• QUESTION 48: An employee terminated employment from his job and elected to continue COBRA coverage for six months. He allowed his coverage to lapse for three months and now wants to reinstate his coverage by paying the back premiums. We have the following questions: (a) Is he eligible to do so? (b) During his coverage lapse, he had another job (as an independent contractor) which provided him with health benefits. Does that affect his ability to reinstate prior coverage? (c) Is the new employer obligated under COBRA to offer coverage when he loses his independent contractor job?

  ANSWER (click here).

• QUESTION 49: An ex-employee was terminated from the health plan due to a qualifying event. His coverage was cancelled and not reinstated because he never sent back a COBRA form with a proper COBRA election. He claims that he never received a COBRA notice. Does he now have the right to re-enroll? Are there any specific notification regulations or requirements regarding COBRA? If our system automatically generates a letter to a COBRA qualified beneficiary, is that considered appropriate notification or is the company better off hand delivering the notice?

  ANSWER (click here).

• QUESTION 50: Is it up to the administrator to offer COBRA coverage to qualified beneficiaries who already know about their COBRA rights? Or, can the administrator rely on the fact that the individuals know about their COBRA rights and leave it up to them to ask for COBRA benefits?

  ANSWER (click here).

• QUESTION 51: Our company provides retiree medical coverage to employees who retire from active employment after meeting certain age and service requirements. One employee "retired" without having met the age requirement and, therefore, was not eligible for retiree medical benefits. We sent him a COBRA notice and in his signed response, he indicated that he wanted to maintain coverage "indefinitely" because he lacks other coverage. He says the new health insurance law protects him and "guarantees" that he will have coverage available from us. I am of the opinion that he is mistaken and will lose his COBRA coverage after 18 months (he is not disabled and entitled to the 29-month COBRA extension period). Am I correct?

  ANSWER (click here).

• QUESTION 52: If an employer chooses to pay COBRA premiums for terminated employees, is the premium taxable income to the former employee (s)? If so, would it be reported on a Form W-2 as part of federal taxable wages or as Social Security wages?

  ANSWER (click here).

• QUESTION 53: Why would someone want to continue their medical flexible spending account (FSA) under COBRA?

  ANSWER (click here).

A health maintenance organization had a fiduciary duty under the Employee Retirement Income Security Act to inform plan participants that it gave primary care physicians financial incentives to minimize referrals to specialists, the 8th U.S. Circuit Court of Appeals held Feb. 26.

The Pension Benefit Guaranty Corporation (PBGC) on March 18 asked for public comments on whether it should amend its regulation covering the valuation of benefits in terminating pension plans. At the same time, the agency announced the assumptions it will use to calculate the 1997 list of 50 companies with the largest underfunded pension plans.

In an advance notice of proposed rulemaking in the March 19, 1997 Federal Register, PBGC said it was considering incorporating new mortality tables into its regulations for valuing benefits.

PBGC currently uses a mortality assumption based on the 1983 Group Annuity Mortality Table. The combination of PBGC's mortality and interest assumptions is intended to reflect the market price of purchasing annuities to cover workers' pensions in the event a plan is terminated.

In 1995, a task force formed by the Society of Actuaries recommended new mortality tables for a new Group Annuity Reserve Valuation Standard and a new Group Annuity Mortality Valuation Standard. In 1996, the National Association of Insurance Commissioners adopted the new tables as models for determining reserve requirements for group annuities.

PBGC invites comments on its adoption of the new tables and any need for modifications. PBGC also invites comments on any other issues relating to its valuation and allocation regulations. In particular, PBGC would like to hear what steps it could take to simplify the valuation and allocation process. It is also interested in learning what additional annuity pricing information is available that PBGC could use in reviewing its valuation assumptions.

Comments must be received on or before May 19, 1997.

• Social Security: Disability Programs Lag in Promoting Return to Work. HEHS-97-46. March 17, 1997.
  http://www.gao.gov/new.items/he97046.pdf

• Medicaid: Recent Spending Experience and the Administration's Proposed Program Reform. T-HEHS-97-94. 12 pp. plus 1 appendix (3 pp.) March 11, 1997.
  http://www.gao.gov/new.items/he97094t.pdf

• 10 Frequently Asked Questions
• The Facts About Profit Sharing/401(k) Plans
• Success of Company Stock in Defined Contribution Plans Explained

• The importance of insurance company ratings
  
• What is a qualified retirement plan?
  
• 403(b) programs
  
• 401(k) plans
  
• How to evaluate an annuity company
  
• IRS auditing 403(b) TDA programs
  
• Employer self-audit checklist
  
• Benefits of a benefits fair
  
• What employers need to know about asset allocation
  
• Nondiscrimination testing update: 1995
  
• IRS introduces TVC program
  
• The employer's responsibility under 404(c)
  
• Techniques to increase participation in retirement plans
  
• Teaching benefits administrators about benefits
  
• The Small Business Job Protection Act
  
• Benefits book a valuable tool
  
• Comparing 401(k) and 403(b) plans
  
• Loans from qualified plans and section 403(b) annuities
  
• Withholding requirements changed
  
• Communicating the financial basics to employees
  
• 1997 COLAs
  

A participant received a hardship distribution in April 1996 of $5,000. The 401(k) plan used the safe harbor procedures for granting hardship withdrawals, which specifically prohibit deferrals by the participant for the ensuing 12 months. Contrary to the safe harbor language, the participant continued to defer into the 401(k) plan for the remainder of 1996. The plan administrator subsequently caught the mistake and the plan sponsor wants to correct the error--which is a disqualifying defect. What is the correction? Is this a defect that can be cured under the new IRS "Administrative Policy Regarding Self-Correction" (APRSC)?

The Retirement Protection Act of 1994 added a new requirement to ERISA (Section 4011) that certain underfunded plans annually notify participants and beneficiaries of the plan's funding status and the limits of the PBGC's guarantee.

On June 30, 1995, the PBGC published a final rule implementing the notice requirement. The regulations include a model notice that plans can use to meet the requirement. See 29 CFR Part 4011.

Plans with more than 100 participants first became subject to the notice requirement for 1995. Plans with 100 or fewer participants first became subject to the notice requirement for 1996.

For the convenience of plan administrators, this Technical Update provides the Model Participant Notice, updated to reflect the 1997 maximum guaranteed benefits.