Folks:
In a 1992 paper published by the IRS, it states on pages 9-10:
"The qualified cost of a fund not only includes the qualified direct cost, but also additions to a qualified asset account described in IRC 419A. A qualified asset account may be established only for the specific purposes described in IRC 419A, and no addition is allowed if an accounbt is overfunded."
This seems to suggest that no addition is allowed, even if non deductible.
Yet, I have read in other places that deductions may be taken in the following year.
Does that mean that the funding cannot occur until the following year?
To read pages 9-10, go to:
http://www.irs.gov/pub/irs-tege/eotopicj92.pdf.
Don Levit

Don:
Thanks for your question.
I think I found the answer.
On page 10 of a 1985 CPE Text, it states, "The limit on set asides applies to more-than-10-employer VEBAs even though these plans are excepted from the IRC 419A deduction limitations."
In other words, even though an employer has unlimited deductions in these plans, there are limits on the amount it can set aside.
See http://www.irs.gov/pub/irs-tege/eotopico85.pdf.
Don Levit

You're talking to yourself again.
IRC Sections 419 and 419A apply additional tax deduction limitations to other requirements of the Code relative to welfare benefit plans. Section 419(b): "The 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."
Just because amounts are carried over, they are not automatically deductible in the following year.
Qualified cost is reduced by excess earnings each year, and the excess earnings will be greater if there are extra assets in the plan.
Qualified additions to a qualified asset account are limited, but that does not preclude excess additions (nonqualified additions) to such account.

vebaguru:
When you say excess additions are not precluded, can you cite any text to that effect?
Or, are you saying they are not precluded due to silence?

How do you explain the limit on set-asides for 10-or-more employer plans, even though the deductions are unlimited?
Don Levit

Deductions for 10-or-more employer plans were never "unlimited". They were simply excluded from the additional limitations imposed by IRC Sections 419 and 419A, but they were still subject to the limits that applied before the 1984 addition of subpart b as part of DEFRA. Sections 419 and 419A were largely a restatement of existing law, regulations and court rulings, with several exceptions: (i) future medical expense increases were not allowed to be projected; (2) the amount of retiree death benefit that could be pre-funded was limited to $50,000; (3) non-discrimination rules were clearly incorporated; (4) contributions for key employees became "annual additions" for purposes of IRC Section 415©. These are the specific rules that 10-or-more employer plans were exempted from.
No deduction is allowed if the account is overfunded is not the same as no funding is allowed is the account is overfunded.

vebaguru:
Since you are unable to state where specifically overfunding is allowed, I assume you think it is okay by the code's silence.
If that is the case, then why does the code specifically state that for collective bargaining agreements and for certain employee-pay-all VEBAs, that no account limits apply?
Don Levit

Because the exemption granted under 419A(f)(6) is broader than that listed in 419A(f)(5). 419A(f)(5) plans are exempted from the account limits imposed under 419A, but 419A(f)(6) plans are explicitly exempted from all limitations imposed under the subpart, which consists of sections 419 and 419A.