DEFRA limitations

[almostASA]

The third DEFRA limitation section on welfare benefit funds from Yamamoto is "continuation of active coverage." I've read this section, and I can't figure out what the limitation is. The GRASP card for this says "continuation of active coverage is not considered deferred compensation." That says to me that we would want to be able to count the continued coverage as deferred compensation, but I don't know enough about funding retiree benefits to know why counting funds as deferred compensation is considered a plus. Does anyone have any insight? I'm having such a hard time with this chapter.

[Julietn528]

Basically, your retiree plan is funded by a trust fund.

The plan funded for the trust fund must provide coverage for both active and retiree coverage.

So under DEFRA limitations, the funding vehicle can NOT just fund a retiree plan.

You have it backwards in what you said though, the DEFRA limitations don't want it to be a deferred compensation plan. If it funds actives as well it wouldn't be.

I think that particular GRASP notecard you are referring to is poorly worded, just go back and look at the text really quickly.

Trying to actually make sense of the tax law of why they don't want this is asking too much. = )

[almostASA]

Ah ok, the paragraph in the book makes sense now. So either the welfare benefit fund has to provide coverage for both active and retired employees or it has to be a "continuation of active coverage," in which case the actual fund and plan can be different for actives and retirees. Thanks!