Belgarath

Gracias. Thanks for confirming.

I realize that Davis Bacon contributions can be used to offset employer contributions that are otherwise required if the plan document is set up to do that. However, for deferral purposes, I assume if compensation is defined as W-2, and there is no exclusion for Davis Bacon wages, then deferrals must be withheld, right? And if Davis Bacon comp is excluded, it would be subject to compensation ratio testing, which might very well fail? Let's say total compensation for the payroll for an individual is $2,000. But of this $2,000, the employer contributes $200 to profit sharing, under the Davis Bacon agreement. This means that if Davis Bacon wages are not excluded for deferral purposes, the employee's compensation for deferral purposes is $1,800, right?

Thanks - and all of these benefits would be non-taxable, other than the money used for the IRA?

Agree with Luke.

I haven't seen a plan document (if there is one) but here is the election form. Each employee that is given this form is allotted (x dollars). This is money the employer gives them. The employer does not deduct anything from their paychecks. The bookkeeper writes checks to employees directly after they submit supporting documents stating that they used the money for things such as medical bills and/or dependent care costs. I haven't seen such an arrangement before, as I don't deal with welfare benefit plans. Is this common? Given that they have a choice between the other benefits and cash to be deposited to an IRA, are the health/welfare benefits still non-taxable? If this is actually under a cafeteria plan, is there a problem with the IRA arrangement - since the money isn't actually put into the "plan" then this seems ok? I'm very confused by this arrangement... Flex Benefits Enrollment Options (Year) If you would like to participate in the Flex Benefits Program, please read the following and fill in the information on the included form. For the contract year 2018-2019, (employer) is offering the following Flex Benefits to each staff member who is currently working 30 hours or more: For the (x) contract year, the (employer) Flex Benefits amount is (x). This is to be prorated from date of hire. These funds may be used in the following ways: All or some of the funds can be allocated to purchase health insurance provided by the (employer). All or some of the funds can be allocated towards medical expenses not covered by other health insurance plans. Please note: Medical benefits may be paid to a designated beneficiary (other than the employee’s spouse or dependents) but this will then be considered taxable income and must be reported. All or some of the funds can be allocated for Dependent Care. All or some of the funds can be allocated for an IRA set up through the (employer). Please note: You may allocate funds not used for the above to be put into an IRA at the end of the year. However, this will be considered taxable income and must be reported. In addition, you may contribute your own PRE-TAX dollars into option number 5. By signing this, you acknowledge that you understand that you are committed to the enrollment choices on this form for the entire contract year of (X). Flex Benefits for Year (X) Name:___________________________ Social Security #:___________________ Flex Benefit Portion Employee Portion Health Insurance $_________________ Medical Expenses $_________________ Dependent Care $_________________ IRA $_________________ $_____________ IRA: I wish to allocate any unused portion of #1, 2 or 3 to an IRA, understanding that this will become taxable income and must be reported. _________Yes __________No AUTHORIZATION: I certify the above information to be true to the best of my knowledge and that the children for whom I will be claiming dependent or child care expenses either reside with me in a parent-child relationship or are legally dependent on me for their support. I further understand that the Flex Benefit amount will be in effect for the entire plan year and cannot be revoked except as permitted by federal law. Signature:___________________________ Date:________________

There are discussions of this subject, but didn't find one QUITE on point for this specific circumstance. 401(k) plan, key person has deferred more than 3%. Not a safe harbor, but there is a discretionary matching contribution. Business is ceasing operations, probably in September. Plan will be terminated. The employer does NOT want to provide a top heavy minimum. No employer match or profit sharing contribution will be made for 2019. Seems like if they make the plan termination date as 12/31/2019 rather than in September as they originally proposed, but all employees are gone as of, say, September 15, then they fail the last day requirement and no top heavy is due. Is it that simple, or am I missing the boat? (It would be different if they made the plan termination date, say, September 15th and that is the day all employees terminated employment.)

Thanks.

Leevena - is it doable if only 1 employee out of 7 or 8 "normal" full-time employees is eligible to participate, and that one person is an HCI? I'm not seeing how this would pass testing, unless there's an exemption I don't know about. Is there? Is there a reference to some official guidance that says an employer who has a group health plan can set up an HRA for only one person who is medicare eligible, exclude everyone else, and the plan is not subject to testing? LSon - I really don't know why - I'm just trying to find out if such a thing CAN be done without the plan being subject to eligibility/benefit testing. I'm not concerned, at least at this point, about age discrimination - I won't even go there until I attempt to determine whether this is a non-starter under normal eligibility/benefits testing for an HRA. Thank you both. P.S. - unless there is a definitive "yes" to my question to Leevena, then I won't bother y'all any further, and just tell them to seek competent advice.

Now they are asking if an HRA can be set up where only the Medicare-eligible employee is eligible? They thought this could be done. Well, I suppose it could perhaps be done IF it could pass nondiscrimination testing, but in this situation it won't. Is there any such arrangement that is exempt from the 25% HCI test under 105(h)? I haven't heard of such a thing, but that doesn't necessarily mean anything... I wonder if perhaps they might be thinking of a Retiree-only HRA? Which this wouldn't be anyway, as it is an active employee. Sigh...and THANK YOU for any input. I'm trying to answer this as a favor, and I think I made a big mistake by not turning it away immediately!

That is quite likely, because I don't have much to do with 125 plans. I suppose if I saw a plan where they withdrew the unused funds to pay the water/sewer bill on the theory that "it's ok as water/sewer is a municipal charge" I would call that weirdness as well. Anyway, I told the broker they can't do that, and I'd be very surprised if their document said they could. He said he's not even sure that they have a document... Things are never (or rarely) dull!

'Cause you can't do it?

Thank you. Yes, I'm just doing some preliminary checking. Although I have little involvement with 125/HRA plans, I see way more "weirdness" per square inch than in the qualified plan market. Just saw one today where the employees take the unused FSA funds out of the plan at the end of the year and put them in IRA's...

Any bright ideas on this one? A very small governmental employer (app. 7 or 8 employees) thinks they want to set up an HRA for one person. Well, this won't fly, as the one person is a "Highly Compensated Individual" under the testing rules (is in the top 25% by compensation). I don't know why they want to do this anyway, (apparently something to do with Medicare, but that's unclear) - since they can't do that, they wanted to make everyone eligible and pay their group health premiums with HRA funds. That can't be done either. And a QSEHRA isn't available if the employer provides group insurance. I think they can't have their cake and eat it to, but wondering if there is something obvious that I'm missing?

Yes, I'd also like to see some other opinions. As I said, they may all agree with you. Ciao. P.S. - somewhat terrifying if you can follow my thought process - I'm not sure that I can even follow it. It may be an indication of a deeply disturbed individual...

I agree that excluding TFB is a 414(s) safe harbor compensation exclusion. But I don't think that alters the premise that this amendment favors predominantly HCE's, and it seems to me that isn't allowable under 1.401(a)(4)-1(c)(2), or possibly other sections as well - I'd have to look, I dunno offhand. Excluding elective deferrals is a 414(s) safe harbor as well - suppose all the HCE's defer 18%, and the NHCE's defer 2% on average. Is it ok to allocate the profit sharing contribution on a retroactive correction to include TFB's and elective deferrals, such that the PS allocation now substantially benefits the HCE's far more than without the retroactive amendment? I'm just saying I wouldn't do this as SCP. Perhaps a VCP would be successful, and then no worries! But everyone else may think I'm nuts, overly cautious, or just plain wrong. Enjoy the weekend! I expect that what passes for my brain will be going on strike before too much longer...

Would you feel the same way if it were bonuses, rather than TFB's, and it was predominantly HCE's who got the bonuses? Perhaps I'm being overly conservative on this, but I wouldn't do what you are suggesting. However, we can certainly agree to disagree on this subject! I'm always easier to get along with on Fridays...

Yes, and this is precisely what I envision as being acceptable. I have seen a couple of other opinions that the "multiple employer" option is viable, but I wouldn't do it... The situation I describe above is very definitely a situation where unrelated employers (related only by belonging to an association of some sort) can sign on to the lead employer's document as a "participating employer." Thanks for the input.

Not sure I agree. Section 4.05(2)(a)(iii) provides that the increase in the benefit, right, or feature to participants is permitted only if among other things, it satisfies the requirements of 401(a)(4), 410(b), 411(d)(6), and 403(b)(12), as applicable in addition to the 6.02 correction principles, etc... Seems to me that such an amendment would fail to satisfy the requirements if it benefits predominantly HCE's.

Agree. We always know - if it isn't obvious from the statements, then we inquire further until it is nailed down.

Has anyone ever seen this penalty imposed? I haven't...https://www.federalregister.gov/documents/2007/12/19/E7-24386/civil-penalties-under-erisa-section-502c4

No. And your answers were very helpful.

If the plan termination date is a date other than the last day of the plan's limitation year, then yes, the 415 limit is prorated. So if the official termination date had been March 31, then the 415 limit would be the lesser of 100% of comp or 3/12 of the 415 dollar limit. If instead you change the termination date to July 31, then yes, the 415 dollar limit will increase to 7/12. Now, if they ceased contributions in March without any amendment, I'm assuming they were solely discretionary contributions, otherwise, they have problems...

Thank you both. I happened to see a proposal to an association that presented this as an option, and I was rather taken aback - not my problem, but for my own information, I did want to see if such a thing was even possible/feasible.

Yes, and thanks. But to try to simplify - suppose the local Chamber of Commerce or some similar organization sponsors a Section 125 plan for its employees. Can member businesses simply adopt that plan as "participating employers" when those employers are not part of a controlled group or affiliated services group? I think your answer is no?

Can you have Multiple Employer Plans in the Section 125 plan arena, similar to qualified plans? In other words, could an Association (of some sort) sponsor their own plan, and have unrelated (and by that, I mean not part of a controlled group or ASG) member businesses adopt the plan as Participating Employers, and have all testing, administration, 5500's if required, etc., done separately for each business, but there is no "MEWA" where contributions, etc. are being pooled? I'd have said not - and any "unrelated" business would just adopt a plan on their own. But perhaps this is a normal and common arrangement?