JWK

Regarding the employer shared responsibility point made by DDelano, only paid sick leave hours must be included in hours of service. 26 CFR 54.4980H-1(a)(24) (The term hour of service means each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and each hour for which an employee is paid, or entitled to payment by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence (as defined in 29 CFR 2530.200b–2(a)). ) Here, the questioner stipulates that the sick leave is unpaid. So, these unpaid hours would not be counted to determine the employee's full-time status. Under the lookback measurement period, it is sometimes necessary to take unpaid hours into account--but only for special unpaid leaves. Special unpaid leaves are limited to FMLA leave, USERRA leave, and jury duty. This doesn't seem to be an issue in this question.

I believe the employer is correct. If all employees on unpaid leave lose eligibility for coverage, then coverage is also lost for an employee on unpaid sick leave. Here, the group of similarly situated individuals is employees on unpaid leave. So long as all the employees on unpaid leave are treated the same (regardless of whether the unpaid leave is related to a health factor), this provision does not violate HIPAA. In this case, the group of similarly situated individuals is not being established based on a health factor. See 29 CFR Section 2590.702(e)(3)(ii), Example 1.

So your client filed Forms 1094/1095 but did not offer coverage to employees, correct? 1. Confirm that the client didn't offer coverage. ALEs can avoid the subsection (a) penalty by offering minimum essential coverage, which includes skinny plans. There's no minimum value or affordability threshold for the subsection (a) penalty. 2. Confirm client's status as ALE for the year in question. If they are close to the 50 FT employee threshold, maybe re-run the numbers. Make sure your client understands the meaning of FT and FT equivalent. 3. What year is this for? Transition relief was available for ALEs with fewer than 100 FT employees for the 2015 plan year. Your client might qualify for that relief. 4. If your client didn't meet the 95% test, then as you know even one FT employee getting a premium tax credit will trigger the subsection (a) penalty. Look at the penalty notice and confirm that any employee(s) who received premium tax credits were actually FT employees in the applicable month. 5. Confirm that the penalty was calculated correctly. The IRS did not always apply the "minus 30" portion of the subsection (a) penalty formula when calculating the penalty. The "minus 30" (minus 80 for 2015) is automatic--that would reduce the penalty by more than $60,000.

This information is PHI because it relates to the past, present, or future health care of an individual, or payment for that health care. An insurance company generally is not precluded from disclosing PHI regarding a family member to the primary subscriber. This issue usually arises in the context of EOBs. That doesn't mean that the information isn't PHI; it just means that disclosure is permissible (subject to the minimum necessary rule.) So, for example, the disclosure should not include diagnosis information. These disclosures also are subject to the "confidential communications" rule. So, even if disclosures of a spouse's PHI to the primary subscriber are generally permissible, the spouse's request for confidential communications could override the general rule. To determine whether the insurer's disclosure was permissible in this case, you should analyze the insurer's actions in light of the confidential communications rule.

Leevena, I'm curious as to why you think the employer can't recover this amount. This is a dependent care FSA, not a health FSA, so there's no uniform coverage rule. Check the terms of the plan, but usually a dependent care FSA says it will only reimburse expenses to the extent that there's funding in the account (i.e., amounts withheld from participant's pay minus prior reimbursements). I would treat this the same as any other unpaid indebtedness from an employee to the employer, e.g., if the employer had overpaid the employee in a particular pay period. I think getting the employee's consent is crucial since it may be required under state wage withholding rules. Always best to check with legal counsel familiar with state wage and hour laws before withholding amounts from employees' pay.

Thanks for the responses to date. The problem with the responses to date is that they fail to take into account the very specific rules for "excepted benefits" under HIPAA. For limited scope dental benefits to be excepted benefits, they must either (1) be provided under a separate policy, contract, or certificate of insurance, or (2) not be an integral part of a group health plan. 45 CFR 146.145©(3)(i). HRAs are not insured, so requirement (1) will not be satisfied. Requirement (2) (not an integral part of a group health plan) has a two part test: (A) Participants must have a right to opt out of the coverage, and (B) if a participant opts in to coverage, the participant must pay an additional premium or contribution for the coverage. 45 CFR 146.145©(3)(ii). Part (A) is not a problem, since it's pretty easy to make participation in the dental HRA voluntary. Part (B) appears to be a problem. Under IRS guidance, HRAs must be funded solely with employer contributions. Notice 2002-45, Section I. So, there's a fundamental conflict between the excepted benefits provision (participant contribution required) and the HRA rules (only employer contributions permitted). My question is whether anyone has found a way to resolve this conflict. Make employee contributions to the HRA after-tax?

One issue under health care reform is how the prohibition on lifetime/annual limits applies to HRAs. Some commenters have noted that this prohibition does not apply to dental-only HRAs that qualify as excepted benefits under HIPAA. My question is how a dental-only HRA can qualify as a HIPAA excepted benfit. To be an excepted benefit, the participant must make a separate election for the benefit and and must have to pay something extra for the benefit. Since an HRA must be funded with employer dollars (and not with employee pre-tax contributions), how can the HRA satisfy the second part of the test? Perhaps with employee after-tax contributions? Has anyone thought about this?

If pension plan participants elect direct deposit of benefit payments, TPA makes deposit but does not send any confirmation of deposit to participant. Participant can see the deposit was made by checking bank account statement. TPA sends 1099-Rs at end of year, but that is the only document that a participant gets showing gross pension payments, tax withholdings, etc. Is this a problem?

Has anyone seen a good discussion or any guidance on what makes a business associate an agent vs. an independent contractor under the HIPAA breach notification rules? I know that the preamble is replete with references to the federal common law of agency, but that is a huge field. The Restatement of Agency focuses on the right to control the actions of the business associate, which in the agreements I have seen is almost never present. I mostly work with group health plans, and the last thing they want is control over the business associate--performance standards, yes, but not control over performance of services. On the other hand, many of these business associates are held out to participants and beneficiares as authorized to act on behalf of the plan, e.g., EAP provider, third party claims administrator, COBRA administrator. Is that sufficient to make them an "agent?" That's different from the control test--they are acting on behalf of a disclosed entity, but does not fact make them an agent? I'm interested in other views on this question. Thanks.

Has anyone seen a good discussion or any guidance on what makes a business associate an agent vs. an independent contractor under the HIPAA breach notification rules? I know that the preamble is replete with references to the federal common law of agency, but that is a huge field. The Restatement of Agency focuses on the right to control the actions of the business associate, which in the agreements I have seen is almost never present. I mostly work with group health plans, and the last thing they want is control over the business associate--performance standards, yes, but not control over performance of services. On the other hand, many of these business associates are held out to participants and beneficiares as authorized to act on behalf of the plan, e.g., EAP provider, third party claims administrator, COBRA administrator. Is that sufficient to make them an "agent?" That's different from the control test--they are acting on behalf of a disclosed entity, but does not fact make them an agent? I'm interested in other views on this question. Thanks.

Employer and union considering moving from single employer DB plan to contributions to multi-employer DB plan. Existing plan assets would be transferred to the multi-employer plan. All benefits (existing and future accruals) would be delivered under the multi-employer plan. Any references to resources to review pros and cons of proposal? Thanks.

Has anyone seen data or even heard anecdotal evidence that filing VCP applications increases a plan's chance of being audited? Does the IRS even maintain data showing the number of applications a particular plan sponsor has filed?

Do rebates from drug manufacturers have to be reported as indirect compensation to a PBM on Schedule C? What if the plan is otherwise exempt from having to file a Schedule C because all benefits are paid from the employer's general assets?

Does anyone have experience asserting "mitigating circumstances" to reduce the VCP sanction for failing to timely amend for the final minimum required distribution regulations for a DC plan? We submitted a 401(k) plan for a determination letter in February 2007. Plan sponsor failed to amend for the new minimum required distribution regulations (actually, there was a 2 sentence amendment that said plan would comply with the rules, but with no detail whatsoever). IRS reviewer says sponsor failed to adopt a good faith MRD amendment, which I think we almost have to concede. However, all other amendments have been made on a timely basis, and the reviewer had only one substantive comment on the plan document itself (related to the top heavy provisions, which, given the plan's size, will never be an issue under this plan). Plan has been in operational compliance on MRDs at all times, which can be shown by the recordkeeper's adoption of a process to comply with the final regulations. Plan sponsor is looking at a hefty penalty for a single oversight during the 20-plus year history of this plan. Reviewer says he hasn't heard anything yet that would support mitigation. Can anyone help? Thanks.

Mbozek: thank you for your reply. I understand that only the amounts deferred during the UK service have to be tracked, but that makes the task harder rather than easier. Also, although your loan argument might or might not work, there's still the problem of the 59.5 in-service withdrawals. I think Harry O's suggestion makes sense from a strict compliance perspective, but I wonder if Inland Revenue would ever find out about these in-service "distributions" if we didn't tell them about them. Does anyone know if Inland Revenue has access to 1099-R information?

US employer sends some employees who are US citizens to United Kingdom for 3 year periods of overseas service. During their period of employment in the UK, these employees continue to make elective deferrals to US company's 401(k) plan. Plan just received notice from UK Dept. of Inland Revenue, requiring plan administrator to sign following statement: "The Plan Administrator hereby confirms that the individuals listed below have not/will not use the in-service withdrawal or loan provisions of this Plan to withdraw or borrow any contributions which were paid into their accounts during their service in the United Kingdom." The plan allows both loans and post age 59.5 in-service withdrawals. If they sign this statement, they'll have to track these amounts separately--not the end of the world, but a hassle. Has anyone seen this before? Has the plan administrator signed? I reviewed the 2001 UK/US tax treaty and don't see where this is supported in the text of that treaty (but I'm definitely not an expert in treaties). Any ideas?

I think the preemption argument is that the prohibition on using SSN identifiers is a restriction/requirement on how a plan is admnistered. dmj1998, I think your view of preemption is a bit narrow--ERISA also does not dictate how many days a patient has to spend in the hospital for amputation of a big toe, but a state law containing such a mandate would certainly preempted for self-funded health plans. Looking at this another way, what if one state mandated use of SSNs on patient ID cards, while CA prohibited it--so much for uniform national administration. The fact that ERISA is silent on a particular issue doesn't mean that preemption doesn't apply--that's the whole point to complete preemption. I think this law has to be preempted, at least for self-funded plans (I won't get into the insurance issues here), or chaos would ensue.

I hope this analysis is correct, and that formal guidance will be forthcoming. Meanwhile, how have you responded to participant requests to "opt-out"? Or has this not come up for you? (Notwithstanding the FTC regulations, a retirement plan looks to me like it may be within the definition of a "financial institution.")

Does the DB plan accepting the rollover have to offer a QJSA with respect to the rolled over amounts? I know that the rollover strips the rolled over amounts of any QJSA requirements under the transferor plan, but do the QJSA requirements of the transferee plan attach to the rolled over amounts?

It seems to me that ADP testing applies only to elective deferrals under a cash or deferred arrangement described under 401(k). A one-time irrevocable election to contribute is, by definition, not a cash or deferred election for 401(k) purposes and therefore, I don't see how the ADP test could apply. Moreover, pick-up contributions being unique to governmental employers, isn't it likely that the plan sponsor is not subject to ADP testing even if it has a grandfathered 401(k) plan?

Probably not true that the spouse/dependents get a 36-month COBRA period. The length of the period depends on the type of qualifying event that gave rise to the COBRA rights (and any subsequent event that would be a qualifying event). Unless there's been disability/death/divorce/Medicare entitlement/loss of dependent status, the 18 months is probably the limit. However, it's likely that all is not lost. If the COBRA period has been exhausted, it is very likely that the "new" plan cannot delay enrollment of the dependents until the open enrollment period. They are likely entitled to a special enrollment period, as required by HIPAA, for "loss of other coverage." Exhaustion of COBRA is a loss of other coverage. I'd tell the former employee to pursue this angle with the new plan.

This was a new design on me--trying to figure out if it can work. Forgive me if the answer's obvious. Employer sponsors one big DC plan, with two components. First component is a profit sharing/safe harbor 401(k) plan, using the 3 percent nonelective contribution. All employees eligible. Second component is a money purchase plan with a 4 percent contribution--only the owner/sole HCE is eligible. Assume this is being treated as one plan, even though two components. Is it permissible to test the money purchase component and the profit sharing component as a single plan under 410(B)? If not, how does the money purchase component pass coverage?

When there's a dispute about who is the proper payee of qualified plan benefits, people often mention the idea of interpleader. My understanding, albeit limited, of interpleader is that the holder of the funds (the trust) deposits the disputed payment into the court, and the competing payees fight over who gets the money. My question is about tax consequences and reporting: is this a distribution from a qualified plan? If the funds are held by the court, aren't they no longer subject to the tax protections of the qualified plan rules? Is the distribution taxable if not rolled over within 60 days (which I assume it wouldn't be, given the amount of time necessary to resolve the interpleader action)? Who gets the 1099 (the premise of interpleader is we don't know who the proper payee is)? Maybe you can argue not taxable to the payee until the court resolves the interpleader, but how does the plan resolve the reporting issue? Does it also wait until the resolution of the interpleader? What if minimum required distributions have to be made?

I know the voluntary correction programs generally require full corrrection for all affected plan years. What if failure goes back at least 10 years and data simply isn't available to make reasonable estimates, let alone fully correct? Does anyone have experience with the IRS waiving the full correction requirement where data is lost/unavailable? If we correct for 6 years, is that enough?

Carole: I agree with your points, but the part that concerns me about Sheila's plan (as I understand it) is the employee's ability to make an election to either cash out their PTO or to transfer it to another account (the reserve sick bank) for later use. It seems to me that the IRS would argue that the employees who elected the transfer had the opportunity to receive the cash and so should be taxed as if they received it, i.e., a constructive receipt analysis. I'm more comfortable with ronc's arrangement, where upon reaching the 720 hour cap, the choice is forfeiture or donation to Leave Share Program (i.e., no choice to receive current compensation). Maybe the answer is that the 25% reduction under Sheila's plan is a substantial restriction on the right to receive the compensation, so the constructive receipt issue is avoided (sort of a haircut provision). I'm not sure the IRS is receptive to this line of argument.