Health Benefits for One Retiring Employee?

[Guest Steeldog22]

Does anyone know of an exception (perhaps a one time event) to the discrimination rules permitting a company to provide health insurance to a long-time employee after retirement without having to provide it for all retirees?

[QDROphile]

Are you referring section 105(h) as the "discrimination rules"? It is hard to tell if you need details about 105(h) or if you know all about 105(h) and are asking for ways around it.

[Guest Steeldog22]

Ways around it.

[QDROphile]

Since 105(h) was consciously designed to prevent the result you want, it is unlikely that you have options. The usual solution is to buy a policy for the individual.

[Steve72]

105(h) only applies to employer-provided self-funded plans. As QDROPhile points out, buying a fully-insured product will eliminate 105(h) issues. However, such a product is usually expensive.

I have seen employers charge the employee the cost of the covergae, the argument being that this makes the coverage no longer "employer provided". I have also seen them then pay a "cash bonus" equal to the cost of coverage (of course, this bonus is taxable income to the employee).

I think it's a very....aggressive....approach. However, 105(h) does not appear to be high on the IRS's investigation list.

[KJohnson]

At least as to the employer paying for COBRA the IRS has informally said that the employer paying the premiums on a post-tax basis did not raise a 105(h) issue. The following is from the the 2003 JCEB conference:

7. §105– Health and Medical Benefits

It is not unusual for an employer to pay COBRA premiums for former employees for a limited period of time. Often this is done as part of a RIF or a termination agreement with a particular employee. If the plan is self-insured and some of the former employees were highly compensated individuals (“HCIs”), does this raise an eligibility discrimination issue, a benefits discrimination issue, both or neither under § 105(h)?

Proposed response: It raises neither an eligibility discrimination issue nor a benefits

discrimination issue as long as the premiums are treated as taxable income to the former employees, since in that case the employer’s payment of the premiums is not an extension of coverage or benefits under the plan itself.

IRS response: The IRS agrees with the proposed answer

[oriecat]

I don't know if it makes a difference between fully or self-insured, but IRS Pub 15-B states that COBRA premiums paid on behalf of a former employee are not taxable income.

The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or temporary.

[Steve72]

I had understood the question to be seeking benefits beyond the COBRA period.