Kirk Maldonado

Had you thought about whether he should be properly classified as a leased employee?

No. PLR 9612008.

I can't speak as to whether the prior acceptance of late premium estops the plan from refusing to accept subsequent late payments, but it is absolutely clear that the plan has no duty to remind the participant about the monthly payments. If the participant is stupid enough to miss the payment, that's his or her own problem. If it was that important that he or she keep the coverage, that person should have made very certain that the premium be paid on time. My guess is what happened is that the participant decided to cancel COBRA by not paying the premium, but subsequently incurred medical expenses, and now wants to reinstate COBRA on a retroactive basis. I've seen people trying to pull that trick on more than one occasion in the past.

Part 4 does not cover the claims procedure rules.

Would someone please explain the term "comparative statements" for those of us who are not well-versed in accounting teminology?

That's ancient language. The IRS dropped that position many years ago.

Pete: Did any other issues regarding coalitions come up in the forum? I must confess that I'm not very knowledgeable about how they actually work, and I'm sure that other readers are in the same boat. Is there any basic discussions regarding how coalitions work that you could refer us to?

Robin, you asked one of the more open-ended benefits questions I've ever encountered. I think you will get more responses if you ask a much narrower question.

I've very skeptical that the IRS could or would prepare sample amendment. The GUST changes are so pervasive such a model amendment would be extremely unwieldy. However, stranger things have happened.

One problem with prototypes is that they often don't have the flexibility needed to prevent cutbacks in distribution options. Basically, once a distribution has been offered by a plan, that distribution option must be available forever for the assets held in the plan at the the time the option was in place. If you are replacing a plan document with a prototype, you need to be very careful that all of the distribution options must be kept intact. Also, there are things that are protected against elimination that aren't what you would normally think of when you think of distribution options (e.g., foreclosure against an account balance because of a defaulted loan). Many times I've had to prepare individually designed plans because the distribution options available under the prior plan document could not be shoehorned into a prototype plan.

For $500, you aren't going to get customized amendments that apply to your particular plan. In that case, all you would get would be photocopies of generic amendments. I think $5,000 is a more reasonable estimate of the bottom end for individually designed plans, if you include updating the summary plan description and getting a new determination.

You need to hire a competent benefits attorney to help you on this matter. I'd recommend doing it soon, because you certainly won't get any discount on fees if you try to find somebody near the end of the money and it in place on or before December 31.

Have you considered the fact that ERISA might preempt California law in this respect?

In Announcement 87-3, the IRS indicated that short-term deferrals don't work. However, they didn't cite any authority and none exists that supports the IRS position. This was merely a toothless threat. [This message has been edited by Dave Baker (edited 12-02-1999).]

The BNA Tax Management Portfolio on cafeteria plans is also quite helpful.

I'd file an interpleader action. In other words, you deposit the money with the court, and say you don't know (and don't care) who gets the money. That way you let the court decide and you avoid the plan (and its fiduciaries) getting sued.

I agree with RLL, I have not found any reason why unit allocations don't work, except for that single situation. Inasmuch as those circumstances have not arisen again in the past ten years, I wouldn't hestitate on using unit allocations.

This one is pretty easy. As a fiduciary, it would take very compelling facts to sell the stock at below fair market value. Also, if the purchaser is a party in interest, selling it to the purchaser at below fair market value would be a prohibited transaction. However, I recommend that you obtain the services of a competent ERISA attorney as well as a competent securities attorney) to advise you on these matters, if they come up frequently.

I disagree with NAC. Whether or not there is stop-loss insurance should not affect the terms of the plan document. However, the SPD needs to disclose the funding of the benefits.

Actually, I was hoping that you would have sympathy for me with my feeble memory due to my advanced age and provide the answer to the estoric problem that arises using unit valuation in that context. I'll know better than to try that approach with you again! Actually, I contacted the other persons who were present at the meeting a number of years ago, and although they remembered the discussion, they couldn't recall any of the specifics. Maybe Alzheimers' is contagious. Any thoughts as to what this issue could be? This lack of memory is plaguing me so much that I'm willing to bare one of my many foibles in public simply to get it answered.

There is an obscure problem with allocating on the basis of units. I encountered it more than 10 years ago in the context of a publicly traded employer that was purchasing stock for the ESOP in the open market on a regular basis. In that case, the stock price was plummeting. I remember pointing out the issue in a group meeting, and everyone there agreed with my conclusion that it was a serious issue if anybody ever uncovered it, but I've been unable to recall what it was.

If you have access to a tax library, I'd recommend BNA Tax Management Portfolio 397 - Cafeteria Plans. It contains a thorough explanation of cafeteria plans.

I hate to sound like a lone voice in the wilderness, but I think that people are overlooking the obvious; you simply can't find the person. If you can't find them to pay them their benefit, the likelihood of them contacting you to ask for it is extremely slim (to say the very least). Thus, if you effect 100% withholding, the person gets the immediate benefit of the withholding (in the form of a tax refund). They haven't lost anything, because (in all likelihood) they never would have received a penny from the plan. On another contrarian note, this approach was run by an IRS auditor here in California. While he (quite understandably) did not want to endorse it, he admitted it is a very efficacious approach to a difficult situation. Given the vast number of IRS employees, I'm sure that you could find somebody at the IRS that endorses or rejects any conceivable position. Don't get me wrong, I think that 100% withholding should only be used as a last resort. But if you can't contact the person any other way, I think it's the way to go.

I always wait until the last moment so as to be able to pick up the maximum number of amendments (required because of new legislation and regulations) at one time. Also, the IRS has a history of continually extending deadlines for amendments.

Jurisdiction of that project was subsequently transferred to the IRS, but nothing ever came of it.