HSA Contributions: Making Sense of the Moving Parts

As we have noted, high-deductible health plans (HDHPs) with a Health Savings Account (HSA) feature are growing in popularity.  Our last post on HDHP/HSA arrangements explored some of the general eligibility questions we are asked most frequently.  Today we address common questions about HSA contributions.

1.  Are contributions limited by the number of months an employee is HSA-eligible, or is an employee entitled to the full contribution limit for being HSA-eligible for just part of the year?  HSA contributions generally may be made for months in which an individual is HSA-eligible, and the individual’s annual HSA contributions may not exceed the sum of the “monthly limitations” (the annual contribution limit divided by 12) for all months in the calendar year in which the individual actually is HSA-eligible.  Said another way, an employee’s yearly contribution limit is prorated based on the period the employee is actually HSA-eligible.  That is the general rule, often called the “general monthly contribution rule.”  By contrast, under the “full-contribution rule” described below an individual may be treated as HSA-eligible for the entire year and entitled to make contributions up to the annual maximum HSA contribution limit if the employee becomes covered by an HDHP in a month other than January and is HSA-eligible on December 1 of that year.

Click to read more ...

Section 457(f) Should Not Apply to the Deferred Compensation Plan of a For-Profit Subsidiary of a Tax-Exempt Organization – Right?

Treasury Regulations meant to reconcile the “substantial risk of forfeiture” provisions of Code Section 409A and Code Section 457(f) are expected to arrive some day.  Those regulations have been in the works since 2007 (see IRS Notice 2007-62), and it will be great to get some uniformity in how the “substantial risk of forfeiture” concept works in the contexts of Sections 409A and 457(f).  But we are hoping that the regulations will also address a couple of other issues that have long-afflicted those of us who work with large tax-exempt organizations.  In particular, it would be nice to confirm that if a for-profit subsidiary of a tax-exempt organization establishes a nonqualified deferred compensation plan exclusively for its employees, that plan should only have to comply with Code Section 409A and should not be subject to Code Section 457(f).

Click to read more ...

Participant-Level Fee Disclosure for ERISA and Non-ERISA Plans

After our recent post on the fiduciary-level fee disclosure rules under ERISA Section 408(b)(2), we wanted to complete the picture for plan fiduciaries by revisiting the participant-level fee disclosure rules under ERISA Section 404(a).  These rules require fiduciaries of participant-directed individual account plans (such as 401(k) and 403(b) plans) to periodically disclose certain plan- and investment- related information to plan participants, beneficiaries, and eligible employees (without regard to whether an eligible employee has actually become enrolled in the plan).  The rules were finalized in July, 2011 and are effective for the first plan year on or after November 1, 2011 (January 1, 2012 for calendar year plans). 

Non-ERISA plans are not required to comply with these disclosure obligations, though it may become a best practice to do so.  More on that later.

Click to read more ...

Section 409A Basics: Deferral Elections and Discretionary Bonuses

The Final Regulations under Code Section 409A took effect nearly five years ago.  By now those of us who regularly deal with deferred compensation issues have fully internalized the core requirements of Section 409A.  We have even managed to sensitize our clients and other professionals to the possibility that Section 409A issues can arise in a variety of contexts outside the strict parameters of a formal deferred compensation arrangement.  Nevertheless, certain simple questions still cause us to revisit basic Section 409A concepts simply because the answers we produce are frequently jarring (even to us) and frustrating (for employers).  One such question relates to the timing of deferral elections made with respect to discretionary bonuses.

Click to read more ...

Plan Fiduciaries Should “Welcome” Final Regulations Regarding Service Provider Disclosures

Last week the U.S. Department of Labor published Final Regulations dealing with service provider disclosures under Section 408(b)(2) of ERISA.   This is the latest in a series of regulatory initiatives undertaken by the DOL to ensure that plan fiduciaries, as well as plan participants and beneficiaries, obtain meaningful information about the services that are provided to their employee benefit plans and the cost of those services.  The DOL began by revising Schedule C of Form 5500 to expand the disclosures regarding service providers.   Then came new regulations under Section 404(a) of ERISA requiring plan administrators to disclose specified plan and investment-related information, including fee and expense information, to participants and beneficiaries in 401(k) and other individual account plans.   The Section 408(b)(2) Final Regulations represent another significant component of the disclosure regime since, in the view of the DOL, plan fiduciaries need the information called for in the Final Regulations in order to satisfy the fiduciary standards of ERISA when selecting and monitoring service providers.  Plan fiduciaries need to be familiar with these important new rules, understand and apply the disclosures they receive from service providers, and be aware of certain new obligations they have regarding service arrangements. 

Click to read more ...