JDuns

Under your divorce decree you are legally obligated to pay half of the account balance to your ex. If you fail to do so, you could be subject to contempt proceedings if your ex tried to claim them. These boards generally talk about the plan's obligations. If your employer's plan never receives a QDRO, your ex would not be able to recover from the plan any benefits that the plan pays to you. Your ex would be able to sue your for those benefits however. Hope this helps.

The ability to receive the stock rather than cash is not a protected BRF so you could eliminate it prospectively if you don't want to change the administration going forward. An employee who takes a distribution of stock in kind recognizes ordinary income equal to the plan's cost basis in the shares distributed and then would pay capital gains on the earnings on a later sale of the stock. This can have a big impact on the potential tax implications of the distribution for the employees. That being said, I have not faced this error and do not have any correction methods to propose.

GBurns, Sorry if I read too much into the OP. I assumed from "Employer has H.S.A. and FSA" that the employer structured the FSA so that it would be compatible with the HSA structure (ie limited the FSA reimbursable expenses). This assumption was consistent with "He elects to also have the FSA for dental and vision for him and the children." since most limited scope FSAs will cover dental and vision. I had assumed that fhatchett had been asking if the FSA could reimburse his spouse's medical expenses and if the employee could establish a HSA. The answers to these questions go back to his employer's actual plan design which we do not have enough information to address. The best I can do is say that if the FSA is unrestricted, electing to participate in the FSA would make the employee ineligible to participate in the HSA. Because HSAs are more flexible for the reasons previously mentioned, given the choice between the two, I would recommend the HSA. Note that the HSA could reimburse the spouse's medical expenses without tax implications even though the spouse was not covered by the HDHP. If the FSA is restricted, the FSA dollars cannot be used to reimburse the spouse's medical expenses.

The comperability rule requires that the employer contribute to the HSA of any HSA eligible plan participant who has established an HSA. As jsb noted, if the employee has not established an HSA with any provider, no HSA contribution is required. Remember that some employees who participate in the HDHP may not be eligible to contribute to an HSA for a number of reasons (spouse's participation in an unlimited FSA, dual coverage, enrollment in Medicare ...). Therefore, the employees who have not established an HSA may be making the decision because they understand that they are not eligible to contribute to the HSA.

The regs specifically state that an employee is entitled to credit for periods paid or entitled to pay but then limits the credit for periods when an employee is not working to 501 hours. I think the notice/rr referenced is actually the clarification under the recently proposed 415 regs that indicate that only that portion of severance pay equal to regular wages for 2.5 months is compensation for purposes of 415 (which is the safe harbor compensation definition for 414). A plan may clearly use a definition of comp that does not comply with 415 and credit service in excess of the Hrs of Service rules, but those definitions would need to be tested to ensure that they do not discriminate in favor of HCEs and testing service based on hours credited in excess of the rule are not counted. That is why the initial answers started with "what does the document say".

GBurns, There are are some things that a health FSA is not permitted to reimburse by law (cobra premiums, non deductible medical expenses, etc). Within those limits, an employer may (but is not required to) further limit the types of medical expenses that the health FSA will reimburse. Unless the employer has chosen to restrict the HCFSA, the balance could generally be used to reimburse medical expenses for the employee and the employee's tax qualified dependents (spouse and children) that have not otherwise been reimbursed. Thus, assuming that the employee could substantiate the claims (e.g. submit an EOB indicating the amount owed by the spouse and demonstrate that the spouse is the recognized as the employee's spouse under federal law), if the HCFSA is not limited, the health FSA could generally reimburse these expenses. This is the basis for the IRS saying that a spouse's participation in an unlimited FSA makes the employee not eligible to contribute to a HSA (because the employee legally could have pre-deductible medical claims reimbursed under the FSA). In response to your question about what a HSA can do that a FSA can't -- roll over from year to year and grow with interest (rewarding under-utilization rather than the FSA rush to spend excess dollars rather than forfeit them), fully vested at all times so you can take it with you without cobra hassles, usable for anything (although with potential tax implications if not used for tax deductible medical expenses), this is just a short list that could go on.

I assume that the employer has structured its FSA program to limit the scope of eligible expenses so that its employees remain HSA eligible. If that is the case, the FSA would not be able to reimburse general medical expenses under its terms. If the FSA is so limited, the employee could NOT use the FSA to reimburse the "spouses medical copays, ded, coinsurance, etc". If the FSA is not limited, the employee would not be eligible to establish or contribute to a HSA. Assuming that spouse's COBRA coverage is limited to individual (and not family) and is the plan only (not FSA), then her coverage would not impact the employee's ability to establish and contribute to a HSA. HSA elibility is determined on an individual basis (although the contribution limit could be allocated between two eligible spouses).

As Tom referenced, the 3 year rule is based on the substantiation guidelines. If you can represent that there have been no material changes to the population or plan terms, you can test on a 3 year cycle. In my opinion, if you intend to rely on the testing cycle, you should have something in your file indicating that there have been no such changes. However, if you are going to the trouble to review the data for changes, it is probably just as easy to run the tests.

I know that some take the position that the interest credit is part of the accrued benefit and cannot be frozen or reduced unless the whole plan is terminated. I know others that argue that the interest credit may be frozen or changed at any time. I have generally taken the position that a sponsor could provide the greater of (a) today's account balance growing at the current plan rate and (b) today's account balance plus future contributions both growing at a new rate (which could be higher or lower than the old rate).

Each plan must at all times be provided to a non-discriminatory group of employees. The QSLOB rules are one way to break your employees into different groups for testing purposes. If at some point the facts have changed and you no longer meet the QSLOB rules, you can no longer continue to ignore the employees in the other line of business when testing your benefits. In my opinion, verifying the QSLOB status should be part of your regular discrimination testing. If you discover that the QSLOB may no longer be qualified, you can then take steps to remedy the problem. I think this is much better than finding out that you weren't eligible when you are under audit and can't self-correct. As to your timing question, technically a plan must meet the non-discrimination tests each day but are permitted to test on a representative day under the substantiation guidelines.

Or that they have some reason to believe that the plan may have significant problems and will not be comfortable issuing an opinion without a significant amount of background work. It is not unusual to have higher fees for the first year with a new auditor (since they have to review the plan and trust documents, many of the plan processes, and lots of other stuff). For subsequent years, they only look at changes plus the audited stuff. That being said, going back to 1979 seems odd and the fee differential seems quite high.

If you received any useful guidance off-line, I know I would appreciate hearing it.

I reconciled the two positions (DOLs that no extension was possible and IRS's as described in the cited Rev Ruling), in that the COBRA is only available to employees and their qualifying dependents who have coverage on the date of the qualifying event. In the example, the former employee does not have coverage on the date of the second event and therefore is like a non-participating current employee who is not eligible for continuation coverage. I have no basis for this rationalization but it works for me.

By now you have probably taken action if you were worried (since it is after 6/30) but the answer is that the 30 day rule for newly eligible employees applies and that an election for any compensation that would be earned after the election date (base comp or bonus) is permissible.

Some of the large providers will not accept the deferrals (even into a plan holding account) until they have run certain data verification processes and can credit the deferral to each participant's account. Even though the employer can wire the paycheck to the employee's direct deposit account and remit the taxes the same day, the institutional trustee will not accept the deposit for approximately one week (after the data processes have finished). I find this infuriating, but so long as the employer sends the money as soon as the trustee will take it, what else can they do. (Other than look for a more reasonable replacement).

Kirk, 206(d)(3)(G) requires a plan to establish "reasonable procedures" to determine the qualified status of orders and to administer distributions made pursuant to a QDRO. Consistent with the preamble, all of the plans I have worked on have incorporated the claims and appeals process (but not the timeframes) in their QDRO evaluation process. mbozek, Because not all courts require the alternate payee and participant to countersign the order (and some orders are obtained on an ex parte basis), I am hesitant to rely on the order alone (especially if there is ANY grey area being interpreted). I had an unfortunate situation where a ex obtained an order without her former spouse's knowledge (I never got an answer about the service of process) and the decision letter was the first time that the participant had heard that their spouse had claimed part of the benefit (with an order that was more expansive than the divorce decree).

I am curious why you would recommend against applying the claims and appeals process to the QDRO determination process. In my opinion, the plan is protected in providing a letter stating that the order has been found to be qualified and is being interpreted as follows: *** (or that the order is not qualifed and needs the following changes) and then setting forth the appeals process. It gives both parties a chance to correct anything that is different from their expectation and prevents the plan from being put in the position of defending its interpretation later. I recall a DOL reference but I always interpreted it that the claims and appeals time periods did not shorten the time periods described in the QDRO regs. I did not read it to imply that no claims or appeals process should apply in QDRO review.

If paying an ex a portion of the plan benefit where the plan terms do not address the situation, I would send a claim determination letter (to the employee and the ex and both of their counsel) setting out the plan's decision on the ex's claim for benefits, and the plan's appeal procedure. Then don't pay the benefit until the appeal period has run. This puts the employee on notice of the plan's interpretation and protects the employer from a later duplicate claim from the employee.

Most employees do not elect to receive the portion of their account invested in employer stock in kind (which is one of the conditions to avoid the tax on the appreciation). In addition, if they roll over the entire account balance to an IRA, they ruin the special rule. There are situations where either of these choices make sense (but I agree that paying the higher ordinary income tax rate plus 10% is a high hurdle to pass).

You always need to look at the terms of the SERP plan document. I have seen some documents that would prohibit all alienation and are not divisible by an domestic relations order. As mentioned by other posters, SERPs are not subject to the anti-alienation rules of the Code or ERISA (although some courts ignore that fact). Therefore, you are looking generally at state contract law and the terms of the SERP (as the applicable contract).

Has anyone else become concerned about the interaction between Medicare Part D and HSA rules? Beginning in 2006, a HDHP may not cover prescriptions before satisfying the deductible (unless the IRS backs off of their vehement declarations to date that the transition rule will not be extended). A prescription drug benefit that is subject to a HSA qualifying deductible will not be "creditable coverage" for purposes of Medicare Part D. If a medicare eligible individual who does not have creditable coverage does not enroll in Part D when first eligible, they will be subject to higher premiums as a delayed enrollee when they finally do enroll. However, if they enroll when first eligible, they will have non-qualifying coverage that will make them ineligible to contribute to an HSA. Does anyone see a way out of this result (unless CMS or the IRS does something)?

With regard to the future, the plan could be amended and then operated as proposed by E (separate elections for different types of compensation). However, if the plan did not provide for that (and for the prior years) you have an operational error that needs to be corrected. I haven't looked at this part of EPCRS lately but I think that you need to credit the employee with the missed deferral and associated match (or maybe it was the ADP and ACP levels, I can't recall) plus earnings. Windfall to the employees.

A plan may allow employees to roll-in money before they meet the age and service requirements for plan participation (although many plans still do not allow roll-ins until the employee becomes a participant for a variety of reasons including plan fees and turnover concerns). I am not aware of any plan that would allow plan participants to roll-in other benefits after the employment relationship terminated. I would strongly advise an employer against adding such a feature due to the lack of the employment connection at the time of the addition.

On the termination question, some have opined that the plan can be frozen (depending on the plan terms) but that no distributions may be made of pre-plan termination balances until all of the participants would have otherwise been entitled to distributions (since plan termination is not one of the special distribution events). Therefore, if a participant who is 30 has elected to defer compensation until age 65, the plan would be forced to stay open for another 35 years. While a participant can elect to cancel a deferral election for this year (or even his entire plan participation if the employer allows that option), I think that, after the transition rule, under 409A an election to defer is irrevocable when made. So if the participant elects before 12/31/2005 to defer 50% of base pay for 2006, that election cannot be revoked but the participant can always choose to defer a different percentage (including 0%) for future years' base pay. Hope this helps.

A plan passes ADP/ACP by making safe harbor matching contributions on a payroll basis (providing all appropriate notices). The plan provides that employees are eligible to make unmatched contributions on their date of hire and become eligible for their safe harbor match on the entry date following 1 YOS (and age 21). Until the IRS announced its new interpretation of the rule of parity for 401(k) plans, the plan had applied the rule of parity for rehired participants who had not been vested in their non-401(k) benefits. Based on the prior interpretation, a rehired participant who had been unvested in non-401(k) benefits had been treated as a new hire and was offered the opportunity to defer on an unmatched basis on his date of rehire (and elected 0% deferral). The plan now wants to "correct" for the "improper" exclusion for people rehired after 12/31/2004. Rev Proc 2003-44 would imply that the rehired employee must be given a contribution equal to the ADP + ACP for their class. Since the plan is a safe harbor, it does not run the ADP / ACP test. Are the options for correction methodology: (1) perform the ADP and ACP tests and then credit the employee with both a deferral and match (plus earnings) based on the results; (2) provide the match only (since he had not been excluded from making deferrals): 2a) calculate the match based on the ACP test results; 2b) calculate the match based on the deferral elected at rehire by the participant (noting that the employee may have elected a different level upon becoming match eligible) but only with IRS blessing through VCP; (3) some other option Any suggestions are welcome.