Don Levit

erinf: Could you tell us a bit more about what the employer wishes to accomplish? I thought Leevena's suggestion was a very good one. Instead of making refunds or asking for additional contributions, the employer can adjust the benefits once a year. If the premiums paid were excessive, the benefits can be reduced the following year, or vice versa. If the empoyer wishes to reward or penalize employees individually based on claims, he can do so through increasing or reducing their individual HRA balances. Don Levit

Nini: You may want to check out the Federal Register for Dec. 13, 2006, Part 3, Nondiscrimination and Wellness Programs in Health Coverage in the Group Market; Final Rules at http://edocket.access.gpo.gov/2006/pdf/06-9557.pdf. On p. 75034, it states under Example 4: "Imposing additional eligibility requirements on former employees is permitted because a classification that distinguishes between current and former employees is a bona-fide employment-based classification that is permitted, provided that it is not directed at individual participants or beneficiaries. It is permissible to distinguish between former employees who satisfy the service requirement and those who do not, provided that the distinction is not directed at individual participants or beneficiaries. However, former employees who do not satisfy the eligibility criteria, may be eligible for continued coverage pursuant to COBRA or similar State law." Don Levit

Nini: Can you give us some insight on how the employer wishes to distinguish the two groups? For example, length of service would seem to qualify, such as those employees serving for 10 years or more would qualify. Also bear in mind that the recent HRA rollover provisions suggest that low users of medical expenses would have more available in their HRA accounts, as long as the contributions per employee were equal. Is the employer willing to consider something other than an HRA for retiree benefits? I am thinking of a trust in which former employees make contributions. Don Levit

Belgarath: You're right, it is a pre-Easter miracle. It is akin to when the Jews crossed the Red Sea, as they escaped the oncoming Egyptians! Shalom, Don Levit

Belgarath: How long did it take you to come up with this? Anything less than two hours of active thinking would border on the miraculous. Don Levit

Gary: The discriminationm rules for a VEBA depend on whether or not the benefits are deemed "income replacement benefits." These benefits are designed to protect against a contingency that interrupts or impairs earning power. Examples would be life insurance and death benefits, disability benefits, and severance benefits. The safe harbor guidelines applicable to income replacement benefits provide that a benefit may be offered as a uniform percentage of compensation of employees covered by the plan. If highly compensated employees are offered a benefit that is a greater percentage of compensation, or if the benefit is offered with more favorable eligibility conditions to hces, the safe harbor guidelines will not be met. Benefits that are not income replacement benefits include any benefits that are not provided as a substitute for wages during a period of interruption or impairment of earning power. Examples would include medical and dental benmefits. The uniform percentage of compensatiuon is not applied for these benefits. Instead, they must be offered in equal amounts under equal terms, eligibility requirements, and conditions, without regard to salary, position, or ownership interest. Don Levit

JS: Is it your opinion that constructive receipt applies, because the health insurance benefits were currently available? If yes, would constructive receipt apply if the health insurance benefits were available, only after the employee retired or left the employer? Don Levit

mjb: Do you have the citation for Express Oil Change v IRS? Don Levit

Harvey: I think your suggestion is a very creative one. If I understand you correctly, there are 2 section 125 agreements. The first gives the employee the choice between cash and health insurance premiums. If the employee chooses cash, the second 125 agreement gives the employee the choice between cash and 403(B) contributions. Is that correct? Don Levit

lexi: I am curious how a state can legally require private employers to contribute to a pension plan, when ERISA clearly states these plans are voluntary on the employers' part? Just wondering, are the contributions a percentage of salary? Don Levit

J Simmons: Are you saying that those with different deductibles would be treated uniformly, for in essence, they have different benefit packages? Therefore, as long as employees with the same deductible are charged the same premium, there is no discrimination? For example, an employee chooses family coverage with a $500 deductible, and his premium is $1,000 a month. A second employee chooses a $25,000 deductible, and his premium is $500 a month. If the employer provides a $1,000 a month benefit, could the employee with the $25,000 deductible put $500 a month into his 401(k) without violating the discrimination rules? Under your example of the high deductible/low premium option and the low deductible/high premium option, if the employer subsidy was the same for all, would this be discriminatory? If the subsidy was higher for the low deductible option, would this be discriminatory? Don Levit

Gary: For an excellent summary on VEBAs, go to: http://www.irs.gov/irm/part7/ch10s12.html. In regards to discrimination, what type of benefits are you dealing with? Are they self insured or fully insured? Don Levit

J Simmons: Would it be discriminatory if the premiums charged were in direct relation to the deductible? For example, an employer offers a plan with the same benefits for all, but deductibles vary in $1,000 increments from $1,000 to $50,000. The employee choosing the $1,000 deductible pays a premiumn which is 60% higher than the employee choosing the $50,000 deductible. Is this discriminatory? Don Levit

J Simmons: This is very interesting. Are you saying that the premiums the employer charges cannot be based on the difference of any health factors, yet the portion of the premiums being paid by the employer is relatively discretionary? Don Levit

J Simmons: You are correct that the firm may have offered a group plan using individual policies. How may the firm carefully navigate this area, so as to not violate laws using individual health policies? What acts taken may have violated the laws using individual policies? Don Levit

americasVEBA.com: I guess I didn't make myself clear. Assume we have an employee-pay-all VEBA, which provides a self-funded health insurance plan. The funds for the benefits come from 2 sources: (1) the premiums the employee pays into the VEBA and (2) similar contributions into an outside savings account, such as a a Roth IRA. Starting in year 2, the VEBA provides a match for all qualified medical claims, such as all 213(d) expenses exceeding $5,000. Example: Employee pays in $2,000 into the VEBA and $2,000 into the Roth IRA each year. Year 3, his Roth IRA balance is $5,000. The VEBA match is $4 that year. He is covered for $25,000 in qualified medical expenses, of which $5,000 comes from the Roth and $20,000 from the VEBA. Don Levit

americasVEBA.com: You're right. I was focusing on the medical expense reimbursement, while forgetting about the premium reimbursement. If we are looking at a self-funded employee-pay-all VEBA , without the premium reimbursement feature, do you think the VEBA may be a way to pay medical expenses, by offering a match (similar to a 401(k) match) of one's (outside the the VEBA) savings account balance? Don Levit

americasVEBA.com: Thanks for providing the link. I don't see, though, how the ruling on HRAs has any bearing here, other than neither the HRA nor the VEBA can be used as a savings vehicle. ScarletKnight: Does the VEBA provide some sort of cash benefit, in the event all the medical expenses are not used? If that is the case, you may want to look at setting up individual savings accounts outside the VEBA. By providing matching dollars from the VEBA based on the participants' savings account balances, the plan may pass the legal guidelines. Don Levit

Leevena: I wonder how this lasering of the deductible gets past the discrimination issue? Is it due to the stop-loss carrier being a "nonregulated entity" for health insurance purposes? Don Levit

Ira: There is little I would add to Leevena's excellent reply. The plan sponsor can establish maximim benefit limits , as long as they are uniform for all participants and beneficiaries. I have learned about lasering from another chat group I am in. I understand the insurer could increase the deductible for only the renal transplant employee, in the amount of the anticipated expenses for the following year. Or, alternatively, the group could absorb the increased cost. Don Levit

Mike: Do you know how the Individual Retirement Account was named? Don Levit

Ira: If no regulations are applicable, how can you say that this can be done? If it was a conversion policy, it would make sense. Aren't you a bit concerned about the legalities of the arrangement? Don Levit

Ira: Would the retiree only plan be considered a group plan? If fully insured, would health need to be proven? Could the insurer offer this to only those employers who request this type of plan, or would it have to be made available to all employers in the same size category (large or small)? Can you cite any regulations to back your premise? Don Levit

SHaddon: What state are you in? Is this a large or small employer? Must the insurer offer a similar program to small and/or large employers? Don Levit

SHaddon: Are you saying that the insurer is willing to offer the same policy for retirees that it offers to active employees for up to 9 years after retirement? I have never heard of this option before? Why would the insurer do this? I guess, the insurer would simply blend the rates, which would tend to make it more expensive for the active employees? Is there a specified period of time the employee must work for the company, before he is considered an eligible retiree? Don Levit