KJohnson

I think everyone would agree that the employer cannot do what it is purporting to do. MBOZEK--What is the argument that an FSA is not a welfare plan under ERISA? I could understand someone at least arguing that a law which makes it a crime to take amounts out of an employee's check without his or her permission is a criminlal law of general applicablity-- exempt from preemption. I am not sure I understand the non-ERISA plan argument.

The EBIA manual also mentions the possible COBRA issues that is referenced in the A.W. link. You have possible state law issues regarding the ability to withhold form the last paycheck s and of course there is MGB's "risk" issues. Some may say the fact that there may or may not be enough in the last paycheck to cover the election for the year is sufficient risk. As noted by J.G's post and A.W.'s link if they have taken the remainder of the annual election out of your last paycheck that means that you are an active participant for the remainder of the plan year and expenses incurred after termination are eligible for reimbursement. What they absolutely cannot do is take your money and have an expense "cut-off" at the date of termination.

I am not sure the answer is completely black and white. They clearly cannot take the money out of the last paycheck of only those employees with negative account balances. However I think the IRS' informal guidance is as long as they take the remainder of the year's election out of everyone's paycheck (regardless of account balance) you have at least satisfied uniform coverage. Harry Beker the IRS "guru" on 125 Plans has said exactly that on several occiasions. I think there still may be issues beyond uniform coverage (including the "risk" issue mentioned by MGB) as disussed in this link: http://benefitslink.com/boards/index.php?showtopic=24743 However, given the IRS' informal statements in the past like: if the 125 Plan states that the entire election will be taken out of the last paycheck without regard to a positve or negative balance, then I don't think the IRS will have much to say about it. However, if they are taking the $180 out of your last check I think it does mean that you can spend your $180 later in the year.

I don't think it gives you an answer, but at least its an interesting discussion.... http://benefitslink.com/boards/index.php?s...pic=17888&st=0

Generally yes as long as your 125 plan is clear as to who it covers and the underlying health plan is fully insured.

I am not sure what is really going on here. If you don't have an FSA established already, I am not sure how an employee could have committed to anything. Also, if you are covering everyone you could just make it an employer contribuiton to the FSA or set up an HRA and not worry about the mid-year election change rules. Finally, you might just scrap the whole FSA concept and consider whether an HSA with some type of high deductible health plan would work.

It is not only a distribution it is a waiver of a QJSA benefit which is the one area specifcially addressed by the regulations. Therefore, I think there is some risk in simply stating the test as whether there is a valid state law designation of authority to act on behalf of the spouse. If that were the test, then why do the regulations specifcially mention guardianshp--a valid state law designation of authority-- but do not mention POA--another valid state law designation of authority? There are probably a number of people on the Board that don't remember REA, but the mandated form of QJSA benefit and the protection of spousal benefits was a hot area of Congressional and regulatory concern. All in all, it may just be a case of poor drafting of the regulation and DOL may think that a POA is perfectly acceptable but failed ot put it in the reg. However, some may take DOL inclusion of one form of deisgnation of authority-- that contains procedural safe guards and requires judicial action-- and their exclusion of another form of designation of authority that contains none of these protections as an indication of the level of formality that DOL wants if the spouse is giving up the QJSA benefit.

Agreed, but the factual scenario of an employer that first agrees to a resignation date of January 1 and then "fires" an employee on December 30th with the 31st being the key date for accruing a benefit would, I think, make a plaintiff's lawyer smile, if the damages were large enough. I think you also may have the makings of a prima facie case. If so, the burden would switch to the employer to show a non-discriminatory reason. Of course the damages issue in a 510 claim post-Great West is going to be the interesting debate.

I think the language of the Act is "discharge, fine, suspend, expel, discipline, or discriminate...for the purpose of interfering with the attainment of a right" under the Plan.

Don't rule out 510. If he actually "constructively discharged" you the day before you would have been entitled to a contribution solely for the purpose of avoiding that obligation then it sounds "510-ish" to me, but I haven't gone back and looked at any cases.

Also, look at this section of the k regs: (6) Other benefits not contingent upon elective contributions--(i) General rule. For plan years beginning after December 31, l988, or such later date provided in paragraph (h) of this section, a cash or deferred arrangement satisfies this paragraph (e) only if no other benefit is conditioned (directly or indirectly) upon the employee's electing to make or not to make elective contributions under the arrangement. The preceding sentence does not apply to any matching contribution (as defined in section 401(m)) made by reason of such an election or to any benefit that is provided at the employee's election under a plan described in section 125(d) in lieu of an elective contribution under a qualified cash or deferred arrangement. (ii) Definition of other benefits. Other benefits include, but are not limited to, benefits under a defined benefit plan; nonelective employer contributions under a defined contribution plan; the availability, cost, or amount of health benefits; vacations or vacation pay; life insurance; dental plans; legal services plans; loans (including plan loans); financial planning services; subsidized retirement benefits; stock options; property subject to section 83; and dependent care assistance. Also, increases in salary and bonuses (other than those actually subject to the cash or deferred election) are benefits for purposes of this paragraph (e)(6). The ability to make after-tax employee contributions is a benefit, but that benefit is not contingent upon an employee's electing to make or not make elective contributions under the arrangement merely because the amount of elective contributions reduces dollar-for-dollar the amount of after-tax employee contributions that may be made. Benefits under any other plan or arrangement (whether or not qualified) are not contingent upon an employee's electing to make or not to make elective contributions under a cash or deferred arrangement merely because the elective contributions are or are not taken into account as compensation under the other plan or arrangement for purposes of determining benefits

I think if the regs were completely silent I would be more comfortable with a POA that met state law and general agency requirements supporting the action to be taken--interesting preemption issues aside. Like a POA, formal legal guardianship "conveys authority to act on behalf of the spouse" yet guardianship is listed in the regs while a POA is not. The only thing I know of that is out there is Clouse v. Philadelphia, Bethlehem & New England Railroad Co., 787 F.Supp. 93 (E.D.Pa. 1992). which was an ERISA life insurance cas. The Court analyzed the POA under Section 37 of the Restatement (Second), Agency. The court adopted the Resatement as part of the "federal common law" (rather than state law) and found the general POA to be insufficient to change a beneficiary. This is not a settled area by any means. If you are going to accept it, I agree that you should consult with an attorney to make sure the POA meets state law and general "agency" requirements as well as getting indemnification.

I think you are right to be cautious. Q&A 27 of the (a)(20) regs sets out when consent is not required. The only instances where they list that the participant can give consent is where the spouse is "legally incompetent" and the particpant is the legal guardian. Q-27: Are there circumstances when spousal consent to a participant's election to waive the QJSA or the QPSA is not required? A-27: Yes. If it is established to the satisfaction of a plan representative that there is no spouse or that the spouse cannot be located, spousal consent to waive the QJSA or the QPSA is not required. If the spouse is legally incompetnent to give consent, the spouse's legal guardian, even if the guardian is the participant, may give consent. Also, if the participant is legally separated or the participant has been abandoned (within the meaning of local law) and the participant has a court order to such effect, spousal consent is not required unless a QDRO provides otherwise. Similar rules apply to a plan subject to the requirements of section 401(a)(11)(B)(iii)(I).

If the plan administrator is something other than the sponsoring employer it needs an EIN as well.

You might want to look here: http://benefitslink.com/boards/index.php?showtopic=1490

I know there have been plans approved with this language. The ERISA Outline book which is quoted on these Boards frequently also takes the position that the regulation quoted above can allow a spouse's election out of the QPSA after death (assuming the plan contains thiese provisions). Other commentators are a little less sure, yo might want to take a look a this link: http://benefitslink.com/modperl/qa.cgi?db=...ibutions&id=260 A disclaimer may work as well. See GCM 39858

Most practiioners take the point of view that a spouse can waive the QPSA under Treas. Reg. 1.401(a)-20, Q&A 31(b)(3) which provides that "After the participant's death, a beneficiary may change the optional form of survivor benefit as permitted by the plan." Of course it has to be provided in the Plan. In many (most) QJSA/QPSA plans that have this provision, people do not elect the survivor benefit form of distribuiton prior to the death of the participant. Thus while the QPSA maybe the default, the spouse can change it if the approrpriate language is used in the Plan. Where I sometimes see conceptual problems is where a form of benefit is actually chosen before death and the spouse signs a piece of paper saying that his or her consent to the form of benefit is "irrevocable". Then, it seems a little bit contradictory to say that someone can change an irrevocable election.

Tom, in the first example I agree that you fail. My only point was that you fail ADP you don't fail (a)(4). Whether you can use the QNEC under the (k) regs requires "super (a)(4)" testing which is distinct from "normal" (a)(4) testing. I think you satisfy "normal" (a)(4) testing because the only non-elective you are making is the top-heavy minimum. If you had such a situation, the distinction may be important because an ADP failure may require different corrective action than an (a)(4) failure.

It would seem to me that the analysis woudl be that you are giving all non-keys a top-heavy contribution so that you would meet the 401(a)(4) safe harbor. However, then you are taking that top-heavy contribution and designating it as a QNEC only for NHCEs--That's were you get the problem. You can't do that under the (k) regs so you can't include it in your ADP test. You therefore are fine under (a)(4) but fail ADP.

Tom, it may be a chicken and the egg question, but wouldn't you actually pass (a)(4) but fail ADP because the QNEC does not satisfy the requriements of being a QNEC?

I take it back..I went back and looked at the Code--- 416(g)(4)(H) only says that the match must satisfy 401(m)(11) and does not say that the match must satisfy 401(k)(12)(B). Since the match does satsify 401(m)(11) (but not the 401(k)(12)(B) ADP matching contribuiton safe harbor--that is done through the 401(k)(12)© NEC) then it looks like top-heavy is satisfied.

Without reviewing all of the prior guidance, my feeling was the same as Brians. I don't think that the Plan consists solely of elective deferrals and safe harbor matching contributions. While the additional discretionary match may satisfy the criteria so that you don't have to run the ACP test, I don't think that this makes it a "safe harbor matching contribution" Since the plan does not consist soely of deferrals and safe harbor matching contributons then top heavy applies. I thought Blinky's original answer was right. Whether there is an additional top heavy requirement is dependent upon whether the safe harbor NEC was based on an entire year's comp or only comp since the entry date.

Here is the IRS response to a question on this issue from the 1996 ABA Joint Committee on Employee Benefits "Meeting with Agencies" Q&As. In the question, the participant had rolled a plan distribution over to a conduit IRA and was subsequently rehired and was going to repay the distribution: "Funds in a conduit IRA can be used to buyback benefits, but it is not mandated that conduit IRA funds be used. An employee can use other funds, and therefore have basis on the buyback but such contribution would not have to be tested under 401(m) or 415. The employer may ask the employee if the funds are from an IRA in order to correctly treat the funds as basis or not" The rolllover/transfer issue is an interesting one. Say it is a profit sharing plan that has in-service distribuitons of rollover amounts but you have to wait until termination of employment for anything else. Could he roll in, reclaim his forfeitures, and then roll right back out again to an IRA. Pretty neat for a participant, pretty much a pain in the butt for an administrator.

Thanks terryh123. You are right that exception would appearl to apply. That is interesting because they appear to diavow the 25% standard in the MEWA book because they have not yet adopted regulations decreasing common control from the 80/50 test. This is from the MEWA book. n determining whether trades or businesses are within the “same control group,” Section 3(40)(B)(ii) provides that the term “control group” means a group of trades or busi-nesses under “common control.” Pursuant to Section 3(40)(B)(iii), whether a trade or business is under “common control” is to be determined under regulations issued by the Secretary applying principles similar to those applied in determining whether there is “common control” under section 4001(b) of Title IV of ERISA, except that common control shall not be based on an interest of less than 25 percent. Accordingly, trades or businesses with less than a 25 percent ownership interest will not be considered under “common control” and, therefore, will not be viewed as a single em-ployer for purposes of determining whether their plan provides benefits to the employees of two or more employers under Section 3(40). With regard to situations where there is a 25 percent or more ownership interest, it should be noted that, the Depart-ment of Labor has not adopted regulations under Section 3(40)(B)(iii). However, regulations issued under Section 4001(b) of Title IV and Section 414© of the Internal Revenue Code (See: 29 CFR §2612.2 and 26 CFR §1.414©-2, respec-tively) provided that “common control” generally means, in the case of a parent-subsidiary group of trades or businesses, an 80 percent ownership interest, or, in the case of organiza-tions controlled by five or fewer persons, which are the same persons with respect to each organization, at least a 50 percent ownership interest by such persons in each organization.

At are recent conference the IRS was aked a question concerning a situation where under a non-standardized prototype which excluded other controlled group members those other members were actually allowed to defer. The IRS indicated that assuming that the individuals who were improperly allowed to defer were not primarily HCEs, they would alloww a retroactive amendment through VCP, basically makng the plan a standarized prototype, and allowing the other employers "in". Your situation is a little bit different and trickier. They might still allow you to retroactively amend to form two single employer plans or retroactively amend to form a multiple employer plan (assuming that all of this does not primarily benefit HCEs in some way). Also, I assume that you ran ADP on a combined basis. Before you go to them, you proably want to make sure that each employer would have satsified ADP on an individual basis. Whether they would require you refile 5500's as two single employer plans (or a multiple) etc, I don't know.