jpod

I realize this is a common and difficult problem. However, I can't go along with PinP's advice not to rehire an employee if the employer wishes to do so. The fact that the employer is in a position NOT to rehire would suggest to me that these are in fact bona fide terminations. Therefore, I would never advise an employer to sacrifice his/her business needs to protect against the risk that the IRS might incorrectly conclude that the terminations were not bona fide. What I might advise is to wait two months before rehiring, assuming the employer is willing to take the risk that the employee won't find a permanent job elsewhere between now and then.

Don Levit: What about them (the "discrimination issues," that is)?

Whether or not there is a VEBA as the funding vehicle is not pertinent to the question of whether employee contributions can be pre-tax. They can be pre-tax only if made pursuant to a Section 125 plan. Whether the employer can, or does, or should, or must deposit $$ equivalent to its employees' contributions to a VEBA is a totally different issue.

austin and namealready: The 401k regs expressly contemplate a participant's election to give up DB benefits as not creating a CODA. In my view zora's fact pattern fits nicely within the regs. Why is waiving DB coverage in exchange for debt cancellation any less voluntary than waiving coverage in exchange for a higher salary? On the other hand, zora could remove all doubt by simply amending the plan to exclude this individual by name and reach the same result. Either way, presumably this individual would be a non-excludable employee for 410(b) and 401(a)(26) noce he satisfies the eligibility requirements, but I have the impression that zora is on top of that issue.

Whether it's a CODA or not is determined under the 401k regs. I don't think it's a CODA, assuming the waiver is made immediately upon hire and is permanent. No pt. I do have what might be a silly question, but I'll ask it anyway. What happens if the contractor comes to work, signs the db waiver, thereby triggering the debt cancellation, but quits within a year or even a couple of years? I doubt the employer would have saved much money, if any, on account of the db waiver over such a short period of time, especially if the contractor is very young.

Your title says "not allocated during correct year," but your facts say it has not been allocated at all. Therefore, this is a much easier fix than if you had already reallocated. I think you can self-correct, but you should study the latest EPCRS revenue procedure carefully and make sure there is nothing that knocks you out of self-correction. Have plan earnings been separately allocated to the forfeiture amount? If so, the correction should be a snap. Yes, you will have to make a distribution to the participant who received a distribution in a later plan year. Was he only partially vested? If so, then this case is a bit tougher because you'll have two forfeitures to allocate - the original one from 02/03 and then the next one attributable to the 04/05 distribution to the partially vested participant.

wsp: I suppose it was a little muddy; sorry. What I meant to say is that ERISA does not require a plan to use BIS rules. Therefore, if a plan does not use BIS rules, you cannot "fall back on ERISA and apply the BIS rules" as first Janet and then you suggested.

djw: Don't the 5310 instructions answer your question?

WSP, here's an illustration. Assume plan says you become a participant on first entry date following completion of a year of service. Assume employee satisfies those requirements, then later terminates employment. Plan has no BIS rules. 10 years later, employee is rehired. Without BIS rules, employee is immediately a participant. You must follow the plan document to the extent it is consistent with ERISA. It is consistent with ERISA to have no BIS rules. Therefore, the ERISA BIS rules are irrelevant.

MARYM is absolutely correct, imho. While purchasing life insurance through a QP is a terrible idea if you can get it and afford it outside the plan, it is a terrific idea for someone who needs insurance and either can't afford it otherwise or if it's the only way he/she can get insurance without underwriting.

They absolutely can establish a single, multiple-employer plan (to be distinguished from a collectively bargained multiemployer plan). Whether or not it's a good idea is another question given the separate testing, although there may be some economies of scale which all could enjoy.

The employer/plan administrator shouldn't worry about what preceded the divorce, or why there is no QDRO. If the plan is subject to the J&S requirements, or if the plan is not subject to those requirements but requires a J&S anyway for participant and spouse unless spouse consents to something, the only thing the employer/plan administrator must do is to satisfy itself that they are no longer married.

I agree that probably there are BIS rules in the document. But if it was an individually-designed document, perhaps not; you only need to include BIS rules if you wish to take advantage of them. Absent any BIS rules in the document, the employee would become eligible immediately upon rehire. Whether or not this was intended by the employer is another story.

It is not exactly true that you can exclude anyone as long as you pass coverage. I think excluding seasonal employees might be a violation of 410(a).

By the way, PAINPA, I am in PA too so if you want to talk to me about this send me an email.

If this is NOT a 501©, and it's a public library, you better check Section 403(b)(1)(A)(ii) and Section 170(b)(1)(A)(ii) to make sure it qualifies as an employer that can maintain a 403(b) plan. I'm inclined to think they cannot, which means you and your client have problem and you may need to pursue relief under EPCRS.

pt - no exemption - big problem

I don't think there is an official statement from IRS on this issue, anywhere. However, I believe it is implicit in the law and the regulations, let alone the text of the EPCRS Rev. Proc., that some minimal effort is required to inform a newly-eligible participant of his or her right to participate.

Why should anyone care a whole lot if the plan does not satisfy the Section 125 nondiscrimination rules? You can have a perfectly valid Section 125 POP even if it is discriminatory. In this day and age it is a crime (figuratevely speaking) not to have a POP if employees pay part of the cost of coverage. The only downside to the plan being discriminatory is that the highly compensated individuals and Key Employees won't get the pre-tax treatment, which is where they would have been anyway without the POP. Having said that, you may not be correct on the issue of whether the plan is discriminatory under Section 125. I don't think it's the slightest bit clear how you apply the Section 125 nondiscrimination rules to plans that are exclusively POPs.

mjb: Please cite authority for the proposition that 1041 trumps Sections 403(b) and 72 of the Code. I'll keep an open mind, but if 1041 does trump those sections, what does 414(p)(9) do?

1. If it is a non-ERISA plan (and sometimes that's a big "if"), the substantive QDRO rules do not apply. The only relevance of the QDRO rules are that the division of the benefits must be pursuant to a QDRO as defined in Code Section 414(p) in order for the participant to avoid being taxed on distribution of benefits to the alternate payee. 2. Unless there is a court order or a State law prohibiting or restricting the participant's ability to designate a beneficiary, he should be allowed to designate anyone he wants to designate as a beneficiary.

If the plan fiduciary has undertaken reasonable due diligence and believes that the investment is prudent (which doesn't mean "not risky"), consistent with the ERISA diversification requirements and the plan's anticipated liquidity needs, then there's no problem. Watch out for capital call requirements and other fine points that could change the answer. Also, as is the case with any investment, but usually more of an issue when something more exotic is involved, beware of prohibited transactions.

I believe that the deadline for amending to adopt DISCRETIONARY elements of the 401k/401m regs. is the last day of the 2006 plan year, but otherwise the deadline is dependent upon the employer's cycle under the new regime.

mjb: Maybe this is a forest-through-trees problem I'm having, but where is it stated that 457, particularly 457(f), does not apply to non-taxable compensation? Perhaps it is implicit in the statute (always a dangerous assumption when it comes to IRS), but if you can point me to something definitive I will owe you one.

Please let me know if you think there is IRS guidance pertinent to this issue. Tax-exempt employer makes a firm commitment to executive to continue to provide free health insurance for life after retirement or other termination of employment; or, stated differently, there is no "substantial risk of forfeiture" with respect to the executive's entitlement to this post-employment benefit. Is this commitment a deferred compensation arrangement subject to Section 457(f), or does it escape 457(f) because the deferred compensation is nontaxable compensation?