Kirk Maldonado

scurfman: Wouldn't state laws requiring that the loan be re-issued be preempted by ERISA?

I agree that QDROphile's procedure works. It is only more efficient, though, if both parties agree with the determination that is made by the plan. If one or both of the parties disagree with the determination, then I think that QDROphile's procedure is actually slightly less efficient. However, I must concede that it is probably more consistent with the statutory language.

I disagree slightly with QDROphile. If the divorce is particularly nasty and the parties are prone to litigation, I would recommend that the plan require that the QDRO be revised to clarify this point. The plan can't get in trouble for asking for clarification of an ambiguous, but the plan could get sued due to its interpretation of an ambigous QDRO. I mention that because about 15 years ago, I got involved in what may have been the most expensive QDRO in the country. My fees were $50,000, and the other side undoubtedly incurred even more fees.

I can't imagine the IRS litigating the position that a plan that covered 100% of all employees would not satisfy the applicable nondiscrimination test as far as coverage goes.

Carolyn: Have you checked to see if language regarding the payback is contained in the IRS sample Section 402(f) notice?

Mike: You have my deepest sympathies. (I mean that sincerely.)

Section 411 also states certain vesting schedules. Under the argument that you don't comply with the statutory vesting schedule, you are bad, then every plan that provides for faster vesting than the statute is disqualified. That's a novel concept.

Mbozek: I agree with your comment on Corley. However, it is hard to imagine that a Section 510 violation could occur when the charges are levied against all participants. Section 510 talks about discrimination, and there wouldn't be any here. Admittedly, Section 510 also contains other language about fines, etc. Nevertheless, I wouldn't be worried about a Section 510 charge.

papogi: [i interpret the question as saying the employer only employs highly compensated employees.] How would you flunk the nondiscrimination test if the employer has no non-highly compensated employees? Are you saying that the IRS would demand that the employer go out and hire some non-highly compensated employees in order to satisfy the non-discrimination test?

PAX: But wouldn't he be taxed on the amounts, even though they go to her? He wouldn't be too pleased about that!

Blinky the 3-eyed Fish: I absolutely could not disagree with you more. Please cite the authority that top-heavy minimum contributions cannot (1) be fully vested and (2) be made subject to the Section 401(k) distribution rules.

Section 401(k) was added to the Internal Revenue Code in 1978. Thus, there were no Section 401(k) plans 30 years ago (which was 1973).

I concur in the remarks made by RLL.

The person who pays the benefits issues the 1099-Rs. Conversely, if somebody else wants to issue the 1099-Rs, then they have to pay the benefits. Ask the rogue (rouge?) counsel who else is willing to pay the benefits. If somebody else is, then the plan will immediately generate all these surplus funds, because participants' benefits will be paid by somebody else. If you can talk him into that, you should be able to keep those funds for yourself!

I'm dying of curiosity to know who you could list as the payer other than the plan.

This shows how different some peoples' practices are. I see a flat dollar amount per participant quite frequently.

As was correctly stated by mbozek, you can't receive a hardship distribution unless it is expressly permitted by the terms of the ESOP. I've done a lot of work with ESOPs over the years, and I've never seen one that permits hardship distributions.

I agree with vebaguru.

I had the same situation. We determined that correction was necessary. (This case involved hundreds of thosands of dollars of Section 401(k) contributions that were not taken out of bonus checks.)

GBurns: Thank you for taking the time to share your views on this topic. I don't think that the company would be offering this to employees on an elective basis; this is simply what the company is electing to do for (to?) all employees. You are quite right that this is more unfavorable to the employee if he or she has no expenses. However, I don't see how the employee could force the company to subsidize the premium. The only recourse available to the employee is to quit. I don't think that the employer would conditioned participation in the HRA upon participation in the insured health plan. However, if the employee purchased his or her own insurance, then the employee couldn't pay that expense with pre-tax dollars under the employer's cafeteria plan.

Here is a summary of a recent case that is contained in the current version of BNA's Pension & Benefits Daily: A health plan beneficiary must reimburse the plan for over $50,000 the plan mistakenly paid to the beneficiary to cover her automobile accident injuries, the U.S. District Court for the Northern District of Illinois ruled Dec. 18, finding that the plan's reimbursement action was permitted under the Employee Retirement Income Security Act (Iron Workers Tri-State Welfare Plan v. Jaraczewski, N.D. Ill., No. 02 C 2596, 12/18/02).

vebaguru: Thank you for taking the time to prepare such an organized response.

I think you have a prohibited transaction problem also.

Let me posit a "variation on the theme" that I've encountered to get everybody's reaction to it. It seems to have been drafted in a manner intended to avoid some of the problems inherent in some of the other schemes: 1. The employer ceases paying any of the health insurance premium 2. The participant pays the entire amount of the premium through pre-tax dollars under a cafeteria plan 3. The employer establishes a medical reimbursement account for each participant, presumably funded in the same amount as the health insurance premiums it was formerly paying on behalf of the participant under the insured arrangement. 4. The participant is reimbursed with dollars that are not subject to tax for his or her health care expenses that are not covered by the insurance ("Noncovered Expenses"). Admittedly, the only tax savings inherent in this arrangement are that the Noncovered Expenses are paid with pre-tax dollars. However, that saves income taxes for the participant, as well as employment taxes for both the employer and the participant. Also, I concede that you could achieve the same result, if the employer continued to pay the insurance premiums and employees all made contributions to a health care flexible spending account in an amount equal to their Noncovered Expenses. However, that will never occur in the real world. I also am not addressing the fact that the amount of the Noncovered Expenses will probably be less than the amount of the insurance premium that the employer was formerly paying. That is because the amount that the employer contributes to (1) pay the insurance premium and (2) to the health reimbursement account can be adjusted to achieve an equitable result. I just want the reaction of the other readers as to whether this particular arrangement that I've described is viable.

I disagree that a TPA is always involved. I've had several small clients set up plans where employees were reimbursed for expenses that weren't covered by insurance that self-administered them. Admittedly, self-administration is not a terribly bright idea, but it is done from time to time.