Employee Benefits Legal Blog : Employee Benefits Lawyer & Attorney : Fox Rothschild Law Firm : Health Care, Retirement, ERISA : Philadelphia, New York, Northeast

Frequently the coordination of COBRA coverage in conjunction with Medicare eligibility or disability can be confusing.  This particular case, from the Middle District of Pennsylvania, addressed the failure of a plan to provide COBRA to an employee who was determined to be disabled.

The employee in this case was placed on short-term disability when he failed to provide medical clearance to return to work as a result of his medical condition.  When he applied for unemployment, his employer interpreted that as a termination and ended his health coverage.  The employee eventually applied for and received Social Security Disability (SSDI).  The employee then sued his former employer for failing to provide a COBRA notice.  The employer acknowledged that it did not send the COBRA notice, but argued that receipt of SSDI made the former employee ineligible for COBRA coverage.

 The Court found for the employee, clarifying that only Medicare benefits obtained would preclude COBRA.  SSDI benefits do not in an of themselves terminate the right to continuation coverage.  A qualified beneficiary who becomes entitled to Medicare coverage may have his or her COBRA coverage terminated in favor of Medicare, but the mere receipt of SSDI benefits does not have the same effect.

This case demonstrates how important it is for a plan administrator to understand the nature of Social Security benefits received and how Medicare and Social Security interact.  As a plan administrator, one cannot simply assume that because an former employee is receiving SSDI, there is no COBRA obligation.

See Carstetter v. Adams County Transit Authority (2008 WL 2704596, M.D. Pa. 2008)

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File this under things I did not know.  Apparently there is a mechanism to take loans from your 401(k) plan through use of a debit card, but not for much longer.  The ReservePlus card, established 5 years ago, provides 401(k) loans through a Visa debit card.  It allows plan participants to take loans out at prime plus 2.9% interest.  On July 16, legislation was introduced in the Senate to ban the debit card after a hearing because it was too likely that participants would abuse the card.  The legislation would also limit 401(k) participants to three outstanding loans from their account at a time.  The bill was referred to the Senate Finance Committee for consideration.

Remember that in most cases, an employee can borrow up to fifty-percent of their vested account balance up to a maximum of $50,000. If the employee has taken out a 401k loan in the previous twelve months, they will only be able to borrow fifty-percent of their vested account balance up to $50,000, less the outstanding balance on the previous loan. The 401k loan must be paid back over the subsequent five years with the exception of home purchases, which are eligible for a longer time horizon.

A couple of things about this caught my eye.  One, I had no idea that card existed so that was interesting.  Two, giving a quick read through the code I did not see any regulations that particularly limited 401(k) loans other than what I listed above.  As a follow up, I located an article about this law that suggested that this was the first time since 1980 that Congress has introduced legislation to limit 401(k ) loans.  I'll try to keep an eye on this to report how it turns out. 

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When both the Wall Street Journal and the USA Today include articles about employee benefit plans, you know it must be good.  It turns out that the Department of Labor's new proposed rules for disclosing 401(k) plan fees is getting some significant airtime.

For a copy of the proposed regulations, click here.  Generally, they are consistent with the DOL's efforts to make sure participants are adequately advised of the costs associated with 401(k) plans and how they are administered.  Effective for plan years beginning on or after January 1, 2009, plans would be required to provide investment-related information in a comparative chart or similar format.  In the proposal, the department developed a model chart for complying with this requirement, while giving plan fiduciaries the flexibility to design their own charts or comparative formats.  The proposed regulations would also require plan fiduciaries to disclose basic information about the plan and its investment options, such as what options are available under the plan, how to give investment instructions, investment returns and fees and expenses, and how to obtain more detailed information.  This information would be given to participants on a regular and periodic basis.  There is some discussion about providing access to a website address to obtain this information and also additional requirements with respect to distributing this information.

These proposed regulations should not come as a surprise as they DOL has long been concerned about excessive fees being passed on to participants without providing them the ability to effectively compare and contrast options.  Since fees and costs will now have to be on full display, please administrators would be wise to use this opportunity to have their plan's evaluated to determine if the fees charged are competitive.  You can bet that will be the next question participants will want to have answered.

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The Heroes Earnings and Assistance and Relief Tax Act of 2008 (HEART Act) essentially picks up where the Uniformed Services Employment and Reemployment Rights Act (USERRA) left off, providing enhanced benefits for those in military service.  Some of the interesting highlights are as follows:

Retirement Plans (Tax-qualified retirement plans, including 403(b) and 457 plans) must treat participants who die while performing USERRA-qualified military service as if they had died while actively employed for purposes of applying plan provisions relating to survivorship benefits (e.g., full vesting and ancillary death benefits).  Plans may treat individuals who die or become disabled while performing USERRA-qualified military service as if their death or disability had occurred immediately after reemployment.  For example, this would enable a plan to credit the individual’s plan account with the retroactive benefit accruals he or she would have received under USERRA upon a qualifying reemployment .  These requirements apply to deaths and disabilities occurring on or after January 1, 2007.

In addition, effective for years beginning after December 31, 2008, a tax-qualified plan may permit a participant who is on active military duty for more than 30 days to receive a distribution of his or her elective deferrals.  The individual is treated as if his or her employment had been terminated.  As with safe harbor hardship distributions, the participant’s right to make on going elective deferrals will be suspended for six months following the distribution. 

Effective June 17, 2008, a cafeteria plan may permit a reservist called to active duty to receive a distribution of unused health FSA amounts.  The purpose of this provision is to prevent a reservist called to active duty from forfeiting his or her unused balance under the “use it or lose it” rule.  The distribution must constitute a “qualified reservist distribution.”  A qualified reservist distribution is specifically defined as a distribution (a) to an individual who is a member of a military service unit ordered or called to active duty for a period in excess of 179 days or for an indefinite period (b) that is made between the date of the order or call to active duty and the last date that reimbursements from the health FSA could otherwise be made for the plan year that includes the date of the order or call to active duty (i.e., the last day of the claims submission period following the end of the plan year).

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I have been away on vacation and when I returned, I had an opportunity to discuss IRS Code Section 409A compliance with one of my partners. His concerns over the looming December 31, 2008 compliance deadline prompted me to revisit this topic a little bit.

First, let's recall what 409A is intended to do. It is designed to provide a framework for making taxable deferred or executive compensation at the time it loses it forfeitability. Unless certain requirements are satisfied, amounts deferred under a nonqualified deferred compensation plan (as defined in the regulations) currently are includible in gross income unless such amounts are subject to a substantial risk of forfeiture. In addition, such deferred amounts are subject to an additional 20 percent federal income tax, interest, and penalties.

Second, let's recall some of the things that 409A applies to: Traditional nonqualified deferred compensation plans, Employment agreements, Reimbursement arrangements, Severance arrangements, Bonus/incentive plans, Stock options, Equity incentive plans and award agreements, Post-retirement benefits, Tax equalization agreements, Phantom stock arrangements, Restricted stock units, Change in control agreements, Split-dollar life insurance arrangements, Supplemental executive retirement plans ("SERPs"), Excess benefit plans, Section 457(f ) plans.

Third, what needs to be done before December 31, 2008. All of the following should be completed: 1. Identify all arrangements, agreements or plans (including insurance policies) that may constitute deferred compensation. A "deferred" compensation arrangement will generally be one under which an employee or other service provider has a legally binding right during a taxable year to receive compensation that is or may be payable in a later taxable year. This includes arrangements entered into before January 1, 2005 and still in existence, such an employment agreement.

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