cost should not be charged to the participant's account.

If the employee receives a paid sabbatical, the DOL rules (as cited by Locust) require crediting with up to 501 hours. If the sabbatical is more than 501 hours or unpaid, the service crediting rules do not require crediting service. If the plan chooses to credit service in excess of the rules, the service must be tested for non-discrimination (see 1.401(a)(4)-11(d)).

As QDROphile indicated, a participant may file a foreign divorce decree with a US court. The order would then satisfy the requirements for a DRO that could be qualified. The Canadian counsel would need to hire US counsel to file the order. In my opinion, a qualified plan may not honor a foreign decree unless it has been domesticated.

If the notice meets the requirements of a QDRO, you must indeed honor it and distribute the benefits. 414(p) and its ERISA equivalent both include in the definition of DRO an order that "relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, CHILD OR OTHER DEPENDENT of a participant." While most DROs a plan receives related to ex-spouses' marital prorperty rights, the rules clearly permit an order to be issued for child support.

Does anyone have any insight into the expected release date for the EPCRS update?

I assume the TPAs argument is that the company may set up more than one FSA plan with staggered plan years and an employee was stuck with their elected contribution level for the full plan year. So long as each FSA plan met the coverage rules, I suppose it might be technically compliant. However, it doesn't pass my smell test and I would not want to adopt such a program. With regard to the TPAs second idea, I have no problem with a FSA that is structured as a limited scope FSA for the employee and a full scope FSA for the employee's spouse and dependents. My only concern about this design would be the administration issues where expenses are reimbursed differently based on the the employee/dependent status. HSA eligibility itself is determined on an individual level. If a spouse has a plan that covers 100% of the medical expenses for her with no deductible, and the employee purchases a HDHP that covers the whole family, he could make HSA contribution for the whole deductible (up to the federal family coverage limit).

Or you could do the general test calculating contribution or benefit accrual rates as a percentage of compensation as defined under a safe harbor definition under 414(s) (like box 1 W-2). If this passes the general test, the plan design is OK even though the Plan compensation definition by itself does not pass the 414(s) discrimination test.

After the IRS issued its PEO guidance, it was my understanding that virtually all individuals who had previously been classified as leased employees were now classified as common law employees of the recipient. Given the leased employee definition requiring the individual to work for the employer on a substantially full time basis for at least one year under the primary direction and control by the recipient. You are right that, if the plan just excluded leased employees (and not the "screwball definition"), these common law employees paid by a PEO would not be excluded. I would be interested in hearing an example of a leased employee that was not a common law employee but met the rest of the test.

I think it is not a "screwball way" but an effective way to exclude a group of employees that the parties all expect to be ineligible for the service recipient's plan. The IRS has basically indicated that virtually no individuals can meet the leased employee definition without being the common law employees of the service recipient (gutting the leased employee rules in my opinion). However, if they are the common law employees of the service recipient, they must be included in the non-discrimination and coverage tests as eligible but not benefiting.