jstorch

I agree that such an amendment would be a violation of 409A. See Treas. Reg. § 1.409A-3(j)(2): "Generally, the addition of a permissible payment event ... results in an acceleration of a payment if the addition...could result in the payment being made at an earlier date than such payment would have been made absent such addition...." Can you use the separation pay arrangement exclusion from 409A under § 1.409A-1(b)(9)(iii) to get to where you want to go?

I agree with My 2 cents that a one-person plan has more risk of being disqualified. Is there enough at stake to file VCP to get official IRS pronouncement that the plan will be treated as qualified? Would bankruptcy trustee have any argument that the plan sponsor should not be allowed to spend the funds for the filing?

I'm not aware of IRS disqualification stats, but for another argument you could just cite to the IRS correction procedure, EPCRS Rev. Proc. 2013-12, which allows self-correction (SCP) of small defects and correction even of defects found on IRS audit (Audit CAP). EPCRS shows that the IRS does not want to disqualify a plan and that a plan can readily correct even significant errors and maintain its qualification. Of course, the trustee might push to have the corrections actually made.

When I researched this, I was not able to find anything allowing you to send the money directly to the participant, so we put it in to the plan and notified them. If anyone is aware of authority saying you can send the funds directly to the participant, I'd appreciate the citation to it.

See Code Section 132(f), qualified transportation fringe, http://www.law.cornell.edu/uscode/text/26/132 and related regulations http://www.law.cornell.edu/cfr/text/26/1.132-9 . Can be done outside of a 125 plan. Though the regulations say a qualified transportation fringe benefit plan is not required to be in writing, it's good practice to do so.

I am reviewing a health plan that says that dependents in military service are not covered by the plan. Any prohibitions on such a provision? I have looked at TRICARE nondiscrimination rules and commentary, and the provision does not on its face violate the TRICARE provisions. 10 U.S.C. §1097c(a) prohibits offering incentives to waive other coverage and take TRICARE--no incentive involved here. 10 U.S.C. §1097c(b) says, "A TRICARE-eligible employee shall have the opportunity to elect to participate in the group health plan offered by the employer of the employee and receive primary coverage for health care services under the plan in the same manner and to the same extent as similarly situated employees of such employer who are not TRICARE-eligible employees." The questionable provision does not affect the opportunity of TRICARE-eligible employees to elect participation to the same extent as non-TRICARE-eligible.

I have an employer who sold "all or substantially all" of its assets in an arm's length transaction to an unrelated 3rd party that would qualify for ERISA 4225(a) provisions on limiting withdrawal liability (WL) based on a percentage of the liquidation/dissolution value of the employer after the sale. Unfortunately, the real estate on which the business was operated was included in the employer's assets and sold at the same time. If the proceeds of the real estate are included, ERISA 4225(a)(2) doesn't cause the WL to decrease. I have been trying to find justification for excluding the real estate (arguing that WL should be based solely on the business' operating assets) without luck. Has anyone heard of this argument being made (ideally, successfully)?

The DOL's position is that you look at the type of the benefit, not the type of plan, to determine the type of claims procedures (most significantly, the deadlines). So, if a retirement plan has a payout in case of disability, you need to address the disability rules. I recall that in a retirement plan, if the disability determination is not made by the plan but by some outside entity (e.g., Social Security; long term disability insurance), then the retirement plan can rely on that determination and not add in the extra disability procedure provisions. (Sorry, don't have a cite for this offhand). So, when I am drafting retirement/executive comp agreements that have payouts in case of disability, I first try to define disability as determined by SSA or an outside insurance policy (keeping in mind the need to satisfy the 409A definition if you are dealing with a nonqualified plan). If we don't do that, then I add the special rules for disability claims as necessary. E.g.: "If a claim is wholly or partially denied, the Plan Administrator shall notify the Claimant of the Plan's Adverse Benefit Determination in writing within a reasonable period of time, but not later than 90 days (the immediately preceding "90 days" shall be replaced with "45 days" in case of a claim related to disability)..." Note also that the claims procedures technically apply to the plan, not just the SPD: "Every employee benefit plan shall establish and maintain reasonable procedures governing the filing of benefit claims..." DOL Reg. § 2560.503-1(b). I generally include the claims procedures in both the plan and the SPD.

Recent IRS guidance on calculating the COBRA premium subsidy says you allocate premium costs first to assistance eligible individuals, so that if the cost of covering a non-assistance eligible individual does not add to the cost of covering the assistance eligible individuals, you effectively can ignore the fact that a non-assistance eligible individual is covered. See Q&A 25 of Notice 2009-27 at http://www.irs.gov/pub/irs-drop/n-09-27.pdf I've been wondering whether this indicates the IRS will apply the same logic to other situations to determine the value of the taxable portion of health coverage, such as the one you discuss or domestic partners. Anyone have any thoughts on this?

After this initial thread was posted, IRS released Notice 2008-59, which says that if an individual switches from a family HDHP to a self-only HDHP (e.g., in a divorce), that the self-only HDHP may use "any reasonable method to allocate the covered expenses incurred during the period of family coverage for the purpose of satisfying the deductible for self-only coverage." See Q/A 12.

I think the child should get the second chance notice (assuming the plan is subject to Federal COBRA and not state continuation laws). At the very least, the child must get the general notice. ARRA Section 3001(a)(7) provides that any COBRA qualified beneficiary from September 1, 2008 - December 31, 2009, not just AEIs, must get the general notice. The child meets the requirement for getting the notice. Technically, the child also meets the definition of an assistance eligible individual under Section 3001(a)(3). Having a second qualifying event (loss of dependent status) does not change this. Section 3001(a)(4)(A) provides that an individual who does not have an election of COBRA continuation coverage on the date of ARRA's enactment but who would be an AEI if the COBRA election were in effect has a second chance to elect COBRA. This section only applies to those covered by Federal COBRA, not state mini-COBRA. I believe the purpose of this second chance is to allow those who declined COBRA because they couldn't afford it the chance to re-elect now that the cost is subsidized. It is possible in the situation you describe that they decided after the first month of "regular" COBRA that they could not afford to keep paying for the child's coverage and so did not respond to the second notice. In this case it would be consistent with the purpose of the second chance provisions to allow the child to make a second chance election. Another alternative is to simply send the general notice and see if the child wishes to be treated as an AEI. If not, no need to provide additional COBRA coverage. If the child claims AEI status and wants the second chance to elect, the employer could deny it and let the DOL decide the issue by its appeal process.

I have one client pushing to get out the "second chance" notice now to those previously terminated, to start the election deadline running and minimize adverse selection. If DOL comes out with something drastically different than what we send, we'll consider whether to send a new notice based on the DOL model and extend the election period. However, I don't think a new notice will be necessary unless DOL expands upon the statutory requirements.

Can anyone recommend a reference for more information on reimbursement for expenses of establishing and administering an ESOP under Code Section 409(i)? I find very little on it and unfortunately many searches turn up materials on 409(l) rather than the actual (i). 409(i)(1) provides that, "as reimbursement for the expenses of establishing the plan, the employer may withhold from amounts due the plan for the taxable year for which the plan is established (or the plan may pay) so much of the amounts paid or incurred in connection with the establishment of the plan [up to 10% of the first $100,000 the employer transfers to the plan plus 5% of the excess]." We represent an individual who is selling his entire ownership in the company to a new ESOP. He would like to get some of his costs involved in this process paid by the ESOP or the company and we are trying to use 409(i). An indirect way would be to negotiate with the company that it can take advantage of 409(i) to contribute less to the ESOP and so, since it has more money available to it, it can pay some to the seller to offset its costs. I am hesitant however to have an agreement directly tying the amount paid to the seller to the amount the company holds back from the ESOP. Do I need to be so concerned? The statute includes the parenthetical, "(or the plan may pay)". I'm more hesitant to use money coming directly from the plan. I haven't done a thorough prohibited transaction analysis, but my initial thought is that a payment from the plan to the seller, even after he no longer owns any of the company, could be a prohibited transaction. Likewise, a payment from the plan to others on behalf of the seller seems problematic (both prohibited transaction and exclusive benefit concerns). Any thoughts on how to get a payment to the seller or where to get additional analysis on 409(i) would be appreciated.

IRS issued guidance on this September 29, 2008, Notice 2008-82: http://www.irs.gov/irb/2008-41_IRB/ar09.html

Yes, cycle C (governmental plan). Thanks for all the responses; I suppose it's good to have confirmation that we are not alone in having a long response time.

Does anyone know where the IRS is on processing determination letter requests? Their website says that they are currently working on "on cycle" Form 5300 applications postmarked January 2007: http://www.irs.gov/retirement/article/0,,id=150182,00.html If this is true, they are more than a year behind. I submitted an on cycle 5300 for a DB plan in early March, 2008. Their confirmation letter said that we normally could expect to hear from them within 145 days. Having yet to hear anything, I called and spoke with an IRS agent today (September 23, 2008) who said it had not been assigned yet and could not tell me when it would be assigned, referring me to the above site. Does anyone have any first-hand knowledge of how long the applications are taking for processing?

Anyone familiar with ABC Co, Inc.? (edited by sitewide moderator) A client claims ABC Co Inc. contacts them every now and then about providing a free independent review of their plan. According to the client, "they stress how our plan is not considered to be “valid” according to ERISA without a review." I have not been able to verify that this is the actual language used by the sales rep. If anyone has any first-hand experience with ABC Co Inc, I'd appreciate a review.

The examples of permissible payment options for individual insurance premiums in Prop. Treas. Reg. Section 1.125-1(m) appears to have a typo--it gives three examples of options, ending with: (iv) The cafeteria plan issues a check in the same manner as (iii), except that the check is payable jointly to the employee and the insurance company; or (v) Under these circumstances, the individual health insurance policies are accident and health plans as defined in §1.106-1. There appears to be something missing after the "or" at the end of (iv) (perhaps something along the lines of, "The cafeteria plan issues a check directly to the insurance company.") I haven't found anything indicating an IRS acknowledgment that this is an error or a correction. Does anybody know of anything on this?

from http://benefitslink.com/links/20071001-056296.html (The New York Times; free registration required) Excerpt: "The International Brotherhood of Teamsters announced last night that it had reached a tentative five-year contract with the United Parcel Service that calls for sweeping changes in the pension plan for many workers." Times reports UPS is paying $6.1 billion to withdraw from the Central States pension plan, which would reduce the plan's underfunding from 49% to 30%. Any opinion on the short and long term effect on those remaining in the Central States plan?

I am advising an insurance agent who is working with an employer who offers domestic partner insurance benefits, both same and opposite sex DPs. Employer has structured the cafeteria plan so that an employee with a domestic partner in the health plan must pay the entire insurance premium after-tax (rather than allowing the employee's share of the premium to be paid pre-tax through the cafeteria plan and the DP's share paid post-tax). I assume this is to avoid administrative issues and costs in keeping track of split payments but have not discussed with the employer directly. Is there anything prohibiting this arrangement? One concern I have is whether, based on employer census, this violates the cafeteria plan nondiscrimination rules. Effectively, this structure means that employees electing coverage of domestic partners under the health plan are ineligible for the pre-tax premium payment portion of the cafeteria plan. If a disproportionate number of so-electing employees are non-highly compensated employees, then there may be a (HCE/NHCE) discrimination issue. Has anyone else run into a similar arrangment?

Exactly. Furthering the problem is that the executive contemplates wanting to do some paid consulting after leaving the current employer. He would like to be able to keep from receiving his deferred income until a date well after his termination with the employer. Consequently, simply keeping the executive unvested until he terminates doesn't help him much.

I'm working with an employer who we have determined is a local governmental employer for ERISA and tax purposes. Their head is maxed out in their defined contribution plan. On their face, the Code sections exempting local governmental plans from minimum participation and discrimination provisions, etc., would appear to allow them to put in a 401(a) qualified DB plan benefitting solely the top person (we've also discussed drafting it to benefit a few other of the key executives). However, this seems a way to permit additional executive deferred comp in a way contrary to the policy of 457(f), and I have not found any PLRs addressing this. So far, I've found nothing in the state statutes that would prohibit this either. Has anyone done something like this in practice? I'd appreciate any suggestions or thoughts.

The latter--look to whether the individual's combined monthly limitation was exceeded for the year. You won't know for sure until the end of the year if the individual was eligible for the full 12 months. If there's an excess contribution, it has to be kicked out with any attributable earnings before the individual's tax return (with extensions) is due. See Code § 223(f)(3).

238 pdf pages' worth. But at least they give us another year to digest them. Per the IRS release: "The effective date proposed for the regulations is January 1, 2007. Taxpayers may rely on the proposed regulations until final regulations are effective."

I've seen from a couple of sources that IRS is planing on issuing revised Employee Plans Compliance Resolution System materials later this month. One of the big changes is that employers will be required to contribute only 50% (rather than the current 100%) of average pre-tax deferrals for employees who were improperly excluded from participation. I'm currently in settlement negotiations for an employee who was improperly denied participation in an elective deferral plan for about five years. We've based our settlement position on the current IRS EPCRS requirement that the employer contribute 100% of average deferrals. If the new EPCRS will cut that contribution in half, I'm concerned our settlement also will be halved. Any thoughts on how I should proceed? The material when it comes out might address the situation, but I don't know if it's safe to wait that long if it ends up being unfavorable to the client. Our backup plan was to involve the DOL if a reasonable settlement couldn't be reached, assuming they'd recommend a correction similar to EPCRS. I don't think we can be too sure of our initial settlement calculations now.