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Welfare Benefit Plan as deferred compensation plan


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Having studied IRC 409A and the regulations under it, it appears to me that any plan that permits setting aside funds (including funds of the employer and/or of the employee) for use at a future time is deferred compensation with the need of complying with the requirements of 409A.

A welfare benefit plan typically sets aside funds for welfare purposes, such as: medical reimbursements, death benefits, education reimbursements, disability benefits, etc. However, a great number of so-called "419 plans" or "419(e) plans" provide a mechanism whereby an employer, by dropping out of a multiple-employer or by terminating a single-employer plan, can trigger a cash distribution.

IMHO, such a cash distribution would fall under IRC 409A. A plan that permits such distribution must comply with 409A by 12-31-05 or be subject to the penalties provided thereunder. If I had a client that participated in a WBP or "419" plan, I would make sure that no cash distributions were possible (with the exception of medical payments or reimbursements) or get my client out of the plan by 12-31-05.

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