4104 / Must a welfare benefit fund providing postretirement life insurance or medical benefits meet nondiscrimination requirements?

The current status for the tax treatment of these benefits is awaiting regulatory guidance under IRC Section 9815 (effective after a regulation is adopted).¹

Prior to the passage of health care reform legislation, the following applied:

A reserve for postretirement benefits generally may not be included in determining a fund’s qualified asset account limit if the plan of which the fund is a part is discriminatory with respect to those benefits; thus, in effect, a deduction is not available for contributions to prefund discriminatory benefits.²

A plan is discriminatory with respect to postretirement medical or life insurance benefits (including any other death benefits) unless it meets the nondiscrimination requirements, if any, specifically applicable to the benefit it provides or, if none, satisfies the following two requirements: (1) each class of these benefits must be provided under a classification of employees that is set forth in the plan and that is found by the IRS not to be discriminatory in favor of highly compensated individuals, and (2) the benefits provided under each class of benefits must not discriminate in favor of highly compensated individuals.³ These nondiscrimination requirements also apply to VEBAs ( Q 4113).