Kirk Maldonado

GBurn: What would be the statutory provision in ERISA on which you would base that argument?

To avoid having to draw a lot of unnecessary distinctions, I would hope that the IRS would take the position that there isn't a distribution unless the amounts are includible in the participant's income.

My guesses are: (1) a lot of the software programs haven't yet been updated, and (2) those administrators that do comply probably have their own software or tweaked the program that they bought. Anybody (besides Christine) have any real-world experience on this issue?

Have you considered an insanity defense? (Pun intended.)

Do you know of a reason why it couldn't?

I agree with Steve72 and Mbozek on the substantive points. I also agree with Gburns that it is good that the regulars on the Message Boards all agreed. But I don't find that too remarkable because the issue is pretty clear for experienced practitioners. However, it seems like what seems straight-forward to us may not be quite so clear to someone who isn't as steeped in ERISA as we are. This exchange points out one of the problems of working in our area; which is trying to explain ERISA issues to lay people. Fortunately, the vast majority of my clients only want to know the answer. It is much easier to simply tell them the result than to try to explain than how I got to there. If they do ask for an explanation, I will ask them before I start "Now this will be long and exceedingly technical, are you sure you REALLY want to hear it?" It is a rare client (usually an in-house counsel) that will voluntarily subject themselves to that. I consider such behavior to be bordering on masochistic.

What is your analysis of the situation?

Blinky: Thanks for clarifying that there is no ongoing duty to reassess the reasonableness of assumptions.

Don: Your last post rasied a host of issues. I will only deal with one. You said: That is incorrect. ERISA does not preempt state laws governing insurance. ERISA Section 514. Thus, for example, states can enact laws or adopt regulations that mandate that all health insurance policies issued in the state provide certain benefits. This was upheld in the U.S. Supreme Court decision of Metropolitan Life Insurance Co. v. Massachusetts, 475 U.S.724 (1985).

Is it possible that the debit card was issued with respect to a dependent care FSA? (I don't know whether they actually exist; I'm just throwing out the possibility.)

I agree with mbozek that the death benefit would be payable, even if there wasn't an insurance policy that was procured to fund those benefits.

I think that the answer is found in IRC section 104(a)(1), which provides as follows: Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include— (1) amounts received under workmen's compensation acts as compensation for personal injuries or sickness * * *.

First, I want to say that I'm not an actuary, so it is very possible that I'm way off-base. If the assumptions must be reasonable, at what point in time do you ascertain if they have become unreasonable? It would seem that, at least by the end of the year, it was apparent that the assumption that insurance was going to be purchased was no longer reasonable. Therefore, from at least that point in time, the costs would have to be determined assuming that no insurance will purchased. Wouldn't that change in assumptions affect any portion of the contribution for that year that had not yet been contributed? Again, I may be way off-base here, so don't hesitate to tell me that. But please educate me as to when assumptions must be changed when it has become apparent that were wrong (if that would ever occur).

jfsinger: Do you think that it is possible that the IRS could view the switch from lump sum distribution to installments as a "second election" (further deferring the date of the payment) as to the portion of the total benefit that will not be paid in the current year (as a result of the switch to installments)? Taking it a further step, do you think that the IRS could view each installment that is to be paid in a subsequent year as a separate "second election?" [i honestly don't know the answer to these questions, I'm just posing them.]

A similiar issue is whether participants can make section 401(k) contributions out of severance pay. There have been a number of discussions on this point in the Message Board, if you do some research. You may find those discussions to be enlightening, although they are admittedly not directly on point.

Don Levitt: You stated: Could you provide a citation to that regulation for us?

I concur in QDROphile's remarks.

Have you concluded that section 409A would not apply to this situation?

My recommendation is that you retain competent ERISA counsel to advise you on those matters before you proceed any further. I would also like to concur in the remarks of SoCalActuary that it is not a good policy to post questions like that in a public forum.

pax: I agree with your reading of the original post.

If my memory is right, and it often isn't, I think it was a prohibited transaction class exemption issued by the DOL, circa 1993?

The affected employees might consider contacting the DOL.

Am I missing something? It seems like the plan is taking inconsistent positions: 1. You must re-designate a beneficiary each year; but 2. If you don't, then your prior designation applies. Thus, if a person wants to keep the same beneficiary designation, all that they have to do is to fail to turn in a new form. If that is true, doesn't that completely invalidate the position that each participant must re-designate his or her beneficiary every year? This procedure seems to be a monumental waste of time.

Not so fast. The way I read the post, the person only had to sign the enrollment form, not actually make any contributions. Thus, a person who turned in the form could be eligible for the contest even if they revoked their contribution election prior to any contributions actually being withheld from their pay. In that case, I'm not so sure that there is a contingent benefit issue.

ERISAatty: You said: How is this indemnification any different than the gross-up for the golden parachute taxes (which is pretty common)?