Ron Snyder

1. "Equitable relief" refers to injunctions, temporary restraining orders, orders from a court for someone to do something or cease from doing something. It is available in a limited set of circumstances in which irreparable harm can result if relief is not granted. 2. You do not stipulate whether or not the participant received any benefit, and if not why not. I will assume that he received no benefit and should have received a benefit. Otherwise the claim would be thrown out anyway. Assuming no problems with finding fiduciaries, with the statute of limitations, laches, affirmative defenses, etc., the court would award damages and order the benefit paid with some allowance for interest from the time the benefit should have been paid until the date actually paid. This is "legal relief" rather than "equitable relief". I don't understand what you mean by "the loss of tax deferred nature of the benefit" unless you are referring to the fact that the balance received may not be able to be rolled over into an IRA.

Which earlier post are you referring to? Are there rulings or pronouncements from IRS that support your claim that IRS has changed its position? I believe that your concerns are unfounded and that HRA amounts held within a VEBA may be used to reimburse medical expenses.

With respect to the ability of the employee becoming eligible for post-retirement welfare benefits if the employee is severed after having attained age 50 and completed at least 20 years of service, as well as being provided with 6-12 months additional credit needed to satisfy the age and/or service requirements to become eligible for post-retirement welfare benefits, does anyone have any thoughts on how this should be analyzed from the standpoint of Section 409A? This is still a welfare benefit exempt from 409A. However, it may not comply with the nondiscrimination requirements applicable to welfare benefit plans under 505 (if the plan covers Key Employees) and 105 (for health benefits).

You are describing a choice between severance benefits or employment. One of those is subject to 409A, the other is not. Since the choice is unknown presently, it is subject to 409A. The severance pay is clearly not currently vested (and therefore not currently taxable to the employee). However, it would become vested as of the involuntary termination date, thereby making the one year's salary continuation immediately taxable (except to the extent that the short-term deferral rules would exclude payments through the end of the year of termination). The agreement should be reformed in such a way as to comply with 409A. Perhaps all severance payments could be paid under the short-term deferral exception. Or perhaps the choice should be modified to an automatic position within the department, with a deferred compensation piece attached to the new contract. In any event the university's attorneys must already be reviewing all compensation for 409A compliance; they should review this situation also.

As I recall, only about 17 states require TPAs to be licensed. Do you have a "presence" (office) in the other state? If so, you might consider using a separate entity (corp or LLC) for that state's business so that it can be licensed there. If you don't have an office, it is doubtful that you need to license there anyway. If you are still required to obtain an out-of-state TPA license, I suggest that you ask the DOI how to comply with their licensing requirements under the circumstances. A $100,000 bond, while arguably unnecessary, is not a significant cost and is a good idea in any event.

I am simply saying that, court decisions under prior law notwithstanding, IRS has always argued that severance pay plans are deferred compensation. Now that IRC 409A is law, any plan that does anything beyond short-term deferrals must comply with 409A. If you choose to impose the additional requirements of IRC 501©(9) on top of such a plan, fine. Please note that 419A(a)(4) permits tax deductions for supplemental unemployment and and severance pay benefits. That section also provides a safe harbor deduction limitation equal to 75% of the qualified direct costs (under IRC 419) for any 2 of the prior 7 years. So if the employer paid out $1,000,000 in severance benefits in 2 of the past 7 years, they could obtain a tax deduction for up to $750,000 so long as such contributions would "otherwise be deductible" (IRC 419(a)). What is now in question is whether such amounts are now otherwise deductible, or if they are now barred from deduction under 409A. Whether or not such amounts are part of a "separation pay plan" is based on a facts and circumstances test as described in the Final Regs.

It is your bulletin board, and I appreciate your making it available to us. You are welcome to censor whatever you choose. Apparently it was my post that offended the individual discussed. I have evidence of the truthfulness of my assertions, and would have welcomed an honest an open exchange with the individual's participation. He obviously was not interested in doing so. When an offensive post is detected (usually upon complaint), it seems that you have 3 choices: 1. Edit the post to delete the offensive material. 2. Delete the offensive post in its entirety. Along with these choices, you could choose to close the thread if additional discussion would be inappropriate. 3. Delete the entire thread. It would never have occurred to me to delete the entire thread, especially when it had been up for several months and the now offended person had been posting on it.

The use of a VEBA is an excellent idea for collective bargaining groups. It gets the funds out of the hands of the employer, increasing the probability that the funds will invested wisely and not dissipated, it separately accounts for the funds required and available for the severance plan, etc. DOL has primary jurisdiction over these plans. In a non-collective bargaining situation, where IRS has primary jurisdiction, severance benefits are considered to be a form of deferred compensation subject to the reqiurements of IRC 409A. Therefore, the type of trust to be used likely will be a "Rabbi Trust" rather than a VEBA. No trust is required at all and no advance deductions are available other than a modest amount set aside as "qualified additions" to a "qualified asset account".

1) 100%. not 9% 2) CG = Corp A, Corp B, ESOP and Ind A, so yes

It may NOT be paid out upon death, but may be paid for reimbursement of unreimbursed medical expenses during the lifetime(s) of his dependent(s) and/or beneficiary(ies). This is why we sometimes keep funds inside insurance policies, so that beneficiaries and dependents can get the funds tax-free without having to submit medical claims.

Perhaps some clarification is needed. A VEBA is a welfare benefits trust (or association), not a benefit plan. The VEBA stipulates the duties of the trustees, including purchasing life insurance and/or making other investments. It would not violate the terms of a VEBA to pay a benefit that a participant's beneficiary is eligible for and applies for. The underlying benefits are provided pursuant to a plan or plans. It would clearly not violate the terms of the death benefit plan to pay death benefits directly to the beneficiary. Obviously drafting must agree with practice. I presume your concern is, "if the policy is paid out entirely to the beneficiary, how will medical benefits be provided?" 2 answers: 1. Once the participant is dead, he is not likely to incur additional medical expenses. 2. Welfare benefit plans are generally drafted to provide that such benefits are not guaranteed by the employer, and are available only to the extent of the plan's available assets. The reason for paying death benefits directly out of the policy is to make sure that the death proceeds of the policy are received tax-free by the beneficiary. Since the VEBA is a tax-exempt trust, receiving tax-free death benefits and obtaining a tax deduction for the death benefits paid to beneficiaries is meaningless. Neither IRC section 101 nor any rulings thereunder provide for a pass through of the tax-exempt income to a third party tax-free (although I have seen a pre-Circular 230 opinion letter to that effect). If assets are in the policy besides the amount due to the beneficiary, a split designation of beneficiary may be done: the correct portion to the beneficiary and the balance to the VEBA trust.

Thanks for the good information. I was unaware of the 'top-hat" welfare benefit plan exception. Perhaps for DOL purposes (that is, for labor law purposes), split dollar may be considered a welfare benefit plan. But to IRS (and for tax law purposes) split dollar arrangements are not addressed under the welfare benefit provisions and in the context of the IRC. The split dollar regs were not issued under Regs 1.162-10, nor under IRC sections 419, 419A, 264 or 79. They were issued under sections 61 and 83. The paper by Susan Katz Hoffman was not about welfare benefit plans but about deferred compensation plans. The paragraph was "dicta", not relevant to the central thesis of her paper. It relies on a single district court case. Not really authoritative in light of the different focus between labor law (ERISA) and tax law.

The model you describe does not make sense, as pointed out by GBurns. A reversion (or forfeiture) of funds at death does not make the amounts "deferred compensation" because they are not paid out the the participant's beneficiary (except upon filing a claim for unreimbursed medical expenses). And if the funds are carried over to a future year (HRA model rather than FSA), they can be used by the participant's beneficiary or dependents in future years without becoming deferred compensation (under 409A) since there is a specific exemption provided for welfare benefits in that section.

If it is an employee benefit, it should be paid directly to the employee's named beneficiary.

1) A split dollar arrangement is not a welfare plan. It is an asset purchase and a transfer of property for services, a form of direct compensation. Some forms of split dollar could be considered deferred compensation, but are excluded under 409A. 2) Top Hat plans are NOT welfare plans, but are deferred compensation plans.

I am curious if contributions made to a VEBA would qualify under a cafeteria plan? A VEBA would be an appropriate funding vehicle for a Cafeteria Plan. However, could an employee accumulate dollars in his individual account, only to pay for qualified medical expenses? Yes. Is it deferred pay, if any unused balance is forfeited back to the VEBA? Under the use it or lose it, forfeiture of deferrals is certainly possible. Not sure what you mean by "deferred pay".

Yes. Maybe. Do you mean federal or state MEWA regulations/statutes

1) The number of employees benefiting under a plan should be determined the same way as the participant count is done. 1a) Spouses and dependents are not counted for this purpose. 2) IRS has given PLRs with respect to non-employees participating in a VEBA in the case of life insurance agents and others whose relationship with the employer is similar to an employee. The regulation you cite primarily is referring to self-employed individuals or partners not exceeding 10% of the plan's participants.

While VEBAs are generally set up to fund one or more named benefits, there is no anti-cutback rule. Therefore an employer may terminate a plan inside the VEBA and reallocate the funds left over to fund another benefit or benefits.

You might look for enforcement actions on the DOL website.

There are a few vendors (formerly 419 sellers) that are now selling so-called "Section 79" plans. I have looked at several of them and NONE of them are close to being in compliance with current law and regulations. True Section 79 plans allow the employer to provide life insurance coverage, both pre- and post-retirement, to employees. The abusive plans claim to be Section 79 plans but attempt to provide additional benefits that neither comply with the split-dollar regulations (even though they fall squarely under the definition of a split dollar arrangement) nor the new 409A law and Regs. All the plans I have seen within the past 2-3 years are bogus. WATCH OUT!

I know some people who got approved by the DoL to be an IRA custodian, the same requirements as for HSAs. Within 90 days of their approval the state served them with a cease and desist order for operating an unlicensed trust company.

You don't specify whether you are looking for assistance with the compliance aspects of VEBAs, with the purchase of investment-grade life insurance, or both. I have established several plans of the type you describe, ie, retiree medical VEBAs funded with TOLI. I worry, however, at your apparent naivete. There are other investment strategies that can minimize or avoid UBIT besides life insurance, including municipal bonds, buy and hold funds, etc. Life insurance is typically not a good investment, at lease off-the-shelf policies. Mortality charges are relatively high unless the policies are purchased on the youngest group members. And the trust will no longer have an insurable interest if those participants leave the plan, so the carrier has to be willing to do a change of insured. We only employ the strategy you mention when the employer desires to provide a death benefit in addition to a post=retirement medical benefit. Finally, there are significant legal requirements and funding limitations applicable to such arrangements if they cover Key Employees. cf, IRC sections 419A, 505 and 4976.

When the suit was originally filed, it should have demanded costs. It's too late now. You don't state whether the judgment obtained was in Federal court, state court, small claims court or what. The questions about whether state court is appropriate would vary widely from state to state depending on state-recognized causes of action and procedural rules. These seem like questions for the attorney who obtained the judgment.

IRS has been wanting to control all actuarial assumptions and methods, including interest rates, cost method, mortality, turnover, salary projections, ever since the mid-1980s. They finally succeeded in getting Congress on board. If IRS were drafting ERISA, rather than requiring that an EA certify DB valuations, they would simply require that everyone use their valuation software that does everything their way.