sloble@crowleyfleck.com

Katherine/MBozek: I agree the new auto rollover regs are ridiculous. I like your idea of eliminating cash-outs instead of following the DOL's 3-ring circus. Could you please expand on your approach? Do you mean totally eliminate cah-outs or just allow cash-outs of 1,000 or less? Katherine, what do you mean by "charge term'd fees for their accounts"? How do you think keeping the sums in the plan is a better use of the funds, a better approach for getting the funds back to missing participants, and/or a better way to avoid escheat? THANKS

Why was B told its employees could no longer participate? Employers that are not in the same controlled group can still co-sponsor a cafeteria plan if they are still in the same affiliated service group. See Code Sec 414b,c or m. Is B no longer part of the definition of "employer" in the plan? You need to look at the plan document and relevant corporate documents involving the change of corporate structure to make sure that 1) B is in fact no longer an employer sponsor and 2) requisite authoritity was used to oust B as a sponsor. What have they been doing with the contributions up until now?

Company wants to have insurance company administer loans (approve, pay, collect, etc.). This is an ERISA 403b with employer contributions that is administered by NY Life. Is this a good idea? We would try to get a hold harmless agreement for tax errors and attempt to allocate fiduciary liability for loan processing under ERISA 405c.

Company wants to have insurance company administer loans (approve, pay, collect, etc.). This is an ERISA 403b with employer contributions that is administered by NY Life. Is this a good idea? We would try to get a hold harmless agreement for tax errors and attempt to allocate fiduciary liability for loan processing under ERISA 405c.

I am interested in your reference to the hold-harmless agreement--what have you heard about those? Its ERISA because of employer contributions. There is no question the employer is a fiduciary, the employer is just looking for ways to alleviate liability for acts and ommisions of the insurer because the insurer is the one essentially running the plan.

Company has an ERISA 403b that is administered by NY Life. NY Life enters annuity contracts with individuals and administered all aspects of the plan, approves loans, etc. However, Company handles funds to the extent they pass from participant compensation to NY Life. Company is concerned about fiduciary liability and bonding. How much success have people had with getting indemnification provisions in contracts with insurers for fiduciary liability and are they enforceable to help absolve company liability?For example, indemnification of Company in loan contracts between participant and insurer? Any other thoughts?

Sick pay/disability plans can be exempt from ERISA if they meet the "payroll practice" exemption in the regs.

I thought the three-year look back does not apply to this situation--isn't that what 2004-55 effectively does? See http://www.faegre.com/articles/article_1412.aspx. My question concerns whether an employee must predict his disability prior to the begininning of the plan year in order to switch to after-tax treatment and receive tax-free benefits. I think he does.

Under 2004-55, an employer can design its cafeteria plan to have employees pay disability premiums pre-tax, with the option to the employee to pay after-tax (and thus receive tax-free disability payments), provided that the employee makes an IRREVOCABLE ELECTION PRIOR TO THE BEGINNING OF THE PLAN YEAR. So, the way I interpret this, if an employer decides to offer the pre-tax default payment option, an employee is going to be stuck paying tax on his disability payments UNLESS he can predict that he will be disabled in the next plan year and makes a corresponding election change. Am I right?

Thanks for the helpful resources. GBurns--I will be working with other attorneys to advise about the legal requirements, update plan documents, etc.

Looks like I'll be working with 403(b)s and I have very little experience with them. Can anyone point me to some good resources to star educating myself--preferably free/internet.

An Employer has a couple of small welfare plans for which no 5500s have ever been filed because the number of participants have not been counted correctly. There have been (a little) over 100 eligibe employees for several years. The plans are being updated effective 1/1/05. I am weighing the pros and cons of recommending correction for prior years vs. relying on the past "good faith" method of counting participants and just file going forward, as of the new 1/1/05 effective date. (The definitions of participant will be changing slightly in the restatement so it seems like a good "clean slate" to start with.) Any thoughts??

If the seller in a stock sale agrees to terminate all of its ERISA plans PRIOR TO CLOSING and take responsibility for doing so in compliance with ERISA, Code and other applicable laws, does the buyer have any obligations with respect to the plans? I assume that the buyer needs to make sure it doesnt have a successor 401k, anything else??

The FSA is a group health plan subject to all of the claims procedure regulations. Under the regs, appeals must be made to "an appropriate named fiduciary" Reg 2560.503-1(h)(1). A named fiduciary is either named in the plan document or who is identified as a fiduciary by the plan sponsor. ERISA 402(a). In addition, the appeal may not be decided by the same individual who decided the initial claim. (Nor can the individual deciding the appeal be a subordinate of the initial claim decider.) So, the way your arrangement is now is appropriate (TPAs are rarely named fiduciaries). Sounds like the TPA will decide the first level and then the appeals are decided by the named fiduciary (the employer--acting as a benefits committee). The regs provide more details on the "full and independent" review.

Could you please clarify your post... who is "their employer" and how many cafeteria plans?

Yes, you need to file Form 5500 and Schedule I. No accountant's opinion required. Trust is required. I think you could have the flexibility with the plan assets that you describe (within the perimeters of the exclusive benefit, prohibited transaction rules of course). I would suggest providing for this flexibility in the plan document and SPD. The key would be keeping participants informed and making sure the plan assets do not inure to the benefit of the employer. (e.g., if surplus is used for a future premium subsidy, make sure the premium subsidy is for the employee share, not the employer's.) BTW, this is off the topic... but you are dealing with a small 105 MERP like I'm dealing with for a client. Mine also only reimburses for deductible. How do you approach COBRA and HIPAA for this arrangement? (Assuming there are over 20/50 employees)

A 105 MERP is hovering around 50 participants so may be technically subject to HIPAA. It seems silly because it is such a simple, innocent little plan! The only medical info the plan "sees" is the EOB in order to reimburse a portion of the deductible. Deductible reimbursement is the only benefit. I want to take the position that the EOB is not PHI--it is only used to substantiate and pay benefits. Can I do this with a straight face? Privacy is the only HIPAA requirement that is bugging me. I feel like we can get out of the other requirements (creditable coverage, nondiscrimination, enrollment, etc.--due to design and affiliation with the major medical plan). You HIPAA lovers out there... any thoughts or scoldings?

QKAcked up: Thanks for wading through my original post. I've done some more research and have significantly streamlined my question now! (See edited text above) Are you sure that participant = eligible employee? It seems like 2510.3-3(d) limits those counted to "covered" participants. Why would they have this apparent limitation if all they are talking about is eligible employees?

When counting participants for purposes of applying the small welfare plan filing exception, does 29 CFR 2510.3-3(d) allow you to exclude eligible employees who are not "COVERED" meaning those who: (1) have not met the plan definition of "participant," and (2) are not subject to the occurrence of the contingency for which the benefit is provided--I'm not sure what this means--I assume it means the employee applying for the benefit/requesting reimbursement, etc.; and (3) never make a plan contribution.

When counting participants for purposes of applying the small welfare plan filing exception, does 29 CFR 2510.3-3(d) allow you to exclude eligible employees who are not "COVERED" meaning those who: (1) have not met the plan definition of "participant," and (2) are not subject to the occurrence of the contingency for which the benefit is provided--I'm not sure what this means--I assume it means the employee applying for the benefit/requesting reimbursement, etc.; and (3) never make a plan contribution. EBIA seems to think 2510.3-3(d) limits those eligible employees counted to "covered participants" -- ERISA Complioance volume p. 574.

Maybe we need some clarification from Richelle--It sounded to me like she wanted to know whether employee can take surplus employer-provided dollars (which were initially being used to pay for more expensive health/life/disability premiums) and elect to move the surplus dollars to the FSA. This sounds like an FSA election to me...

I believe your off the hook for top-heavy. Design-based safe harbor plans need only make the safe harbor contribution to non-HCEs. 401(k)(12)©. Rev Rul 2004-13 says that when ONLY safe harbor contributions are made the plan is not subject to top heavy.

If I understand your post correctly...even though the dollars may be traced to employer contributions, the funds are under the employee's control now and it's the employee making the election change. And mid year election changes by participants on account of changes in cost or coverage are not permitted. I think this situation is different from your other posts (which were enlightening) regarding employers independently deciding to make a contribution mid-year to employees' FSAs--because the employer is making the election, not the employee.

GBurns: Thanks for your valuable feedback. I've done some more looking and I don't think we need to worry about filing because we have under 100 participants and benefits are from general assets. I don't think we have anything to "correct" in terms of past mistakes... but I plan to put together a simple plan document and SPD. Why don't you think the MERP is subject to COBRA? (I'm not worried about HIPAA because there is no PHI passing) I would think an individual should be able to elect COBRA to continue coverage for deductible reimbursement along with the major medical plan. Your thoughts are appreciated.

fhattchett: Code 318 rules do not apply to make the spouse of a self employed individual by attribution, so it is possible that the spouse could participate. (401©, which defines "self-employed individual" does not incorporate the 318 rules--thus and employee/spouse of a self-employed individual can participate in acafeteria plan.) However, you do need to make sure the spouse is a bona fide employee (See Haeder TC Memo 2001-7), and also make certain the spouse is not self-employed. bosco: I agree 100% with GBurns--partners are simply not eligible.