Belgarath

An employer has asked if a Medicare premium reimbursement can be "run through" a cafeteria plan on a pre-tax basis? This will display my ignorance in this arena, but it seems to me that while it may be possible to have a Medicare reimbursement program if the requirements of IRS Notice 2015-17 are met (i.e. those enrolled in Part B or D are offered health coverage that is minimum value and not solely excepted benefits) that it couldn't be pre-tax through a cafeteria plan? Or is that incorrect? I'd appreciate any thoughts on this. Thanks!

"When it comes to a qualification issue (Belgarath): How to you address the fact that you have a transaction that basically undermine the entire premise of your plan being established to provide a retirement benefit?" This is probably the only piece of this whole issue that I think is simple and straightforward - the IRS absolutely permits the use of "seasoned" money, and it is still routinely found in IRS pre-approved prototypes/VS documents. As far as I'm concerned, it isn't a qualification issue. The IRS will not disqualify a PS plan if you properly applied the 2/5 rule. As to the philosophical discussion of what the proper purpose of a PS plan should be, I decline to enter that debate. As to the rest, not necessarily so simple (at least as far as I'm concerned) and as I said, I don't have to deal with it any more. I think we have maybe three old takeover plans where life insurance is even permitted as an investment, and only one plan with a very old policy still remaining. Hurray!!! Signing off this one, as I have nothing useful to say (not that this is any change from normal...)

FWIW, my interpretation in the absence of specific document language would be all compensation for hours on which overtime pay is included. If you are getting overtime pay on all hours over 40, then to me, all of those hours are overtime, and you would exclude it all, not just the extra 50%.

Bill - certainly not saying you are wrong. There's a good argument for that position being technically correct. But I will say this - in a prior life with an insurance company, that company and many, many others didn't agree with what we termed "The Holland approach." As far as I know, Holland's interpretation was never adopted as official policy by the IRS, and I never saw imposition of taxation in that situation on audit where the 2/5 rule had been utilized. Maybe just lucky... Of course, I've been out of that for a long time, and it may have changed. I thankfully no longer deal with these issues, and I don't miss it!!

Agreed (I'm assuming this isn't a Church plan). For reference, see 1.403(b)-5(b)(4)(iii)(B).

Thanks for the responses. We're responding via a faxed letter - my experience with phone calls (holding forever, then getting someone who doesn't know a darned thing) is horrific. Once in a while it works, but avoiding that route on this one. Will be interesting to see how quickly or slowly it gets fixed.

They try hard, but they just can't ever seem to get things quite right. I recently (August 29th) submitted a delinquent 5500-EZ filing (years 2005-2015). Naturally, each form had the required wording on the top of each form, and the full penalty of $1,500 was submitted, etc., etc.) No 5500 forms were ever filed for this plan prior to this. So, now that they have "entered" it on their system, they generated a CP283 Notice assessing an $800.00 penalty for the 2015 form being submitted late! Gotta love it...

I don't think you will find statutory or regulatory authority for this position. Waaay back, maybe in the late 1990's or early 2000's, an IRS representative put forth this theory at an ASPPA conference, but as far as I know, there is no supporting guidance, and opinions from the podium are just that - opinions. Official guidance appears to only require taxable term cost be paid, even on the excess. Now, I don't know whether the IRS does, indeed, take this position and whether it has ever been litigated. Hasn't to my knowledge. The worse outcome is that exceeding the incidental limits is a qualification issue, and the IRS COULD disqualify the entire plan. However, I believe this can be corrected under EPCRS (Revenue Procedure 2016-51) but I thankfully haven't had to deal with life insurance in pans for several years now, so you'd want to look that up.

But make sure you first confirm incidental limits were actually exceeded. Plan may utilize 2/5 rule if participant was eligible for it.

Great, Tom - so now it'll be, "Every Who down in Whoville, the bigly and the small..." I know, I know, that isn't the meaning you presented. But since you are Grinchifying this board...

Anti-cutback rule only protects accrued benefits - not the right to accrue future benefits. So, if you have immediate eligibility, and you amend for the next year to be one year of service, then those folks who participated previously but do NOT have a year of service in any year will not be eligible to participate. You CAN grandfather in existing participants, but aren't required to. Of course, if they have already satisfied a year of service, then the amendment won't exclude them. You'd have to find a valid exclusion classification to then exclude any such people. I see ETA replied while I was typing...I type very slowly with all these extra thumbs.

If truly a new plan, and not adding a safe harbor provision to an already existing 401(k) plan, then you could give the SH notice as late as January 1, 2017.

Hmmm...interesting question. Without doing any additional research, I'm inclined to think that 414(a) would require crediting service with the prior employer. As an aside, IF the technique is valid, could you use two year eligibility rather than one year, and get one more year before freezing?

Thanks Peter, that's very generous of you!

Thanks all. Peter, thank you very much for your offer, and it is great to know that you have specific expertise in this area. If it becomes necessary, we'll certainly refer the client to you - but this particular client generally prefers the "ostrich" approach, and isn't going to take any steps unless DOL actions make it mandatory. It'll be interesting to see where this goes...

So, suppose the following: A 401(k) plan is selected for DOL review. They send the normal checklist requesting documents, etc., within 10 business days. This, (naturally) happens to be a messy plan, not in terms of any malfeasance, but the sponsor had tremendous financial difficulties and is just now emerging from bankruptcy, although not yet formally approved. 5500's have not been filed for a couple of years, because they had absolutely no funds to pay for plan audits, etc. - plan sponsor was aware of the problems/risk, and was planning to file under DFVCP as soon as possible. Here's the question, because I've had very little experience with bankruptcy situations. When the client submits the documents, which obviously will highlight the fact that 5500's have not been filed for 2 years, should they also submit any sort of explanatory statement, referencing the bankruptcy and including a copy of the bankruptcy filing? Or, do they just submit only the documents that were requested (practically everything) and wait for the next step? My normal inclination would always be to submit it "up front" and get it all out in the open, but as I said, I have no experience in such a situation, and wondered if someone else did, and might have some pearls of wisdom? Thanks!

I say 100%. If the document required 1 year of service with at least 1,000 hours to be eligible, then I'd say she never became a participant, but that's obviously not the case here, since she as profit sharing contributions. So she "participates" each year, and is 100% vested.

Thanks. I wondered about that aspect as well, but I couldn't find any hard guidance prohibiting the amendment. Might not be the best practice in terms of employee relations, etc., but I haven't yet been able to find anything saying you can't do it. Hope you all have a great holiday!

Plan is subsequently (prior to 12/31/2016) AMENDED to remove the safe harbor provision for 2017. I see no problem with this, but I've had several different people disagree with me. I don't see any legal obligation to continue the plan as a safe harbor plan for 2017 just because a safe harbor notice was distributed, as long as the plan is amended prior to the beginning of 2017. Am I wrong on this?

Congratulations on your impending retirement! Kevin - I had forgotten about this case. But as you can see, given my level of general distrust, if I had an ex (or KNOWINGLY soon-to-be ex, you can bet I would have taken precautions! Of course, one never knows, perhaps my spouse is secretly plotting about how to become an ex, after draining our accounts to run off with some young masseur (we don't have poolboys here in the frozen North - season is too short).

Truth is stranger than fiction, isn't it? The idea of payout to an incorrect person is of personal interest to me at the moment. This is off-topic, but a short version of the story. My own 401(k) account with a prior employer is currently with a MAJOR insurance company - my former employer switched platforms/investments last year. When I went to set up my on-line access, the following appeared (just one paragraph in a much longer disclaimer - and I've deleted the name of the insurance company): Any transaction(s) entered by an individual using your User ID and Password will be deemed to have been authorized by you, unless you have previously notified **********, in a timely manner, of the loss, theft or unauthorized use of these personal identifiers. If you become aware of the loss, theft or unauthorized use of your User ID and Password, you must notify ********** by phone or in writing (delivered via U.S. Mail, certified, return receipt requested) at the address below. Note, too, that if an accountholder authorizes a third party to access his/her account and/or our services, the accountholder agrees to defend, indemnify, and hold ********* and parties contracting with ********** not responsible for any liability, losses, damages and reasonable costs and expenses (including attorney fees) arising out of claims or suits by any such third parties based upon or relating to such access and use. It is the first sentence that is of concern to me (I have no problem with the rest). If someone somehow steals my identifier, or obtains it through hacking into the insurance company's website/database, etc., how would I ever know, until my account has already been emptied? When I brought this to the attention of the Plan Administrator, as expected, I got nothing. They referred me to the insurance company. After 3 months of back and forth with the insurance company, and the typical obfuscatory BS statements crafted by their legal department, all of which when translated, say, "just trust us" I am finally in the last stages of finalizing a procedure whereby no DISTRIBUTION may be made based on an on-line request. My account will be flagged to only send out distribution forms to my address of record based upon a telephone request with a special "challenge" question. Now, I realize that I can just roll the money out of there, but I'm wondering if this type of disclaimer is standard in the financial services industry? And it may seem like I'm being overly paranoid, but almost daily we read about major security breaches, etc., so I'm less trusting than I used to be. Any observations?

The ASPPA conference being referenced was in 2010. I'm not aware of anything on this since then. And with the penalty being so extreme, certainly not worth taking the aggressive position as far as I'm concerned.

I agree with Kevin. That's what I was saying as well, although I was using a calendar year plan as an example, since I find it easier to illustrate calendar years...

Yes, I agree.

Don't know the context of the rest of what was being said. If in the first year, employee goes over 1,000, then would have to be covered starting in year 2. For example - hire date of 1/1/2016 - "expected" to work less than 1,000 hours, so is excluded. But ends up working more hours for whatever reason, hits 1,000 hours in September. Doesn't have to be covered (eligible) for remainder of 2016, but will be eligible as of 1/1/2017, and all years thereafter.