Kirk Maldonado

The courts have been a lot less consistent than the IRS regarding the way in which they have analyzed whether there was a partial termination.

I think that it is funny that the utility of a spell-checking function is demonstrated by the messages posted after mine; the correct spelling is "avatar" not "avitar." That is a minor typo and only one typo in each of the posts, but I've seen posts that were full of typos. Those are the ones that I object to.

That is the general rule. Are you aware of any guidance in this specific situation? Causing imputed income where there is no increase in the premium is impossible to defend on a logical basis. I can't imagine the IRS fighting this battle.

Does anybody know if there has been any resolution of the issue as to whether there is any imputed income where the emloyee has already elected family coverage and then later adds a domestic partner? It seems incongruous to have imputed income where the addition of the domestic partner does not result in an increased premium, but that seems to be the way the rules work.

E as in ERISA: I prefer the new location. You know what they say about one man's meat being another man's poison. jevd: In addition to the points you raised, I want to personally commend Dave's efforts in pasting useful computer tidbits on BenefitsLink from time to time. My only wish is that there was a spell-checker feature that corrected all messages before they could be posted, but based on conversations I had with Dave, there are some significant technical problems preventing that.

Where the person had rolled over an improper distribution, informing them that the rollover did not qualify for favorable income tax treatment and that the distribution would be reported to the IRS as not qualifying for rollover treatment was enough to get the person to return the money for one of my clients.

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Brett: The following statement you made is overbroad: The statute says which events entitle a person to elect COBRA. If the event isn't one of those listed, then the person can't make a COBRA election, even though the person would lose coverage under the plan as a result of that change in status. For example, changing from union to non-union status would not be a qualifying event even if that switch causes the person to lose his or her ability to participate in the plan.

Yes.

IRC Section 4975(e)(7) defines an ESOP as follows: The term “employee stock ownership plan” means a defined contribution plan— (A) which is a stock bonus plan which is qualified, or a stock bonus and a money purchase plan both of which are qualified under section 401(a), and which are designed to invest primarily in qualifying employer securities; and (B) which is otherwise defined in regulations prescribed by the Secretary. While most people focus upon the words "invest primarily in qualifying employer securities," in this case, I think that the operative word is "designed." Specifically, I think it is significant that the statute doesn't mandate that the plan assets actually be invested in employer securities. If Congress had intended that result, the statute would read as follows: which are invested primarily in qualifying employer securities. However, I will freely admit that mine is a minority viewpoint. I look forward to reading the responses of others, particularly any that are posted by RLL. (Not that I anticipate that RLL will disagree with me; it is just that I find the posts by RLL to be some of the more insightful ones that I've read on the Message Boards.)

If the proposed pension funding reform legislation gets enacted, that will change the landscape so much as to render any prior articles of very little value.

The Yahoo Toolbar has a pretty good anti-spyware program too.

Appleby: Thanks for posting that material. However, most of the plans that I work with aren't subject to the J&S rules. Also, that language only applies if the offset occurs automatically at the date of death. Many plans provide for an offset only if there is a default; meaning a failure to make the payment by the due date (or end of the grace period). If the plan doesn't treat the death as causing an immediate offset, then the estate of the participant should be able to repay the remainder of the loan, unless payments must be made by payroll withholding. (I don't think that the estate making the payment should be considered to have been an assignment or alienation of the loan.)

Mbozek: Is there a deemed distribution even if the deceased participant's estate continues to make the loan repayments in a timely manner?

Regardless of what rules apply today, those rules could be changed by the proposed pension funding reform legislation. The draft of the Pension Transparency Act that I got was 615 pages long, although most of it did not deal with multiemployer plans. Stay tuned.

The DOL regulation on this point is section 2510.3-21©(1).

There is such a rule for eligibility service. It is found in the DOL regs at Section 2530.202-2(b)(2), which provides as follows: (2) A plan may designate plan years beginning with the plan year which includes the first anniversary of an employee's employment commencement date as the eligibility computation period after the initial eligibility computation period (without regard to whether the employee is entitled to be credited with 1,000 hours of service during such period), provided that an employee who is credited with 1,000 hours of service in both the initial eligibility computation period and the plan year which includes the first anniversary of the employee's employment commencement date is credited with two years of service for purposes of eligibility to participate.

General Counsel Memorandum 38230, 12/31/1979, IRC Sec(s). 6033 -------------------------------------------------------------------------------- UIL No. 6033.01-01; 6501.04-00; 6501.06-01 Headnote: Reference(s): Code Sec. 6033; Code Sec. 6501; Full Text: CC:I-355-77 Br1:HRBucholtz December 31, 1979 Memorandum to: S. ALLEN WINBORNE Assistant Commissioner (Employee Plans and Exempt Organizations) Attention: Director, Employee Plans Division In G.C.M. 38082, captioned as above and dated Sept. 6, 1979, we responded to your inquiry as to whether Form 5500, Annual Return/Report of Employee Benefit Plan, may constitute a return of a trust serving as part of a qualified employee benefit plan for purposes of I.R.C. § 6501. We concluded that it could not. We then went on in G.C.M. 38082 to discuss possible solutions to the problem posed by that conclusion; i.e., that such trusts would have no formal means of starting the running of the section 6501(a) statute of limitations. One such solution to which G.C.M. 38082 at 15 n.2 (and accompanying text) refers is the reimposition of a return requirement upon employee benefit trusts. That requirement would be satisfied by the trust filing an abbreviated return as a schedule to the Form 5500 completed by the employer maintaining the plan or the plan administrator thereof. Such a filing would be sufficient to start the limitations period running. Representatives of this office and of the Employee Plans Division agreed that this proposed solution should be implemented. Members of the Employee Plans Division then undertook to develop Schedule P (Form 5500) to serve as a trust return. We have now learned that the Tax Forms and Publications Division (T:FP) objects to the issuance of the proposed Schedule P (Form 5500). Representatives of that division have informed us that they are under a congressional mandate to reduce the number of Service-imposed filing requirements. Pursuant to that mandate they carefully scrutinize proposals for issuance of new forms such as the proposed Schedule P (Form 5500). The Tax Forms and Publications Division has determined that solution of the problem with which we are concerned does not justify issuance of a new schedule because of an available alternative. That alternative would be to provide trustees in the instructions to Form 5500 with an informal and unnumbered statement that may be used by them as a return for purposes of sections 6033(a) and 6501(g)(2). We have reviewed a draft of the proposed statement and draft instructions thereto. We have suggested certain revisions of the statement and of the instructions and we attach copies of the draft statement and instructions so revised. In our view the statement, so revised, would suffice as a return for purposes of sections 6033(a) and 6501(g)(2). We believe, therefore, that such a statement may be substituted for the proposed Schedule P. (Form 5500). N. JEROLD COHEN Chief Counsel SIGMUND J. LIBERMAN Assistant Director Interpretative Division Attachments: Revision of proposed trustee statement Revision of proposed instructions as to trustee statement PROPOSED TRUSTEE STATEMENT This statement constitutes the annual information return described in section 6033(a) of the Internal Revenue Code of 1954 filed for the trust year ending (date) _____. Under penalties of perjury, I declare that I am the (trustee) custodian) of the _____ (Name of Trust), which serves as a part of the _____ (Name of Plan). _____ Date $05R (Signature of Fiduciary) PROPOSED INSTRUCTIONS AS TO TRUSTEE STATEMENT An employer or plan administrator filing Form 5500, 5500-C, 5500-K or 5500-G as to an employee benefit plan in which an organization qualified under section 401(a) of the Code and exempt from tax under section 501(a) of the Code forms a part should inform the fiduciary of such organization that, if it desires the protection of the statute of limitations provided in section 6501(a) of the Code, an annual information return under section 6033(a) of the Code should be filed. The statement below may be used by such a fiduciary for that purpose. A reproduction of the statement is also acceptable. The statement should be filed as an attachment to the Form 5500, 5500-C, 5500-K or 5500-G filed for the plan year in which the trust year ends. [The statement itself would then follow.]

Treasury Regulation Section 54.4980B-4, Q&A - 1© provides in part: If coverage is reduced or eliminated in anticipation of an event (for example, an employer's eliminating an employee's coverage in anticipation of the termination of the employee's employment, or an employee's eliminating the coverage of the employee's spouse in anticipation of a divorce or legal separation), the reduction or elimination is disregarded in determining whether the event causes a loss of coverage. Rev. Rul. 2002-88, 2002-2 CB 995, provides as follows: Issue If an employee eliminates the coverage of the employee's spouse under a group health plan in anticipation of their divorce, when must a plan that is required to make COBRA continuation coverage available to the spouse begin to make that coverage available? Facts A group health plan subject to COBRA allows eligible employees to elect coverage for themselves and their spouses. An employee who has elected coverage for the employee's spouse can notify the plan to eliminate the spouse's coverage, and the spouse's coverage will be terminated as of the end of the month in which the notice is provided. Under the terms of the plan, a spouse loses eligibility for coverage on the date of divorce from an eligible employee. Employee E is enrolled in the group health plan and elected coverage for E's spouse. A decree of divorce is issued dissolving the marriage of E and E's spouse. In anticipation of their divorce, E notified the plan administrator to eliminate the coverage for E's spouse, and coverage for E's spouse was terminated as of the last day of the month. There are no facts to indicate that E's spouse would have otherwise lost coverage under the plan before the divorce. The plan administrator is provided notice of the divorce within 60 days after the issuance of the divorce decree. Law And Analysis Section 4980B of the Internal Revenue Code requires certain group health plans to make continuation coverage available to certain individuals who would otherwise lose their coverage under the plan as a result of certain occurrences (the “COBRA continuation coverage requirements”). Section 4980B imposes an excise tax if a plan subject to the COBRA continuation coverage requirements fails to comply with those requirements. Under section 4980B, the obligation of a plan to make COBRA continuation coverage available arises in connection with a qualifying event. The individuals to whom the COBRA continuation coverage must be made available are qualified beneficiaries. Under Q&A-1 of § 54.4980B-3 of the Miscellaneous Excise Tax Regulations, an individual generally is a qualified beneficiary if the individual is covered under a group health plan on the day before a qualifying event by virtue of being on that day the spouse of a covered employee. Under Q&A-1 of § 54.4980B-4, a divorce or legal separation of a covered employee from the covered employee's spouse is a qualifying event if, under the terms of the plan, the divorce or legal separation causes the spouse (or a dependent child of the covered employee) to lose coverage under the plan. Paragraph © in Q&A-1 of § 54.4980B-4 states that if coverage is eliminated in anticipation of a qualifying event, such as an employee's eliminating the coverage of the employee's spouse in anticipation of a divorce or legal separation, the elimination is disregarded in determining whether the qualifying event causes a loss of coverage. Q&A-1 of § 54.4980B-7 states that COBRA continuation coverage must be provided for a period that begins on the date of the qualifying event. Under Q&A-1 and Q&A-4 of § 54.4980B-7, a plan generally has the obligation to make COBRA continuation coverage available to a qualified beneficiary in the case of a divorce or legal separation for 36 months after the date of the divorce or legal separation. This obligation can end earlier for a variety of reasons, such as failure to make timely payment to the plan for the qualified beneficiary's coverage. Q&A-2 of § 54.4980B-6 provides that a group health plan is not required to offer a qualified beneficiary the opportunity to elect COBRA continuation coverage in the case of a divorce or legal separation if notice of the divorce or legal separation is not provided to the plan administrator within 60 days after the later of the date of the divorce or legal separation or the date the qualified beneficiary would lose coverage on account of the divorce or legal separation. E eliminated the coverage of E's spouse in anticipation of their divorce. Under the regulations, this elimination is ignored in determining whether the divorce is a qualifying event. There are no facts to indicate that E's spouse would have otherwise lost coverage under the plan before the divorce. Thus, if the elimination in anticipation of the divorce is ignored, E's spouse would have remained covered until the divorce and then lost coverage because of it. Consequently, the divorce is a qualifying event and E's former spouse is a qualified beneficiary. Because notice of the divorce was provided to the plan administrator within 60 days after the issuance of the divorce decree, the plan has an obligation to make COBRA continuation coverage available to E's former spouse for a period of up to 36 months. The period of COBRA continuation coverage begins on the date of the qualifying event. There is no authority under the statute or regulations for requiring a plan to make COBRA continuation coverage available before the date of a qualifying event. Thus, the group health plan in the facts described above has the obligation to make COBRA continuation coverage available to E's former spouse effective as of the date of the divorce for a period of up to 36 months. Holding If an employee eliminates the coverage of the employee's spouse under a group health plan in anticipation of their divorce, a plan that is required to make COBRA continuation coverage available to the spouse must begin to make that coverage available as of the date of the divorce.

JanetM: I don't consider having four seasons to be a postive factor.

Lori: There is an exception from Unrelated Debt Financed Income for certain leveraged real estate transactions, but that is not a blanket exemption from unrelated business taxable income rules.

QDROphile: Good point. That's so obvious I'm seriously embarrassed at having missed it.

2muchstress: To do a proper analysis, you would need to divulge a lot more information than you have provided. If you want to do it yourself, you should start reading all of the court decisions on partial terminations because you would be amazed at the different ways in which the courts have analyzed the facts. (The court decisions are not all consistent, either.) If you don't want to spend untold hours educating yourself (and it appears that you don't want to retain an competent ERISA attorney to advise you on this matter), why don't you submit it to the IRS for a determination letter? Last time I checked, which admittedly was many years ago, the IRS would rule as to whether there was a partial termination.

Alf: My recommendation is that you retain an knowledgeable ERISA to advise you on this matter because mistakes could be very costly.