Don Levit

Kirk: It would be interedting to know, Randy, the state in which the plan resides. Could you explain your rationale, Kirk, between whether the plan is self insured or fully insured? Would it be possible that the subrogation provision, regardless of how the plan is insured, would be preempted, due to the plan sponsor having the right to include the subrogation provision at his discretion? To not be able to include this provision may violate the sponsor's fiduciary responsibility to protect the financial liability of the plan, regardless of how it is funded. It is interesting that I came across this link today: http://www.groom.com/_library/SupremeCourt...rReview.pdf.pdf. It deals directly with this issue! One excerpt: "Great-West 534 US at 217 states, "An insurer's subrogation right is driven by the fundamentally equitable desire to prevent unjust enrichment, rather than to make the insurer whole through breach-of-contract damages." Don Levit

Randy: Thanks for the citations. I have located the cases, and will respond soon. Don Levit

Randy: It is a lot easier to discuss specific states and specific cases. Can you provide the citation for the Providence case? Can you list other cases? Would you like for me to introduce a few cases, and the appropriate excerpts? I believe one is far from SOL on this issue. Don Levit

Leevena: As I understand the FASB regulations, they do not deal directly with HRAs; rather, the concern is geared more toward retiree health benefits. I guess the rationale is that health benefits are not vested. The employer can terminate the plan as well. So, there was less concern for funding of current health benefits, than there was for future (retiree) benefits. In this case, of an HRA rollover, however, the employer's current liability appears to be lower, but in reality, it is not, because no actual set aside monies (in your situation) were accumulated. I am not an accountant, but I do wonder how the numbers would be reflected between the rollover amount and the balance of the employer liability? Don Levit

Randy: Because I am interested in the ERISA preemption issue, I have accumulated several cases dealing with state versus federal regulation of contract subrogation terms. This issue is far from settled in whether the plan contract terms would or would not take precedence over state law. The cases I have appear to suggest that the plan terms would, however, take precedence over state laws. Is there a particular court case, which arouses your concern? Don Levit

Assuming the balance is rolled over and unfunded, how might this "liability" show on the financial statements, according to ther new FASB law? Don Levit

GBurns: Thanks for adding this material. Also, look at today's Benefits Link, search the news. Scroll down to the story, "Bill Lets Fund Firms Give Advice on 401(k)s." Don Levit

As long as the disbursements meet the requirements of those 2 sections, there should be no taxable event. Is this what you are referring to? Don Levit

Folks: We had a very interesting discussion regarding this topic recently. The DOL issued Advisory Opionion 2005-23A, which deals specifically with our concerns. Go To: http://www.dol.gov/ebsa/regs/aos/ao2005-23a.html. Don Levit

George: I agree that the states regulate self funded MEWAs, as if they were located only in their particular state. Much of the rationale is probably based on the 1983 federal legislation, which provided for states to regulate these entities. The legislation provides much latitude, in that states may apply any and all laws to self funded MEWAs, as they apply to commercial insurers. There are elements of complexity and conflict here, however, in relation to other federal laws. For example, the trustees of ERISA plans must abide by the "exclusive purpose" rule. Trustees must discharge their duties for the exclusive purpose of providing benefits to participants and beneficiaries, and defray reasonable expenses of administering the plan. There are many federal court cases, including those of the Supreme Court, in which consistency of state regulation is required, when more than one state is involved. This consistency is more pertinent for self funded insurers, than for commercial insurers, for commercial insurers can more easily spread the costs, due to their larger number of policyholders. Also, commercial insurers do not have similar fiduciary responsibilities to their policyholders, as ERISA plan trustees have to their participants and beneficiaries. Don Levit

BenefitsLawyer (and others): Thanks for your comments. Let us assume that the MEWA is in 3 contiguous states and also meets all the federal requirements of a VEBA. Assume also this is one ERISA plan, in which the benefits, structure, and administration is consistent for each employer. How do you see each state as regulating the MEWA? Would their regulation need to be consistent, in order to minimize costs, while still adequately protecting the participants and beneficiaries? Or, would the regulation be whatever the state's guidelines are, as if the MEWA was located in only one state? Don Levit

While AHPs are not legal in all 50 states, they would be kosher, in my opinion, in 3 contiguous states. If you would like to learn about this arrangement, known as a multiple employer Voluntary Employees' Beneficiary Association, you can go to the IRS web site at http://www.irs.gov/irm/part7/ch10s12.html. And, yes, this would not only be an ERISA plan, but it would have some very strict fiduciary responsibilities, in order to better protect the participants. The employers would have to also be in the same line of business. Don Levit

mjb: I am not an accountant, but I have struggled through the FASB statements for public and private employers. From what I can gather, the liabilities for retirement medical benefits were detailed in footnotes, before these new FASB statements. Now, these medical retirement expenses are viewed very similarly to pension benefits. They will be considered as liabilities, so that the actual stock price of a publicly owned company will be affected by these expenses. gburns: As I understand the FASB statements, these retiree liabilities are to be paid over a period of time. If some of the participants are already retired, then the plan will generate current expenses. Don Levit

I agree with everything that WDIK wrote. It kind of reminds me of Oscar Wilde's saying that people know the costs of everything and the value of nothing. I started thinking, however, of the way people look at blessings, specifically those things that can be measured. How would y'all look at some of the "blessings" that WDIK cited, if they were suddenly lost, like a job? Would that be a curse, or just a different class of blessing? Don Levit

mjb makes a lot of sense. Medical benefits can be changed, or even terminated, once a year. There is no binding obligation for future benefits. However, the FASB rule regarding other pensions and employment benefits will go into effect in stages over the next 2 years. Employers, both public and private, will have to account for these benefits as liabilities. And, these liabilities would be amortized as current. So, although medical benefits are not guaranteed, they will appear on the financial statements as real liabilities. Don Levit

George: Whether short term or long term, do you believe that rollover HRAs are considered as liabilities on the balance sheet? Would your answer have any relation to the FASB rules regarding post retirement health benefits? Don Levit

gdburns: Exactly. The advisors were merely performing their roles as advisors, not fiduciaries. Consultants can give similar advice to individuals that are not even participants in an ERISA plan. The key to determining fiduciary status is discretionary authority or control over plan assets, not authority or control over plan participants. Don Levit

gdburns: Kirk supplied information about rendering advice to the plan, not to the participants. Don Levit

The main question to look at when considering whether one is a fiduciary, is whether one has discretionary authority, control and responsibility. Merely influencing decisions of trustees or participants does not give a financial advisor decision-making authority over plan assets. In short, financial advisors, as well as other service providers, if simply performing their usual professional functions, are not considered to be fiduciaries. Don Levit

I think the questions you pose are very valid. The HRA, IMO, is very similar to what gdburns expressed. It is like a self funded single employer plan, in that there is little or no accountability to the participants. How can one realistically set aside HRA funds, particularly funds that may be rolled over, if the expenses are paid on a current basis, only when actually claimed? This seems to be bordering on a Medicare-like fiasco, in which a pay-as-you-go- system is used to account for future liabilities. Don Levit

It may be possible to set aside this subsidy for the payment of benefits and/or administrative costs, without declaring it as income. Don Levit

Folks: Here is an interesting bit of information I just came across regarding "discrimination" in retirement plan contributions for employees. I wonder if this may be applicable to medical plan contributions for employees. It describes "burdensome contributions" for retirement plans. In code section 401, under (g) (all I have, at this point), it states, Sec. 1.401-3(d) of the regulations provides in part, If a contributory plan is offered to all of the employees, but the contributions required of the employees are so burdensopme as to make the plan acceptable only to the highly paid employees, the classification will be considered discriminatoryin favor of such highly paid employees. As a general rule, however, employee contributions of 6% or less are not deemed to be burdensome. Assume the employer provides contributions in equal amounts to all employees for medical benefits. Assume also that some employees will have to pay more than 6% of their compensation to pay the balance of the premium. Is this plan discriminatory? Don Levit

gdburns: A VEBA is a tax-exempt entity created to fund various benefits, one oif which is medical benefits. A VEBA may be established by an employer or through collective bargaining. As I mentioned, one of the unique qualities of a VEBA is that benefits can vary by contributions made. In reg. 1.501©(9)-2(a) it states, the allowance of different benefits based solely on differences in contributions is permitted, provided that those making equal contributions are entitled to comparable benefits. Don Levit

Larry M: I am suggesting a combination of plans 2 and 3 regarding "negotiable" premiums. We know with each employee having the same premium for group insurance for the same benefits, that if an employee (and employer ) pay that premium, they have the full benefits. By paying half the premium, they have half the benefits. In this way, employees can more tailor their coverage to their needs and their pocketbooks. I mentioned that the VEBA does allow for premiums and coverage to vary in this type of fashion. Don Levit

gdburns: I agree with you that it is the employer who negotiates, not the employees. How do you understand that group-type programs do not apply to single employers? Yes, it is used (or was used) primarily with associations, franchise, or blanket coverage. And, it certainly can be used for medical benefits. I have not seen in any of the state insurance codes that group-type insurance does not apply to single employers. In fact in several of the codes, this term is referred to as group OR group-type plans. The main point I am trying to make is that these plans can be structured differently, for one of the key components is that the plans are generally not available to the public. Seems like a ripe invitation for fully insured and self insured plan sponsors to put on their thinking caps. Don Levit