Kirk Maldonado

Lisa: While your answer is an accurate statement of the law, I think that it misses the subtle nuance of the question. While I don't think that there is anything on point, it could be argued that the increase in the contribution by the participant can only affect expenses incurred after the date of the new election. Otherwise, in effect, the participant is retroactively changing his or her election, which is not permissible. However, I will freely concede that this point is far from clear.

I think that people need to realize that not everybody works solely on small professional corporations. I have several clients with more than 10,000 employees. I can't imagine the IRS trying to challenge an employer of that size that changed the plan year of its cafeteria plan because it added an additional benefit. If they wanted to challenge it, I think my clients would be willing to do battle with the IRS on that point.

The more interesting question is whether, even if you have two plans for qualification purposes, can you combine them in a single document? I've never filed a determination letter application on that point before, but I have several friends in different parts of the country that have received favorable determination letters. My personal belief is that as long as each "component plan" satisfies all of the qualification requirements, thent two or more plans can be combined in the same document. There is a recent Revenue Ruling supporting that position where there is a merger of a money purchase pension plan and a profit sharing plan, although one of the plans was "frozen."

I think that one often-overlooked advantages of self-funding is avoiding the mandated benefits under state insurance law (because of ERISA preemption). That can add up to substantial savings in states such as California.

Meggie: What do the regulation say?

Kip: What is your authority for that position? Remember that changing the plan year affects all participants, and is a decision made by the company, not by a participant. Also, remember that this thread started out because of a plan design change initiated by the employer, not a participant.

Lisa: What is the authority for your statement? I don't recall anything to that effect in the regulations or the preamble.

A bit of clarification of what b2kates said. Some state laws invalidate beneficiary designations upon divorce.

As a fallback position, you could always change the plan year.

I agree with dflin. That is an alternative way of performing a compliance review that preserves the attorney-client privilege.

You should really consider using a law firm to conduct the "fiduciary" audit. At least then you have a chance of claiming the attorney-client privilege. If you directly contract with an accountant, I don't believe that the privilege applies. In case you are wondering, I do not conduct any fiduciary audits, so I don't have a conflict of interest here.

I don't know if this is what they were referring to, but I've seen offshore C Corporations used to avoid the UBTI. Typically, the entity will be incorporated in a country where there is no corporate-level taxation.

Another statute that might apply is the Equal Pay Act.

Alan: But where did the egg come from?

I disagree with Paul. There is no substantive difference between a discount for non-smokers and a surcharge for smokers. You better look at the ADA for guidance on this one.

I've found the IRS to be very reasonable on VCR matters.

BNA Tax Management Portfolio #372 deals with governmental plans. Have you looked at it?

Why couldn't it be both?

I agree with RLL and disagree with QDROphile.

Alf: I think your version of the Code is out of date. Section 408©(3)(ii) simply refers to Section 402 (not any particular portion thereof) for the definition of "rollover contribution" and Section 402(a)(5)(F) does not exist (anymore).

What are these "penalities" that are payable to the plan?

I'm not sure that I agree with the statement by Mary Kay Foss "The penalties for not filing Form 1099-R are the ones you should worry about first." It seems to me that if there is a failure to withhold taxes, there probably is a penalty more severe than the penalty for the failure to file a Form 1099-R. My understanding is that, at least in some situations, if the employer does not withhold the tax (at the time of payment) and the employee does not actually pay the tax (e.g., on April 15th), the employer is liable for the amount of that tax.

QDROphile: Please translate "Honi soit qui mal y pense."

Mary: I seem to recall that HCFA has recently taken the position that even if you offer it to everybody in the plan, that is still improper. I think that is a very aggressive position to take, but I think that employers need to be advised of HCFA's stance before they act.

Nikki: There is a truly outstanding publication on COBRA, entitled "Mandated Health Benefits." It was written by Paul Hamburger and published by Thompson Publishing Group. It offers a wealth of practical advice and some of the best COBRA forms I've ever seen. P.S. I am not affiliated with either Paul Hamburger (although I've known him for many years) or with Thompson Publishing Group.