Leaderboard

We have customized forms, but it's hard to cover all of the possible scenarios and helps to figure out ahead of time what the participant wants, and the bacckground for that discussion is mostly in my head. Off the top of that leaking head, s/he can 1) take the policy as part of a distribution (taxable, but cumulative PS-58 costs can be recovered); the balance can be taken in cash in which case WH on the insurance must also be taken, or rolled over in which case you don't have to WH on the taxable part of the policy, 2) surrender the policy and add it to the other monies distributable and do what they want (but still, PS-58s are recoverable), or 3) buy the policy so the cash paid becomes part of the rest of the monies (but PS-58s are still recoverable). There is a twist on #3 where the plan borrows "a lot" of the money from the policy and the loan proceeds become part of the other monies, and the participant buys the stripped down policy and that payment also becomes part of the other monies, or, in a perfect world, they borrow just enough to leave the policy worth exactly the cum PS-58s, and then the policy is distributed effectly tax-free. They must understand that the stripped-down policy will probably require loan repayments to keep it going. Of course the agent understands all of this and can help explain. Bwa-ha-ha! Let me know if you need to see what the forms look like and I'll see what I can find. If is thankfully a very rare occurence these days.

Stop taking on new clients until you're caught up and providing the level of service to your existing clients that they (should) expect & deserve. This is one of those times to be glad that you have friendly competitors - you may reciprocate with them when they're in a bind.

It's a good question that comes up quite a bit. I posted some thoughts about the options on slide 31 here: 2022 Newfront Health Benefits for Domestic Partners Guide. With standard health coverage, all employers use some metric of the FMV of the cost of coverage (incremental approach or COBRA rate) for non-tax dependent DPs. That makes sense because the value of the benefit may far exceed the cost of coverage. That approach isn't as well suited for defined contribution arrangements like an HRA because that cost of benefits will never exceed the cost of coverage. So it's far better to have the benefits (reimbursements) taxable for the non-tax dependent DP with respect to an HRA. I haven't been able to fine any clear guidance supporting that taxable reimbursement approach, outside of the standard §104 and §105 principles for accident or health insurance. But the IRS goes hint at it in PLR 201415011. Regardless, that approach is definitely the industry norm, so I don't see it as being aggressive at this point.

And just for the record (sly grin as you see where this is going), "record-keeping" may or may not include "third party administration" functions. So they might keep track of the sources but not do compliance or 5500 work. I don't know but just wanted to give a warning so everyone doesn't run to Ascensus without understanding the whole picture.