Ala. Admin. Code r. 560-X-42-.14

Current through Register Vol. 43, No. 1, October 31, 2024

Section 560-X-42-.14 - Qualified Retirement Plans

(1) The reasonable costs of funding "qualified" deferred compensation plans will be recognized as an allowable cost. "Qualified" deferred compensation plans means those plans which have been determined by the Internal Revenue Service to be qualified under Sections 401 or 405 of the Internal Revenue Code, as amended. Such plans can be generally categorized as either a defined benefit (hereinafter called "pension") or defined contribution (hereinafter called "profit sharing") plan.

(2) Under a pension plan, the employer's contributions can be calculated based on the definitely determinable benefits provided for in the plan and such contributions are required without regard to the employer's profits. Pension plans typically provide that forfeitures resulting from termination of employees prior to their becoming one hundred percent (100%) vested in their account balance will be used to reduce further employer contributions, rather than being reallocated among the participants. The reasonable costs of a provider in funding such a pension plan will generally be considered as allowable costs, provided that the plan contains the usual provisions concerning use of forfeitures to reduce employer contributions (and therefore, Medicaid reimbursable costs). The portion of the provider's reimbursed costs under such plans which is attributable to the costs of funding the retirement benefits of employees whose compensation is includable in computing the Administrative and Management costs of this Chapter will be considered as part of the compensation of each such employee during the year of contribution to the plan. For purposes of this chapter, money purchase pension plans requiring that all forfeitures be used to reduce current or future employer contributions rather than increasing the benefits payable to the participants will be subject to the provisions of this paragraph relating to pension plans rather than the provisions relating to profit sharing plans.

(3) A profit sharing plan is a deferred compensation plan, under which the contributions are based upon the profits of the employer and frequently are completely discretionary with the employer. Therefore, the contributions of the employer cannot be calculated based upon definitely ascertainable benefits to be provided to the employees. The employee, upon retirement, receives whatever amount is in his or her account on that date and is not guaranteed any certain level of retirement income.

(4) Under a profit-sharing plan, forfeitures created by employees terminating employment who are less than one hundred percent (100%) vested in their account balances are typically reallocated to the other participants (including those employees whose compensation falls within the Administrative and Management costs), rather than reducing further contributions by the employer. Therefore, the actual operation of such profit sharing plans could result in a circumvention of the Administrative and Management cost center. Therefore, an employer's contributions to a profit sharing plan will generally be considered a reimbursable cost for Medicaid purposes only if all amounts credited to the accounts of participants who are credited with more than three (3) years of service under the Plan are nonforfeitable.

(5) As with pension plans, all contributions to profit sharing plans which are attributable to employees whose compensation is includable in computing Administrative and Management costs will be included in each such employee's compensation for the year during which the contribution is made to the plan for purposes of calculating the limitations imposed upon Administrative and Management costs under this Code. Provided, however, that in the event amounts attributable to previous Medicaid reimbursements are, under the "forfeiture" provisions of a profit sharing plan, reallocated from the account of an employee not coming under the Administrative and Management cost limitations to the accounts of employees whose compensation is included in computing such limitations, such amounts will be includable in the compensation of the employees to whose accounts such amounts are credited for purposes of computing the Administrative and Management costs for the year of reallocation.

(6) Medicaid will not recognize employee stock ownership plans or stock bonus plans that were not both in operation and approved prior to October 1, 1980.

(7) Other types of qualified retirement plans will be considered on a case-by-case basis by Medicaid utilizing the principles contained in this Section to the extent that such principles are consistent with the nature of such plans.

(8) The accrual of costs by a provider under any unfunded deferred compensation arrangement will not be recognized as allowable costs for Medicaid Reimbursement purposes.

Author: Susan Mims

Ala. Admin. Code r. 560-X-42-.14

Rule effective October 13, 1988.

Statutory Authority: State Plan; Title XIX, Social Security Act; 42 C.F.R. §§447.250 - .255.