Welfare Benefit Plan as deferred compensation plan

[Ron Snyder]

Having studied IRC 409A and the regulations under it, it appears to me that any plan that permits setting aside funds (including funds of the employer and/or of the employee) for use at a future time is deferred compensation with the need of complying with the requirements of 409A.

A welfare benefit plan typically sets aside funds for welfare purposes, such as: medical reimbursements, death benefits, education reimbursements, disability benefits, etc. However, a great number of so-called "419 plans" or "419(e) plans" provide a mechanism whereby an employer, by dropping out of a multiple-employer or by terminating a single-employer plan, can trigger a cash distribution.

IMHO, such a cash distribution would fall under IRC 409A. A plan that permits such distribution must comply with 409A by 12-31-05 or be subject to the penalties provided thereunder. If I had a client that participated in a WBP or "419" plan, I would make sure that no cash distributions were possible (with the exception of medical payments or reimbursements) or get my client out of the plan by 12-31-05.

[Kirk Maldonado]

VEBAGuru:

You post mentions an important point that many people would probably otherwise overlook.

Of course, it depends on the terms of the plan, but people need to look at those plans to see if there might be a problem.