Subject: BL-Newsletter: Bill Lieber Dies; New Cafeteria Plan IRS Regs
Date: Fri, 7 Nov 1997 10:21:32 -0500
................. BenefitsLink Newsletter .............
{
{ Free, useful information about U.S. tax and labor laws
{ and new Internet resources, for employee benefit plan
{ sponsors, service-providers and participants.
.........................................................
-------------------------------------------------------------
WILLIAM M. LIEBER DIES
We've lost one of the bright lights of the benefits
community. Bill Lieber, author of Lieber on Pensions and
former pension tax counsel on the Joint Committee on
Taxation, died Wednesday morning of complications from
surgery for lung cancer that was discovered only a few months
ago.
Bill was widely known as an "expert's expert" for his work in
government in pension matters. He headed the Internal
Revenue Service's ERISA drafting team and participated in
writing all federal pension tax legislation from 1969 through
1985 -- bills on qualified plans, cafeteria plans, IRAs, SEPs
and 457 plans.
While at the IRS and later on the Joint Committee on
Taxation, Lieber worked on provisions involving every aspect
of pension plans and explained their provisions at hundreds
of seminars for lawyers, CPAs, actuaries and administrators.
His work also included provisions on ESOPs, governmental
plans, church plans, multiemployer plans, top heavy plans,
tax-sheltered annuities, survivor benefits, QDROs, age and
service requirements, vesting and accrued benefits,
integration with Social Security, unfunded plans, and
deductions for qualified plans and VEBAs.
He also taught deferred compensation as a Professorial
Lecturer in Law at George Washington University's National
Law Center.
After taking early retirement from the government, Lieber
worked intensely for years on the writing of his treatise,
Lieber on Pensions, formerly published by Prentice-Hall. It
is no longer available.
He enjoyed a solo consulting practice in Columbia, Maryland
for several years, and was one of the first consultants to
make himself easily available via email. Questions submitted
to his Compuserve address often resulted in improvements and
clarifications in his treatise.
A lawyer and CPA, he was a graduate of the University of
Illinois and the University of Chicago Law School.
Services were scheduled for today, November 7.
-------------------------------------------------------------
IRS REGS ON CAFETERIA PLANS
The full text of new IRS temporary regulations on cafeteria
plans is available via the What's New page of BenefitsLink.
(http://www.benefitslink.com)
The regulations were published in the Federal Register of
November 7.
Here is an excerpt:
Background
This document contains amendments to the Income Tax
Regulations (26 CFR part 1) under section 125. These
temporary regulations provide guidance relating to the
circumstances under which a cafeteria plan participant may
revoke an existing election and make a new election during a
period of coverage.
Explanation of Provisions
A "cafeteria plan" under section 125 allows an employee
to choose between cash and certain nontaxable benefits, such
as accident or health coverage. Section 125 generally
permits the employee to choose the nontaxable benefit (rather
than the available cash) without the employee having to
include the available cash in gross income. The temporary
regulations:
-- Permit a cafeteria plan to allow an employee, during a
plan year, to change his or her health coverage election to
conform with the new special enrollment rights provided under
the Health Insurance Portability and Accountability Act of
1996 (HIPAA), and
-- Permit a cafeteria plan to allow a change in coverage
election for a variety of other changes in status. These
regulations are designed to provide clear, administrable
guidelines for determining when changes can be made in
cafeteria plan elections during a plan year. These
regulations are effective for plan years beginning after
December 31, 1998. However, taxpayers may rely on the
guidance in the temporary regulations (or on the existing
proposed regulations) for prior periods.
Summary
Section 125 generally provides that an employee in a
cafeteria plan will not have an amount included in gross
income solely because the employee may choose among two or
more benefits consisting of cash and "qualified benefits." A
qualified benefit generally is any benefit that is excludable
from gross income because of an express provision of the
Code, including coverage under an employer-provided accident
or health plan under sections 105 and 106, group-term life
insurance under section 79, elective contributions under a
qualified cash or deferred arrangement within the meaning of
section 401(k), dependent care assistance under section 129,
and adoption assistance under section 137. Under Secs.
1.125-1 and 1.125-2 of the existing proposed regulations, an
employee is permitted to make an election between cash and
qualified benefits before the beginning of the period of
coverage (which generally is the plan year of the cafeteria
plan); changes in the election during the plan year are
permitted only in limited circumstances.
The temporary regulations clarify the circumstances under
which a cafeteria plan may permit an employee to change his
or her cafeteria plan election with respect to accident or
health coverage or group-term life insurance coverage during
the plan year. Proposed regulations are also being published
that cross-reference these temporary regulations, and that
replace the change in family status provisions in Q&A-6 of
proposed Sec. 1.125-2 with respect to accident or health
plans and group-term life insurance.
HIPAA Special Enrollment Rules
The temporary regulations conform the cafeteria plan
rules to the new special enrollment rights provided under
HIPAA (which generally require group health plans to permit
individuals to be enrolled for coverage following the loss of
other health coverage, or if a person becomes the spouse or
dependent of an employee through birth, marriage, adoption,
or placement for adoption). Under the regulations, if an
employee has a right to enroll in an employer's group health
plan or to add coverage for a family member under HIPAA, the
employee can make a conforming election under the cafeteria
plan. This allows required contributions for such health
coverage to be paid on a pre-tax basis.
Changes in Status
The temporary regulations include rules for other events,
called "changes in status," under which a cafeteria plan may
allow an employee to change his or her election during the
plan year. The events that constitute changes in status
under the regulations are changes in legal marital status,
number of dependents, employment status, work schedule, and
residence or worksite, and cases where the dependent
satisfies or ceases to satisfy the requirements for unmarried
dependents. The regulations permit a cafeteria plan to allow
a change of election during the plan year if a change in
status occurs that affects eligibility for coverage and the
election change corresponds with the effect on eligibility.
For example, if under the terms of an accident or health plan
a child of an employee loses eligibility for coverage upon
graduation from college, the cafeteria plan may allow the
employee to cease payment for the child's coverage when the
child graduates and coverage ceases. Certain of these
changes in status (marriage, birth, adoption, and placement
for adoption) overlap with the special enrollment events
under HIPAA. The regulations include examples that clarify
the relationship between HIPAA's special enrollment rights
and these change in status rules. In addition, if a change
in status occurs that entitles an employee or family member
to "COBRA" continuation coverage (or coverage under a similar
State program) with respect to the employer's plan, the
regulations permit payments for the continuation coverage to
be made on a pre-tax basis under a cafeteria plan.
Other Events
The regulations allow a corresponding cafeteria plan
change if a plan receives a court order, such as a qualified
medical child support order under section 609 of ERISA. In
addition, if an employee, spouse, or dependent becomes
entitled to Medicare or Medicaid, a cafeteria plan can permit
a corresponding election change.
Elective Contributions Under a Qualified Cash or Deferred
Arrangement
The temporary regulations, in provisions similar to those
of the existing proposed regulations (proposed Sec.
1.125-2(f)), make clear that the rules of section 401(k) and
(m), rather than the rules in these temporary regulations
(which apply to other qualified benefits), govern changes in
elections under a qualified cash or deferred arrangement
(within the meaning of section 401(k)) or with respect to
employee after-tax contributions subject to section 401(m).
Scope of Temporary Regulations and Reliance on Proposed
Regulations
The temporary regulations do not address certain
provisions concerning cafeteria plan election changes that
are included in the existing proposed regulations. Guidance
on these provisions is reserved at paragraphs (f)-(i) of the
temporary regulations. For example, future guidance under
the significant cost change provision (reserved at paragraph
(g) of the temporary regulations), rather than the change in
status rules, would determine whether an employee who
switches from full-time to part-time employment and who
remains eligible under the employer's health plan could make
an election change if the part-time employee is required to
pay significantly higher amounts for the coverage. The
temporary regulations also reserve guidance with respect to
provisions set forth in the existing proposed regulations
that permit an election change in the case of a significant
change in coverage (which includes a significant change in
the health coverage of the employee or spouse attributable to
the spouse's employment). Other matters not addressed in the
temporary regulations include the application of the
cafeteria plan election change rules to qualified benefits
other than accident or health coverage and group-term life
insurance coverage (for example, dependent care assistance
programs), and special rules concerning changes in elections
by employees taking leave under the Family and Medical Leave
Act of 1993 (Pub. L. 103-3). Pending further guidance,
taxpayers can continue to rely on the existing proposed
regulations concerning these and other matters not addressed
in the temporary regulations.
The temporary regulations are effective for plan years
beginning after December 31, 1998. Prior to that date,
however, taxpayers can rely on the guidance provided in the
temporary regulations (as well as on the guidance provided in
the existing proposed regulations that relates to matters
addressed in the temporary regulations) in order to comply
with the provisions of section 125.
................. BenefitsLink Newsletter ...............
{
{ To unsubscribe: send email to majordomo@bolis.com
{ with "UNSUBSCRIBE BL-newsletter" in the text of the email
{ without the quotation marks.
{
{ To subscribe: send email to majordomo@bolis.com
{ with "SUBSCRIBE BL-newsletter" in the text of the email
{ without the quotation marks.
{
{ Your email address is not sold or leased to junk mailers
{ or any other organization ... no spam, just BenefitsLink!
{
{ To contribute information for publication or to learn
{ more about sponsoring an issue of the newsletter, please
{ contact the editor at erisa@benefitslink.com.
{
{ BenefitsLink is the national employee benefits Web site
{ at http://www.benefitslink.com -- Dave Baker, Editor.