Consultant Comments on Proposed Employee Benefit Plan Regs
A consultant has submitted comments on the proposed regulations regarding
10-or-more-employer benefit plans.
Document Type: Public Comments on Regulations
Tax Analysts Document Number: Doc 2002-26053 (2 original pages) [PDF]
Tax Analysts Electronic Citation: 2002 TNT 230-9
Citations: (
=============== SUMMARY ===============
Russell J. Mueller,
According to Mueller, any attempt to prohibit funding section 419A(f)(6)
plans with cash value life insurance will result in legal challenges. He says
that it should be made clear that one plan or trust can provide all permitted
benefits, including medical and long- term care benefits. Mueller understands
the problem of deferred compensation and asserts that the best way around it is
"to require that any distribution of cash value life insurance be
accompanied by a payment by the participant equal to the cash value."
=============== FULL TEXT ===============
From: rmueller703
Sent:
To: William F. Sweetnam
Subject: Thanks for Your Indulgence! Comments on IRS 419A
Proposed Regulations
Importance: High
[1] Bill, thanks for your indulgence yesterday in patiently listening to the
testimony from the many points of view on section 419A plans.
[2] Hopefully any revisions to the final regulations will reflect the
following points which may have been lost in the "noise" yesterday:
1. As much as Treasury's policy may reflect a bias against the use of cash
value life insurance in funding section 419A(f)(6) plans, there is no
prohibition under current law to use such as funding vehicles to provide the
benefits permitted under current law; the attempt to write rules prohibiting
the use of such as funding vehicles by rewriting the plain meaning of
"experience rating" may have achieved its interrorem effect but is
unlikely to stand in the face of future challenges and, as such, the rules
should be rewritten.
2. Plans that have a single undivided pool of
assets, including any cash values from individual life insurance policies owned
by the plan, and pay benefits to all participants from such assets are
operating within both the spirit and the letter of the current law. Plans that
have actuarial gains and resulting surpluses that increase employee benefits or
reduce employer contributions using a basis that does not "target"
the employer- based sources of such gains, but which benefits all plan participants
or contributing employers, respectively, should be recognized as operating
within the current law and not in violation of the definition of
"experience rating". This principle is crucial to the future use of
section 419A(f)(6) for plans providing medical and long-term care benefits, as
well as the other listed benefits.
3. It should be made clear that one plan/trust can
provide all permitted benefits, including medical and long-term care benefits.
4. Employers who end their plan participation should
be permitted to be allocated only their "pro-rata" share of total
plan assets existing at the time of their withdrawal; this is consistent with
any other rule that might be included which would require such a
"pro-rata" distribution at the time the entire plan terminates. This
principle is obviously crucial, given that just the presence of the proposed
regulations is producing many plan terminations, leaving less than about 10
plans operating.
5. "Experience rating" should be
interpreted the same for union plans as for non-union plans (can union plans
use cash-value life insurance to fund plan benefits? If so, it seems punitive
that non-union plans be singled out for proscriptive treatment.)
6. It seems to me that Treasury has the authority
to apply its new definition of "experience rating" prospectively to
new plans on a date separate from existing plans and to existing plan
contributors as of a future date (such as 3-5 years hence) and fairness would
dictate that this be accomplished in any final regulations.
[3] Bill, I understand Treasury's concern regarding plans masquerading as
"deferred compensation"; however, I believe the best way to achieve
such a policy goal would be to require that any distribution of cash value life
insurance policies be accompanied by a payment to the plan by the plan
participant in an amount equal to the cash value. This would serve to end the
abuse without shutting out the ability of 419A plans to use any means of
funding the permitted benefits, including long-term care, medical, etc.
[4] Question: Are the comments submitted to the IRS on 419 and on the
split-dollar issues available? If so, how do I go about getting copies?
[5] Again, thanks for your indulgence!
Russell J. Mueller, Consultant
Code Section: Section 419A -- Qualified
Asset Account Limits
Geographic Identifier:
Subject Area: Benefits and pensions
Insurance company taxation
Industry Group: Insurance
Cross Reference: For a summary of
REG-165868-01, see Tax Notes,
for the full text, see Doc 2002-16302 (13 original pages) [PDF],
2002 TNT
135-12 
,
or H&D,
Author: Mueller, Russell J.