Luke Bailey

leevena, in my world employees are typically paying a very large share of their premiums, and very often coverage starts first day of month. Seems like in some situations the outcome could be questionable. ERISA says so much about retirement plans, so little about health, but preempts so much. Guess it wasn't such an issue back in 1974.

leevena, can you provide a cite? Is your argument simply that it is legal if that is what the plan document provides?

Controlled groups and attribution are always super tricky, but I'm not sure I understand the argument. Sub owns 50% of Sub 1, so under the assumption you make, Sub 1 and Sub are in a parent subsidiary controlled group, right? And Parent and sub are also in a controlled group? So does not the chain form a single controlled group under 1563(a)(1)(B)?

QDROphile and Lou S., out of curiosity, in the very unlikely case that the loans had in them (i.e., the loan contract, whether on paper or in bits) a provision that provided the employer could accelerate them in connection with a business transaction, or if the employer just got tired of having to administer loans, do you think it could do that? It would seem that the loan terms are not a 411(d)(6) protected benefit. I'm just talking theoretically. Obviously, this would make not be smart benefits policy in almost any situation I can think of.

I know of no reason why an employer could not amend its plan in the way you describe, kmhaab. Of course, anyone not invested in employer stock who wanted to get an in-service distribution could simply make an investment change into employer stock, then cash out and take a distribution, right? Or would the plan be amended to not permit any further acquisitions of employer stock also?

EBECatty, I'm pretty sure I asked exactly this question several months ago and no one responded.

I have not reviewed the arrangement, seen your documents, etc., but the employee's imputed income under Table 2001 is treated as compensation on W-2, and so generally with endorsement split dollar that amount (i.e., what the employer puts on W-2) is deductible by the employer. Of course, the premiums the employer actually pays on the policy are not deductible because you can never deduct life insurance premiums.

Carol, I have never tried to get flexibility from IRS to allow a 415(m) plan to take into account 401(a)(17) and would be astounded if they would permit that. To your broader question, I think this sort of thing is done in both governmental DB and DC. At one point, I know a representative of the IRS stated informally that notwithstanding prior guidance and practice, 415(m) might not apply to DC plans. I believe the IRS was considering this at least in great part because this sort of thing (e.g., a one-off employer contribution to a 403(b) of 100% of comp up to the 401(a)(17) that "whoops" causes a huge 415(c) dollar excess), is out there, and has been for years. DB situation you describe does not seem different. With respect to the issue of whether this is really a 401(a)(17) violation because "behind the scenes" someone worked out the benefit percentage based on comp in excess of 401(a)(17), I think that would be a tough thing for the IRS to attack, at least without some regulatory groundwork specifically targeting this sort of thing, first. Even if the IRS somehow got emails between the participant and the sponsor describing the math (which would raise other issues as well), is that really the plan taking into account comp in excess of 401(a)(17), or the plan designer? My recollection is that while the 401(k) regs have a very subtle approach on what constitutes a cash or deferral arrangement, the 401(a)(17) regs don't really say much about what it means to take compensation above the limit into account.

Lou S., maybe. Of course, the amendment would also have to require that participant have taken lump sum of vested portion or deemed zero cashout. Would have to apply only to individuals terminating after amendment to avoid cutback, right?

Only if the insurance co. can determine taxable amount. I think this is in there for the self-employed 162(l) situation I mentioned. Following quote is from the FAQ (emphasis supplied): "For a cash rebate paid to an individual policyholder, Insurance Company is not required to file a Form 1099-MISC with respect to that payment or furnish a Form 1099-MISC to the individual policyholder unless (1) the total rebate payments made to that policyholder during the year total $600 or more, and (2) Insurance Company knows that the rebate payments constitute taxable income to the individual policyholder or can determine how much of the payments constitute taxable income. If Insurance Company is required to file a Form 1099-MISC with respect to the rebate payment, it must also furnish a copy to the individual policyholder. See Q&As 2 through 4 below for guidance on whether a cash payment or premium reduction constitutes taxable income to an individual policyholder."

I see. Well, without having seen the documents and based solely on your description, it would seem like it would be vested on the date of the C-in-C unless there is some risk of forfeiture that persists after that event.

EBECatty, doesn't this comply with 409A, so you don't need an exception?

I don't recall this being specifically addressed in EPCRS. The correction is to recredit the amounts, with earnings, to the accounts from which prematurely forfeited and contribute to the plan the amounts needed to make up for that. In other words, unscramble the omelet back into the original eggs. If done by end of second plan year after the first plan year in which occurred, you are in EPCRS. If first occurred earlier than that, would need to review facts and circumstances (mostly amounts and # of participants), but most likely this is a significant failure and would need to go through VCP. Arguably there is also a DOL PT problem here (use of plan assets by party in interest), but I am not sure that most practitioners would feel the need for VFCP for something like this. Again, would need to review facts and circumstances.

Flyboyjohn, the only guidance I am aware of is here https://www.irs.gov/newsroom/medical-loss-ratio-mlr-faqs . See Section B. The guidance does not use numerical amounts in the examples given. Your situation seems extreme. The insurer's G&A expenses must have been far greater than the applicable 20% or 25%. Under Section 36B the PTC is not based on what the individual insured pays, but rather the cost of a hypothetical silver policy, so my off the cuff legal analysis is that the enrollee is entitled to the same credit amount. I guess the IRS could try to argue that where the amount received exceeds the individual's actual outlay, the excess is income under Section 61, but I am unaware of any guidance that would say that, or that would require 1099 reporting of the rebate amounts.

Flyboyjohn, the statute says it goes to the policy holder, which here is only the individual. In the situation of an individual who bought a policy, that is only the individual insured. If the individual was self-employed and deducted the premium paid under Section 162(l) of the Code, it would be taxable because the deduction was overstated (tax benefit rule). In the more likely scenario that this was simply an individual purchase and premiums were not deducted, the rebate would not be taxable because would simply be a reduction in the nondeductible premiums paid.

You're welcome, Pomsplace.

Because there is no statutory, reg, or subregulatory guidance on what is a separation from service where, as in most situations, rehire is always at least theoretically possible, you come across these sort of provisions (which are really administrative provisions written into the plan with a view to getting them baked into the DL). If the plan provision was included in the document that has a DL, you're probably good. In theory, the plan should have determined that in those circumstances it was reasonable to assume that the individual was not on leave or had a promise of rehire. E.g., in a seasonal industry this would presumably have some potential false positives.

Pomsplace, sorry I cannot help you more. You may need the advice of an attorney in your local area who understands probate and tax law. Good luck.

Pomsplace, following on what Bird says above, if your father were the default beneficiary under the plan document (rather than the estate's being the beneficiary), and if you were the NEXT default beneficiary, if your father had predeceased your brother, then your father could disclaim under the Internal Revenue Code rules for a qualified disclaimer. Must be done within 9 months. If the disclaimer is available and done, then the next default beneficiary (i.e., you, in the above hypothetical) would take the benefit directly.

Glad it worked out for you, Nuggetjr.

Agree with KML. After the 2 subs (and no one else) start participating in the new plan, 0% (which is less than 2%) of the employees who previously participated will participate. Well, you could have some employees who move from parent to a sub, so exclude those in the document for one year to be safe.

Larry, I think they're about equal in terms of trouble. Easiest is just to take the money away from the participant and reallocate.

Lou, I somewhat agree, except for the "Otherwise how would a company..." part. Simple. Just don't 100% vest the owner before you hire a bunch of NHCEs.

Larry, just for completeness, you have no objection to the workaround I offered, right? And it would work for folks who go past October 15. The -11g method might be required if participant has terminated, however, unless you want to apply the scrape back and current amendment approach spiritually.

I'm not sure. 1.401(a)(4)-5 is all "facts and circumstances." It is vaguer than the most of the qualified plan rules, and I'm not sure that the IRS pushes it often. But take a look, for example, at Example 2.