You have probably heard of an agent who has made a large amount of money by marketing the latest and greatest concept, only to find out the sales concept has not stood the test of time. If you’re like many agents today, you have not taken an active role in marketing the single employer welfare benefit (SEWB) plans because you are waiting for more clarity.
Let me start by defining what types of benefits are addressed in ? 419 of the Internal Revenue Code (IRC). The benefits include welfare benefits, of which examples are health/medical benefits, life insurance/death benefits, disability benefits, severance and supplemental unemployment benefits.
All of these benefits tend to promote a social good. That is why our government has passed legislation to allow private employers to take tax deductions for contributions made to fund these benefits.
Are there different rules for each of the benefits provided? Yes. This is the result of legislators recognizing potential abuses and addressing them with legislative restrictions. For example, employers are limited in how much (if anything) they can deduct for contributions to fund a severance benefit. This is particularly true in cases where an employer previously provided no severance benefits.
Because there are too many plans to address each individually, let me identify the three “types” of plans being marketed today:
? Plans that have very little basis in the Internal Revenue Code and rely almost exclusively on interpretation;
? Plans that have some rationale provided by the IRC but still rely on interpretation; and
? Plans that are well defined in the IRC and rely on relatively little interpretation.
Regarding the first type of plan, the old adage “if it seems to be too good to be true, then it probably is” seems appropriate. Many times this plan type promotes a form of hidden (wink/wink) deductible, deferred compensation. I reference the hidden aspect because the promoters generally say, “This is not a deferred compensation plan,” but then proceed to illustrate a retirement income stream as part of the presentation.