Ron Snyder

The plan had zero remaining participants as of 1-1, so the argument could be made that no audit is required. However, the 2006 5500 participant count (BOY) needs to reconcile to the 2005 5500 participant count (EOY). I would contact IRS (TE/GE) and ask for their take on this. I believe that they'll let you off the hook since all assets were distributed before the end of the year. What is left to audit? Only the benefit payments.

A section 79 death benefit can be funded with term or permanent insurance, and with individual or group policies (See 1.79 of the Regs.). The death benefit portion of the policy is separate from the investment portion of the policy. Since medical accumulations are subject to UBIT within a VEBA, it only makes sense to make excess premium payments into a permanent life insurance contract and use the polict's tax-free inside buildup feature. (Note: annuities don't provide tax-free inside buildup inside a welfare benefit plan.) Note that the life insurance policy is permissible inside an HRA, and is part of the HRA. By funding the health accumulation amounts inside the policy, you have accomplished 2 purposes: (1) achieved a distribution of the entire benefit upon death, and (2) avoided UBIT.

It is also the 50th anniversary of my 11th birthday. I have always considered the first Sputnik to be my b-day present from the USSR.

This is potentially a violation of ERISA. However, the TPA is already a co-fiduciary of the plan. If the TPA is licensed and bonded as such, maintains a trust account, requires the funds to pass through its trust account (rather than its general account), it is not likely a violation of ERISA. Most TPAs of self-funded health plans exercise control over plan assets: they have to to pay claims. So plan funds going to or through a TPA's account is nothing novel or sinister. Note: Note all states license and regulate TPAs. If you are in a state that does not, there are additional issues to consider before a determination is made. In those situations TPAs don't have trust powers and legally may not have a trust account. In that situation, the employer or VEBA should have its own account from which the TPA pays claims.

This will NOT work because the prohibition against private inurement included in IRC 501©(9) precludes returning amounts to the employer (excepting current, undeducted mistake of fact contributions). What might work would be to set up the 115 and begin funding it, while continuing to use the VEBA to pay all benefit expenses until the assets are exhausted.

Yes, and yes. It is possible. There is no corresponding provision to 414(l), although ERISA fiduciary duties to participants in both plans may impute a similar requirement. IRS has issued PLRs on similar situations.

Quoted directly from the Reg.: "Thus, a cafeteria plan may offer coverage under a group-term life insurance plan of up to $50,000 (section 79), coverage under an accident or health plan (sections 105 and 106), coverage under a qualified group legal services plan (section 120), coverage under a dependent care assistance program (section 129), and participation in a qualified cash or deferred arrangement that is part of a profit-sharing or stock bonus plan (section 401(k)). In addition, a cafeteria plan may offer group-term life insurance coverage which is includable in gross income only because it is in excess of $50,000 or is on the lives of the participant's spouse and/or children. In addition, a cafeteria plan may offer participants the opportunity to purchase, with after-tax employee contributions, coverage under a group-term life insurance plan (section 79) * * *." This means that a flex plan (and also an HRA) can provide life insurance of $50,000 or more. It has nothing to do with "a balance in his account" or whether "his spouse, and his dependents have died". It has to do with whether he used funds in his account to purchase life insurance, as permitted in this Reg. If the funds are held in an insurance policy that meets the requirements of Section 79, they will be distributed to the named beneficiary on death.

As I previously noted, opinions former IRS employees are not relevant. For the correct citation, go here: Regs 1.125. This is IRS' official view of the matter.

The primary advantage is to eliminate all or part of the risk with respect to future cost of benefits by contracting those to a health insurance company. It may make the insurance company rich (or poor) depending upon the actual experience. The other advantage is in how the accounting is reported under FAS 106. Insured benefits are excluded from the company's financial statements, while VEBAs and self-funded benefits are not.

Under IRC Section 501©(9), a VEBA must be either an "employees association" or it may be a trust with and INDEPENDENT trustee.

Under Notice 2002-45 HRAs are almost totally defined HRAs in terms of comparison and contrast with FSAs under section 125. Both incorporate the definition of medical expenses under 213(d), and HRAs are referred over to the rules published under IRC section 125 for specific items of medical expenses eligible for reimbursement. Inclusion of life insurance under a 125 plan (and by extension, under an HRA) is addressed in 1.125-2T, Q&A1 of the temporary Regs. Regs. have the force of law, at least if upheld by a court when challenged. Outdated, informal, internal training materials published by IRS do not.

We are familiar with ERIC's proposal. It is interesting in several ways: 1. Significant arrogance in assuming into their recommendations that whatever they can conceive of may become law. 2. Interesting that they propose a TPA-based system, with super regional TPA firms. 3. No discussion of what could be accomplished under current law. 4. No discussion of why their proposed plans are better than those currently available, such as the proposed savings plan vs. 401k. 5. No discussion of impact on tax or labor implications of their proposal. It makes me wonder what world these big business types are from, because my world of small to medium sized employers would never think or even dream in the terms described in the proposal.

The HRA Regs include life insurance as a permissible benefit within an HRA. See Notice 2002-45 and RR 2002-41.

The answer is yes. But it won't be any easier than separate documents, it will likely be harder. What advantage is derived from this? 1 SPD instead of 2 (but twice as big)? One 5500 instead of 2 (but insured plan filing is way easy anyway)? I would ask the ERISA attorney engaged to prepare the document(s) which way will be easier and simpler and go with that.

I have used the search function at Martindale with good success. Look for an ERISA attorney or an ERISA litigator who is rated A V (A for competence and V for ethical).

Oye, feo: This really is off topic. As with all churches, tax-deductibility is not an issue. The taxation of the payments are addressed by IRS in the following IRS FAQ's and in IRS publication 517. If you are not a a tithe-paying member of a church, it is none of your business how much they provide in living allowance or why it is called a living allowance. My tithes and offerings are used for those payments and I don't worry in the least about this non-issue. I know several of the LDS Church leaders personally and they live quite modestly.

There is nothing inherently wrong with the approach Gary suggests. However, as he points out, it is likely discriminatory, not only as a VEBA, but as a medical plan under IRC 105 and as a death benefit provided under IRC Section 79. Moreover, "future" death benefit costs are not permitted under IRC 419, and under IRC 419A are limited to funding a paid-up life insurance benefit of $50,000 at retirement, funded in equal annual installments over the participant's working lifetime. The VEBA article referenced is quite outdated, predating the potentially abusive tax shelter rules, IRC Section 409A, the 419A(f)(6) Regs, etc.

A participant may elect to defer amounts into a nonqualified deferred compensation plan including 401(k) deferrals that are returned to a participant for failing to pass the nondiscrimination tests. For tax reporting purposes, the amounts are refunded to the participant from the 401(k) plan and then deferred into the NQDC plan, thus complicating form W-3 with multiple entries in boxes 11 and 13.

I would be concerned with "non-affiliated" union employees participating in the same trust. The requirement isn't that all employees be members of some union, but that their participation be governed by a collective bargaining agreement that was the subject of good faith bargaining between the employer and employee representatives. I have seen so-called "union" plans that permit (for example) physicians to join the needletrades union and participate in a VEBA. This does NOT work. To confirm that such a change has not effected its VEBA status, a new application for a letter of determination should be filed with IRS disclosing all appropriate (including potential adverse) information. Upon receiving a new determination letter, the plan's tax-exempt status will be safe. Such a Trust would definitely be a MEWA. Your question is, is it exempted from MEWA filings (both federal and state) if all the employees are union affiliated. The answer for federal law purposes is: a Trust would be subject to the MEWA requirements if participation is voluntary rather than the subject of good faith negotiations between the employer and employee representatives. (Contact the MEWA department of EBSA's national office to check this.) Regulation of such an arrangement under state law would vary from state to state depending upon the wording of state statutes. I know of at least one state where the arrangement would be exempt from state insurance department regulation (but subject to regulation by state DOL) and one state which would still subject such an arrangement to regulation by state insurance department.

We have discussed this in the past. Search the threads.

I agree, but you are subjecting wellness and other benefits to the VEBA rules as well.

The problem is that employee contributions are generally refunded to the employee in a tax year after the year in which the 401k deferral was made because that's when the nondiscrimination testing is done. So the deferred compensation deferral would be for the next year, not for the original year. This assumes employee salary deferral contributions. The result is different for employer contributions. Those can transfer directly from the 401k to the NQDC plan without a problem.

What are you even thinking of? Are you referring to when infants are brought to a worksite? I cannot imagine that an employer needs a breastfeeding policy: 1) Employees are permitted to breastfeed their infant only for the first 6 weeks from the infant's birth? 2) Employees are required to breastfeed their infant for the first 30 days from the infant's birth, and may continue to breastfeed for up to an additional 30 days? 3) No breastfeeding is permitted at the company facility during business hours? It smacks of gender discrimination because it would apply to female employees and not to males. I cannot imagine that the use of a woman's breasts are her employer's business. How about the type of policy described in Breastfeeding Policy?

But the issue there had nothing to do with VEBAs, only with 419A asset account limits. While use of sub-trusts is acceptable, I don't believe it is required. Reasonable accounting should be adequate.

To your earlier post: A VEBA can offer HRA benefits along with other benefits, but the HRA cannot offer all other benefits included in a VEBA. That means that if other benefits besides the HRA are included in a VEBA, they are part of a separate "plan", not necessarily part of a separate plan document. The benefit would be separate, the accounting would be separate, and the plan document must make the separateness of the HRA benefit from other benefits not permitted within HRAs clear.