Private corporation provides medical insurance coverage to all employees. It has contractually agreed to continue to provide the same medical insurance coverage received by other executives to its current CEO executive and his family after his retirement and until his death. Only the CEO has this retiree medical benefit and none of the other executives will receive it upon retirement.

Is there any reason why the payment of insurance premiums by the Company to provide this medical coverage to the CEO and his family upon retirement would not be excludible from income under Section 106 of the Internal Revenue Code?

As far as I know, section 106 addresses only "employee" and does not include "former employees" like section 125 does.

Buzzman, to answer your question: there is no reason.

jpod

Are you saying that the payment of retiree health insurance is excludible under 106 ?

I'm not so sure about that. I mean discrimination in both the IRS and DOL sense...Sure you could pretax it, but you may be hit with fines and penalties if audited.

gburns: yes, that's what I'm saying.

matthew tae: to what "discrimination" rules are you referring?

By the way, the OP said "premiums," so I am making the assumption we are in fact talking about commercial insurance and not self-insurance.

Cafeteria plans (of which 106 is a part of) cannot be made to favor highly compensated employees. Feel free to look it up via the IRS website, etc. This arrangement seems like an obvious attempt to do defer compensation to HCE's...in this case, the owner. A big flag for the IRS.

P.S. - careful what kind of advice you give, we are all wrong from time to time, but the fact your asking what "discrimination" is in this context is akin to a mechanic asking what an engine is...

matthew tae: Where did Buzzman say anything about a cafeteria plan?

Its implied in his question, just like if you said "Hey mechanic, can you add 50 horsepower to my car?" And he replies, "what kind of engine do you have"....I hope you wouldn't say, "when did I mention an engine?"

matthew tae: where is it implied in the OP's question? The OP asked whether an employer's payment of premiums for a retiree's health insurance could be tax-free to the retiree. I said "yes."

Last post by me here on this one, then its up to you to research. Its implied because section 106 applies to cafeteria plans. I can't think of a relevant situation where it is not (for practical purposes...classifying an HRA as a cafeteria-like plan). As far as this situation, I would say "no", its not legal to pretax the current CEO's (I'm guessing its the owner) benefits with company funds upon his retirement. I say this with the qualification that it depends on how many employees there are and who is offered this arrangement. It sounds like the owner just wants it for himself...therefore, no, this is illegal. Doesn't mean you can't do it, just don't get caught or your in IRS land. And they're jerks.

If a company provides health insurance coverage on an employer pay all basis with no employee contribution and no choice of cash, there is no need for and no use for a cafeteria plan. It is a section 106 and 105 issue.

An employer provided health plan only needs to have a cafeteria plan if there is a choice between cash and qualified benefits.

Neither section 105 or 106 is tied of necessity to a cafeteria plan. And a cafeteria plan couldd very well exist without 105 and 106 if no health benefits were provided.

A section 105 self insured MERP (including an HRA) does not need a cafeteria plan.

A reference to either or both 105 and 106 does not imply that there is or has to be a cafeteria plan.

Section 106 excludes from gross income, it does not pre-tax the premium.

Thanks!

URGENT CORRECTION

Although 106 does not address retirees, the IRS has ruled in Rev Ruling 62-199 etc that retirees shall be treated as employees for purposes of section 106.

Thanks, George, for the Rev Ruling 62-199 cite.