457(f) and post-employment medical insurance

[jpod]

Please let me know if you think there is IRS guidance pertinent to this issue.

Tax-exempt employer makes a firm commitment to executive to continue to provide free health insurance for life after retirement or other termination of employment; or, stated differently, there is no "substantial risk of forfeiture" with respect to the executive's entitlement to this post-employment benefit. Is this commitment a deferred compensation arrangement subject to Section 457(f), or does it escape 457(f) because the deferred compensation is nontaxable compensation?

[Don Levit]

ipod:

Good question.

It seems like the employer is not funding this obligation.

Would seem to me he could be in a heap of trouble, with these new FASB and GASB proposals.

Can you provide some of the wording, so we can see how much of a "guarantee" this is.

Typically, medical benefits do not vest, unless specifically provided for in the documents.

Don Levit

[GBurns]

You can only get into trouble if you break rules etc that are applicable. What is applicable does not yet seem clear.

It is not stated as to whether the employer will be funding this obligation or not, and maybe it does not matter for purposes of the OP. And I wonder what new FASB or GASB proposals could be applicable even if "proposals" have any relevance and even if "proposals" are eventually adopted ?

To me, vesting has always meant that the item is irrevocably given/earned by the participant. An agreement to provide lifetime medical that had no forfeiture or termination of benefits clause, certainly seems a vested benefit. It cannot be revoked or taken back.

[Don Levit]

George:

The presumption is against vesting of medical benefits.

It must be stated very clearly in the documents that benefits cannot be changed.

There have been many court cases, in which the term "lifetme" medical benefits were ruled as temporary.

Don Levit

[GBurns]

Presumption? Where? In any case I do not understand the sentence nor the use of the term relative to your previous post.

Can you cite a few or any cases?

[Guest mjb]

IRC 457 only taxes deferred comp. which is subject to income tax. Under reg 1.106-1 employer contributions for health ins. are not taxable income to the employee. If HI contributions are not taxable income how can it be deferred comp since only comp that is is includible in taxable income is subject to 457(f)?

[namealreadyinuse]

The accounting issue is GASB 45, right? Not proposed, though.

[jpod]

mjb: Maybe this is a forest-through-trees problem I'm having, but where is it stated that 457, particularly 457(f), does not apply to non-taxable compensation? Perhaps it is implicit in the statute (always a dangerous assumption when it comes to IRS), but if you can point me to something definitive I will owe you one.

[namealreadyinuse]

At one point I am sure that the Treasury mentioned that retiree medical presents issues under 409A. Is that dead yet?

[Guest mjb]

employee health benefits that are exempt from tax under IRC 106 are exempt from 409A. Prop. Reg 1.409A-1(a)(5).