Don Levit

What about this scenario: Employee has a separate individual policy which maxes out at $50,000 of benefits. Employee wants to keep the employer plan, but take the savings in family premiums (about 80%) by raising his deductible to $50,000, to put into his 401(k) at his employer. Is this a taxable event? Don Levit

On page 10, it states "PPACA also reinsures insurers in both the individual and small group markets against the risk that their medical costs will be greater than 103% of expectations." It cites in the footnote section 1342. Does that mean the government is the reinsurer over 103% of expected claims, and that premiums are paid by general revenues? It seems like the government is going to subsidize insurers in the small and individual markets, but not the large group market. I wonder why? For those large employers who buy insurance, that seems to be a "bummer." And, for those who self insure, thjey have to buy stop-loss, instead of having the government be their reinsurer. Don Levit

Thanks for providing your experiences. I can cite the regulation, but you seem familiar with it. Former employees need not be retired or on COBRA. They can be disabled, laid off, or merely those who formerly had an employer-employee relationship. This provides an opportunity for creative health care planning. For example, if an employee had a limited benefits plan with his prior employer, which provided benefits up to $50,000. By continuing this plan, the former employee joins his new employer's plan, and if he has the full $50,000 of benefits, increases his deductible on the new employer's plan to $50,000. Thus, he can save about 70% off of the traditional group premium. Don Levit

I have a short answer, which may provide some insight. Employees include former employees. Thus, section 106 could apply. Don Levit

Maybe he'll post the audio on you tube. Don Levit

Yes, me too. Don Levit

Folks: With the passage of the new legislation, will ERISA lose some of its applications, particularly in regards to this posting? In addition, does anyone know if a group plan could be split between individual policies on the exchange and traditional group policies? Don Levit

Leevena: That sounds as good a reason as any. However, I wonder why other group coverage is honored as meeting the participation requirements, but similar individual coverage would not? Don Levit

Leevena: I agree with what yous aid about the participation limits. My experience has been that individual policies are not counted as coverage in force. Any theories as to why? Don Levit

Folks: In a letter from the CBO which I found on today's Benefits Link, the director, Douglas Elmendorf, responds to the questions posed of "CBO's analysis of the effects of the Patient Protection and Affordable Care Act (PPACA), as passed by the Senate on Dec. 24. In particular, the effect of the legislation on the Hospital Insurance (HI) trust fund, from which Medicare Part A benefits are paid." "Gross federal debt consists of debt held by the public and debt issued to government accounts. Debt held by the public is the most meaningful measure for assessing the relationship between federal debt and the economy because it represents the amount the government has borrowed; such borrowing competes with other participants for financial resources. In contrast, debt held by trust funds represents internal transactions of the government and thus has no effect on credit markets." "Enacting PPACA would increase debt held by government accounts more than it would decrease debt held by the public, and would thus increase gross federal debt. However, that measure of debt conveys little information about the federal government's future financial burdens and has little economic meaning. In contrast, the effects of legislation on debt held by the public offer a more useful measure of that legislation's impact on the government's financial condition." I agree with this analysis in the short run. However, in the long run, as the various trust funds are depleted, the intragovernmental debt will evolve into public debt, with similar effects on competition for financial resources. Intragovernmental debt, for today, is "good debt," but eventually, it will be treated like "bad debt." This accounting of debt goes against my grandfather's sound philosophy,"What you own, you may not own. What you owe, you owe." Don Levit

Drake: Thanks so much for this material. Don Levit

David: Can you tell me who may have originated that quote? Also, do you know the context in which it took place? For example, what democracies was he or she referring to? I plan to use this in a "sermon" i am giving at my church on Sunday. Happy new year to you and all involved with Benefits Link. Don Levit

I am also very thankful for Benefits Link. I feel like we are a team. Maybe that's because I am a little sentimental. I even feel very fond of George Burns. He is probably one of my 10 best friends. Don Levit

David: That is an apropos quote, not only from the collecfive standpoint, but also from an individual perspective. It is part of our nature to vacillate between our best and worst selves, and everything in between. We need to make bondage part of our minority and spiritual truth as part of our majority. In today's environment, spiritual truth is not much part of our collective way of thinking, speaking, and acting. If an election were held today, bondage would win hands down. Spiritual truth will set us free, but first, it will make us miserable. Instead of deferring the misery through debt and overspending, we need to work through it. All we can do is our parts, bring others along, and hope that we are on the right track. Don Levit

You two are making a lot of sense. I share many of your concerns, not only about trust funds and the pending health legislation, but also how social insurance has been utilized up to now. We know that the trust finds for Social Security and Medicare are not like trust funds in the private sector, or like the trust funds for state employees. The private sector trust fund is a separate account that is supposed to be used fpr the exclusive benefit of the participants. Not so with Social Security and Medicare. "The government does not set aside assets to pay future benefits or other expenses associated with earmarked funds (payroll taxes). The cash receipts collected from the public for an earmarked fund are deposited in the U.S. Treasury, which uses the cash for general purposes. This is from the Fiscal Year 2008 Financial Report of the U.S. govewrnment, page 96. Go to: http://www.gao.gov/financial/fy2008financialreport.html. From Accounting for Social Insurance, Revised published by the FASAB, which develops accounting principles and standards for the U.S. government Page 85 - Social insurance is not an employee benefit. The accounting methods for employee retirement benefits reflect the fact that employees voluntarily exchange lower wages during their working years to receive certain future benefits. Suich an exchange does not occur with social insurance benefits. Page 87 - A non exchange transaction arises when one party receives value without directly giving or promising value in return. In regards to social insurance benefits the federal government gives value to beneficiaries without receiving value in return. The fact that benefits paid are not based on the amount of taxes paid confirms the nonexchange nature of social insurance. Go to: www.fasab.gov. Click on Exposure Drafts and Documents for Comment. Don Levit

Thanks for providing these links. I particularly thought the one about California was interesting when one of the interviewees said that it made no difference if the pension fund was solvent or not. The taxpayers are going to have to make up the difference. I was under the impression that pension benefits were funded to a great extent. Rather, it was the retiree health benefits that were funded on a pay-as-you-go basis. Maybe the problem is much worse than I thought. Don Levit

Esther: According to Notice 2003-20, "Federal unemployment taxes do not apply to service for a state or local govenment entity because sec. 3306©(7) provides a FUTA exemption for service performed in the employ of a state or any political subdivision." "To the extent a section 457(b) plan provides that annual deferrals are immediately vested they are subject to Social Security and Medicare at the time of deferral." "If amounts deferred under a 457(b) plan are properly taken into account as Social Security and Medicare wages when deferred, the amounts subsequently paid that are attributable to those deferrals generally are not subject to Social Security and Medicare taxes. If an amount deferred for a period is not properly taken into account, distributions attributable to that amount , including income on the amounts deferred, may be wages for FICA purposes when paid.' I still do not know if these deferrals are referring only to elective employee deferrals, as opposed to employer contributions. Don Levit

Esther: I can't comment on 457(b) specifically, but according to Publication 15, Employer's Tax Guide, on page 35, employer contributions to a qualified plan are exempt from Social Security and Medicare taxes. Now, if these were elective employee contributions or employer contributions by a salary reduction agreement, Social Security and Medicare taxes are due. On page 30, it states, if Social Security and Medicare taxes were underpaid, the employer can make it up from later pay to that employee. But the employer is the one who owes the underpayment. Go to: http://www.irs.gov/pub/irs-pdf/p15.pdf. Don Levit

I believe the Fringe Benefits publication of the IRS will answer your question. Don Levit

Catherine: See Title 29, Chapter 25, Part 2510, section 2510.3-2. Don Levit

Janet: That is very good. Are any of these your own creation? I've never been so happy since I realized how miserable I am. Don Levit

To be content with little is hard; to be content with much, impossible. Baroness Marie Von Ebner-Eschenbach In the end the great truth will have been learned, that the quest is greater than what is sought, the effort finer than the prize, or rather that the effort is the prize, the victiry cheap and hollow were it not for the rigor of the game. Benjamin Cardozo

David: That is not entirely true. They do typically abide by the FASAB, which is an organization that does similar advisory work to the FASB and GASB. Don Levit

Folks: I assume most of you are aware of our total debt situation, which amounts to around $12 trillion. About $7 trillion is public debt and $5 trillion is intragovernmental debt (debt the government borrows from itself, such as through Medicare and Social Security). The interest on the public debt is a current expense. Interest on intragovernmental debt is postponed until the various trust funds expire. This occurred within the Medicare Hospital Insurance Trust Fund last year. Until that time, the loans were "interest free." The principal on neither debt is paid back, unless we have a budget surplus. Why does the principal debt not grow, if principal is not paid back? Don Levit

That is correct the Social Security trust fund balances are no more than numbers on pieces of paper. The funds are exhausted when the numbers hit zero. But, that does not mean hard assets are backing the promises, only soft assets based on the full faith and credit of the U.S. government. Apparently, in 1938, the Advisory Council for Social Security was concerned about "payroll taxes not being credited automatically to Social Security, but first go to the Treasury's general fund. When Social Security was created, it was thought constitutionally correct to separate legally the taxation and benefits. We believe such legal separation is no longer needed, because the taxes are contributions to finance the benefits. It is logical and expedient to autiomatically credit the taxes to the Social Security trust fund." One of the recommendations was that "the receipt of the taxes levied in Title 8, less the cost of collection, should through permanent appropriation be credited automatically to an old-age insurance fund and not to the general fund for later appropriation to the account. It is believed that such an arrangement would be constitutional." http://www.ssa.gov/history/reports/38advise.html. Don Levit