sloble@crowleyfleck.com

Thanks all. GBurns--I read the regs you referenced and I see that it fits in to both definitions: accident and health plan and self insured medical reimbursement plan. Thanks. Here's my idea for remedying the situation--I would appreciate comments from you and any of you: "Merge" this arrangment into the existing Medical Reimbursment Plan, which at this point is funded exclusively with employee contributions through the cafeteria plan. I would add a section to the description of the Medical Reimbursement Plan indicating that Employer will make the $400/$800 contribution to participants' medical reimbursement accounts to reimburse employees for a portion of their deductible provided that it is met during the Plan Year. My thought is that this would take care of the plan doc, filing, ERISA, GHP etc requirements going forward. We'll need to figure out what to do about past filings--probably we cant claim that its always been part of the cafeteria plan...

Employer has an arrangement whereby it reimburses employees for a portion of their group health plan insurance deductible ($400 of $500 for individual and $800 of $1000 for family) once its met. This arrangement is not treated as an ERISA plan, its paid from general assets, there is no plan doc, no filing, it is separate from any other plan, it is not taxed as income, it's "just a leettle something they do for their employees..." Is this a health reimbursement plan? I think its an ERISA arrangement but what type? There is no account--the funds are just paid from gen assets if the employee meets the deductible and submits proof to the company. ANY thoughts appreciated.

I think you could allow new elections if the contract extension is considered a change in employment status that affects eligibility under the cafeteria plan or component plans(s). I think you would have to treat the employees as new hires at least under the cafeteria plan and apply any waiting period, etc. to show that eligibility was affected. Of course this all depends on what your plan document says.

Kjohnson: I think it's good to question what we always assume! I see your points. I also agree wholeheartedly that the DOL's apparent position is silly when applied to these facts ... While logic is not always applied when trying to interpret DOL intent, I think your last paragraph suggests a reasonable prediction that they might not impose a trust requirement (or at least they might not find any harm done) in a case like this where assets are segregated in a separate account in the plan's name and other fiduciary duties are otherwise met. I still think it would be best for Alf to get the funds in a trust, particularly since there may be some delinquent filing and other potential "red flags" that the DOL might see. Putting the funds in trust I would think help alleviate appearance of impropriety and show a good faith attempt to follow the rules once the mistake was found.

My understanding is that Tech Release 92-01 provides an exemption only to the extent that plan assets are created SOLELY due to participant contributions, and where plan assets are created due to other reasons (such as segregating funds in the name of the plan, as here), then the trust requirement continues to apply. In other words, segregating the funds takes them outside the protection of 92-1.

Unfortunately, I think you're right--as the arrangement stand now the assets are "plan assets," should be held in trust, and are subject to Form 5500 filing. I would not re-name the account in the employer's name at this point because the funds currently in that account are plan assets and "converting them" to employer funds could be viewed as a fiduciary breach/prohibited transaction/criminal conversion of assets, etc. I think you have to address the current mistake and then for a subsequent plan year (before any contributions are made) the funding could be restructured so the benefits are paid from the general assets of the employer. After that, if there are less than 100 participants then no Form 5500 will be required and if there are more than 100 participants then the filing requirements will be limited. (See 5500 instructions) This is not an area that is subject to a high level of enforcement by the DOL, and I'm not sure what the correction should be--other than getting the assets into a trust and filing the current and late 5500s. You might check VFC guidance on the EBSA website or ask here. Nonetheless, it is fiduciary breach territory so its good to be careful. I see no reason why you couldn't put the health FSA into the wrap plan and SPD.

What is an age-weighted contribution? To whom is it made and are there any restrictions as to eligibility to receive it?

Other than to address state community property laws, is there any reason why spousal consent should be required upon exercise of an ISO? What bout an nonqualified SO? I can think of anything.

Other than to address state community property laws, is there any reason why spousal consent should be required upon exercise of an ISO? What bout an nonqualified SO? I can think of anything.

Employers are often careful to cut reimbursement checks from an employer account if they have less than 100 participants because this exempts the FSA from Form 5500 reporting.

QDROPHILE Reg 1.125-2 q/a-7 FSAs are always group health plans (subject to COBRA) regardless of whether they are offered through a cafe plan--my post was confusingly worded--I apologize. I normally see them run through a cafeteria plan (so employee pre-tax contributions can be made), so I was making an assumption from SPHILE's post. SPHILE Regardless of what the participant communication says, I think it's pretty clear that COBRA should be offered because FSAs are group health plans. (unless we are dealing with a small employer, a church or the federal govt) The employee wanting the FSA to continue would have a claim if he/she doesn't get it. However, if the FSA is a "qualifying health FSA" the obligation is limited. TR 54.4980B q/a-8b. If the FSA qualifies, then COBRA need not be offered if the account is "overspent" or zero balance, and if the account is underspent, it need only be offered through the end of the plan year. The FSA document should contain COBRA provisions and COBRA documents should appropriately reference the FSA.

If the FSA is not a plan that is offered to employees under the cafeteria plan, then COBRA continuation coverage for the FSA need not be offered to a terminating employee (there is no FSA coverage to continue). Conversely, if there is an FSA, then COBRA must be offered with respect to it because FSAs are group health plans subject to COBRA.

If the distribution timing followed the plan terms, then arguably no. But I think the exposure is in the past practice of waiting until the next valuation date to complete the distribution. Regardless of how this is handled, the employer might consider amending the plan and making its practice more consistent to avoid related problems. See eg, Dewitt 106 F3d 514 (3d 1997) (holding that a plan that distributed benefits "too early" in view of plan terms breached fiduciary duty when there was a gain after the distribution date).

I like mbozek's idea of avoiding the issue by amending the plan to limit cash-outs to accounts with $1,000 or less. Other than the administrative hassle of keeping small accounts of $1,000 to $5,000 in the plan, does anyone see any down-sides to this approach?

Yes, if the plan allows pre-tax payment of COBRA premiums and a corresponding election change, so long as the child continues to be a "dependent" under Code 152. TR 1.125-4c3(iv) Exception for COBRA. --If the employee, spouse, or dependent becomes eligible for continuation coverage under the group health plan of the employee's employer as provided in section 4980B or any similar state law, a cafeteria plan may permit the employee to elect to increase payments under the employer's cafeteria plan in order to pay for the continuation coverage.

Its a combination of a 401(k) plan and an ESOP--it has a 401(k) salary deferral feature but the profit-sharing portion is designed to invest primarily in employer securitites (ESOP). The purpose is to avoid administering two separate plans.

I don't think this would be permissible because it would result in two consecutive short plan years. The IRS does not approve of consecutive short plan years because they perceive this as the employer trying to get around the irrevocability requirement. I think the consecutive short plan year filings on the Form 5500 might be a red flag. Even if you wait a year, the IRS is still skeptical of short plan years, and you need to make sure (and document) that you have a legitimate business reason for amending or terminating and re-starting a plan. Advance notice should be given to participants so they can make their FSA elections in light of the short plan year.

I assume the premium payment plan year matches the insurance year? Then it might make sense to change the plan year for the medical reimbursement plan to correspond, but I'd be careful about the dependent care plan (if you have one). Those are best to keep track of based on the calendar year due to the $5,000 calendar year limit. I agree with Oriecat that you would do a short plan year in 2005 and that you should advise the participants in 2004 that the 2005 year will be short and they should make there elections accordingly. There isn't much guidance on how to do this, but Form 5500 has some, also see Prop Reg. 1.125-2 Q/A-7b3 (allowing for a short plan year where the plan year has been changed).

I don't understand how they are paying their deductible through the cafeteria plan. (You reference "section amounts" but I don't know what this means?) If participants are being reimbursed through the medical reimbursement plan and you are asking whether they can change their elections to reflect the increase in deductible, then the answer is no because no mid year changes are allowed to health FSAs on account of mid-year cost/coverage changes.

To the extent members of an LLC are treated/taxed as partners in a partnership or as self-employed, they may not participate in a cafeteria plan. With respect to the LLC members who are treated as "employees" for tax purposes, there is no IRS guidance I know of. I know the EBIA recommends not allowing LLC members to participate in a cafeteria plan regardless of how it is taxed because of the lack of guidance.

For what purpose are you defining compensation? (i.e., for purposes of making contributions, 415 limits, nondiscrimination testing, etc) Also, what do you mean by "comp personal and vacation time"? are these two separate things? Do you mean paid time off? Finally, how does the Plan define compensation?

When is a phantom stock plan an ERISA plan? This one is a single employee (basically like a contract for a bonus in the form of phantom stock (cash) upon sale of company)

When is a phantom stock plan an ERISA plan? This one is a single employee (basically like a contract for a bonus in the form of phantom stock (cash) upon sale of company)

thank you, Tom I appreciate your help

My understanding is that an HRA is a kind of self insured medical reimbursement plan. (Health FSAs are another kind). An HRA is employer-funded (no participant contributions), and it is considered a ERISA plan subject to all of those requirments (plan doc, filing, SPD, claims, etc etc)