Steelerfan

a starting point to analysis would be whether or not there is a substantial risk of forfeiture to the CIC portion. If not, I'd think you'd have a problem with the rule in the final regs that says if there is any potential for a payment to be outside the STD exception, then the whole arrangement is deferred compensation. I don't understand the facts, the agreement says the second payment ocurrs 30 days after separation, but the CIC occurs well beyond that, so how do you meet the 30 day rule, or am I missing something? something this complicated should probably be made to comply with 409A.

409A's rules re controlled groups are there mostly to prevent an employee from terminating from a company, taking a distribution and then taking a job with a related employer. It doesn't care specifically who sponsors an arrangement, etc. Another considerations is FICA taxes on vested benefits. generally the entity for whom services are performed withholds FICA. My cursory understanding of the rules tells me that payment will have to be treated as made by corp 1 even though "funded" by corp 2. The IRS calls this fiction "triangulation", in order to "impute" the expense to the organization for whom services are performed. I have a feeling you can do what you want, but I don't know all the ins and outs of how to account for it, etc.

she didn't say anything about a rabbi trust.

there are more issues that 409A. I think Harry O is on the right track. Rev rul 84-68. corp 2 would be considered by the IRS to have made a capital contribution to corp 1 and a constructive payment by corp 1 to the employee. corp one gets deduction. but don't quote me on that.

A §501©(9) organization must pay tax on its gross income unless that income qualifies as exempt function income. If income on post retirement medical reserves is not exempt function income, how can it escape taxation? RIA says the following: "The limit on the amount set aside as exempt function income does not include a reserve for post-retirement medical benefits because, in view of the advance deductions provided to employers for these benefits, the allowance of the tax-exempt reserve would provide an unnecessary tax incentive with respect to these benefits. RIA observation: Because reserves for post-retirement benefits are not tax-exempt, the funding for the benefits is entirely from after-tax money." anyone care to comment on what that means? Is the income from post retirement medical reserves taxed (period) or just potentially "subject to UBIT"?

OP said he doesn't want to "give away the benefit."

512(a)(3)(E)(ii)(I) any income attributable to an existing reserve for post ret med is not exempt function income. that's why the insurance industry has bent over backwards to find tax exempt investment vehicles to place inside a VEBA (ironic isn't it since a VEBA is thought of as tax exempt). As has been fleshed out here recently, one industry insider (?) on the board has verified that the use of VEBA is resting largely on it's perceived need for FAS 106 rather than any real tax purposes. to your point, i'm not entirley sure what tax rate would apply for UBIT. But if you have TOHI who cares?

The statute indicates that all funding for post retiree medical is subject to UBIT. Employee pay all is irrelevant--the idea is for the employer to prefund the benefit FAS 106 seems to be the remaining thorn. Not sure yet about that.

thanks for your input. with regards to number 3, my thinking is that a taxable welfare benefit trust would be regarded as a funded ERISA welfare benefit plan. As such, I'd think that the assets cannot revert to the employer and would not be subject to creditors. I could be wrong, but it's not a grantor trust so why would the assets have to be subject to general creditors? I'd think (and I'd strongly argue) that this would be like a vested employee trust. I'm not an accountant, but I was under the impression that the rules provided that if the liability was transfered to a third party, such as a trust, that was sufficient. There seems at times to be a fascination with VEBAs bordering on obsession (no offense). Not that it's your job to convince me otherwise, but I'm still thinking that it would be a heck of a lot better easier and to administer a taxable trust. (despite Don's glowing remarks about creative benefits)

thanks, the irs finally provided the form. I wish everything was as easy as this was.

Not with respect to funding for post-retirement medical. I'd think you could be creative with a taxable trust--still don't see what a VEBA gives you unless you like the snazzy acronym.

I think jpod was right, it's for an omnibus plan of a public co. and there is an S-8 already out there. Maybe there's more of a question if the company isn't public, I don't know.

PA changed this rule basically at the same time of the effective date of 409A. I'm referring here only to the source tax rule, not the 2005 change of the timing of taxation of nonqualified salary deferrals to align with federal timing rules.

It seems like it would just be much easier if it's possible

Thanks for your input. The continued discussions in these threads always leads me back to the same question/conclusion. the underlying assumption always seems to me to be faulty--that assumption being that a VEBA is the only way to do this. If you need to use TOHI to shield from UBIT, then why use a VEBA in the first place, why not use a taxable trust? Contributions to a taxable trust are tax-deductible under 419/419A and there are less adminstrative burdens. There seems to be a misconception that VEBA trusts are like qualified plans in the sense that you have to have one to get the tax deduction. Can you demonstrate how using a VEBA is necessary or provides any benefit over using a taxable trust if you are using a tax sheltered product like TOHI?