Eric Taylor

Basic deferred comp plan permits participants to defer up to 85% of income. Most don't defer that high or if they do don't have a problem with other deductions. One participant however, has significant deductions for other benefits including basically every welfare plan offered such that FICA taxes and other deductions from pay before the deferred comp deferral total just over 16%. In short, he cannot defer the requested 85% and cover taxes and benefit plan deductions. The plan, for better or worse, does not expressly address conflicts with other deferral elections (not sure if it would help even if it did). What to do here? Seems inappropriate to disregard or invalidate the entire deferral election. Are they best to honor the deferral to the maximum extent possible? If so, is it fair to assume that all other deferral elections (health insurance, flex plan, deferrals) should take precedence and just put the remainder into the deferred comp plan even though not at the full election level?

Thanks. Understood. For better or worse the reasonableness piece was not my call. But to be honest I'd have something of the same issue if it was 3 months or 4 months instead of 8. While that is admittedly likely a bit extreme, the ability to know for sure how long the insurer would permit is a real concern--especially if the EEOC and others continue to push employers on the reasonable accommodation piece. In this particular case, the accommodation was not really a concern for the employer except for the handling of benefits. (Agree with you on setting a precedent--lawyer has indicated that we should be able to fairly easily distinguish from other lengthy cases creating undue hardship.)

Thanks. I hear you. Have been working closely with employment counsel on this and there are some unique facts. This individual is basically a floater with minimal skills in a large office--i.e., the employer can basically easily hire a routine clerical temp to cover most of their job functions so they felt difficult to make an undue hardship claim here. Plus it is a sad and tragic story so there is desire to be as "accommodating" as possible in this case. No doubt we are beyond the usual period here but the fact that there is no clear max set by the insurer is a danger to employers at lesser leaves--for example, what if it was for 3 1/2 months or 4 months so not really much beyond the 3 months. Based on the EEOC rulings, we have been advised to carefully consider each situation on its facts and engage in a detailed analysis of what is an appropriate reasonable accommodation

Thanks. Agree with you that this is unlikely to come up except in big ticket cases; however, when dealing with individuals out on post-FMLA / extended ADA reasonable accommodation leave it seems we probably have a pretty good chance of running into those situations. It's also likely not difficult to tell based on the claims who is likely to be absent from work or being covered under some extended leave arrangement if the insurer looks. While we usually have limited cases of post-FMLA / ADA leave and those we do have are usually pretty brief, the current situation involves a case where the employee's Dr. provided a return to work date that is 8 months out. So while we don't have an indefinite period, we do have a pretty long leave period in this case. The individual is not active, cannot work, etc. but has not been terminated and is being provided this leave as a reasonable accommodation leave under our policy. Employer here just wants to do the right thing and is willing to pay premiums for leave period (whether as regular coverage or whether as supplement to COBRA coverage) but does not want to be at risk of self-insuring the benefits if the insurer challenges anything. Employer would ideally like to establish an extended leave policy that provides coverage up to maximum period insurer permits if applicable to a particular situation but if the insurer won't say what that is and we provide coverage for 8 months (hoping the max might be 9 months) but the insurer later surfaces and says the max should be 6 months (or less) then this seems to put the employer in a dangerous spot. Not to mention that there are conflicting statements on the insurer's website about extended leave coverage given what is found in the booklet (all of the statements rather vague though). It just shouldn't be this difficult to figure out what the contract / insurer permits.

Thanks. This gets a bit maddening. Had someone at the insurer suggest they "don't really police these sorts of provisions" but then admit that coverage cannot continue indefinitely so I asked "Does that mean 1 month, 3 months, or more like 9 months? Can the employer just set their policy at some definite leave period and continue coverage for at least that long so long as the employer is consistent?" Response was that it was probably more like three months max but it's not really written down anywhere by the insurer. How is an employer supposed to draft a policy that correctly tracks the insurer's documents when those are so vague almost to the point of ignoring the issue.

Working with a BCBS group health insurance contract that gives employers the chance to elect "Pre-65 Retirees (Before Eligible Retiree Coverage) as a special eligibility / coverage category in addition to the default coverage for active, full-time employees working 30 or more hours per week. There is a box for checking yes or no but no real request for additional information or parameters. Employer has in the past attached a simple addendum explaining their general early retiree health insurance benefits (not sure if BCBS has required / requested that they do that or simply what has happened in the past). In any event, the employer's Pre-65 coverage is not spelled out under their retirement plan or other policies in any detail--i.e., it's just sort of loosely reflects how they have in the past decided to administer this coverage. Included among this is a general understanding that coverage will not be provided to individuals who are eligible to elect early retiree pension benefits who are involuntarily terminated by the employer or quit to take another job and so are not truly "retiring." Am wondering if this is common place or routine and, in particular, what sort of parameters, if any, BCBS places on Pre-65 Retiree eligibility? BCBS is not being very forthcoming with how to think about their own contract / forms. Thanks.

Somewhat related question. In looking at this in connection with new group health plan certificates / booklets, the general insurer discussion seems very confusing / lacking. In many spots, it is suggested that an individual will no longer be eligible for group insurance when no longer actively employed (or actively at work or some similar term) which might seem to suggest that coverage would end following mandated FMLA leave if the individual remained out on ADA reasonable accommodation leave for some period. However, in other spots the certificates suggest coverage may continue (seemingly perhaps for some limited but undefined period) depending on the leave policies of the employer, etc. I'm mainly looking at description in an insured group health policy but in looking at a few of these for comparison as well as at some other welfare plans the descriptions seem all over the place and anything but precise. In essence they seem to want to provide for some flexibility consistent with the employer's policies; however, the employer's policies really don't address and are afraid to do so because they want to provide whatever maximum benefits the insurance policies may permit. Seems to me kind of like a big game of chicken where neither side wants to really set precise limits. Am I off base on how I'm reading / interpreting these sorts of provisions? Thanks.

Thanks very much. This is very helpful. Just to confirm, I assume you are talking about Example 4 of the Reg. 1.125-4©(4) where they permit a change to the underlying coverage options (i.e., switch from HMO 1 to either an indemnity plan or HMO2) in connection with the transfer? My understanding is that the change in status rules generally permit changes to the underlying coverage option along the lines of this example to be made in connection with most changes in status. My assumption has been that the same principle likely applies to permit changes in coverage options between a regular plan and a HDHP and is not intended to be limited to changes among an indemnity plan and an HMO but I have not seen any express reference to a HDHP in the regulations thus far. I can understand that result but am wondering if there is any concern extending this to cases where both options (the regular plan and HDHP) offer identical networks / coverage but just carry different deductibles / premiums, etc. For example, while a change in work location could have a significant impact with respect to regular network benefits under two different coverage options with different networks,etc. (i.e., the existing HMO coverage might not extend to new location and so clearly warrant a change). Any concern with extending that thinking if the two coverage options--primary plan and HDHP--provide identical benefits. Seems in that case a transfer to a new work site would not necessarily give rise to the need to change arrangements as coverage / benefits available are identical. Beyond the immediate change in status rule question, I'm also wondering how switches from regular plan to HDHPs midyear works in practice where deductibles change and/or there are potential issues with regular FSAs and HSAs tied to HDHPs. Seems this could create a lot of administrative issues. Surely this comes up with some frequency. I cannot seem to find any good analysis or discussion though.

Are there changes in status that would permit participants to switch from a PPO option to a HDHP option midyear? I can think of arguments why that might make sense but not sure that they necessarily fit the consistency requirement.

Welcome any thoughts on this. Frozen plan has participant with max years of service who is still working at age 69 so well beyond normal retirement age of 65. When he hit NRA, benefits did not commence and are being adjusted for delayed retirement but will soon hit compensation cap for high 3 under 415(b)(1)(B). Actuaries advise that the plan should start distributions as of the date he hits the 415 cap as no suspension notices provided / contemplated. 1.415(a)-1((f)(7), however, seems to speak in terms of distributions needing to commence at normal retirement age. I can see how that makes sense if a 415 limit exists as of the NRA but am unclear about the authority / practice for commencing as of the date the 415(b)(1)(B) limit is reached due to post-NRA actuarial adjustments. Appreciate any thoughts or guidance on this.

If an employer needs / desires to limit number of participants in a newly designed disease management program providing benefits to employees diagnosed with heart disease or hypertension, could the employer: 1. Limit participation in the program to a maximum number of participants at any one time on a "first come, first served" basis such that not all similarly situated employees (i.e., employees diagnosed with hypertension or heart disease) are treated the same? 2. Impose a minimum age requirement (e.g., 50+) as a way of further concentrating the benefits of the program [or further limiting eligibility]? If there is an issue under ADEA or otherwise with excluding some otherwise eligible participants based solely on age (e.g., employees aged 40-49), could you possibly address the ADEA issue by dropping the minimum age down to 40 such that you were still favoring older employees (reverse discrimination?) but not excluding anybody 40+ protected by the ADEA? Thanks

KJohnson, Thanks very much. That is very helpful on the ACA piece. Curious if you have a thought on how that may relate to the general 125 cafeteria plan question and constructive receipt concerns. Seems that generally assumes proper cafeteria plan operation where there is an express cash out right. In this case, the employer seems to have thought of this as a two part process. First they would explain the waiver and get people to agree on waiver / comp. Then they would take the lower amount for those participating and think of that as the total annual comp. From there, participants were given option to make deductions under the cafeteria plan for other benefits costs. In short, they appear to have viewed the waiver choice as a negotiation over annual salary rather than a cash out in any way. I'm not sure that works. Do you see others doing that? Is it possible to view that as a cash out under the cafeteria plan even if not structured that way? Thanks.

Thanks. Very helpful.

Thanks to all for your thoughts. As to the $12,000 amount, that figure dates back a couple of years but we understand reflects what the employer was charging overall for family coverage among other employees not participating in the waiver. I suspect that may not reflect the full total cost of coverage but, in any event, the employee-only participants given the credit waiver opportunity do appear to have paid basically double what those outside the credit waiver group were paying for employee-only coverage. Perhaps that is okay if the waiver amount really is close to total coverage amounts and would just reflect the company setting different rates for different groups but we've never seen a situation where the waiver amount approaches full cost so has us concerned and puzzled on a number of fronts. Agree about the ACA concerns noted too--just haven't had time to even really try and sort that yet given what appear to be potential tax and prohibited transaction concerns.

Would welcome any general thoughts on an unusual (at least in my experience) variation on providing employees cash to opt out or waive group health plan coverage: Here are basic facts: large employer had a division whose employees were eligible to participate in company's group health plan. The division, however, is comprised of mostly younger workers in competitive field, many of whom desire cash more than healthcare coverage. Employer established program whereby employees were basically told in writing the amount of compensation they would receive for the upcoming year if they waived participation in the group health plan and the amount they would receive if they participated. In this case, all in division were told they would receive roughly $12,000 less per year if they participated. (For example, employee would be told their compensation would be $65,000 if they waived or $53,000 if they participated.) This $12,000 amount was roughly equal to full annual cost of family coverage but the amount was applied to employees electing employee-only coverage as well assuming that a single employee could potentially trip into family coverage later. Surprisingly, some employees elected to participate in the plan, including some single employees electing employee-only coverage. As a result, these single employees effectively ended up paying more than twice what employee-only coverage generally cost under the plan, Questions / issues: 1. Although the employer had a cafeteria plan in place to cover other pre-tax deductions, the waiver / opt out arrangement appears to have been handled outside the cafeteria plan as more of a salary negotiation process rather than a cash-out election under the cafeteria plan--i.e., for those electing coverage, the employer just treated their gross pay as $12,000 less than they otherwise would have for the year and never reflected the higher potential salary amount except as part of the initial waiver notice. Appears the cafeteria plan does not expressly contemplate a cash-out right and the waiver was not run through the cafeteria plan in any event. This seems like a clear constructive receipt tax concern whereby those electing coverage might still be thought to have constructive receipt of the full $12,000 in forgone salary. Does that seem correct? Anybody see potential to treat this as a legitimate cash-out under the cafeteria plan even though it was not handled as a cafeteria plan cash-out? 2. Apart from cafeteria plan issues, do you think the size of the reduction for those seeking employee-only coverage was so large it was tantamount to basically excluding them from the plan or, in essence, forcing them to opt out? (Obviously some elected to participate so that cuts against the argument for some but for those at lower income levels the choice might not have been a real choice at all.) Could that be viewed as interfering with their right to participate in plan giving rise to potential ERISA Section 510 claims? 3. My real question--do you think the fact that the employer has essentially applied a salary reduction twice the size of actual cost of employee-only coverage gives rise to ERISA exclusive benefit and prohibited transaction issues? (They did not technically deduct and hold twice the cost of coverage from paychecks but, in essence, one could argue that since the employer benefited by never having to pay the additional amount out as salary.) Large employer overall so I'm sure there are a host of ACA issues / ramifications with all of this as well but am just trying to get handle on more basic potential tax and ERISA prohibited transaction issues at this stage.

I need to identify three independent benchmarking services for consideration to benchmark fees in a medium sized 401(k) Plan. Although I find lots of discussion in articles noting that independent benchmarking services are increasingly available and are a best practice, I do not see many references to specific providers in any of these discussions. Can anyone point me to a resource listing top benchmarking providers or would anyone be willing to say who are some of the industry leaders in providing independent 401(k) fee benchmarking services based on personal experience? Thanks

Dumb question but if you charge more for smokers and offer a smoking cessation program as an alternative for tobacco users, is the requirement to participate in the smoking cessation program an annual thing for those individuals that do not quit or do you merely have to participate one time such that the following year you get the benefit of the lower rates even if you continue to smoke? If the later, can you change up or introduce a new smoking cessation program and require individuals to take the new program to reduce the rates? Any general suggestions as to how one might increase the percentage of non-smokers if increased rates and the smoking cessation program has not worked well?

Just reading the earlier post, it appears the new state of residency doesn't have a personal income tax so there probably isn't much or anything to be done with respect to reporting payments to that state but employer just doesn't want to be bothered. Their preference would be to just report and withhold state income tax payments to the one source state that all their participants have in common rather than having to worry about reporting / withholding to another state (be it taxable or nontaxable). I suspect it's unlikely to be that easy but if their direct question is whether a new state with whom they have no other contacts could legally compel them to report the withholdings, I'm not sure. The federal law prevents states from taxing those amounts but I'm not sure it requires employers to report to states with whom they don't have contacts. Seems for most large, multi-state employers the federal rule could help save them time and hassles but in the case of a single state company it arguably complicates things.

Thanks, Alonzo. Sorry for the confusion. The plan is a multiple employer plan / MEWA and classifies itself that way for regulatory purposes. My reference to a single plan here was meant to reference not that they classified it as a single-employer plan sponsored by a single controlled group but that the association views the arrangement as generally being one "plan" with one plan document, one SPD, one Form 5500 filed, etc. but with multiple employers participating in the MEWA. In other words, each participating employer does not have its own plan document, SPD, Form 5500, etc. but is considered to be participating in one multiple-employer plan. I hope that makes sense. In this case, the participating employer has been participating in the plan for some time--prior to health reform and grandfathering rules--but wants to change the coverage for dependents with other coverage for next year. That seems to raise obvious grandfathering issues to my mind but the plan has some flexibility built in to try and permit each participating employer to determine who their group's eligible participants are. This particular employer wants to use that "flexibiility" to not just determine say which employees are regular full time employees versus part-time or temporary employees, etc. but to impose restrictions on dependents with other health coverage. Again, that seems problematic to me from a grandfathering perspective but my real question is broader than that and has to do with how much flexibility, if any, a MEWA might build in for different participating employers apart from grandfathering considerations, etc. For example, let's assume we are beyond grandfathering, could the plan permit participating employers to select from a range of waiting period / entry requirements--e.g., a choice of (1) a zero waiting period, (2) a 30-day waiting period, or (3) a 60-day waiting period such that one employer could permit immediate entry upon employment, another employer could require a 30-day waiting period, and yet another employer could select a 60-day waiting period?

Thanks, Calavera. Anybody have suggested language for such an agreement for a non-PBGC plan they care to share?

Chapter 9, XI D of Sal Tripodi's ERISA Outline book notes the following: "Normally a voluntary waiver of benefits by an HCE is a violation of the anti-cutback rule of IRC 411(d)(6). See TAM 9146005. However, IRS will permit a majority owner to elect to forego receipt of benefits from an underfunded plan. See IRS Announcement 94-101 (audit guidelines for plan termination). In IRS' mind the "foregoing" of receipt is not the same thing as waiving the benefit. When the majority owner foregoes receipt of the benefit, he is still acknowledging that he is entitled to the greater amount, but is agreeing to have the other participants' benefits satisfied first out of the available plan assets." The section goes on to note that this coordinates with PBGC's rules for standard terminations under which a plan may be permitted to use a standard termination if a majority owner agrees to forego receipt or basically waive benefits to the extent necessary to make the plan sufficient per PBGC Reg. 4041.21(b)(2). I think all of that is consistent with the prior discussions here and Mike's good advice. I am still wondering, however, if a majority owner must execute an actual election to forego benefits to the extent needed to ensure distributions to others and, if so, whether that must get filed with the IRS in any fashion or otherwise provided to anyone when the Plan is not covered by the PBGC? Ideally seems that such an election / agreement should be signed and maybe included with (or at least referenced in) a determination letter request to the IRS but plan here wants to know minimal requirement if they do not file for a determination letter. Seems that should include ensuring the plan clearly provides for nondiscriminatory allocation of benefits to NHCs first and having the majority owner execute a formal election to forego receipt of benefits to the extent necessary then simply holding that executed election in the file? Any thoughts or other tips for best practices welcome.

This may be more a MEWA question but the arrangement involves a VEBA too and I'm as worried about the VEBA rules as anything so thought I'd post here. MEWA has been set up by local professional association to provide group health coverage and is viewed / treated as a single plan sponsored by an association for ERISA purposes--the plan is sponsored by an association of industry-specific employers in a particular city and generally exerts strict control and management over the plan / arrangement so please assume for arguments sake here that the group generally constitutes a bona fide group for purposes of establishing a single ERISA employee welfare benefit plan. The arrangement is funded through a VEBA. Individual employers sign up for the plan and sign participation agreements, etc. to participate in the plan. Some groups for 2013 wish to exclude coverage for dependents under age 26 with other health coverage from participating in the plan. (Plan is grandfathered so could presumably do this until 2014.) Other employer groups do not want to do this. Association doesn't really care--wants to provide flexibility to make each participating employer happy--so long as permissible. Question is whether it is possible to give each participating employer the ability to set specific eligibility / coverage terms under this single plan so that some can cover all dependents without restriction and others can elect to cover only those dependents without other group health coverage for 2013? Would having different eligibility / coverage rules for different employers potentially cause nondiscrimination concerns for VEBA and 105(h) purposes, destroy the ability to treat the arrangement as a single plan for ERISA purposes or otherwise cause other problems?

Filing a 5310 for on a plan that was set up through a volume submitter. Question 3© of Form 5310 asks if the plan has previously received a Determination Letter? I have seen some answer this yes and others answer it no when the plan has only relied on the Opinion Letter issued to the volume submitter provider. I'm thinking when the 5310 asks about a DL, they mean an individual DL for that particular plan and so this should be answered no. Is there a correct way to do this. The instructions do not go into this sort of detail. Thanks.

Am interested in thoughts / experiences of other companies that have used company intranet or websites to provide copies of an SPD. My understanding has always been that we cannot simply post the SPD there and tell people where it is and they can go look at it at their convenience. Instead, I've always understood that compliance requires more direct delivery or notification. The majority of our team members work in offices with their own computers and company email accounts so I think the additional step required for these TMs is simple--we just send them an email with a link to the SPD and follow the same email notification procedures if the SPD or other documents are updated. My concern though is what is required for our other team members who work in the field and distribution center and don't have a company computer (or at least don't routinely use computers or get daily emails to a company email account, etc.) Is there any way other than getting a personal e-mail address for these individuals and having them consent to delivery / notices at that address to satisfy the SPD rules? For example, we have computer stations and terminals with free access to the intranet (and internet) at all of our work-sites so these TMs can easily get to the SPD or other documents (and can print out or request a print copy. Could we provide them written notice of the intranet access and ability to log on from company work sites and provide regular written notice of any changes or additions to the items posted on the intranet and still comply? It seems that in order to track the DOL rules simply providing written notice of the documents (and written notice of any future changes) is not sufficient and they need to receive an email at some personal email address they have consented to use for such information if the actual documents are going to be housed electronically. My boss thinks this is too complicated and says her old company used to just post on the intranet for all employees and did not send notices at all really but definitely not to anyone's personal email address.