401(h) Disbursements

[WDIK]

Are distributions from a medical benefits account established in a qualified retiremnt plan pursuant to IRC Sections 401(h) and 420 treated the same as distributions from other health plans, such as a flexible spending arrangement or a health savings account?

[Don Levit]

As long as the disbursements meet the requirements of those 2 sections, there should be no taxable event.

Is this what you are referring to?

Don Levit

[WDIK]

Is this what you are referring to?

That was the initial clarification I was hoping for. As a follow-up, does that mean that such payments are also exempt from the reporting requirements of section 6041? (In other words, no 1099-MISC is required.)

[GBurns]

It depends on the facts and circumstances of your plan design and PD. There are a couple PLRs that were issued. These should help you to determine exclusion etc:

http://www.irs.gov/pub/irs-utl/cafeteria_p...arrangement.pdf

http://www.irs.gov/pub/irs-tege/chap801.pdf

[Guest mjb]

GB:what f & C are you referring to? The cite to the cafeteria plan ruling is irrevalent to the question asked which is whether a distribution for med expenses under 401h is subject to taxation. The IRS position paper answered no to the question of whether a distribution from a qualified plan taxable under IRC 402(a) could be contributed as a pretax contribution to a cafeteria plan. The other cite refers to audits, determination letters and deductions for 401h plans not to taxation of the payments which are exempt under IRC 105/6.

[GBurns]

The OP did not state how the money got to the Plan in the first place did it? As 1 of the links points out there are/ were plans in which the money came from a cafeteria Plan.

Isn't it relevant if the money was from a cafeteria plan?

Isn't that a fact and circumstance that could affect the issue?

How do you determine the taxation without taking into consideration the issues raised by the IRS in their Manual? The Manual section serves as a good summary of the isssues and most likely will answer all the questions and give any needed cites which would relieve/reduce any research time. I do not know all the facts of the issue and I do not know all of what WDIK needs to know. All I can do is point him towards what I think might be helpful.

WDIK,

Were any of the items of any value to you?

[Guest mjb]

The headnote to the link refers to remitting part of a taxable distribution from a qualified plan (i.e. not a payment for medical expenses under 401h) to a 125 plan to pay for health ins. What am I missing?

[GBurns]

The OP said nothing about medical expenses.

The OP did not say what the distributions were for nor the purpose.

The headnote to the link does not say that the payment was to a section 125 plan it was for benefits under, which is very often how former employees (retirees) get their health benefits.

[WDIK]

I am a simple-minded person and did not intend for my original post to be interpreted so broadly. By stating that the accounts were established pursuant to the applicable code sections and indicating in the title that they were 401(h) disbursements, I thought it was clear enough that such disbursements were for legitimate medical expenses. I thought that the point was emphasised by using the term medical benefit accounts. I thought that this point was further emphasised by referring to disbursements from other types of medical expense plans. I thought that the point was additionaly clarified by my second post. I apologize if the information was not sufficiently clear.

I thank GBurns for the links, but they were not what I was looking for. The first was not on point for 401(h) disbursements, and the second only addressed the qualification of 401(h) accounts and not specifically the reporting requirements for distributions.

It may seem obvious to others, but I had not been able to find anything that confirmed that reimbursement of medical expenses from a medical benefits account established under 401(h) was treated the same as medical expense reimbursements from other types of plans such as flexible spending arrangments or health savings accounts which are specifically mentioned in the instructions for Form 1099-MISC. (How was that for a run-on sentence?)

[Guest mjb]

Reg. 1. 401-14(a) describes the benefits as sickness, accident, hospitalizaton and medical expenses for retired employees. Medical expense means expense for medical care under 213. Medical benefits under a 401h plan should be treated the same for taxation as benefits provided under a VEBA.