Kirk Maldonado

oriecat: That all depends on the context of which "forever" is used.

There are some law firms with well over 75 participants that are top-heavy. That isn't too surprising because (1) many key employees will make more than the 401(a)(17) limit, (2) the key employees tend to stay there forever, (3) many key employees are savvy investors, and (4) there can be a lot of turnover among support staff and junior attorneys.

Assuming that the contribution was for the 2004 plan year and the plan year corresponds to the calendar year, why can't you treat the "excess" as a contribution for 2005?

I don't think that a court would uphold a waiver if it was based on false and misleading information or based on patently absurd assumptions, such as that there will be no inflation in the cost of providing health care. At the very least, the fiduciaries of the plan need to verify that the disclosure information is complete and accurate. The disclosure document should say what assumptions were made in computing the buyout amount and what data backs up the use of those assumptions.

What is the statutory basis for arguing that violating section 72(p) because of a failure to make payments causes a violation of the prohibited transaction rules? The people in your office make expensive bets on questions like this without doing any research? Can I get involved in these bets too? I think I've just found a great new revenue source.

I think that you might have some serious valuation issues and resultant potential fiduciary liability issues pertaining to disclosure. If that employer or one of its advisors is savy enough to be able to accurately predict what the inflation rate in medical costs will be each year for the next 20 or 30 years, I think that Warren Buffet should retire and let that person handle his investments. If the person can't accurately predict the costs, the employer will be very vulnerable to a lawsuit and possible liability if the medical costs escalate at a rate faster than what that person predicted. Unless that employer has an extremely high risk tolerance level or its continued existence is seriously threatened by the costs associated with the retire medical plan, I would advise against it. Mbozek: You said: While that is true of retiree medical plans drafted today, that is not true of retiree medical plans that were drafted in the 1950s and 1960. Your comment should be limited to those that were drafted after the onslaught of litigation relating to the termination of retiree medical plans.

I've not researched that issue myself, but others that have, have told me that they don't think that plan can be terminated. Hopefully, somebody will make a compelling case to the IRS to allow plans to be terminated at least in some situations.

papogi: This is a minor point but comes up often. The IRS does not enact legislation. That is done by Congress. While representatives of the IRS may give some input on the way that they think that the proposed legislation should read, the ultimate decision is made by the House and the Senate. The IRS does issue regulations which act as the official interpretation of the statutory provisions of the the Internal Revenue Code. But the IRS is generally limited by the terms of the statutory language. Stated in a different manner, while the regulations can set forth how the IRS believes that the statutory rules shold apply in a particular situation, the regulations cannot override the language of the statute. In this case, the requirement that the health care flexible spending accounts function like insurance policies is found in the regulations under section 125 of the Interna Revenue Code, not in the statutory provisions.

If it had been a reported case, it wouldn't have been necessary for me to change the facts. How about this as a smoking gun? The lifetime limit takes into account prior reimbursements and the new lifetime limit is less than the amount of reimbursements that the participant has already received. Also, assume a small employer who was acutely aware of the participant's medical bills.

If you take into account (1) expenses that a participant had occurred at the time the amendment was adopted, and/or (2) expenses that were reasonably forseeable (at the time the amendment was adopted) that the participant will incur after the date the amendment was adopted, I think you could be vulnerable to a claim that you adopted the amendment in retaliation to the participant incurring those expenses in violation of section 510 of ERISA. Here's an example. Assume that the employer knows that the spouse of one of its employees was horribly injured in a car accident, and while the person will live, will incur massive medical bills for several years. Shortly after learning of the accident, the employer adopts a lifetime cap. The fact that the cap doesn't become effective until the first day of the second plan year would not protect the employer from a charge of a violating section 510 of ERISA if it takes into account previously incurred expenses. In fact, there is a risk of getting sued under those circumstances even if expenses incurred prior to the effective date of the amendment are disregarded. [Although the facts were changed, this is based on an situation that actually occurred.]

My guess is that the drafter of the rules never contemplated your situation. If you guess wrong on this issue, that could mean that you will be treated as having sold unregistered securities. Given the enactment of Sarbanes-Oxley Act, I think the employer needs to retain competent counsel that understands both ERISA and federal securities laws to advise them on this issue.

wmyer: The Form 11-K is required by federal securities laws. The fact that ERISA provides some relief from the Form 5500 filing requirements in some situations is irrelevant.

My recollection is that the federal government can't regulate state govenments. Thus, state agencies are generally exempt from federal law. So the fact that a state agency can do something doesn't mean that a private employer can do it too without violating federal law.

You're welcome. There aren't many secondary materials on this topic. Also, the statutes and regulations aren't terribly well written or organized. Working in this area is a great way to produce a lot of headaches. I've just spend over a half hour trying to download a basic form from the federal agency's website. I gave up and got a person from that agency on the phone. Apparently, this a form that they feel you have to go into their office to pick up; they don't want it on their website. The logic supporting that conclusion does not seem to be immediately apparent to me.

Harry O: Your post illustrates the fact that we were focusing on different aspects of the issue. I was focused upon which form should be used to report the incone. You were focused upon whether the income was properly designated as "wages." Are you saying then, that if the amounts (1) constitute wages but (2) they are not payable until after the year in which the person's employment is terminated, then (3) you would still report it on a Form W-2? It seems odd to me to report amounts on a Form W-2 for a person who isn't employed by that entity that year, and might even be an employee of another entity at that time.

Harwood: You said: While that is true, two thing are worth mentioning. First, that result is mandated by specific language in the Internal Revenue Code, so that a different result may apply in situations not involving a QDRO. Second, this message thread does not involve a QDRO. As for the tax treatments of amounts distributed from a nonqualified plan to the non-employee spouse, look at Rev. Rul. 2004-60.

You brought up some very good points. I was only thinking about defined contribution plans when I posted that remark about the QDRO generating fees, and you are right, if the plan delays any payments until retirement, then the AP wouldn't get anything right away. Of course, if the AP wouldn't get paid right away, that means that the participant probably couldn't withdraw amounts from the plan either (absent a termination of employment), so maybe the AP isn't really at risk to that great of a degree.

I think that is a fair summary, although I would have worded it quite differently. Thus, the employer can't force the employee to enroll in Medicare, but if the person hasn't enrolled by the time the 30-month coordination of benefits period expires, then the employee will only receive restricted amounts of benefits from the plan.

How could the AP not have the funds to pay for the QDRO? I thought that the purpose of the QDRO was supposed to provide funds to the AP? Maybe it might take a while for the attorney to get paid, but that is better than getting sued for malpractice. Also, it is inconceivable to me that the client would not want a QDRO if the attorney had properly advised the client. The attorney should have been looking out for the AP, because if there is no QDRO and the participant withdraws the funds and dissipates them, the attorney should realize that the risk of getting sued for malpractice case is very, very high. Although I would want to learn more facts, I think that the divorce attorney would get sued and would lose. How can the attorney justify letting the client not have a QDRO prepared because of the lack of funds, when the QDRO would provide the necessary funds? Also, I doubt that the attorney adequately advised the AP that by not getting a QDRO on a timely basis, the AP stands the risk of losing all of the amounts that he or she would have received, if the participant withdraws the funds and dissipates them. It is hard to imagine that a properly advised client would elect not to get a QDRO in these circumstances. The right to sue the participant-spouse is of little or no value if that person is judgment proof.

Jeanine: Although stated in an abbreviated fashion, in your last post you concluded that the 30-month coordination of benefits period begins on the date dialysis starts for Part A benefits, but not for Part B benefits. I disagree with you on this issue as well. While the operative language refers to the person's entitlement to Part A benefits, that date is used as the relevant date for starting the coordination of benefits period. There is no evidence in either the wording of the statute or the regulations indicating that the Medicare as Secondary Payer Rules are limited to Part A benefits in this case. Nor have I seen any support for that position in any of the treatises or articles that I've read on this topic. Here is the operative language from the statute. I marked my deletions of superfluous text by * * * while I marked my summaries of the deleted text by putting my language in brackets: A group health plan * * * — (i) may not take into account that an individual is entitled to or eligible for benefits under this title * * * [because of end-stage renal disease] during the 12-month period which begins with the first month in which the individual becomes entitled to benefits * * * [because of end-stage renal disease], or, if earlier, the first month in which the individual would have been entitled to benefits * * * [because of end-stage renal disease] if the individual had filed an application for such benefits; and (ii) may not differentiate in the benefits it provides between individuals having end stage renal disease and other individuals covered by such plan on the basis of the existence of end stage renal disease, the need for renal dialysis, or in any other manner; except that clause (ii) shall not prohibit a plan from paying benefits secondary to this title * * * when an individual is entitled to or eligible for benefits [because of end-stage renal disease] after the end of the 12-month period described in clause (i). * * * Effective for items and services furnished on or after the date of enactment of the Balanced Budget Act of 1997, (with respect to periods beginning on or after the date that is 18 months prior to such date), clauses (i) and (ii) shall be applied by substituting “30-month” for “12-month” each place it appears. If your position were correct, the language would say that the plan could not discriminate on the basis of the benefits that the person receives under Part A. But there is no such limitation. Thus, the statutory language clearly demonstrates that the reference to Part A benefits is only used for determining when the 30-month coordination of benefits period begins; not to limit the Medicare as Secondary Payer Rules in this case to Part A benefits.

Also, the revised SPD or SMM need not be distributed before the elective deferrals may be discontinued.

Jeanine: Do you now agree with my position that the 30-month coordination of benefits period commences when the person could become entitled to Medicare benefits, not when the person actually becomes entitlted (if ever)?

I think that the AP has a pretty good case against his or her divorce attorney for not sendin the QDRO to the plan shortly after it was issued.

wmyer: Maybe I'm missing something because I'm very tired, but why do you have to consult with the plan documents? How could you have an outstanding loan continue after the plan is terminated? To whom would the person make the loan repayments? Wouldn't the continued existence of the loan be fundamentally inconsistent with the termination of the plan?

Jeanine: First, I didn't say anything about forcing a person to enroll in Medicare. If you read my posts closely, you will note that I choose the words in my posts very carefully (subject to a few blunders from time to time). Second, here is the language that directly supports the position that I asserted, which was published in the Federal Register. If you think about it, that is the only logical result. Otherwise, the limit upon the maximum period of time that the plan will be primary is meaningless. Specifically, the plan can be forced to be primary forever simply by the employee failing or refusing to enroll in Medicare. Kirk Medicare Secondary Payer Provision For Individuals With ESRD Section 4203© of OBRA '90 amended section 1862(b)(1)© of the Act to redefine and temporarily to expand from 12 to 18 months the period during which Medicare is secondary payer for persons entitled to Medicare solely on the basis of end--stage renal disease. We amended §§ 411.60 and 411.62 of the Medicare regulations to incorporate this amendment. Comment: One commenter suggested that we amend the regulations to make clear that the ESRD secondary payer provision sets only minimum standards for group health plans. The commenter's view of the provision was that it does not prohibit a group health plan from providing primary coverage, for individuals eligible for but not enrolled in Medicare, beyond the period during which the law obligates plans to be the primary payer. Specifically, the commenter suggested that the rule should include a provision that the specific contract language of each group health plan governs its obligation to pay primary benefits beyond the 18--month coordination period for individuals eligible for, but not entitled to, Medicare. Response: The regulation does not need to be revised, but the commenter's concern does merit a response. The question of whether plans are obligated to pay primary benefits for Medicare eligible individuals with ESRD beyond the period prescribed in the Medicare law is not a Medicare issue because it is not addressed in the Medicare law. The ESRD Medicare secondary payer provision requires plans to be the primary payer only during the first 18 months of Medicare Part A eligibility or entitlement. For individuals entitled to Medicare based on ESRD, Medicare becomes the primary payer after the 18 month coordination period. For those individuals eligible for, but not entitled to, Medicare, plans may decline to be the primary payer after the 18th month of Medicare eligibility. Such action by a plan would be wholly consistent with the ESRD Medicare secondary payer (MSP) provision. The fact that the 18--month period may represent a period of Medicare eligibility, as distinguished from Medicare entitlement, is significant. The "eligibility" provision prevents an individual, of his own volition, from indefinitely maintaining primary plan coverage simply by deferring enrollment in Medicare. If the 18--month primary payment period were predicated strictly upon Medicare entitlement, plans could be required to provide primary coverage indefinitely for plan enrollees who contracted ESRD, and who declined to enroll in Medicare, because the plan would never reach the point beyond which its primary payer status would be limited to 18 months. However, since the Congress clearly imposed limited primary payment obligations on plans with regard to individuals eligible for Medicare based solely on ESRD, a plan may direct a plan enrollee who is eligible for Medicare to enroll in Medicare once the 18--month primary payment period has expired. In other words, it would be consistent with the ESRD MSP provision for a plan to inform a Medicare--eligible plan enrollee that he continues to be eligible for plan benefits, but only to the extent that those benefits exceed what would be payable by Medicare if the individual were actually entitled to Medicare. Clearly, a plan may continue primary coverage for a Medicare--eligible individual beyond the 18--month period prescribed in the Medicare law without violating the ESRD MSP provision. But nothing in the ESRD MSP provision requires a plan to continue primary coverage beyond the 18th month of ESRD--based Part A Medicare eligibility. HCFA Reconfirmation of Final Rules, 58 F.R. 58504 (11/2/93).