KJohnson

Thanks Don. I had assumed that the M-1 would have to filed, but when I read that language in the instructions it seemed strange. What is this exception in the instructions meant to cover?

Employer with a fully insured group health plan wants to add a 50% subsidiary on to its policy. Since there is no controlled group, this would appear to create a MEWA. All employees are in one state and the insurance company is licensed in that state. The instructions to the M-1 state that if the MEWA is licensed or authorized to operate as a health insurance issuer in every State in which it offers or provides coverage for medical care to employees (or to their beneficiaries)" it does not need to file the M-1. Would that apply in this situation?

A little bit off topic, but I agree with Blinky. A plan’s formula for allocation any profit sharing plan amounts must be definitely determinable under 1.401-1(a)(2)(ii). This includes the allocation of match amounts. The IRS has been inconsistent in “catching” this issue with regard to allocation of matching contributions. Typically, when it does, it forces a plan to put in an allocation formula that states that, while the match is discretionary, it will be based on a discretionary percentage of the amount of deferrals made by participants (e.g. language like “a matching percentage that the Employer deems advisable of the Participant’s Elecitve Deferral Contributions”). However, many V.S. and prototypes with opinion/advisory letters still contain language like "The amount of Matching Employer Contributions, if any, may be fixed in terms of dollars, a percentage of Compensation, or a percentage of Elective Deferral Contributions" You could debate whether such language is "definitely determinable" but if you are a word for word adopter of a V.S. or prototype with this kind of language, I think you should feel pretty comfortable.

Proposed CB regs have apparently been withdrawn http://www.treas.gov/press/releases/report...ement200457.pdf

Is it conflict preemption or complete preemption? My guess is that if you have agreed in a contract to a prudence standard that is greater than required by state law you will be held to that standard. I woudln't view that as "contrary" to state law. Also on (a)(4) again, I am not so sure. Which categories of employees are they covering. This is a hospital after all. Even for the City of San Francisco I think that there are over 400 job classificaitons where the pay scale is over $90K. Finally, if you incorproate any ERISA reporting and disclosure obligations into you plan document, you would probably have a contractual obligation to follow those as well. In short I don't think that you can just put language in your document and then just turn around and ignore it.

You may want to look at Michel v. United Healthcare of Louisiana, Inc., 2003 U.S. Dist. LEXIS 5366 (E.D. La. 2003) holding that an exempt governmental plan cannot "opt into" ERISA even if the plan document says that is covered by ERISA. (I haven't gone back and re-read it, but I recall that this was a removal case that got kicked back to state court because of no ERISA jurisdication). However, 401 Chaos' post is well taken. I don't think that they would have an "ERISA" cause of action, but to the extent that you put prudence, non-discrimination etc. in your plan document, you are just begging for an action under this "contract" if you don't adhere to its provisions. Plus you will be in state court (Hello jury trial and a whole bunch of other potential nasties). EBIA had a good write up on this when it came out, but the *$^@#$ are now charging to get into their archives so I can't post a link (I guess I can't really blame them for charging but it sure was nice to have that service free).

If the assets belong to the trust and you are putting them in an account "owned" by the union, you have, at the very least, a P.T.

Everyone should have been 100% vested because of a partial termination. You never should send participants the Schedule SSA even if the ask for a complete copy of the 5500. You should be aware that the IRS takes the position that in order to be qualified, a plan must have a sponsor.

Just taking it out for everyone with a "negative election" balance is fine under Beker's reasoning --since anyone who terminates prior to the last payroll deduction period in the plan year will have a "negative eleciton" balance. However, just taking it out for people who have a negative account balance is, of course, prohibited.

Look toward the bottom of the folloiwng link for a discussion of "wrapping" your separate coverages into on document and things that you will need to consider. http://www.agg.com/Contents/PublicationDetail.aspx?ID=638

GBurns--I would suggest reading the original post again. There was no indication that they would be taking the money out of the last paychecks of only people with negative account balances The practice described in the original post is in line with what Harry Beker has said is acceptable. I think MGB makes a valid point. Beker may have just been focusing on uniform coverage under Q&A 7(b)(2) as oppsoed to the amount of risk there must be under 7(a) of the same Q&A. However, as evidenced by the link to the Q&A column on benefitslink that I referenced, a number of practioners have adopted that plan design based on Beker's comments. I am not sure that I would recommend this plan design for policy reasons, but I frankly think that, based on Beker's repeated representations, there is little fear of the IRS "disqualifying" a 125 plan because of it.

You always have to look "both ways" especially in an A-Org analysis,and you raise an interesting point. Suppose that the outpatient surgery center (OSC) wants a stand alone plan. You treat the OSC as the FSO and each Dr.'s office as an A-Org to that FSO and therefore you aggregate everyone. Then, assume there are a bunch of HCEs in A,B,C,D who your are excluding in the OSC plan. And, even though E is dominated by NHCEs who you are excluding, this doesn't cause you to fail 410(b) on an aggregate basis because of all the other HCEs that you have excluded with the other Dr. groups. However, if you turn around and treat each Dr. as an FSO and the OSC as the A.Org to each FSO then you would not be combining the Dr. groups. (because while you combine all A-Orgs of an FSO you do not combine all FSO's of an A-Org.). Then you would have to test the OSC alone with each Dr. group incuding " E" and you very well might fail. Again, I haven't gone back and looked at the regs and whether there is anyway to "pick" the larger ASG over the smaller ASG but you probably do have something you should run down in more detail.

Uniform coverage and the "risk of loss" are contained in the same Q&A in the regs. I guess there is a question of how much risk do you need to have. If you only apply it in terminations not due to death, do you have some risk with employees who die? If the employee does not have enough in his or her paycheck, do you have some risk? Harry Beker (the IRS' "frontman" on 125 issues) stated the following at one conference several years back: Robert Richter The next one relates to how to handle people who terminate employment. They're in a health care reimbursement plan and they've been reimbursed more than their contribution to date. And many employers would like to go out to the employees and take the remaining amount, their annual election, out of the last paycheck. Do you think that can be done? What are the prospects of the employer collecting from the employee for the full year? Harry Beker I've addressed this situation in the past. In fact, there is a way to get at the last paycheck. First of all, the cafeteria plan has to provide that if an employee terminates he's simply not permitted to leave the plan. In fact, participants in the plan remain participants for the entire cafeteria plan year. If your cafeteria plan has that type of provision, then I think it's legitimate if the employer can withhold not only last paycheck, but any additional compensation due the employee with the caveat that we're speaking about all employees in the plan, whether or not the employee has a deficit in their account or positive balance. So you take a situation where someone has elected a flexible health, flexible spending account, has made contributions, has never submitted a claim and in fact and terminates and in fact has a huge amount sitting in his account. If the employer wants to go after the employee who has a deficit in his account, he's going to have to go after an employee that has a positive balance in the account. And what we're talking about is the amount up to the amount the individual has elected. The fact that there's a deficit is just totally irrelevant. What we're concerned about is that the employee has elected X dollars that he's agreed to put into the flexible spending account and so that's what the employer should be concerned about. And to the extent some of that can be obtained through the last paycheck or some other compensation due the employee. That's okay. Except let me add another caveat. There are a lot of states or some states that don't permit employers to attach an individual's last paycheck under any circumstances. So in those states, this option is not available. In addition, let me add another caveat. In that if an employee that terminates from a health flexible spending account has COBRA rights so that if the employee elects COBRA, contributions have to be made on the same basis that they were made while he was an employee. So again, the employer couldn't attempt to get a lump sum payment from the last paycheck or any other source. Of course these are all informal non-binding comments and I think MGB raises a concern. That said, the "noise" from the IRS is that such a plan design is permissible.

At least as to uniform coverage, I think I disagree based on the question posed. You clearly CANNOT take amounts out of the paychecks of only those individuals with "negative balances". However, under the applicable uniform coverage regulations it would appear that you may be able to take the remainder of the annual election out of all terminated employees last paychecks including those with "positive" account balances. In essence you are requiring all employees to continue coverage until the end of the year. The EBIA manual (see p. 646) seems to acknowledge that this works under uniform coverage but raises some interesting COBRA questions. You also might want to look at this link: http://benefitslink.com/modperl/qa.cgi?db=qa_125&id=7

However, even with individual accounts if participant statements come from a TPA rather than the financial institution itself you would not qualify. You may want to look at this link. http://benefitslink.com/boards/index.php?showtopic=19647

Of course jquazza's fix doesn't work for the vast majority of plans that are on a prototype.

I agree with the first. I don't know about the second. I think there was a long discussion about this a few years back on the Boards but I could not find it. I think there was also a Q&A with the IRS at the ASPA conference back in '96. There is a reference to that Q&A in this link: http://benefitslink.com/boards/index.php?s...t=0entry36478 I previoulsy thought that this puts an unrealistic burden on the plan administrator. How do they know the source of the IRA contributions (pre-tax or post-tax) or whether it was an "old style" conduit IRA? Of course now these are the same questions that you have to ask post-EGTRRA if someone wants to roll their IRA into a plan.

It was written by Cheryl Morgan. The website where it was posted is not up any more. It is also not on her website that I cold find. I have a copy in a subject file and would be happy to fax it to you. Send me an e-mail with your fax number.

http://benefitslink.com/boards/index.php?showtopic=19636

Mbozek, I agree with your reading. As a side note, I remember when I was looking at this a few months back, I found an unpublished 6th Circuit case that leads to the conclusion that a SEP (or SIMPLE) with only owners participating will have more protection that a SEP or SIMPLE that has common law employees participating. The first part of the reasoning was no surprise. ERISA’s anti-alienation provisions are found in Subtitle B, Part 2 of the statute (Section 206). Pursuant to Section 201, all of Subtitle B, Part 2 does not apply to any arrangement in 408 of the Code. Traditional IRAs, SEPs, and SIMPLEs are all found in 408. Therefore the 6th Circuit ruled that federal antialienation did not apply. However the part of the decision that I had not previously thought about was that ERISA’s preemption provisions are found in Subtitle B Part 5 (Section 514). The antialienation provisions, in turn, say that they apply to any employee benefit plan described in the coverage provisions of Subtitle A of ERISA (Section 4(a)). Subtitle A covers, as pension plans, IRA arrangements where employer contributions are involved (SEP’s and SIMPLE’s). Therefore the 6th Circuit ruled that ERISA’s preemption provisions do apply and that Michigan law that protected SEP or SIMPLE IRAs was preempted by ERISA. Therfore no state or federal protection. I think that if you had a SEP or SIMPLE and the only participant was the owner then you would have state law protection because that SEP or SIMPLE would not be covered by ERISA (and therefore ERISA preemption)

Thanks, I subsequently found this site as well. http://www.hsainsider.com

Does anyone have a link to the vendors who have HSA products available to individuals? I have heard Fidelity had something, but could not find it on their site.

I think the idea is that you are executing on the security interest upon acceleration. Consent to the "future" acceleration/offset is given at the time of the loan is taken which I think is suffcient. The following is from the 401(a)-20 regs. (2) Participant consent is deemed obtained at the time the participant agrees to use his accrued benefit as security for a loan for purposes of satisfying the requirements for participant consent under sections 401(a)(11), 411(a)(11) and 417. You would therefore be back to where you might be "eligible" for a loan, but it would make no sense to take one. To get a loan you would have to agree to offset/acceleration at the time you are eligible for a distribution. If you try and take a loan when you are eligible for a distribution, you would have an immediate offset.

Sounds like it assuming you have run through all the attribution rules and there is no affiliated service group.

BobK Haven't gone back and double checked, but isn't it just "ratcheted down" from 80% to 50% under 415 in a parent/sub group but remains at 80% for brother/sister?