419(e) Welfare Benefit Plans
What Are 419(e) Welfare Benefit Plans?
A 419(e) welfare benefit plan is a type of employer-sponsored employee welfare benefit plan. 419(e) welfare benefit plans qualify under passage (e) of Section 419 of the Internal Revenue Code. They give a scope of benefits to employees, like life, wellbeing, disability, long-term care, and post-retirement medical.
These plans can be either target contribution or target benefit in design and are expected to give extra financial stability to employees during their retirement years. The downside of 419(e) welfare benefit plans is that they are complex and normally require an actuary to setup and execute.
How 419(e) Welfare Benefit Plans Work
A 419(e) plan permits employers to choose the benefits they offer their employees. Employers can add new benefits to the plan which can be utilized to supplement existing benefits. For instance, assuming that an employer gives a benefit plan that incorporates group term life insurance, they could add disability insurance to offer a scope of personal insurance options.
The assets in 419(e) benefit plans are normally held by an independent trustee and are exempt from seizure by any creditors the company might have.
A similar company pays for every one of the benefits of the plan and doesn't pool benefits among employees of different companies. Employers make irrevocable cash contributions for the benefit of their employees on a periodic basis.
A third-party administrator orchestrates actuarial certification of funding and benefits and supports the plan's administration. The Internal Revenue Service (IRS) issued updated guidance in October 2007 that excluded a few benefits for plans funded with permanent insurance. The 419(e) benefit plan can likewise keep contributions made for key employees separate from those of average employees.
Benefits of a 419(e) Welfare Benefit Plan
- Employee Benefit: Employees receive piece-of-mind realizing that their family is protected assuming they experience an inauspicious death. In retirement, they take care of a significant number of their medical expenses. For instance, assuming their plan incorporates post-retirement medical services, they are probably not going to receive any large medical bills.
- Company Benefits: Companies might offer a 419(e) benefit plan with tempting benefits to hold valued employees and draw in capable faculty; this assists with lessening enlistment and training costs. Given employers comply with the plan's rules, contribution payments are charge deductible which makes them more affordable to small and medium sized companies.
- Supplemental Compensation: Other compensation plans, for example, retirement plans, frequently have contribution limitations. Offering a 419(e) plan to valued work force permits a company to give extra benefits as part of their total compensation package.
Features
- A 419(e) Welfare Benefit Plan might incorporate medical care even after retirement.
- Retirement funds in ERISA plans, similar to the 419(e) Welfare Benefit Plan, may not be completely safe from the Internal Revenue Service, or even an ex-life partner.
- A 419(e) Welfare Benefit Plan must cover each employee (with the exception of sub-contracted workers like self-employed people).
- Specialists suggest that business owners hire a trustworthy third party to design and set up a 419(e) Welfare Benefit Plan.
- Beneficiaries can be named in a 419(e) Welfare Benefit Plan.
