from Spencer’s Benefits Reports: Following are recent benefits questions that were submitted by subscribers and the answers from Spencer editors.
401(k) Loans And Payments After Termination
Q: If an employee has a 401(k) loan and terminates employment, is there an option (if the plan allows this) to allow the participant to continue making payments on the loan or does the loan become due within 60 days?
A: Yes, the individual can continue to repay the loan in substantially equal installments, if the plan allows it. There was extensive discussion many years ago about permitting terminated participants to continue making their loan payments in order to avoid the loan being declared a deemed distribution. The problem is how this would be accomplished administratively since payroll deduction (the method used with employees) was no longer possible.
While the law does not prohibit continuing repayment after termination of employment, it is clear that once the “contract” has been violated (i.e., the repayment schedule no longer is met), there is a deemed distribution. Making sure the payments are made on time and in equal installments is a challenge many administrators do not want to tackle.
Notification Of Break Times For Nursing Mothers
Q: Is an employer required to notify its employees of the “Reasonable Break Time for Nursing Mothers” provision that was enacted due to the Patient Protection and Affordable Care Act (ACA)?
A: Although the Department of Labor has issued no rules as of Summer 2011, a DOL request for information (RFI) issued in December 2010 does provide some guidance on an employer’s notice requirements, as follows:
“In order to facilitate an employer’s ability to provide appropriate space for expressing milk, the DOL encourages nursing employees to give employers advance notice of their intent to take breaks at work to express milk. The DOL believes that a simple conversation between an employee and a supervisor, manager, or human resources representative about the employee’s intent to take breaks for the purpose of expressing breast milk would facilitate an employer’s ability to make arrangements to comply with the law before the nursing mother returns to work.
“The Department notes that an employer may ask an expectant mother if she intends to take breaks to express milk while at work. Doing so informs employees of their rights under the law and allows the employer the opportunity to make any necessary adjustments to comply with the law.”
The DOL noted that until any further guidance is issued, the RFI provides useful information for employers to consider in establishing policies for nursing employees, because this RFI contains the DOL’s preliminary interpretations of the law’s requirements.
The RFI is available at http://webapps.dol.gov/FederalRegister/HtmlDisplay.aspx?DocId=24540&Month=12&Year=2010. The DOL also has a dedicated website for information on the ACA’s provision for nursing mothers at http://www.dol.gov/whd/nursingmothers/.
Distributing VEBA Funds
Q: May a IRC Sec. 501(c)(9)voluntary employees’ beneficiary association (VEBA) terminate with assets remaining and avoid reversion of assets to employer (as well as avoid reversion tax under IRC Sec. 4976) if the VEBA purchases an insurance policy to pay plan benefits?
A: This should be allowed. A distribution to members upon the termination of a plan or dissolution of the VEBA trust will not constitute prohibited inurement if the amounts distributed to members are determined according to the collective bargaining agreement terms, or on the basis of objective and reasonable standards, that do not result in disproportionate payments or discrimination in favor of the highly compensated.
Here is the text of the relevant regulation:
“IRC Reg. Sec.1.501(c)(9)-4(d)–Termination of plan or dissolution of association.—
“It will not constitute prohibited inurement if, on termination of a plan established by an employer and funded through an association described in Sec. 501(c)(9), any assets remaining in the association, after satisfaction of all liabilities to existing beneficiaries of the plan, are applied to provide, either directly or through the purchase of insurance, life, sick, accident or other benefits within the meaning of Sec. 1.501(c)(9)-3 pursuant to criteria that do not provide for disproportionate benefits to officers, shareholders, or highly compensated employees of the employer. See Sec. 1.501(c)(9)-2(a)(2).
“Similarly, a distribution to members upon the dissolution of the association will not constitute prohibited inurement if the amount distributed to members are [is] determined pursuant to the terms of a collective bargaining agreement or on the basis of objective and reasonable standards which do not result in either unequal payments to similarly situated members or in disproportionate payments to officers, shareholders, or highly compensated employees of an employer contributing to or otherwise funding the employees’ association.”
State Same Sex Marriage Laws And Federal Benefits Rules
Q: How does New York’s new same sex marriage law impact federal treatment of married same sex couples as regards COBRA, imputed income of cost of dependent coverage, and IRC Sec. 125?
A: Married same-sex couples do not receive access to the federal rights and responsibilities associated with marriage, because of the federal Defense of Marriage Act (DOMA). The new law in New York will not change that. This would include federal laws regarding COBRA, imputed income of cost of dependent coverage for tax purposes, and Sec. 125.
Same-sex spouses will receive the same rights and responsibilities provided to different-sex spouses under New York law. According to a 2007 joint report by Empire State Pride Agenda (ESPA) and the New York City Bar Association, there are more than 1,300 such rights and responsibilities, including health care decisionmaking for an incapacitated spouse, property rights, and inheritance rights (http://www.prideagenda.org/Portals/0/1324%20Rights%20and%20Responsibilities_FINAL.pdf).