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?

could he temporarily change himself to an accural basis tax payer? In that case, he and the corporation could treat the salary as a current expense, pay the income and FICA, etc. taxes and then receive the cash later; the corporation would get an immediate deduction. 409A would not be an issue since you are not deferring taxes.

Unfortunately, in my experience, Minn is coming into company with the majority of states that apply what is call the "source" tax rule. E.G. In PA, they seek to tax any compensation earned in the state regardless of when it is paid; NY, DE and many other states have similar rules. You can be caught off guard easily. the 10 year rule is there because of the federal statute that exempts from state source tax rules the taxation distributions from nonqualified plans that pay out in at least 10 years. I was depressed when I saw this because I always hope the source rule will go away some day. I know of no source that compiles this data in any easy to access format, I have had to research each state's law separately and each time it is like entering the mind of a madman to figure out what heck they are doing.

It normally would as a practical matter since the provider's payroll wouldn't likely be set up to handle deferrals into the plan

If the payment trigger is separation from service and the six month rule pushes you to the end of the year (4Q), I thought the regs gave the flexibility of paying no later than the 15th day of the 3rd calendar month after the earliest date payment could be made. not sure if there really is a constructive reciept issue. this looks like a rare instance where we actually have a post LBR choice as to tax year. I could be wrong but I think the IRS has basically "given" us a one year pass for many situations, one being the short term deferral rule and another other being the "late in the year" payment rule.

this blurb from bna is helpful. It 's in the context of mergers, etc., but is generally applicable. I could be mistaken (its been a long time since i read it), but I though some cases declared that although erisa doesn't require welfare benefits to be vested that if a plan provided for vesting, then benefits were vested for purposes of erisa. "The buyer may be limited to the extent to which retiree healthcare benefits may be curtailed or eliminated in the future. Although employer promises to pay retiree health costs are not subject to statutory "vesting" provisions, 386 such benefits may be vested as a matter of contract law. 387 In addition, even if such benefits are not vested, the modification or elimination of such benefits may be difficult as a practical matter given the adverse publicity and impact on employee relations frequently associated with any such action. If the workforce is unionized, the buyer's ability to eliminate or curtail retiree health benefits also may be limited, due to a collective bargaining agreement, 388 or the union's refusal to negotiate reduced benefits for future retirees and the inability of the union to negotiate on behalf of former employees. Also of note is the Retiree Benefits Bankruptcy Protection Act 389 which generally precludes an employer which is in Chapter 11 bankruptcy from unilaterally eliminating retiree medical coverage during the pendency of the bankruptcy proceeding." See, e.g., Curtiss-Wright v. Schoonejongen, 514 U.S. 73, 18 EBC 2841 ( 1995). 387 See, e.g., In re White Farm Equipment Company v. White Motor Corp., 788 F.2d 1186, 7 EBC 1411 ( 6th Cir 1986), In re Unisys Corp. Retiree Medical Benefit ERISA Litigation, 58 F.3d 896, 25 EBC 2105 ( 3d Cir. 1995). 388 See, e.g., UAW v. Yard-Man Inc., 716 F.2d 1476, 4 EBC 2108 ( 6th Cir. 1983).

(regardless of vebas issues) many employers are locked into continuing post retirement medical because the plans themselves were found to have created vested benefits under ERISA. Absent bankruptcy, there is no way out I know of if benefits are found to be vested. Other than that, I agree they are generally forfeitable.

I agree, that's what I was getting at with the completely exempt (not a plan) vs partially exempt (top hat). The irs guidance i've seen in this area refers to ERISA's requirement that a pension plan (paraphrased) "systematically defer income to retirement or beyond." If the plan would pay out during employment, it might not be a pension plan subject to ERISA. That's the rationale the IRS used in ruling that employee stock purchase plans are not subject to ERISA. But more fundamentally, and probably more importantly, the issue (raised by FGC) is actually one layer deeper than whether it is a pension plan--that is whether it is really a "plan" at all that requires some form of administration other than simply paying out money at some time (the Darden case). If a company agrees to pay x an amount of money at retirement, it might not be a "plan" for purposes of ERISA if there is little or no administration. But how much administration can exist before it becomes a "plan" is always the snafoo. I'm sure the cases cited above would go a long way in pinning down how OP should treat this, but there may never be the certainty you would want. I know in the banking industry they do a lot of one off agreements for individual retirees that are not treated as ERISA plans, maybe in some cases they should be subject to ERISA, who knows!?

My guess is they never filed a top hat plan registration statement and thus would like for the arrangement to be completely exempt from ERISA instead of mostly exempt. If the plan is ERISA-covered, it could be a disaster if the employee isn't in the top hat group, but then there is a lot of hidden risk out there in that regard anyway.

The issue is whether or not the interest in the plan is a security, and if so, you must either register or satisfy an exemption. It is irrelevant whether the empoyer is publicly held or private. Many continue to take the position that top hat plan interests are not securities that require registration or an exemption because the participants are sophisticated investors and do not need the protection of the securities laws. that being said, if you want to be conservative, you can assume they are securities (if there are voluntary employee deferrals) and explore which exemption you want to use, there are more than one--sorry can't help you with that.

Is telecommuting too far outside the box, or too inside the box?