KJohnson

EBIA seems to believe that such premium reimbursement accounts are allowed in 125 Plans--See p. 104 in the "Green Binders". The links in my prior post also indicate that this can be accomplished. My understanding is that typically, either the employer reimburses the employee once the employee provides proof that he or she has purchased the insurance (post tax) or the employer pays the insurer chosen by the employee directly. The PRA requires separate langague in your 125 Plan and as mentioned above can be no double dipping The real issues are HIPAA/COBRA/ERISA issues. Until there is further clarification (which will probably arise in the context of individual insurance being purchased through HRA's) you probably want to allow only HIPAA "limited scope" benefits to be offered through these accounts. As g8r points out if you allow the purchase of insurance to which HIPAA's non-discrimination provisions apply it would appear that you have big problems. The individual policies are probably also covered by COBRA but will probably not be written to give COBRA rights. Finally you have SPD issues with regard to describing the benefits etc.

Make sure you do not have: 1) a 1000 or 500 hour requirement to receive a match 2) a last day of employment requirement to receive a match

http://benefitslink.com/modperl/qa.cgi?db=qa_125&id=145 http://benefitslink.com/modperl/qa.cgi?db=qa_125&id=65

This is from 2002-10. I don't know if these dates were modified. http://benefitslink.com/IRS/revproc2002-10.shtml SECTION 4. ADOPTION OF REVISED IRAS, SEPS AND SIMPLE IRA PLANS .01 Model IRAs. The Service expects to issue revised model IRAs in early 2002 containing EGTRRA changes and required minimum distribution rules that comply with the final regulations. Existing model IRAs may not be used to establish new IRAs after June 1, 2002. An individual using an existing model IRA who wants to take advantage of the 2002 EGTRRA changes to IRAs in 2002 must adopt a revised model IRA (or an appropriate amended prototype IRA) by the end of 2002. .02 Prototype IRAs. An individual using a currently approved prototype IRA must adopt either (1) the prototype sponsor's amended document within 180 days after the date the Service issues a favorable EGTRRA opinion letter on the amended document or (2) an appropriate model IRA by the end of 2002. .03 Section 408© IRAs. An employer or employee association using a currently approved § 408© IRA must adopt an amended § 408© IRA within 30 days after the date the Service issues a favorable EGTRRA opinion letter on the amended document. .04 Disclosure statements. A financial institution that serves as a trustee, issuer or custodian for a model or prototype IRA must change the corresponding disclosure statement, required pursuant to § 408(i), to reflect the contents of the revised IRA. The financial institution must distribute the amended disclosure statement to each individual using the revised IRA. .05 Model SEPs and SIMPLE IRA plans. The Service expects to issue revised model SEP and SIMPLE IRA forms, also in early 2002, containing EGTRRA changes. Existing model SEPs and SIMPLE IRA plans may not be used to establish new SEPs or SIMPLE IRA plans after June 1, 2002. An employer using an existing model SEP who wants to take advantage of the EGTRRA changes to such plans for the first plan year beginning after December 31, 2001, must adopt a revised model plan (or an appropriate amended prototype plan) by the end of such first plan year. An employer using an existing model SIMPLE IRA plan, must adopt a revised model plan (or an appropriate amended prototype plan) by the end of 2002. However, notwithstanding the preceding two sentences or otherwise applicable notice requirements, participating employees must be notified of the increased EGTRRA contribution limits by October 1, 2002. .06 Prototype SEPs and SIMPLE IRA plans. An employer using a currently approved prototype SEP who wants to take advantage of the EGTRRA changes to such plans for the first plan year beginning after December 31, 2001, must adopt the prototype sponsor's amended document within 180 days after the date the Service issues a favorable opinion letter on the amended document. An employer using a currently approved prototype SIMPLE IRA plan must adopt the prototype sponsor's amended document within 180 days after the date the Service issues a favorable opinion letter on the amended document. However, notwithstanding the preceding two sentences or otherwise applicable notice requirements, participating employees must be notified of the increased EGTRRA contribution limits by October 1, 2002. .07 SEPs with § 415 rulings. An employer using a SEP that has a favorable ruling because participants also participated in the employer's terminated defined benefit plan must adopt an amended SEP in accordance with section 4.05 above. Because the aggregation rules under § 415(e) have been repealed, the Service will no longer issue rulings on whether a SEP, in combination with a terminated defined benefit plan, satisfies the requirements of § 415.

I'm not sure it adds anything to what is discussed above, but here is a nice discussion: http://benefitslink.com/modperl/qa.cgi?db=...ibutions&id=172

It sounds like your employee may be an HCE as a 5% owner. If not, however, you may be able to self correct using the plan amendment correction method found in EPCRS and pasted below. Note that this procedure can only be used if "the employees affected by the amendment are predominantly nonhighly compensated employees" (3) Inclusion of Ineligible Employee Failure. (a) Plan Amendment Correction Method. The Operational Failure of including an ineligible employee in the plan who either (i) has not completed the plan’s minimum age or service requirements, or (ii) has completed the plan’s minimum age or service requirements but became a participant in the plan on a date earlier than the applicable plan entry date, may be corrected under VCP and SCP by using the plan amendment correction method set forth in this paragraph. The plan is amended retroactively to change the eligibility or entry date provisions to provide for the inclusion of the ineligible employee to reflect the plan’s actual operations. The amendment may change the eligibility or entry date provisionswith respect to only those ineligible employees that were wrongly included, and only to those ineligible employees, provided (i) the amendment satisfies § 401(a) at the time it is adopted, (ii) the amendment would have satisfied § 401(a) had the amendment been adopted at the earlier time when it is effective, and (iii) the employees affected by the amendment are predominantly nonhighly compensated employees. (b) Example Example 22: Employer L maintains a 401(k) plan applicable to all of its employees who have at least six months of service. The plan is a calendar year plan. The plan provides that Employer L will make matching contributions based upon an employee’s salary reduction contributions. In 2001, it is discovered that all four employees who were hired by Employer L in 2000 were permitted to make salary reduction contributions to the plan effective with the first weekly paycheck after they were employed. Three of the four employees are nonhighly compensated. Employer L matched these employees’ salary reduction contributions inഊaccordance with the plan’s matching contribution formula. Employer L calculates the ADP and ACP tests for 2000 (taking into account the salary reduction and matching contributions that were made for these employees) and determines that the tests were satisfied. Correction: Employer L corrects the failure under SCP by adopting a plan amendment, effective for employees hired on or after January 1, 2000, to provide that there is no service eligibility requirement under the plan and submitting the amendment to the Service for a determination letter.

http://www.segalco.com/publications/survey...ndingsurvey.pdf This was a 2000 survey, but it has information regarding interest rates. It is a Segal survey and not surprisingly most of the multis used the "Segal Method." Their actuarial methods are described as follows: Actuarial Assumptions The assumptions the actuary chooses, by law, must be the actuary’s best estimate of anticipated future experience under the plan. The assumptions used by almost all the plans in the survey use The Segal Company method for calculating withdrawal liability. Withdrawal liability determined under this method is a weighted average between the present value of vested benefits on adjusted PBGC interest rates and the present value of vested benefits on the funding investment return assumption, where the weighting factor is assets at market. This approach essentially treats the withdrawal like a single employer plan termination for that portion of the assigned benefits that could be purchased by existing assets. Since the remaining benefitsare funded by future contributions, the funding assumptions used to fund the ongoing pension plan are used for this portion of benefits. The distinction is assets on hand versus future assets. The PBGC rates were developed to deal with assets on hand. For a small number of plans (28 out of 462, or 6 percent) the ongoing funding assumptions are used as the basis for determining withdrawal liability. For these plans, assets are taken at their actuarial value.

I think this is probably fruitless, but in a self-funded plan what a provider has is an assigment of any benefits that the participant is entitled from the plan. The providef then stands in the shoes of the participant to bring any claim for benefits--See for example Herman Hospital v. MEBA Medical Ben. Plan. 845 F.2d. 1286 (5th Cir. 1988). Any state laws regarding that claim for benefits would be preempted. I believe that the one area where Courts have made an exception is when a plan pre-certifies coverage to a provider and then it turns out that the particpant/services were not covered at all. In those instances I think some Circuits have allowed the provider's state law negligence/misrepesentation claim to go foward. Hospice of Metor Denver Inc. v. Group Health Ins. Inc. 944 F.2d. 752 (10th Cir. 1991); Traditional Hosp. Corp v. Blue Cross Blue Shield 164 F.3d 952 (5th Cir. 1999)(providers claim for benefits based on plan/contract preempted but claim for fraud/misrepresentation is not). I think the 6th Circuit does not agree Cromwell v. Equicor-Equitable HCA Corp. 944 F.2d. 1272 (6th Cir. 1991) As to insurance laws, it is clear that the "deemer" clause in Section 514 means that even any laws that clearly regulate insurance are preempted when applied to self-funded plans. FMC Corp. v. Holliday 498 US 52 (1990)

GBURNS The last link that you provided again involved insured plans. I would wholeheartedly agree with you that preemption is not cut and dried. The issue has been up before the Supreme Court a ridiculous number of times mainly because Section 514 is written so broadly (and so poorly). That said, I think the point is that if a provider is seeking interest with regard to "late-paid" claims from a self-funded plan then ERISA would preempt any state law statute or cause of action that would provide for payment of interest.

I am not sure you are out of the woods. If you are dealing with a mutliemployer fund in all liklihood you are dealing with a VEBA. (Although I am not exactly sure what a "holdiay fund" is). I believe there would be a 100% excise tax on any reversion of VEBA assets to an employer. I don't have the excise tax cite handy, but look at 1.501©(9)-4 regarding prohibited inurement.

As to the reversion issue, PLR 200214031. There appears to be some tension between the DOL and IRS on the "plan asset" question.

What he said...in most Circuits the provider with an assignment steps into the shoes of the participant for an ERISA Section 502(a)(1)(B) claim. However, if the Plan does not provide for interest, it is a question of whether there would be a 502(a)(1)(b) claim since you are not suing for any benefits provided by the plan. Since the principle amount has already been paid, it would be difficult to classify this as prejudgment interest. After Kundson your interest claim would have to be equitable in nature. My recolleciton is that the 7th Circuit might have recognized an equitable interest claim post Knudson but but I don't have a cite handy. Here is a link to an article about a district court case... http://www.ebia.com/weekly/articles/2002/E...21003Parke.html

http://www.dol.gov/ebsa/regs/aos/ao2003-05a.html

This was on the BenefitsLink nondiscrimination Q&A column at http://benefitslink.com/perl/qa.cgi?db=qa_...rimination&id=5 -- Aren't the examples at the end of the Q&A just inaccurate? Am I missing something? Q&A: Nondiscrimination Issues for Tax-Qualified Retirement Plans Answers are provided by Milliman USA's Employee Benefits Research Group -------------------------------------------------------------------------------- Minimum Contributions to a Top Heavy Plan (Posted August 28, 2001) Question 5: A plan is top heavy for its 2000 plan year. The key employees in this very small company must return part of their 401k deferrals for 2000 due to the ADP test, so that their average deferral percentage becomes less than 3% after their refunds. (It was 3% or more before the refunds.) The 401k deferrals are the only contributions into the plan; no other company contributions will be made other than a required top heavy contribution for the non-key employees. The company wishes to make the lowest possible top heavy contribution. Must the company contribute 3% for all non-highly compensated employees, or can it instead contribute the original amount the key employees deferred less the required refunds, which would result in a contribution of less than 3%? Answer: Under the tax code's "top heavy" provisions (section 416 and Treasury Regulations section 1.416-1, Q&A M-20), salary reduction contributions are in the unenviable position of being counted for determining whether a plan is top heavy but not in determining the minimum contribution to be made to a top heavy plan for non-key employees. An exception to this rule exists for salary reduction contributions for key employees. Salary reductions for key employees up to 3% of compensation are counted for purposes of determining the minimum non-key employee contribution. Section 416© of the tax code requires that an employer generally contribute a minimum contribution to a top heavy defined contribution plan equal to 3% of each non-key employee's compensation. However, the minimum contribution does not have to exceed the percentage at which contributions are made under the plan for the key employee(s) for whom the percentage is highest for the year. Therefore, if a plan that only provides for contributions through salary reduction is top heavy and any key employee makes salary reduction contributions in an amount greater than 3% of compensation, any non-key employee who contributes less than 3% would be entitled to an additional employer contribution up to the 3% minimum. For example, if the non-key employee contributes 1.5% of compensation and the highest key employee percentage is 4%, the non-key employee would be entitled to an additional 1.5% contribution (3.0% - 1.5% = 1.5%). In this plan, if the highest key employee salary reduction percentage is 2%, the non-key employee would be entitled to an additional 0.5% contribution (2.0% - 1.5% = 0.5%).

Here is EBIA's "spin" on the PLR to which IRC401 refers. It can be found here: http://www.ebia.com/weekly/articles/2001/C...4ConstRect.html They note their own "raised eyebrows" regarding the reasoing behind this PLR and not 9406002 Employees Declining One-Time Chance to Take Lower Benefits with Higher Pay Not in Constructive Receipt [Priv. Ltr. Rul. 200120024 (May 18, 2001)] For a copy: http://www.irs.gov/pub/irs-wd/0120024.pdf A recent IRS Private Letter Ruling found that a group of employees who were given a one-time election between a high-level benefits package, on the one hand, and a low-level benefits package plus an increase in compensation, on the other hand, were not found to have constructive receipt of income. The employees involved worked for a state-run tax-exempt employer that had two benefit packages. The first was a high-level benefits package, which provided health, dental, and life insurance, long-term disability benefits and the choice of either a defined benefit pension plan or a qualified money purchase plan (providing fully-vested contributions for participants). The second was a low-level benefits package, which provided less generous health and disability benefits, higher employee contributions for health coverage, and a lower employer contribution to the money purchase plan, in which benefits did not vest for five years. The employees were broken into two groups based presumably on work status: Group A employees were offered the high-level benefits package, and Group B employees were offered the low-level benefits package. Noting a trend of Group A personnel leaving employment to obtain more pay with lesser benefits, the employer wanted to permit Group A employees to make a one-time irrevocable election to switch from the high-level benefits package to the low-level benefits package coupled with an 8% increase in compensation. But Group A employees who elected not to switch would not suffer any adverse consequences--they would continue to receive the same pay and high-level benefits as before. The employer requested--and received--two favorable rulings from the IRS. First, the IRS ruled that the one-time election between the two benefits packages and the accompanying increase in compensation for those who moved to the low-level benefits package was not a cash or deferred election under Code Section 401(k). The IRS reasoned that those who decided to keep the high-level benefits package would not receive any additional benefit accruals under the retirement plan, nor were employees given a chance to participate in any other retirement program. In addition, the increase in pay for those who switched to the low-level benefits package did not result in an increased deferral for those who elected to keep the high-level benefits package. Second, the IRS ruled that the employees who chose to keep the high-level benefits package did not have constructive receipt of income even though they could have received increased pay if they switched to the low-level benefits package. Income is "constructively received" in the taxable year in which it is credited to the taxpayer's account, set apart for the taxpayer, or otherwise made available so that the taxpayer could have drawn upon it at any time, or so that the taxpayer could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, there is no constructive receipt (and consequently no taxation) "if the taxpayer's control of its receipt is subject to substantial limitations or restrictions." The IRS reasoned that the employees given this one-time election had a "substantial limitation on the right to receive the increased compensation" because in choosing the low-level benefits package, they had to give up the more generous benefits in the high-level benefits package. EBIA Comment: The IRS's reasoning on the ruling regarding 401(k) deferrals seems reasonable and logical, but we raise our eyebrows at the analysis on the ruling regarding the constructive receipt issue. When, as here, employees are given a choice between cash and benefits (some non-taxable and some taxable later, like pension benefits), it would seem that those employees that elected to keep the higher level would be deemed to be in constructive receipt of the cash that they could have received in lieu of benefits. Perhaps the one-time nature of the election caused the IRS to look the other way. Note that the ruling did not mention Code Section 125, and it was written by a different branch of the IRS (Branch 5) than the branch that normally addresses Section 125 issues (Harry Beker's Health and Welfare Branch). For more information, see EBIA's Cafeteria Plans manual at Section II.D ("With No Cafeteria Plan, What Are the Tax Consequences of Offering Employees a Choice of Higher Pay With No Benefits vs. Lower Pay With Benefits?"). For information about EBIA's manuals visit (http://www.ebia.com/publications/index.html) Contributing Editor(s): Thanks to attorney Sharon R. Cohen for her contributions to this article, with final editing by EBIA staff. Ms. Cohen is Group and Health Care Counsel for Watson Wyatt Worldwide, an international benefits consulting firm in Washington D.C., and is a contributing editor of EBIA's Cafeteria Plans manual. --------------------------------------------------------------------------------

Good point by G Burns but the EBIA "green binders" note that the IRS has said that it will not follow Express Oil outside the 11th Circuit. They also note that even in the 11th the IRS might aruge that Express Oil only applies to FICA, FUTA and withholding but does not apply to what amounts are includible in an employee's income. This is an area where I have always told people to just put in a 125 Plan and don't deal with the uncertainty.

Interesting issues post-Great West. Years ago I represented MEWA's suing employers for delinqeunt contributions. We sued under ERISA 502(a)(3), obtained a judgment, and were typically successful in having the Court award fees under ERISA's discretionary standards. We argued that the the Congressional policy that mandates an award of fees in a multiemployer situation (515/502(g)(2)) counseled for a discretionary award in a multiple employer situation. Now, post-Great West you would have to "re-think" the approach under 502(a)(3) and see if you could fashion your approach as one for equitable restitution or some other equitable cause of action. You could put an attorneys' fees provision as part of your plan/trust and attempt to sue under state contract law. However, I think you may still run into problems. I have not reviewed all recent MEWA material, but it is my understanding that MEWA's are only exempt from preemption with regard to "laws that regulate insurance." If you are not suing under a law which regulates insurance you may still face preemption issues in a state law cause of action.

Not safe at all--from the regs: Any elimination or reduction of coverage in anticipation of an event described in paragraph (b) of Q&A-1 of section 54.4980B-4 is disregarded for purposes of this Q&A-1 and for purposes of any other reference in sections 54.4980B-1 through 54.4980B-10 to coverage in effect immediately before (or on the day before) a qualifying event. COBRA

I think an employer can clearly provide different benefits to different classes of employees as long as any applicable 105/125 nondiscrimination rules are complied with. However, in my mind, it all turns on employee "choice". If employees--prospective or current-- have a choice between cash or benefits, you have 125 issues. If employees don't have a choice you do not. I suppose if an employer legiitimately had two job openings--Job X with benefits--no choice; and Job Y with no benefits--no choice; and the employee applied for both jobs and was offered both jobs, then you may be able to avoid the issue.

You choose the "most applicable" state limitations period. I think in most Cirucits you are looking at the state's written contract limitations period. However, watch out for the Third, I think applicable precedent may still mandate loking at wage payment collection statutes which are usually very short

PLR 9406002 --- In the instant case, ****prospective employees…contract to perform services under an arrangement whereby a portion of the remuneration otherwise payable for their services will be paid to a third-party (i.e., the insurance company). In our view, it is irrelevant in this situation that services have not been performed prior to entering into the contract. If a prospective employee contracts to have *** pay amounts to the insurance company where the employee has the option of receiving those amounts as wages, the employee is merely assigning future income (cash compensation) for consideration (accident and health insurance coverage) and thus, is treated as receiving the cash compensation for which the accident and health insurance coverage is a mere substitute. It is as if the entire compensation for services had been paid directly to the employee and then a portion paid over by the employee as his or her contribution to payment of the accident and health insurance premiums. Accordingly…to the extent that the employee could have otherwise received an amount that is paid to the insurance company, it is includible in the employee’s gross income at the time it is paid over to the insurance company…By enacting section 125 of the Code, Congress set forth a statutory scheme, complete with nondiscrimination requirements, under which employers could offer their employees or prospective [emphasis added] employees a choice between cash and certain excludable employer-provided benefits such as accident and health insurance. To conclude, as Taxpayer does, that a type of choice specifically authorized by section 125 is not subject to that provision because it is part of the “negotiation” of the employment contract is, in our view, contrary to the statutory language and the intent of Congress in enacting section 125 of the Code .

http://www.benefitslink.com/boards/index.php?showtopic=19772

http://www.benefitslink.com/boards/index.p...9&hl=cdsc&st=15

My experience has been that filing without the audited financials will get you the benefit of 2560.502c-2(b)(3) that states that: An annual report which is rejected under section 104(a)(4) for a failure to provide material information shall be treated as a failure to file an annual report when a revised report satisfactory to the Department is not filed within 45 days of the date of the Department's notice of rejection. A penalty shall not be assessed under section 502©(2) for any day earlier than the day after the date of an administrator's failure or refusal to file the annual report if a revised filing satisfactory to the Department is not submitted within 45 days of the date of the notice of rejection by the Department. Obviously, the earlier the better but you have an argument that you have 45 days from the rejection to cure by submitting the audited finanicals. Also, typically the DOL's first letters are not "rejections" but simply requests for additional information.

You might want to look at this link for a discussion: http://www.benefitslink.com/boards/index.php?showtopic=17310