USC Subpart D

in effect

26 U.S.C. § 419 Treatment of funded welfare benefit plans

(a) General ruleContributions paid or accrued by an employer to a welfare benefit fund—(1) shall not be deductible under this chapter, but (2) if they would otherwise be deductible, shall (subject to the limitation of subsection (b)) be deductible under this section for the taxable year in which paid. (b) LimitationThe amount of the deduction allowable under subsection (a)(2) for any taxable year shall not exceed the welfare benefit fund’s qualified cost for the taxable year. (c) Qualified costFor purposes of this section—(1) In generalExcept as otherwise provided in this subsection, the term “qualified cost” means, with respect to any taxable year, the sum of—(A) the qualified direct cost for such taxable year, and (B) subject to the limitation of section 419A(b), any addition to a qualified asset account for the taxable year. (2) Reduction for funds after-tax incomeIn the case of any welfare benefit fund, the qualified cost for any taxable year shall be reduced by such fund’s after-tax income for such taxable year. (3) Qualified direct cost(A) In generalThe term “qualified direct cost” means, with respect to any taxable year, the aggregate amount (including administrative expenses) which would have been allowable as a deduction to the employer with respect to the benefits provided during the taxable year, if—(i) such benefits were provided directly by the employer, and (ii) the employer used the cash receipts and disbursements method of accounting. (B) Time when benefits providedFor purposes of subparagraph (A), a benefit shall be treated as provided when such benefit would be includible in the gross income of the employee if provided directly by the employer (or would be so includible but for any provision of this chapter excluding such benefit from gross income). (C) 60-month amortization of child care facilities(i) In generalIn determining qualified direct costs with respect to any child care facility for purposes of subparagraph (A), in lieu of depreciation the adjusted basis of such facility shall be allowable as a deduction ratably over a period of 60 months beginning with the month in which the facility is placed in service. (ii) Child care facilityThe term “child care facility” means any tangible property which qualifies under regulations prescribed by the Secretary as a child care center primarily for children of employees of the employer; except that such term shall not include any property—(I) not of a character subject to depreciation; or (II) located outside the United States. (4) After-tax income(A) In generalThe term “after-tax income” means, with respect to any taxable year, the gross income of the welfare benefit fund reduced by the sum of—(i) the deductions allowed by this chapter which are directly connected with the production of such gross income, and (ii) the tax imposed by this chapter on the fund for the taxable year. (B) Treatment of certain amountsIn determining the gross income of any welfare benefit fund—(i) contributions and other amounts received from employees shall be taken into account, but (ii) contributions from the employer shall not be taken into account. (5) Item only taken into account onceNo item may be taken into account more than once in determining the qualified cost of any welfare benefit fund. (d) Carryover of excess contributionsIf—(1) the amount of the contributions paid (or deemed paid under this subsection) by the employer during any taxable year to a welfare benefit fund, exceeds (2) the limitation of subsection (b), such excess shall be treated as an amount paid by the employer to such fund during the succeeding taxable year. (e) Welfare benefit fundFor purposes of this section—(1) In generalThe term “welfare benefit fund” means any fund—(A) which is part of a plan of an employer, and (B) through which the employer provides welfare benefits to employees or their beneficiaries. (2) Welfare benefitThe term “welfare benefit” means any benefit other than a benefit with respect to which—(A) section 83(h) applies, (B) section 404 applies (determined without regard to section 404(b)(2)), or (C) section 404A applies. (3) FundThe term “fund” means—(A) any organization described in paragraph (7), (9), or (17) of section 501(c), (B) any trust, corporation, or other organization not exempt from the tax imposed by this chapter, and (C) to the extent provided in regulations, any account held for an employer by any person. (4) Treatment of amounts held pursuant to certain insurance contracts(A) In generalNotwithstanding paragraph (3)(C), the term “fund” shall not include amounts held by an insurance company pursuant to an insurance contract if—(i) such contract is a life insurance contract described in section 264(a)(1), or (ii) such contract is a qualified nonguaranteed contract. (B) Qualified nonguaranteed contract(i) In generalFor purposes of this paragraph, the term “qualified nonguaranteed contract” means any insurance contract (including a reasonable premium stabilization reserve held thereunder) if—(I) there is no guarantee of a renewal of such contract, and (II) other than insurance protection, the only payments to which the employer or employees are entitled are experience rated refunds or policy dividends which are not guaranteed and which are determined by factors other than the amount of welfare benefits paid to (or on behalf of) the employees of the employer or their beneficiaries. (ii) LimitationIn the case of any qualified nonguaranteed contract, subparagraph (A) shall not apply unless the amount of any experience rated refund or policy dividend payable to an employer with respect to a policy year is treated by the employer as received or accrued in the taxable year in which the policy year ends. (f) Method of contributions, etc., having the effect of a planIf—(1) there is no plan, but (2) there is a method or arrangement of employer contributions or benefits which has the effect of a plan, this section shall apply as if there were a plan. (g) Extension to plans for independent contractorsIf any fund would be a welfare benefit fund (as modified by subsection (f)) but for the fact that there is no employee-employer relationship—(1) this section shall apply as if there were such a relationship, and (2) any reference in this section to the employer shall be treated as a reference to the person for whom services are provided, and any reference in this section to an employee shall be treated as a reference to the person providing the services.

26 U.S.C. § 419A Qualified asset account; limitation on additions to account

(a) General ruleFor purposes of this subpart and section 512, the term “qualified asset account” means any account consisting of assets set aside to provide for the payment of—(1) disability benefits, (2) medical benefits, (3) SUB or severance pay benefits, or (4) life insurance benefits. (b) Limitation on additions to accountNo addition to any qualified asset account may be taken into account under section 419(c)(1)(B) to the extent such addition results in the amount in such account exceeding the account limit. (c) Account limitFor purposes of this section—(1) In generalExcept as otherwise provided in this subsection, the account limit for any qualified asset account for any taxable year is the amount reasonably and actuarially necessary to fund—(A) claims incurred but unpaid (as of the close of such taxable year) for benefits referred to in subsection (a), and (B) administrative costs with respect to such claims. (2) Additional reserve for post-retirement medical and life insurance benefitsThe account limit for any taxable year may include a reserve funded over the working lives of the covered employees and actuarially determined on a level basis (using assumptions that are reasonable in the aggregate) as necessary for—(A) post-retirement medical benefits to be provided to covered employees (determined on the basis of current medical costs), or (B) post-retirement life insurance benefits to be provided to covered employees. (3) Amount taken into account for SUB or severance pay benefits(A) In generalThe account limit for any taxable year with respect to SUB or severance pay benefits is 75 percent of the average annual qualified direct costs for SUB or severance pay benefits for any 2 of the immediately preceding 7 taxable years (as selected by the fund). (B) Special rule for certain new plansIn the case of any new plan for which SUB or severance pay benefits are not available to any key employee, the Secretary shall, by regulations, provide for an interim amount to be taken into account under paragraph (1). (4) Limitation on amounts to be taken into account(A) Disability benefitsFor purposes of paragraph (1), disability benefits payable to any individual shall not be taken into account to the extent such benefits are payable at an annual rate in excess of the lower of—(i) 75 percent of such individual’s average compensation for his high 3 years (within the meaning of section 415(b)(3)), or (ii) the limitation in effect under section 415(b)(1)(A). (B) Limitation on SUB or severance pay benefitsFor purposes of paragraph (3), any SUB or severance pay benefit payable to any individual shall not be taken into account to the extent such benefit is payable at an annual rate in excess of 150 percent of the limitation in effect under section 415(c)(1)(A). (5) Special limitation where no actuarial certification(A) In generalUnless there is an actuarial certification of the account limit determined under this subsection for any taxable year, the account limit for such taxable year shall not exceed the sum of the safe harbor limits for such taxable year. (B) Safe harbor limits(i) Short-term disability benefitsIn the case of short-term disability benefits, the safe harbor limit for any taxable year is 17.5 percent of the qualified direct costs (other than insurance premiums) for the immediately preceding taxable year with respect to such benefits. (ii) Medical benefitsIn the case of medical benefits, the safe harbor limit for any taxable year is 35 percent of the qualified direct costs (other than insurance premiums) for the immediately preceding taxable year with respect to medical benefits. (iii) SUB or severance pay benefitsIn the case of SUB or severance pay benefits, the safe harbor limit for any taxable year is the amount determined under paragraph (3). (iv) Long-term disability or life insurance benefitsIn the case of any long-term disability benefit or life insurance benefit, the safe harbor limit for any taxable year shall be the amount prescribed by regulations. (6) Additional reserve for medical benefits of bona fide association plans(A) In generalAn applicable account limit for any taxable year may include a reserve in an amount not to exceed 35 percent of the sum of—(i) the qualified direct costs, and (ii) the change in claims incurred but unpaid, for such taxable year with respect to medical benefits (other than post-retirement medical benefits). (B) Applicable account limitFor purposes of this subsection, the term “applicable account limit” means an account limit for a qualified asset account with respect to medical benefits provided through a plan maintained by a bona fide association (as defined in section 2791(d)(3) of the Public Health Service Act (42 U.S.C. 300gg–91(d)(3))). (d) Requirement of separate accounts for post-retirement medical or life insurance benefits provided to key employees(1) In generalIn the case of any employee who is a key employee—(A) a separate account shall be established for any medical benefits or life insurance benefits provided with respect to such employee after retirement, and (B) medical benefits and life insurance benefits provided with respect to such employee after retirement may only be paid from such separate account. The requirements of this paragraph shall apply to the first taxable year for which a reserve is taken into account under subsection (c)(2) and to all subsequent taxable years. (2) Coordination with section 415For purposes of section 415, any amount attributable to medical benefits allocated to an account established under paragraph (1) shall be treated as an annual addition to a defined contribution plan for purposes of section 415(c). Subparagraph (B) of section 415(c)(1) shall not apply to any amount treated as an annual addition under the preceding sentence. (3) Key employeeFor purposes of this section, the term “key employee” means any employee who, at any time during the plan year or any preceding plan year, is or was a key employee as defined in section 416(i). (e) Special limitations on reserves for medical benefits or life insurance benefits provided to retired employees(1) Reserve must be nondiscriminatoryNo reserve may be taken into account under subsection (c)(2) for post-retirement medical benefits or life insurance benefits to be provided to covered employees unless the plan meets the requirements of section 505(b) with respect to such benefits (whether or not such requirements apply to such plan). The preceding sentence shall not apply to any plan maintained pursuant to an agreement between employee representatives and 1 or more employers if the Secretary finds that such agreement is a collective bargaining agreement and that post-retirement medical benefits or life insurance benefits were the subject of good faith bargaining between such employee representatives and such employer or employers. (2) Limitation on amount of life insurance benefitsLife insurance benefits shall not be taken into account under subsection (c)(2) to the extent the aggregate amount of such benefits to be provided with respect to the employee exceeds $50,000. (f) Definitions and other special rulesFor purposes of this section—(1) SUB or severance pay benefitThe term “SUB or severance pay benefit” means—(A) any supplemental unemployment compensation benefit (as defined in section 501(c)(17)(D)), and (B) any severance pay benefit. (2) Medical benefitThe term “medical benefit” means a benefit which consists of the providing (directly or through insurance) of medical care (as defined in section 213(d)). (3) Life insurance benefitThe term “life insurance benefit” includes any other death benefit. (4) ValuationFor purposes of this section, the amount of the qualified asset account shall be the value of the assets in such account (as determined under regulations). (5) Special rule for collective bargained and employee pay-all plansNo account limits shall apply in the case of any qualified asset account under a separate welfare benefit fund—(A) under a collective bargaining agreement, or (B) an employee pay-all plan under section 501(c)(9) if—(i) such plan has at least 50 employees (determined without regard to subsection (h)(1)), and (ii) no employee is entitled to a refund with respect to amounts in the fund, other than a refund based on the experience of the entire fund. (6) Exception for 10-or-more employer plans(A) In generalThis subpart shall not apply in the case of any welfare benefit fund which is part of a 10 or more employer plan. The preceding sentence shall not apply to any plan which maintains experience-rating arrangements with respect to individual employers. (B) 10 or more employer planFor purposes of subparagraph (A), the term “10 or more employer plan” means a plan—(i) to which more than 1 employer contributes, and (ii) to which no employer normally contributes more than 10 percent of the total contributions contributed under the plan by all employers. (7) Adjustments for existing excess reserves(A) Increase in account limitThe account limit for any of the first 4 taxable years to which this section applies shall be increased by the applicable percentage of any existing excess reserves. (B) Applicable percentageFor purposes of subparagraph (A)— In the case of:The applicable percentage is: The first taxable year to which this section applies80 The second taxable year to which this section applies60 The third taxable year to which this section applies40 The fourth taxable year to which this section applies20. (C) Existing excess reserveFor purposes of computing the increase under subparagraph (A) for any taxable year, the term “existing excess reserve” means the excess (if any) of—(i) the amount of assets set aside at the close of the first taxable year ending after July 18, 1984, for purposes described in subsection (a), over (ii) the account limit determined under this section (without regard to this paragraph) for the taxable year for which such increase is being computed. (D) Funds to which paragraph appliesThis paragraph shall apply only to a welfare benefit fund which, as of July 18, 1984, had assets set aside for purposes described in subsection (a). (g) Employer taxed on income of welfare benefit fund in certain cases(1) In generalIn the case of any welfare benefit fund which is not an organization described in paragraph (7), (9), or (17) of section 501(c), the employer shall include in gross income for any taxable year an amount equal to such fund’s deemed unrelated income for the fund’s taxable year ending within the employer’s taxable year. (2) Deemed unrelated incomeFor purposes of paragraph (1), the deemed unrelated income of any welfare benefit fund shall be the amount which would have been its unrelated business taxable income under section 512(a)(3) if such fund were an organization described in paragraph (7), (9), or (17) of section 501(c). (3) Coordination with section 419If any amount is included in the gross income of an employer for any taxable year under paragraph (1) with respect to any welfare benefit fund—(A) the amount of the tax imposed by this chapter which is attributable to the amount so included shall be treated as a contribution paid to such welfare benefit fund on the last day of such taxable year, and (B) the tax so attributable shall be treated as imposed on the fund for purposes of section 419(c)(4)(A). (h) Aggregation rulesFor purposes of this subpart—(1) Aggregation of funds(A) Mandatory aggregationFor purposes of subsections (c)(4), (d)(2), and (e)(2), all welfare benefit funds of an employer shall be treated as 1 fund. (B) Permissive aggregation for purposes not specified in subparagraph (A)For purposes of this section (other than the provisions specified in subparagraph (A)), at the election of the employer, 2 or more welfare benefit funds of such employer may (to the extent not inconsistent with the purposes of this subpart and section 512) be treated as 1 fund. (2) Treatment of related employersRules similar to the rules of subsections (b), (c), (m), and (n) of section 414 shall apply. (i) RegulationsThe Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subpart. Such regulations may provide that the plan administrator of any welfare benefit fund which is part of a plan to which more than 1 employer contributes shall submit such information to the employers contributing to the fund as may be necessary to enable the employers to comply with the provisions of this section.