Jump to content

Whether an employer-funded plan and trust for retiree health is a deferred compensation plan


Recommended Posts

I would appreciate any thoughts or authority on whether an employer-funded plan and trust for retiree health benefits is a deferred compensation plan for purposes of IRC Section 457(e)(11) and (f) or the rules in Section 885 of the American Jobs Creation Act of 2004 for nonqualified deferred compensation. Assume that under the plan document the employer contributes a percentage of each participating employee's compensation for the plan year, to be allocated to an account for the employee to be used for health benefits after retirement.

Link to comment
Share on other sites

I thought that Sections 885 and 457 were limited to plans of deferred compensation, e.g., plans that paid taxable compensation. A health plan that only pays amounts excluded under IRC 105/106 is not a deferred comp plan because the payments are excluded from gross income.

mjb

Link to comment
Share on other sites

For what other purposes, other than health benefits, can the accumulated funds be used?

Who determines or verifies that the funds are used for health benefits?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

Link to comment
Share on other sites

The plans you outlined would not be a deferred compensation plan.

The reason I asked the questions was because, unless the PD and operation specifies and restricts the money to reimbursing the expenses of medical care only, it might be disallowed as serving to defer compensation, which while still not a deferred compensation plan (as noted by mbozek), is a reason for care in design, implementation and operation.

If there is any other option such as a cash out or transfer to pension, the plan would be disallowed etc.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

Link to comment
Share on other sites

Everett Moreland:

If you want definitive guidance on this point, I recommend that you contact the IRS on this point. The IRS will open up a regulations project that will list the attorneys at the IRS and at the Treasury Department who are assigned to work on it. (That information is publicly available.) You can contact one of them and bring up this point, either in a phone call or in a letter.

As somebody who used to write regulations for the IRS, I can tell you that they are glad to find out about these types of issues. They sincerely want the guidance to be as comprehensive as possible, and this would not be an obvious issue to many people. In fact, I would bet that unless you contact them, your point won't be addressed.

The earlier in the project that you contact them, the more likely that your issue will be addressed by the regulations. Even if you talk with the contact at the IRS and/or Treasury, I recommend that you follow it up with a letter.

Kirk Maldonado

Link to comment
Share on other sites

Kirk:

Do you know of an internet site or other available resource that lists the attorneys at the IRS and Treasury who are assigned to work on regulation projects?

I suppose I should ask that the § 885 regulations clarify that § 885 does not apply to any nontaxable benefit, whether paid to a current employee or a retiree, and whether paid from the employer's assets or a trust.

Link to comment
Share on other sites

Huh??

Why not just ask the question in the original post?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...