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Premium-only plan for retired Presidents


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Hi,

Background:

Our company has a cafeteria plan- the plan covers employees (=while employed) and makes no mention of retiree benefits. PPO Employee health insurance through a commercial insurance carrier is one of the benefits offered through the Caf Plan (which also includes, FSA, STD, Life, etc).

Our board is considering offering medical coverage to retired employees who have held the office of President of the Company (only; no other retired employees); no length of service in that capacity is specified (if that matters).

It's not decided whether the Company will seek any premium co-pay (contribution) from the retired President(s).

My thinking is that it is fine to offer this (albeit expensive benefit), which would be offered outside the caf plan, from the same provider as covers our employees. The policy would be (as specified by our current carrier) a Medicare supplement/secondary payer policy.

I'd like to contain this by offering only to the current retiring President, but confining the benefit to a particular individual seems discriminatory.

My concerns are: whether offering the benefit is legally discriminatory, that the Company is allowed the full tax deduction for the premium and that there is no 1099 income to the retired President(s).

Thank you in advance for your input.

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In a nutshell, traditionally, executive-only medical benefits were not subject to the nondiscrimination rules if the benefits were made through a fully insured policy. Now, under the PPACA, effective January 1, 2011, fully insured plans will be subject to the nondiscrimination rules (i.e., you can't discriminate in favor of key or highly compensated employees). The rules will not apply, however, to "grandfathered plans."

There are two issues to consider if you want the Presidents to pay for a portion of the premiums on a pre-tax basis (these wouldn't be an issue if the company pays 100% of the premium or the Presidents pay for it after-tax.):

1-A cafeteria plan cannot be made primarily for the benefit of non-employees.

2-You would have to pass the cafeteria plan nondiscrimination tests.

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Can a plan that didn't exist on the date of PPACA enactment be considered grandfathered? Or will the grandfather status be determined by a different date?

We still need guidance on what changes will stop a plan from being grandfathered and how long the grandfathering status will last even without changes (possibly forever?) but I recall (without checking the statute) that the plan has to be in effect on the date of enactment to be eligible to be grandfathered.

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Hello Chaz,

Thank you for your thoughts.

I'm going back to square one:

I can't find any authority for a corporate deduction for payment of medical premiums to retired employees except under Sec. 419/419A. Sections 419/419A incorporate non-discrimination requirements which the corporation will fail, by design, as this "plan" will cover only retired Presidents.

I don't think I can run the premiums through our Caf Plan, because once again, a (post-retirement medical premium) benefit would be available only to ex-Presidents, and then the Caf Plan would fail non-discrimination requirements, by design.

So- unless I'm overlooking something, the corporation could pay premiums (which would be non-deductible by the corp on its 1120) and issue a 1099-misc each year to each of the ex-Presidents.

But perhaps I'm overlooking something- like the definition of "employee" includes "retired employee"- then Sections 105 and 106 is all I need.

Thanks for any thoughts,

1x2

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