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Randy Watson

Continued Medical

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Someone please tell me if I have this wrong, but continued medical coverage that is taxable to the participant is excluded from 409A during the COBRA period, but subject to 409A afterwards. Once you're out of the COBRA period, you comply with 409A by following the rules on fixed payments under1.409A-3(i)(1)(iv). Yes? No? Help!

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Randy:

I am really not sure of the facts of the situation as you presented it.

However, see PLR 9834037.

"If a plan maintained for retirees is merely a continuation of a plan maintained currently or in the past for active employees, then the retiree plan would not be considered a plan of deferred compensation because medical benefits would have been provided without the necessity of a retirement or other separation from service."

Don Levit

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Guest mjb

see rev rul 82-196 for exclusion of health ins premium of former employees/retirees. I thought amounts excluded under 105/106 were not subject to 409A.

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MJB, don't you ever rest?

You're correct that amounts excluded under 105 are not subject to 409A. However, we have discrimination issues, so the amounts I'm referring to are taxable to the former employee and not excluded from 105. Assuming that's the case, I believe that we can avoid 409A during the COBRA period, but must conform with 409A thereafter.

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