Kirk Maldonado

David MacLennan: For those of us who are not actuaries, could you tell us why an actuary would or would not recognize a later-adopted amendment? If you want to do that by means of examples, that would be greatly appreciated.

What do the statute and regulations say?

Thanks for clarifying that.

mbozek: Isn't there an ERISA pre-emption issue (at least in some limited circumstances) relating to state laws affecting forfeitures under the plan?

Watch out for prohibited transactions too.

There are a number of cases holding what is and what isn't "gross misconduct." In many cases, it is very clear whether something qualifies or does not. The cost of providing COBRA could prove to be very expensive in some cases. I had a client with a former employee run up a $1,000,000 hospital bill in less than six months. My recommendation is that you retain competent ERISA counsel to advise on this matter.

Mbozek is partially right, in that the SEC rules generally govern the prospectus delivery rules. However, to avoid duplicative disclosures, all of the employers I've represented opt for a unified approach. Thus, the disclosures need to satisfy both (1) the securities laws requirements and (2) those relating to tax-qualified retirement plans. You need to retain counsel who is familiar with both sets of rules. (Don't waste your time contacting the SEC; their grasp of tax-qualified retirement plans is very, very limited. Which is something that they freely and openly admit.)

There are also some restrictions in the 125 plan regs that limit the way in which you can allocate these experience gains.

Katherine; What you cited was the temporary and proposed regulation that was issued by the DOL. Jurisdiction over that regulation was transferred to the IRS in the Reorganization Plan of 1978. The final elapsed time regulation is found at Treasury Regulation 1.410(a)-7. In case you are curious as to how I know that trivia, I was the author of the final regulation when it was published in 1980.

Thanks for clarifying that point. Now I understand that position much better.

It sounds like this is "custodial care" not medical care. But dependent care might apply, I haven't thought it through.

You also bring into play state corporate law, as well as state and federal securities laws when you make stock option grants. You need to consider those issues as well as those relating to the retirement plan.

The more I think about it, the less comfortable I feel that the argument that the COBRA provider is acting on behalf of the employer should work. If it did, to a large extent that eviscerates the concept of "business associate," because if they weren't acting on behalf of the employer, then why would the business hire them in the first place? It seems to me that the underlying theory is that if the covered entity passes on health information to another entity, a business associate agreement is needed to protect the privacy of that information, to the same extent as it is protected in the hands of the covered entity. The extension of the argument that the COBRA service provider isn't a business associate would mean that it has no obigation to protect the privacy of that information under HIPAA. That doesn't seem to be the right result to me.

Katherine: I'm skeptical that would work; giving the participant the right to direct the disposition of the forfeited amounts doesn't seem consistent with the 125 plan rules.

You are confusing tax and accounting rules. The tax rules are not affected by the accounting treatment.

Steve72: Since you came out, so will I. I'm a former IRS guy.

I agree with RLL that you can easily structure the transaction to comply both with ERISA and the Code. However, there many very serious securities laws issues that may be implicated here, both on the state and federal level. You need to get securities counsel involved ASAP.

Blinky: Methinks you are trying to get nominated for funniest post, in addition to best screen name. Your post was an admirable effort in that regard. Keep it up. We need more humor in the postings.

Michael Anderson: Send me an e-mail message. I may know of an ERISA attorney in your area of the country (depending on where you are located).

Katherine: Thank you for posting that. It was very informative. Are you saying that (1) Derrin's book is in a question and answer format and (2) the materials on BenefitsLink are basically the same material that is in his book? (I don't have his book, so I don't know.) Belgarath: Thanks for summarizing Derrin's views. My opinion is that the attribution rules for controlled groups of corporations are the second most complicated rules of ERISA, right after determining who is a disqualified person (or party in interest) under the prohibited transaction rules. Accordingly, I am always eager to hear the viewpoint of someone who has spent as much time dealing with them as Derrin.

Belgarath: Don't leave us hanging. Which way does Derrin come out on this issue?

Even if they did enact such a tax, which is unlikely, my guess is that you would be able to avoid it simply by rolling over the whole amount to another tax-qualified retirement plan or IRA. But I wouldn't be surprised if they raised the tax on premature distributions (received before age 59-1/2). I have been expecting that to be enacted for some time.

QDROphile: For what it is worth, I interpreted your remarks as meaning that you thought a reversion was permissible.

Although I never advise against retaining ERISA counsel, the first step is to look at the loan documents to see if they address this issue.

QDROphile: I think that you provided an excellent summary of how the Message Boards should function. It should be used as a mission statement and also as a caveat to all of the people who participate in the Boards.