GBurns

Don I am aware of very very few MEWA success stories but know of many failures etc. Would you care to list a few of these success stories ? And while you are looking them up, keep an eye out for the failures and catastrophies. As far as I have seen the failures so dwarf the successes that the successes are not worth relying on. But I am curious to see what causes your support. Ia lso would like to know more about states "requesting ERISA waivers".

Does anyone know where the people responsible for employee benefits programs go to get or discuss ideas on how to reduce or contain employee benefits costs? I would think that there must be some Forum, Newsletter or Conference etc where ideas and experiences are discussed and exchanged. Otherwise it would seem that they operate in a vacuum and only know what the providers tell them or steer them towards. If they only go by what is published in the popular media then all they would be getting is what the provider and agents (consultants) are trying to create buzz about. I have been looking and asking, but there seems to be nothing.

While I was asking, someone at The IRS said that most involved municipalities using a VEBA and so if I searched their minutes I would see mention of the issue. At that time nothing was showing using search tems such as "IRS HRA city" or "IRS HRA VEBA city" etc. But this week the situation seems to be changing as Google etc starts indexing those pages. So try a search on Google. Minneapolis and Anaheim seem to have been among the affected.

It seems that this particular HRA promoter is very large and very well connected and so is being protected from disclosure. So far, everyone that I have spoken to, at the IRS, has taken the same position that the closing agreement etc prohibits them from disclosing the name or geographic area etc of the promoter. It is strange that they took a very different approach with KPMG, E&Y, BDO etc when going after BOSS, Son of BOSS and those other tax shelters. In these cases not only were the details of the agreements made public, but even some clients were conveniently disclosed. The COLI cases were also similarly treated. They do admit that there are clones of that promoter's plan design, but seem unwilling to issue warning press releases about the investigations etc as they did so very often regarding not only the above mentioned, but also about the double-dipping arrangements that caused RR 2002-3, 2002-80 and subsequent prosecution. I find it very questionable behaviour.

I have also been trying, with no success as yet, to find out who this HRA provider is or any of the governmental entities involved. It is disturbing that even if the IRS, for whatever reason, thinks it prudent and proper to protect this provider of what seems to be either illegal or abusive transaction promoting, they should, at the least, state what was wrong with the plan design or plan operation. How else will the public know what to avoid? To compound the issue, there seems to be other providers of such improper plan designs. How many of these were simply cloning the initial larger provider? Or are there other plan designs that are also improper? Without giving more details, the IRS is simply fostering more such plan designs or copying.

I cannot see what benefit and employee would gain by contributing to a MERPon an after tax basis. Can someone (leevena, in particular) please explain? Also Why would an employee contribute to a MERP where "the unused employee contribution would be forfeited to the employer"?

mjb Are you seriously saying that there is no difference caused by or between the benefits provided? If the benefits provided under a VEBA are a SUB, a 401(k) and a medical expense reimbursement plan and the MERP provides the benefits through a BCBS insurance policy, are you saying that it means that the VEBA is fully insured rather than that it is the MERP that is fully insured? Are you also saying that because the MERP is fully insured, so is the 401(k)? You said there is no difference. Since SUBs are usually self funded (self insured) does it now become regarded as being fully insured since the larger benefit the MERP has caused (in your interpretation) the VEBA to be fully insured, which would be the case since you see "a distinction without a difference"?

Don Nowhere in the Bulletin or State Law does the texas DOI make any claim regarding ERISA or the creation of an ERISA plan. It very clearly states that the issue is "that an individual or group health benefit plan[1] is a small employer health benefit plan ". How is the issue of the creation of an ERISA plan relevant?

jacmo What funds would be in this trust?

I would interpret what you described as being that the benefits were fully insured not the VEBA. In fact the program of benefits/benefits plan is what is fully insured not the VEBA. Additinally, is it not that the VEBA provides the funds that the benefits plan uses under the terms of coverage of that benefits plan rather than the VEBA paying the benefits?

How does a VEBA get "fully insured"? As far as I know, a VEBA cannot be fully insured nor can it be self insured, It is the underlying benefits plans that can be either fully insured or otherwise.

Don Paying for individual health premiums on a pre-tax basis is not the same as what you stated in your post where you had the employee being reimbursed via a tax free salary reduction for premiums paid. This is very different from from a pre tax reduction that is used as premium payment as has always been the practice in POP cafeteria plans. Reimbursing pre taxe salary reductions are not allowed as explained in RR 2002--3 and the new Propsed regs make no change to that. Rev Ruling 61-146 referenced in the new Proposed Regs has no pre taxing of premium. Regulations whether Proposed or not are not law. They are explanations of the interpretation of existing law. Laws allowing the pre-taxing of individual insurance coverage premiums have always existed. Aflac, Colonial, Allstate AWD etc have for decades sold millions of individual accident and health plans on a pre tax basis. So have many traditional health insurance companies. Texas is not the only state that has Small Group Health Insurance regulations that prohibit both List Billing and reimbursement of premiums by the employer. This prohibition is also connected to the pricing, eligibility and other aspects of the health insurance laws. I doubt that any law change by the IRS can force any change in state insurance law. That is why the enactment of section 125 did not and could not compel sates to allow the salary deduction and even after 25 years there is still at least 1 state that still does not give the tax break that the IRS does. The same situation ocurred with HSAs and you can see the progress of the sate legislation in the pinned section of that Forum. What the IRS does, does not necessarily make a State do anything.

I always thought that the VEBA was a funding medium only and that the benefits available are provided not by the VEBA but by the underlying plans that are funded through the VEBA. Yet I keep seeing people like Don treating VEBAS as if they were benefits plans (medical plans, DB plans etc). Can someone please opine?

But what does that have to do with what Linda posted? As far as the Proposed Regs go I do not see anywhere where an employee can pre-tax and also be reimbursed for individual coverage premium. Think about it, If for example the employee paid a $100 premium directly to the insurance company, How much will they be allowed to pre-tax? If $100 the employee will have a salary reduction effect of lets say $87 ($100 less taxes), which will be the amount available for eimbursement after the employee substantiates that $100 was previously paid.Upon review I realized that this analogy was in error, but deleting it not seem like the proper method of correction.) Is this a benefit that many employees will even want? If on the other hand the Proposed Regs (which do reference RR 61-146) means that the employe can pre-tax an amount which is forwarded to the insurance company as premium payment just like any other POP cafeteria plan pre-tax insurance premium, then I can see employees considering this useful. I also see the application where a Benefits Credit from the employer being used for individual coverage premium payment or being used for reimbursement of a sunstantiated premium payment. The difference in both cases is that the employee is not being reimbursed that which they pre-taxed. Also, I see nowhere in the MA program where any reimbursement is contemplated, so I see no similarity with your scenario.

Don I must be missing it, but what tax concerns did Linda have, and where were they addressed in the new Proposed Regs? Where is something like the Connector addressed?

The traditional "construction industry VEBAs" that I have seen, all have accounts and sub-accounts. Without accounts, How would they determine funding needed? How can they monitor useage? How would they know if any SUB is available if there is no limit on the amount spent on Training, for example? I cannot imagine the plan operating with no limits on each segment. Otherwise the money could be overspent or unwisely spent on one item leaving no money for anything else. If there are limits, I cannot think of how they would monitor them without accounts of some sort.

I am really confused by your response. " all MERPS are FSAs or HRAs", in my mind should have been all FSAa and HRAs are MERPs, since they are all Medical Expense Reimbursement Accounts and not the other way around. All apples and oranges are fruits not the other way around. "I've never seen a commercially-insured MERP". Aside from what Exec-U-Care etc sells, I have never seen one either, and I doubt that any other reader has either, so I wonder what you mean. Then if your first paragraph is true, How can you then state in your 4th paragraph that: "Of course FSAs and HRAs have everything to do with MERPS. I believe we all understand that those are types of MERPS". Which is it "all MERPS are FSAs or HRAs" or "that those are types of MERPS" ? What seems to be the real problem is that we seem to have two very different sets of definitions (interpretations) for what the terms MERP and HRA means and what they are commonly or should be used for. I use MERP as explained in Treas Regs 1.105-11 and HRA as per the IRS Notice and Ruling issued in June 2002. That means that to me, an HRA is a MERP with a rollover option, so as to differentiate it from what had already been in fairly common use. Technically, I guess it could be said that they are one and the same, with features dependent on Plan Document. But that still means that HRAs are MERPS set up as per section 105. In addition, I have never seen or heard of anyone ever setting up a MERP or HRA based on 105(h). I have always seen them set up as per 105 and operated so as not to violate 105(h). A very big difference. The way you are stating it is similar to saying that someone should set up their health plan as a HIPAA or COBRA health plan rather than setting up a health plan under 105 and 106 and operating that plan so as not to violate HIPAA or COBRA.

Don I do not understand why you keep having this concern with Death Benefit and payment to survivors, there was no such suggestion by the OP that the money set aside in this "HRA type" segment would be used for any such purpose, that I can see.

I do not see where the issue of HRA rulings have any relevance to your situation. What you explained in your OP is something that I see very often over the years. Is your situation any different from the situation outlined in PLR 200007021? http://ftp.irs.gov/pub/irs-wd/0007021.pdf

taxesquire Section 105 MERPS do not have to be HRAs, but HRAs have to be section 105 MERPS. HRAs are section 105 MERPS with features that were not frequently used prior to Revenue Ruling 2002-41 and Notice 2002-45. There were no new or amended IRC sections nor Treasury Regulations. Why not? Because it was always allowed under sections 105 and 106. Definity, Destiny, Lumenous and others long before them were actively selling these arrangements with and without rollover, before June 2002. Just because there was no Ruling, it does not mean that they were not in use. Section 125 pre-taxing still has no IRS ruling, yet is in widespread use even with a yearly repeated official No=Rule Revenue Procedure issued at the start of every year. HRAs are nothing new. The only thing "new" is the name that the IRS chose to use and which has now a label. Section 105 MERPS have nothing to do with FSA, section 125 or HRA rules. It is FSAs and HRAs that have to comply with section 105. See Treas Regs 1.105-11 Self-insured medical reimbursement plan, for an explanation. The Regs have not changed since pre 1984. Aside from being used by large companies, section 105 MERPS are such a standard fixture that the document is usually included in the Kit that is given out by probably all of the business incorporation services. This has been so from as far back as I can recall. Do a Google search on "business incorporation kit" and look at what is in the package that almost every service provides. They have been doing this long before 2002, which means that they have been doing this long long before HRAs, as you know them, came into being.

I know very well the procedures involved. The OP clearly stated " Don't worry about COBRA for these purposes.". In any case, outlining the options is irrelevant to this thread. The issue is not withholding for post termination participation in the FSA. The issues are : 1. The applicable cut off date for filing claims. 2. Recovering any amount over reimbursed by deducting from the final paycheck.

So it is a section 105 MERP and not a 105(h) MERP. I see MERPS that are not health FSAs at least once per month.

How can the employer withhold for COBRA if the employee has not elected COBRA?

No. What would give the employer the right to withhold an amount in excess of the "per pay period" amount stated on the Salary Reduction Agreement?

What is a 105(h) MERP as opposed to a 105 MERP? Do you establish a 105(h) MERP or do you establish a 105 MERP that does not violate 105(h)? All HRAs are MERPs but not all MERPS are HRAs. The main differences being funding and the rollover feature.