DB Post Retirement Health Benefits

[JAY21]

Does anyone know if a DB plan has 401(h) accounts for post-NRA medical benefits, are the benefits ultimately distributed to the retirees considered taxable income to the participant ? or is it more like an employer-paid benefit that is non-taxable ?

[WDIK]

http://benefitslink.com/boards/index.php?showtopic=31275

[JAY21]

Thx WDIK. Is there is a simple answer to how VEBAs are taxed (mjb's last post) or is this a more complex question that has to be looked into as well ?

[Everett Moreland]

See Treasury Regulation § 1.72-15, captioned "Applicability of section 72 to accident or health plans," particularly the following 1.72-15(h):

"Employer contributions to provide medical benefits described in section 401(h) under a qualified pension or annuity plan are not includible in the gross income of the employee on whose behalf such contributions were made. Similarly, if the trustee of a trust forming a part of a qualified pension plan applies employer contributions which have been contributed to provide medical benefits described in section 401(h) or earnings thereon, to purchase insurance contracts which provide such benefits, the amount so applied is not includible in the gross income of the employee on whose behalf such insurance was purchased. The payment of medical benefits described in section 401(h) as defined in paragraph (a) of Section 1.401-14 under a plan established by an employer shall be treated in the same manner as the payment of any other accident or health benefits under an employer- established plan. See paragraphs (b), ©, and (d) of this section."

[Don Levit]

Everett:

Thanks for the posting. I will look up that regulation.

A good primer on VEBAs can be found from the IRS at http://www.irs.gov/irm/part7/ch10s12.html.

Don Levit