Under § 419A(c)(2)(A), the reserve for post-retirement medical benefits is
further limited by the requirement that it be determined on the basis of current
medical costs. In addition, for post-retirement life insurance the maximum
insurance coverage that can be taken into account with respect to any covered
employee is $50,000 of coverage. Moreover, in the case of post-retirement
benefits for or on behalf of a key employee (as defined in § 416(i)(1)), § 419A(d)
requires that a separate account be established for any medical or life insurance
benefits provided with respect to the key employee, and any medical or life
insurance benefits provided with respect to the key employee after retirement
may only be paid from the separate account. Under § 419A(e)(1), in order for
reserves for post-retirement medical and life insurance benefits to be taken into
account the plan must meet the nondiscrimination requirements of § 505(b) with
respect to those benefits (even if those requirements do not otherwise apply to
the plan).
A plan meets the nondiscrimination requirements of § 505(b) only if (i)
each class of benefits under the plan is provided under a classification of
employees which is set forth in the plan and which is found by the Secretary not
to be discriminatory in favor of employees who are highly compensated
individuals, and (ii) in the case of each class of benefits, such benefits do not
discriminate in favor of employees who are highly compensated individuals.
Under § 505(b)(3), in the case of any benefit for which another section of the
Code provides nondiscrimination rules (e.g., § 105(h) in the case of a selfinsured
medical reimbursement plan), those rules apply instead with respect to
the benefit. Under §§ 105(h)(8) and 414(t), all employees who are treated as
employed by a single employer under the rules of § 414(b), (c), or (m) are treated
as employed by a single employer for purposes of §§ 105(h), 79, and 505.
Sections 104(a)(3) and 105(b),(c), and (d) exclude from gross income
certain amounts received by an employee through accident and health
insurance. Section 105(e) provides that for purposes of §§ 104 and 105,
amounts received through an “accident and health plan for employees” are
treated as amounts received through accident or health insurance. Thus, the
plan must exist primarily for the benefit of employees, as opposed to
shareholders. See, e.g., Larkin v. Commissioner, 48 T.C. 629 (1967), aff’d, 394
F.2d 494 (1st Cir. 1968) (holding that the plan was merely a device to use
corporate earnings to meet the anticipated medical needs of the shareholders).
Section 4976(a) imposes on an employer an excise tax in the amount of
100 percent of the amount of any disqualified benefit provided with respect to a
welfare benefit fund maintained by the employer. Under § 4976(b)(1), a
“disqualified benefit” means (i) any post-retirement medical benefit or life
insurance benefit provided with respect to a key employee if a separate account
is required to be established for the key employee under § 419A(d) and the
further limited by the requirement that it be determined on the basis of current
medical costs. In addition, for post-retirement life insurance the maximum
insurance coverage that can be taken into account with respect to any covered
employee is $50,000 of coverage. Moreover, in the case of post-retirement
benefits for or on behalf of a key employee (as defined in § 416(i)(1)), § 419A(d)
requires that a separate account be established for any medical or life insurance
benefits provided with respect to the key employee, and any medical or life
insurance benefits provided with respect to the key employee after retirement
may only be paid from the separate account. Under § 419A(e)(1), in order for
reserves for post-retirement medical and life insurance benefits to be taken into
account the plan must meet the nondiscrimination requirements of § 505(b) with
respect to those benefits (even if those requirements do not otherwise apply to
the plan).
A plan meets the nondiscrimination requirements of § 505(b) only if (i)
each class of benefits under the plan is provided under a classification of
employees which is set forth in the plan and which is found by the Secretary not
to be discriminatory in favor of employees who are highly compensated
individuals, and (ii) in the case of each class of benefits, such benefits do not
discriminate in favor of employees who are highly compensated individuals.
Under § 505(b)(3), in the case of any benefit for which another section of the
Code provides nondiscrimination rules (e.g., § 105(h) in the case of a selfinsured
medical reimbursement plan), those rules apply instead with respect to
the benefit. Under §§ 105(h)(8) and 414(t), all employees who are treated as
employed by a single employer under the rules of § 414(b), (c), or (m) are treated
as employed by a single employer for purposes of §§ 105(h), 79, and 505.
Sections 104(a)(3) and 105(b),(c), and (d) exclude from gross income
certain amounts received by an employee through accident and health
insurance. Section 105(e) provides that for purposes of §§ 104 and 105,
amounts received through an “accident and health plan for employees” are
treated as amounts received through accident or health insurance. Thus, the
plan must exist primarily for the benefit of employees, as opposed to
shareholders. See, e.g., Larkin v. Commissioner, 48 T.C. 629 (1967), aff’d, 394
F.2d 494 (1st Cir. 1968) (holding that the plan was merely a device to use
corporate earnings to meet the anticipated medical needs of the shareholders).
Section 4976(a) imposes on an employer an excise tax in the amount of
100 percent of the amount of any disqualified benefit provided with respect to a
welfare benefit fund maintained by the employer. Under § 4976(b)(1), a
“disqualified benefit” means (i) any post-retirement medical benefit or life
insurance benefit provided with respect to a key employee if a separate account
is required to be established for the key employee under § 419A(d) and the
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