KJohnson

I had one VCP submission where I submitted GUST, EGTRRA, and all post EGTRRA interim amendments. I wondered about the interim amendments between GUST and EGTRRA and was told by the reviewer that they did not need to be submitted because the EGTRRA document would have incorporated those interim amendments --good faith EGTRRA, 401(a)(9), cash outs, final (k) and (m) etc.-- with the correct retroactive effective dates and that was good enough. I would, of course, verify that for any future submission. Also those interim amendments are not on Appendix C Part II Schedule II (but there is an "other" box).

I agree with My 2 cents (and Yoda). Look at the highlighted language below from the 1.411(d)-4. I have included the failure to cash out as an item in a VCP previously with several other issues. It is not mentioned specifically in EPCRS and the correction, which was accepted, was to just go ahead and cash out everyone in a single year. Q-4: May a plan provide that the employer may, through the exercise of discretion, deny a participant a section 411(d)(6) protected benefit for which the participant is otherwise eligible? A-4: (a) In general. Except as provided in paragraph (d) of Q&A-2 of this section with respect to certain employee stock ownership plans, a plan that permits the employer, either directly or indirectly, through the exercise of discretion, to deny a participant a section 411(d)(6) protected benefit provided under the plan for which the participant is otherwise eligible (but for the employer's exercise of discretion) violates the requirements of section 411(d)(6). A plan provision that makes a section 411(d)(6) protected benefit available only to those employees as the employer may designate is within the scope of this prohibition. Thus, for example, a plan provision under which only employees who are designated by the employer are eligible to receive a subsidized early retirement benefit constitutes an impermissible provision under section 411(d)(6). In addition, a pension plan that permits employer discretion to deny the availability of a section 411(d)(6) protected benefit violates the definitely determinable requirement of section 401(a), including section 401(a)(25). See § 1.401-1(b)(1)(i). This is the result even if the plan specifically limits the employer's discretion to choosing among section 411(d)(6) protected benefits, including optional forms of benefit, that are actuarially equivalent. In addition, the provisions of sections 411(a)(11) and 417(e) that allow a plan to make involuntary distributions of certain amounts are not excepted from this limitation on employer discretion. Thus, for example, a plan may not permit employer discretion with respect to whether benefits will be distributed involuntarily in the event that the present value of the employee's benefit is not more than the cash-out limit in effect under § 1.411(a)-11©(3)(ii) within the meaning of sections 411(a)(11) and 417(e). (An exception is provided for such provisions with respect to the nondiscrimination requirements of section 401(a)(4). See § 1.401(a)(4)-4(b)(2)(ii)©.)

I recall at some point, a number of years ago a few brokerage houses were allowing "house holding" where you aggregate a participant's ERISA accounts, IRAs, and personal holding with the brokerage house for purposes of determining breakpoints on the cost for services, higher interest rates etc. I am not sure whether that is still going on. For those doing it publicly, I would assume that they got an opinion from counsel but I am not sure how they got around PT issues.

If you are a large employer under ACA and have a non-calendar year plan you can incorporate a special rule for the Plan Year beginning in 2013 (and ending sometime in 2014) where an employee does not need to have a change in status. (1) An employee who elected to salary reduce through the cafeteria plan for accident and health plan coverage with a fiscal plan year beginning in 2013 is allowed to prospectively revoke or change his or her election with respect to the accident and health plan once, during that plan year, without regard to whether the employee experienced a change in status event described in § 1.125–4; and (2) An employee who failed to make a salary reduction election through his or her employer’s cafeteria plan for accident and health plan coverage with a fiscal plan year beginning in 2013 before the deadline in proposed § 1.125–2 for making elections for the cafeteria plan year beginning in 2013 is allowed to make a prospective salary reduction election for accident and health coverage on or after the first day of the 2013 plan year of the cafeteria plan, without regard to whether the employee experienced a change in status event described in § 1.125–4. An applicable large employer member that wants to permit the change in election rules under this transition relief for fiscal plan years must incorporate these rules in its written cafeteria plan. Pursuant to proposed § 1.125–1©, a plan may be amended at any time on a prospective basis. Notwithstanding the general rule that amendments to cafeteria plans may only be effective prospectively from the date of the plan amendment, a cafeteria plan may be amended retroactively to implement these transition rules. The retroactive amendment must be made by December 31, 2014, and be effective retroactively to the date of the first day of the 2013 plan year of the cafeteria plan.

1.125-5(e)(3) of the proposed regulations provide: (3) Separate period of coverage permitted for each qualified benefit offered through FSA. Dependent care assistance, adoption assistance, and a health FSA are each permitted to have a separate period of coverage, which may be different from the plan year of the cafeteria plan.

There is this language in the preamble and then there is the debate about what "practicable" means... The final rule, however, also recognizes that there may be circumstances when changes must be made within a time frame that precludes compliance with the 30-day advance notice requirement, such as the immediate elimination of an investment option when it is determined to be no longer a prudent investment alternative. In such cases, the rule requires that information be furnished as soon as reasonably practicable.

I did it once a number of years ago where an owner did not understand the controlled group rules, set up a one person DB but we were still in the remedial amendment period. The request set forth the coverage failure and asked for an unfavorable letter. Originally got a favorable letter (even though asking for an unfavorable one) but went back and got a lengthy determination allowing return of the contributions and including a ruling that it did not constitute a taxable reversion under 4980©(2)(B).

I see that in EBIA as well. They indicate that it might come down to a "benefit by benefit" determination. An insured AD&D plan and an insured group medical plan would definitely be separate plans unless somehow affirmatively wrapped into a single plan. But two group health contracts that offered the same type of benefit might be a single plan even if not "wrapped". If there is no employer designation, whether the fact that one includes dental and vision makes it a separate plan--I don't know. I think employers have a good bit of discretion in how they define what is a separate plan and what is not as long as they document it and follow the rules with regard to the separate plans (separate SPDs, separate 5500's if required etc.). The EBIA manual mentions that an employer could document that each group medical benefit, PPO, HMO, HDHP etc. could be separate plans if it wanted to.

There is at least one PLR (and I think there may be two) that statues that election of an in-service distribution is not a revocation/change in the TEFRA election. PLRs technically only may be relied on by the party seeking the letter but you might search for these and look at the reasoning.

Compare the 2000 Answer with DOL's 2009 Answer at the ABA JCEB Question 14: An employer has about 200 employees, and 160 of them are eligible for one of the employer’s two retirement plans. Except for a provision on which employees are eligible, the two retirement plans have identical provisions. Further, each plan provides that a participant directs investment among mutual funds of the same network. Each plan uses the same prototype document, and the two adoption agreements are identical except for the eligibility provision. The different eligibility provisions do not relate to different business lines or locations. Further, nothing in the terms of the eligibility provisions suggests any business purpose at all. Rather, all of the documents and other facts seem to suggest that the employer designed the two eligibility provisions so that each plan will have fewer than 100 participants. Under both plans, the employer is the administrator and the only named fiduciary. Proposed Answer 14: A fiduciary may not rely on a plan’s documents if doing so is inconsistent with ERISA. See ERISA § 404(a)(1)(D). In deciding whether ERISA requires a fiduciary not to rely on a plan’s documents, an administrator must act according to ERISA’s standard of care. ERISA § 404(a)(1)(B). If a person acting “with the care, skill, prudence, and diligence” that ERISA requires would believe that the two plans really are one plan, the administrator must engage an independent qualified public accountant. DoL Answer 14: Under Title I of ERISA, employers have substantial discretion in designing the benefit plans they will offer to their employees, including decisions on whether to offer the benefits as a single plan or as separate plans. Whether an employer has established one or more than one ERISA plan depends on the facts and circumstances. In the staff’s view, in the absence of contrary annual reporting rule or requirement and assuming the structure of the arrangements is otherwise lawful (e.g., under the Internal Revenue Code), it would be reasonable for a fiduciary to look to the instruments governing the arrangement or arrangements to determine whether the benefits are being provided under separate plans and to treat the arrangement or arrangements for annual reporting purposes as separate plans to the extent the instruments establish them as separate plans and they are operated consistent with the terms of such

I indicated that I thought the HIPAA discrimination concerns that existed for reimbursing individual policies prior to 2014 did "go away". I hedged because I know that tobacco is still counted for individual policies and thought that tobacco use premium variance not geared to a wellness program could still violate HPAA discrimination if the individual policies were considered an employer plan. I agree pre-tax is out because of the 2111 penalty. It will be interesting to see what "flavors" of post-tax treatment are allowed outside of the voluntary plan exception to ERISA (which is very difficult to meet).

I don't think it would effect tax treatment. It would, however, subject the employer to a $100 per day penalty for each individual affected by the 2711 violation.

I'm not sure pre-tax, post-tax matters for the ERISA analysis. I think the only way to get around ERISA would be the voluntary plan exception and if you have an employer contribution of any sort that means you can't meet the exception. What is below was prior to the ACA guidance on reimbursing individual premiums through an HRA, but back in 2008 at the ABA JCEB conference DOL indicated that it thought the individual policies were part of a plan for ERISA and gave a bit of a non-answer for HIPAA purposes. The HIPAA concern on the individual policies goes away at least to some extent because of the mandated changes in underwriting for individual policies. Also, 2013-54 and the corresponding DOL Technical Release mention the voluntary plan exception to ERISA as being not an "employer payment plan." Would any other-- even post-tax--- arrangement that did not meet the voluntary plan exception still be considered an employer payment plan under the guidance? 12. An employer sponsors Health Reimbursement Arrangements (HRA) for their employees. (Assume the HRA is subject to ERISA and is in compliance with all applicable requirements). The employer permits employees to pay for all qualified medical expenses including individual health insurance premiums through the HRA. The only health insurance option available to employees is to purchase individual polices using the HRA funds. Because the individual insurance polices are reimbursed through the HRA (which is funded with employer contributions) would the individual policies constitute a group health plan subject to ERISA and if so, would such policies (which are underwritten individually based on health factors) potentially violate HIPAA nondiscrimination provisions with respect to a group health plan? Proposed Answer 12: Likely yes, the individual policies would constitute a group welfare plan subject to ERISA and the additional group health plan provisions under Part 7 including HIPAA nondiscrimination. Employer contributions are used to pay for the individual insurance policies. Generally the employer’s payment of insurance premiums to provide ERISA benefits to employees will be enough to create an ERISA plan. There may be an exception to ERISA if the plan satisfies the voluntary safe harbor under 2510.3-1(j) – however the presence of employer contributions would negate the availability of the safe harbor. Because HRA dollars are employer contributions, the safe harbor would not be available in this scenario. It would appear that individual policies paid through employer HRA contributions would constitute an ERISA plan. Further, the preamble to the Final HIPAA portability regulations addressed this issue. Coverage provided by an employer through two or more individual policies may be considered a group health plan subject to HIPAA nondiscrimination rules. Preamble to Final HIPAA Portability Regulations 68 Fed. Reg. 78719 , 78733 (Dec. 20, 2004). The preamble further states “one significant factor in establishing whether there is a group health plan is the extent to which the employer makes contributions to health insurance premiums”. Id. Therefore it would be likely that using HRA dollars to pay for individual health insurance premiums would cause the individual policies to constitute a group health plan. If the individual policies constitute a group health plan under ERISA and are subject to HIPAA, it is likely that the plan would not comply with HIPAA’s nondiscrimination requirements. Individual policies general establish eligibility and premium amounts based specifically on the health factors of the individual. Therefore a group health plan made up of individual policies would appear to violate the requirements of the HIPAA nondiscrimination rules. DoL Answer 12: The Staff agrees that a Health Reimbursement Arrangement (HRA) is a group health plan generally subject to ERISA requirements. The Staff also agrees that individual policies purchased with HRA funds would not meet the voluntary safe harbor under 29 CFR section 2510.3-1(j) due to the presence of employer contributions. Moreover, HIPAA’s nondiscrimination requirements appear in ERISA, the Code, and the Public Health Service Act. The term “group health plan” is defined differently in ERISA and the Code (the PHS Act follows the ERISA definition). As such, the applicability of the HIPAA nondiscrimination requirements to individual insurance policies funded through an HRA would need to be resolved jointly by DoL, Treasury/IRS, and HHS. The DoL has not addressed the application of the nondiscrimination requirements under HIPAA, including the extent to which underwritten individual health insurance policies purchased and reimbursed by an HRA are treated as health insurance coverage offered under a group health plan. See IRS Notice 2002-45.

Understood. If you have the ERISA Outline book. look at 6.277-6.280. Again, I think this is more of a 401(k) issue rather than an issue of an employer with just a profit sharing plan. Also a good bit depends on how the "deal" is structured. If Doc is just shutting doors and joining a new practice with no stock or asset sale involved and if Doc not continue the old practice as a business that could be in an ASG with the new practice then everything might be simpler. I would just ask the attorney why he or she is taking that position.

I can see it being more of an issue with a 401(k) plan. You can't distribute if there is a successor plan. If someone could argue that it is the new entity making the contribution to the plan it could be considered maintaining the plan and if the new entity also had a 401(k) of its own you arguably run afoul of the successor rule (or more precisely the alternative defined contribution plan rule). Or if the new entity could be considered in an ASG with any of the old entities that continued to exist you could have the same issue. Sal goes into this a good bit in his book and says that in an asset deal the best case is to terminate and distribute before the "deal". But again, he is speaking to 401(k) plans. If this is some kind of stock deal where the entities are being statutorily merged then there are even further complications if the plan is "maintained" after the merger date.

First I would look at your exclusion of temporary employees. A flat exclusion would typically be a 410(a) problem. I would expect that what it says is that temporary employees are excluded unless they have a year of service and then they come in. But, where I think you might have a problem is that you have to give credit for the "lease to own" period. Thus as soon as the person becomes "non-temporary" you still have to include service when they were temporary. I believe the rule is generally that if you have not come into the plan because you are in an excluded class and then you transfer to an included class all service (even during the excluded class period) is counted to see if you have met the service requirement. As KED notes that would include the "lease to own" period. Here is an old link to the "lease to own" analysis but I think this is probably still good. (Look at the "Sally Switch" example) Q&A 135: Lease to Own and Code Section 414(n)(4)()

Agree, To me under the language of the IRM before with the recent change the phrase: " business necessity for termination must have been unforeseen when the plan was adopted and not within the control of the employer" was a bit troubling in your situation because it appears he would controlling the liquidation of the business and the liquidation was largely anticipated. But they have now dropped that from the IRM. And, both versions acknowledge liquidation or discontinuation of the business as a business necessity.

You must try and get it back, but the IRS clarified in 2013-12 that you don't have to put in a make up contribution if they do not. You probably have potential withholding issues especially if the participant doesn't pay tax and the plan administrator doesn't withhold. 4) Correction of Overpayment (defined contribution plans and 403(b) Plans). (a) In general. An Overpayment from a defined contribution plan or 403(b) Plan is corrected in accordance with the Return of Overpayment method set forth in this paragraph. Under this method, the employer takes reasonable steps to have the Overpayment, adjusted for Earnings at the plan’s earnings rate from the date of the distribution to the date of the repayment, returned by the participant or beneficiary to the plan. (b) Make-whole contribution. To the extent the amount of an Overpayment adjusted for Earnings at the plan’s earnings rate is not repaid to the plan, the employer or another person must contribute the difference to the plan. The preceding sentence does not apply when the failure arose solely because a payment was made from the plan to a participant or beneficiary in the absence of a distributable event (but was otherwise determined in accordance with the terms of the plan (e.g. an impermissible in-service distribution)). © Unallocated account. Except as provided in section 6.06(4)(d), a corrected Overpayment, adjusted for Earnings at the plan's earnings rate to the date of the repayment, is to be placed in an unallocated account, as described in section 6.06(2), to be used to reduce employer contributions (other than elective deferrals) in the current 41 year and succeeding year(s) (or, if the amount would have been allocated to other eligible employees who were in the plan for the year of the failure if the failure had not occurred, then that amount is reallocated to the other eligible employees in accordance with the plan's allocation formula). (d) Repayment by the participant or beneficiary. To the extent an Overpayment was solely considered a premature distribution but was otherwise determined in accordance with the terms of the plan, any amount returned to the plan by the participant or beneficiary is to be allocated to his or her account. (e) Notification of employee. Except as provided in section 6.02(5)© with respect to the recovery of small overpayments, the employer must notify the employee that the Overpayment was not eligible for favorable tax treatment accorded to distributions from an eligible retirement plan under § 402©(8)(B) (and, specifically, was not eligible for tax-free rollover). .

Just realized the IRM was updated this past summer on this.... 7.12.1.6 (07-16-2013) Permanency Requirements/Reasons for Termination Treas. Reg. 1.401-1(b)(2) indicates that a plan must be established with the intent to be a "permanent" , not "temporary" , program. A specialist should review lines 4(d) and 7(a) on the Form 5310 to determine how long the plan has been in existence. If a plan terminated within a few years after its adoption, the employer must provide a valid business reason for the termination. Otherwise, there is a presumption that it was not intended as a permanent program from its inception. It has been held that termination of a long established plan without a valid business reason did not affect a plan's qualification. See Rev. Rul. 72-239, 1972-1 C.B. 107. Line 10 on the Form 5310 provides the following reasons for plan termination: Change in ownership by merger Liquidation or dissolution of employer Change in ownership by sale or transfer Adverse business conditions Adoption of new plan Line 10 on the Form 5310 also provides for a section for "Other" reasons for the plan termination. Other acceptable business reasons for plan termination could be: Substantial change in stock ownership Employee dissatisfaction with the plan Bankruptcy of employer In these instances, the specialist should review all of the surrounding facts and circumstances and make a determination as to whether the plan was intended to be permanent. Consider the extent of any tax advantages the employer derived during the period of the plan’s existence. The specialist should also review line 18(a) on the Form 5310 to determine permanency. Repetitive failure to make contributions in a discretionary profit-sharing plan during profitable years may indicate a lack of intent for the plan to be permanent. If a specialist believes that a taxpayer lacked intent to keep their plan permanently, they should consult with the manager and discuss disqualifying the plan. If bankruptcy is the reason for termination and the plan is a pension plan, further inquiry is required. The specialist must ensure that the plan is fully funded (See paragraph (5) of IRM 7.12.1.9, Proposed Date of Plan Termination for a definition of fully funded) and that no excise taxes are due as described in IRM 7.12.1.21, Minimum Funding Standards. If it is determined that excise taxes may be due, the specialist should research the taxpayer on the Integrated Data Retrieval System (IDRS). If IDRS confirms that excise taxes are due, the specialist should go to the following website: http://mysbse.web.irs.gov/exam/tip/bankruptcy/contacts/12268.aspx and contact the bankruptcy coordinator for the state that the taxpayer does business in. The bankruptcy coordinator will prov ide the name of the Insolvency Bankruptcy specialist assigned to the taxpayer's bankruptcy case. The specialist must then refer the case to EP Examinations on a Form 5666, TE/GE Referral Information Report so they can determine how much excise tax is due and report that amount to the Bankruptcy specialist BEFORE the bar date. See IRM 5.9, Bankruptcy and Other Insolvencies. Note: If the bar date has passed, we can no longer collect any excise taxes and we will only be able to document the Form 5621. Forward the Form 5666 to EP Classifications Unit in El Monte. Referrals can be sent by mail to the address listed in Exhibit 7.12.1-1, EP Examinations Referral Mailing Address or they can be secure e-mailed to the EP Classification mailbox at *TE/GE-EP-Classification. The taxpayer should be informed of any EP Examinations referral.

For what it's worth, this is from the IRM on plan terminations.. http://www.irs.gov/irm/part7/irm_07-012-001.html 7.12.1.2.5 (01-01-2003) Reason for Termination If a plan has been in existence for more than ten years, termination without a valid business reason has been held not to affect its qualification. See Reg. 1.401–1(b)(2) and Rev. Rul. 72–239, 1972–1 C.B. 107. If a plan is terminated within a few years after its adoption, there is a presumption that it was not intended as a permanent program from its inception. Unless business necessity required the termination, it may be concluded that the plan did not qualify from its inception. The business necessity for termination must have been unforeseen when the plan was adopted and not within the control of the employer. See Reg. 1.401–1(b)(2) and Rev. Rul. 69–25, 1969–1 C.B. 113. Whatever the reason given for the termination of the plan, the facts and circumstances leading to its termination must indicate the taxpayer intended that the plan be permanent. Bankruptcy, insolvency or discontinuance of the business of the employer would ordinarily be considered as prima facie evidence of such business necessity. Business necessity also includes other valid business reasons which significantly impair the attractiveness of a plan as a means of providing employee compensation. Other acceptable reasons for termination of a plan may, depending on the circumstances, include: Substantial change in stock ownership Merger Substitution of another type plan Financial inability to continue the plan Employee dissatisfaction with the plan Substantial change in the law affecting retirement plans

The POP safe harbor talks about just passing eligibility. Then logically, everyone is eligible so you should pass. Here is all that is in the proposed regs... (f)Safe harbor test for premium-only-plans—(1) In general. A premium-only-plan (as defined in paragraph (a)(13) of this section) is deemed to satisfy the nondiscrimination rules in section 125© and this section for a plan year if, for that plan year, the plan satisfies the safe harbor percentage test for eligibility in paragraph (b)(3) of this section. (2) Example. The following example illustrates the rules in paragraph (f) of this section: Example. Premium-only-plan. (i) Employer F’s cafeteria plan is a premium-only-plan (as defined in paragraph (a)(13) of this section). The written cafeteria plan offers one employer-provided accident and health plan and offers all employees the election to salary reduce same amount or same percentage of the premium for self-only or family coverage. All key employees and all highly compensated employees elect salary reduction for the accident and health plan, but only 20 percent of nonhighly compensated employees elect the accident and health plan. (ii) The premium-only-plan satisfies the nondiscrimination rules in section 125(b) and © and this section. But the example given assumes a uniform amount or percentage without saying that this a strict requirement of the safe harbor. Also, then you come to the question whether there is a "uniformity" of benefits requirement in eligibility testing itself which the examples in the proposed regulations on eligibility testing seem to imply (at least to a plan that is open to everyone but discriminates against NHCEs as to some benefits). But here since you are discriminating against HCEs you would think you would be ok, but I suppose it is still unknown at this point. Look at Buck's comments to the proposed regulations at the bottom of page 4 and top of page 5 where they raise this issue. http://www.buckconsultants.com/portals/0/publications/comment-letters/comment-IRS-Section-125-Proposed-Regs-2007-1105.pdf

Maybe that woudl allow you to file as one plan. I'm not sure. But you need an SPD for that "plan" and certificates of insurance are usually not SPDs. So you would have run afoul of the SPD requirement. Or if you have converted your certificates of insurance to SPDs have you acted consistently with the notion of them being one plan or have you assigned different plan numbers and different plan names etc.

I think the fact that it is ROBS doesn't makes a difference to the analysis but it might make a difference in whether they are interested in pushing the issue. FWIW Sal raises it as an issue and cites "many practitioners" on the money purchase pension solution.

It is not a cafeteria plan it is to treat all welfare benefits offered as a single plan. This could include multiple group major medical insurance policies, as well as LTD, Life, AD&D, STD, EAP (to the extent it is a plan), STD, FSA, HRA etc.

The issue came up in the discussion of ROBS in a discussion of "permanency" They seem to concur with others that if you have a CODA, even if someone does not use it there is no substantial and recurring problem. But note footnote 9 where they say the CODA has to be communicated to employees. I had previoulsy sumitted frozen profit sharing plans for determ letters because of this concern and always received letters. That said, I think the advice has always been if you want to do this the "fix" is to set up a money purchase pension plan witha $0 contribution. Then you can convert it to a profit sharing plan and add a CODA down the road. Here is a link to the ROBS guidance. http://www.irs.gov/pub/irs-tege/robs_guidelines.pdf Here is what they said... Consider that business reasons - tax motivated or otherwise - are generally the only reasons why a retirement arrangement is installed. Similarly, they are likely to be the only reason why they are terminated as well. For this reason, permanency is not an area where the Service has aggressively challenged plan terminations or design considerations. Additionally, Regulations address permanency within the context of an entire plan arrangement, not necessarily to a feature within a plan. Therefore, a plan containing a ROBS arrangement would have to be shown to be nonpermanent in its entirety. Many of the ROBS arrangements we have examined also contain a CODA feature. Plans which suffer from permanency failures are generally deficient in that they do not receive substantial and recurring contributions. Because CODA features receive contributions only if participants make contributions, the issue of permanence is resolvable in favor of the employer.