Pension Protection Act (PPA) & VEBA, IRC § 419(e) Summary 

The HealthCare Annuity Plus® WBP

Qualified Retirement Plans : The Pension Protection Act of 2006 (PPA) is the best news for retirement planning in years. PPA allows for a retirement plan design that will give a client a full pension plan plus a 6% profit sharing ( safe harbor plus) in addition to a full elective k deferral. Beginning in 2008 plans covered by the PBGC can utilize upto a 25% profit sharing and a full elective k deferral. It is quite simply business owner friendly pension legislation.

Retirement Plan combinations allow for total contributions of 2X to 8X the 401k profit sharing stand alone contribution limit for business owners and highly comp'd ee's. Instead of a $46,000 to $51,000 limit, combined plan contributions can easily reach or exceed $100,000 to $250,000. Guaranteed benefit plans with direct allocations to business owners can reach the $250,000 to $450,000 contribution range in addition to the full (k) elective and the 6% or 25% profit sharing with a safe-harbor .

Conversely, a combination pension- profit sharing plan design that only spends $50,000 for each owner will normally experience a material reduction in overall employee participant costs.

The business owners gain either way by adding the pension. Add the security of a pension to the fact that the owner has total control of the pension trust and a much, much lower fiduciary risk profile and PPA is a huge winner.

Add-on life insurance benefits in any retirement plan design are an attractive means of providing for business (buy-sell) and personal life insurance needs on a tax deductible basis. Overall initial plan contributions and deductions are increased in direct proportion to the life benefit provided.

VEBA & IRC §419(e) Welfare Benefit Plans (WBP) : legal and accounting professionals, financial planners and life agents - be careful. WBPs are life insurance & health plans not deferred compensation plans.

In October of 2007 the IRS addressed a number of issues with IRS Notice 2007-84 and Revenue Ruling 2007-65 in an effort to curb certain potential abuses with respect to cash value life insurance policies used as the funding medium for IRC §419(e) Plans. WBP plans with cash value life insurance and as always Multiple Employer Plans (MEPs) are considered listed transactions and the penalties for non-compliance are huge .

F&L recommends filing IRS Form 8886 for any WBP using cash value life insurance to either directly or indirectly fund the plan. Failure to do so may result in material monrtary penalties to all parties to the plan.

Properly designed WBPs post-October 2007 , still offer material tax advantaged benefits. WBPs without cash value life insurance are not impacted by the new information and continue to be very viable benefit plans. WBPs with cash value life insurance may still be used, however it must be done so with extreme diligence. In our opinion the filing of IRS Form 8886 should accompany any plan filing if the plan owns directly or indirectly any cash value life insurance policy.

The main differences between a VEBA and IRC §419(e) WBP is the tax deferred nature of the trust; an IRC §419(e) WBP is a taxable trust; the VEBA is tax deferred. Both types of WBPs are flexible re: design and benefit eligibility.

Our HealthCare Annuity Plus® WBP VEBA is designed with the option to be fully funded with either fixed or indexed annuities.

Plan participation and benefit eligibility for WBPs may be considerably more restrictive than the typical qualified retirement plan. Benefit entitlements may be limited to those who actually reach a stipulated retirement age and fulfill a minimum number of years of participation and/or service e.g. 10 years.

WBP plan design can help retain and reward valued employees ( golden handcuffs ), as well as, marginalize the plan cost for non-productive, short term human resources.

WBP Tax Benefits: Contributions to WBPs are tax deductible, grow tax deferred (VEBA as a tax deferred trust); or can be funded in tax managed trusts (IRC §419(e) plans). WBP benefits are received tax free, either as a death benefit or medical reimbursement. Plan death benefits may also be irrevocably assigned to an ILIT or other appropriate estate planning entities.

WBP plans provide benefits (choose any or all) on a tax deductible basis : Long Term Care premiums; AD&D and supplemental D.I. premiums (limits: up to 75% of earnings, plus lump sum of 5X pay - max. $40 million/participant); pre-retirement death benefits (term premiums); post-retirement medical contributions - cash or premiums (a tax free fund of $562,500 single/$1.125 million joint) and limited post-retirement death benefits.

Caveat: company contributions to a post-retirement medical account for key ee's are subject to IRC Section 415(c)(2) annual addition limits. Defined benefit plans are not subject to this limitation.

For additional information on anything in this Summary or to discuss a specific case please contact us. Census information and your planning wish list is all we need to get started. We look forward to working with you. Thank you for your interest

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